TEMPLETON GROWTH FUND INC, 497, 1999-10-01

TEMPLETON GROWTH FUND INC
497, 1999-10-01

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TEMPLETON INSTITUTIONAL FUNDS, INC.
ON BEHALF OF
GROWTH SERIES
500 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FL 33394-3091

Dear Shareholder:

Enclosed is a Notice of Meeting for a Special Shareholders' Meeting of
Growth Series ("Growth Series") of Templeton Institutional Funds, Inc. ("TIFI").
The Meeting has been called for Tuesday, October 12, 1999 at 10:00 a.m. Eastern
time at the offices of TIFI at 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091. The accompanying Prospectus/Proxy Statement describes an important
proposal being presented for your consideration and requests your prompt
attention and vote via the enclosed proxy card.

PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD.

This meeting is critically important. The Directors of your fund
unanimously recommend that you consider and approve an Agreement and Plan of
Reorganization that would result in your Growth Series shares being exchanged
for those of a fund called Templeton Growth Fund, Inc. ("Growth Fund"). If
shareholders of Growth Series approve the proposal, you will receive Advisor
Class shares of Growth Fund equal in value to your investment in Growth Series.
You will no longer be a shareholder of Growth Series, and you will instead be a
shareholder of Growth Fund.

The proposed transaction is intended to be a tax-free reorganization under
the Internal Revenue Code of 1986, as amended, as further described in the
accompanying Prospectus/Proxy Statement, which means that you should not have
federal taxable gain or loss on the exchange of your shares.

The transaction is being proposed because the current asset levels and
projected growth in assets of Growth Series do not appear to be sufficient to
continue to offer a fund with competitive performance and high quality service
to shareholders over the long term. Growth Fund's investment goal and investment
policies as compared to those of Growth Series are outlined in the
Prospectus/Proxy Statement. Growth Fund is managed by Templeton Global Advisors,
Limited ("Global Advisors"); Growth Series is managed by Templeton Investment
Counsel, Inc. ("Investment Counsel"). Global Advisors and Investment Counsel are
wholly owned by Franklin Resources, Inc. Growth Fund is a larger fund that
should be better able to obtain cost savings for shareholders.

Please take the time to review this document and vote now. THE DIRECTORS OF
YOUR FUND UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.

o To ensure that your vote is counted, indicate your position on the
enclosed proxy card.

o Sign and return your card promptly.

o If you determine at a later date that you wish to attend this meeting, you
may revoke your proxy and vote in person.

Thank you for your attention to this matter.

Sincerely,

Barbara J. Green
Secretary

This page intentionally left blank.

TEMPLETON INSTITUTIONAL FUNDS, INC.
ON BEHALF OF
GROWTH SERIES
500 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FL 33394-3091

NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON OCTOBER 12, 1999

To the Shareholders of Growth Series:

NOTICE IS HEREBY GIVEN that a Special Shareholders' Meeting of Growth
Series ("Growth Series") will be held at the offices of the Templeton
Institutional Funds, Inc. ("TIFI"), 500 East Broward Boulevard, Fort Lauderdale,
FL 33394-3091 on October 12, 1999 at 10:00 a.m. Eastern time. The Meeting is
being called for the following reasons:

1. To approve or disapprove an Agreement and Plan of Reorganization between
TIFI, on behalf of Growth Series, and Templeton Growth Fund, Inc. ("Growth
Fund") that provides for: (i) the acquisition of substantially all of the assets
of Growth Series in exchange for Advisor Class shares of Growth Fund; (ii) the
distribution of such shares of Growth Fund to the shareholders of Growth Series;
and (iii) the liquidation and termination of Growth Series.

2. To grant the proxyholders the authority to vote upon any
other business as may properly come before the Meeting or any adjournment(s)
thereof.

The Agreement and Plan of Reorganization in the attached Prospectus/Proxy
Statement describes this transaction more completely. A copy of the Agreement
and Plan of Reorganization is attached as Exhibit A to the Prospectus/Proxy
Statement.

Shareholders of record as of the close of business on Monday, August 23,
1999 are entitled to notice of, and to vote at, the Meeting or any
adjournment(s) thereof.

By Order of the Board of Directors,

Barbara J. Green
Secretary

September 20, 1999

THE BOARD OF DIRECTORS OF TIFI URGES YOU TO COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. IT IS
IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM MAY
BE ENSURED.

PROSPECTUS AND PROXY STATEMENT

When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our glossary
section.

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE
<S> <C>
COVER PAGE.................................................................. Cover
SUMMARY..................................................................... 3
What proposal am I voting on?...................................... 3
How will the shareholder voting be handled?........................ 3
What are the general tax consequences of the Transaction?.......... 3
COMPARISONS OF SOME IMPORTANT FEATURES...................................... 3
How do the investment goals, policies and strategies of the funds
compare?...................................................... 3
Who manages the funds?............................................. 4
What are the fees and expenses of each fund and what might they be
after the Transaction?........................................... 5
Where can I find more financial information about the funds?....... 6
What are other key features of the funds?.......................... 6
RISKS....................................................................... 7
REASONS FOR THE TRANSACTION................................................. 8
INFORMATION ABOUT THE TRANSACTION........................................... 8
How will the Transaction be carried out?........................... 8
Who will pay the expenses of the Transaction?...................... 9
What are the tax consequences of the Transaction?.................. 9
What should I know about Growth Fund's Advisor Class Shares?....... 9
What are the capitalizations of the funds and what might the
capitalization be after the Transaction?......................... 10
COMPARISON OF INVESTMENT GOALS, POLICIES, STRATEGIES AND RISKS.............. 10
Are there any significant differences between the investment goals,
policies, strategies and risks of the funds? .................... 10
How do the types of securities the funds buy and the investment
policies of the funds compare?................................... 10
How do the fundamental investment restrictions of the funds differ? 13
What are the risk factors associated with investments in the funds? 14
VOTING INFORMATION.......................................................... 16
How many votes are necessary to approve the Agreement and Plan?.... 16
How do I ensure my vote is accurately recorded?.................... 16
Can I revoke my proxy?............................................. 16
What other matters will be voted upon at the Meeting?.............. 17
Who is entitled to vote?........................................... 17
What other solicitations will be made?............................. 17
Are there dissenters' rights?...................................... 17
INFORMATION ABOUT GROWTH FUND............................................... 17
INFORMATION ABOUT GROWTH SERIES............................................. 17
PRINCIPAL HOLDERS OF SHARES................................................. 18
GLOSSARY OF USEFUL TERMS AND DEFINITIONS.................................... 19
EXHIBITS TO PROSPECTUS AND PROXY STATEMENT.................................. 20
</TABLE>

Exhibit A - Agreement and Plan of Reorganization

Exhibit B - Prospectus of Templeton Growth Fund, Inc.-Advisor
Class dated January 1, 1999, as supplemented August
10, 1999 (enclosed)

Exhibit C - Annual Report to Shareholders of Templeton Growth Fund,
Inc. dated August 31, 1998 (enclosed)

Exhibit D - SemiAnnual Report to Shareholders of Templeton Growth
Fund, Inc. dated February 28, 1999 (enclosed)

PROSPECTUS AND PROXY STATEMENT
DATED SEPTEMBER 20, 1999

ACQUISITION OF THE ASSETS OF
GROWTH SERIES
A SERIES OF TEMPLETON INSTITUTIONAL FUNDS, INC.

BY AND IN EXCHANGE FOR ADVISOR CLASS SHARES OF
TEMPLETON GROWTH FUND, INC.

This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Shareholders' Meeting (the "Meeting") of Growth Series ("Growth Series"), a
series of Templeton Institutional Funds, Inc. ("TIFI"), to approve or disapprove
an Agreement and Plan of Reorganization (the "Agreement and Plan"). If
shareholders of Growth Series vote to approve the Agreement and Plan, the net
assets of Growth Series will be acquired by and in exchange for Advisor Class
shares of Templeton Growth Fund, Inc. ("Growth Fund").

The Meeting will be held at the principal offices of TIFI, which are
located at 500 East Broward Boulevard, Fort Lauderdale, FL 33394-3091 on October
12, 1999 at 10:00 a.m. Eastern time. The Board of Directors of TIFI, on behalf
of Growth Series, is soliciting these proxies. This Prospectus/Proxy Statement
will first be sent to shareholders on or about Friday, October 1, 1999.

If Growth Series shareholders vote to approve the Agreement and Plan, you
will receive Advisor Class shares of Growth Fund equal in value to your
investment in shares of Growth Series. Growth Series will then be liquidated and
terminated.

The investment goals of Growth Fund and Growth Series are identical:
long-term capital growth. Each fund seeks to achieve its goal by primarily
investing in equity securities of companies located anywhere in the world,
including emerging markets. The main differences between the funds are that
Growth Series tends to invest more of its assets in securities of smaller
companies than Growth Fund, and Growth Fund tends to invest more of its assets
in emerging markets than Growth Series. Further, Growth Series generally may
invest up to 35% of its total assets in debt securities of companies and
governments located anywhere in the world, while Growth Fund generally invests
up to 25% of its total assets in such securities. Each fund may invest no more
than 5% of its total assets in debt securities rated lower than BBB by Standard
& Poor's Corporation or Baa by Moody's Investors Services, Inc.

This Prospectus/Proxy Statement gives the information about the proposed
reorganization and Advisor Class shares of Growth Fund that you should know
before voting or investing. You should retain it for future reference.
Additional information about Growth Fund and the proposed reorganization can be
found in the following documents:

o The Prospectus of Growth Fund - Advisor Class dated January 1, 1999,
as supplemented August 10, 1999 (the "Growth Fund Prospectus"), is
enclosed with and considered a part of this Prospectus/Proxy
Statement.

o The Annual Report to Shareholders of Growth Fund dated August 31,
1998 contains financial and performance information for the Growth
Fund and is enclosed with and considered a part of this
Prospectus/Proxy Statement.

o The SemiAnnual Report to Shareholders of Growth Fund dated February
28, 1999 contains financial and performance information for the Growth
Fund and is enclosed with and considered a part of this
Prospectus/Proxy Statement.

o Statement of Additional Information dated September 20,1999 relating
to this Prospectus/Proxy Statement has been filed with the Securities
& Exchange Commission ("SEC") and is incorporated by reference into
this Prospectus/Proxy Statement.

o The Prospectus dated May 1, 1999 as amended August 19, 1999 and
Statement of Additional Information ("SAI") of Growth Series dated May
1, 1999, as supplemented July 21, 1999 (the "Growth Series
Prospectus"), and Growth Series' Annual and SemiAnnual Reports to
Shareholders dated December 31, 1998 and June 30, 1999, respectively,
which contain financial and performance information for Growth Series,
are each on file with the SEC (File Nos. 33-35779 and 811-06135) and
are incorporated by reference herein.

You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or any of the documents referred to above without charge by calling
1-800/DIAL-BEN(R) or by writing to 100 Fountain Parkway, P.O. Box 33030, St.
Petersburg, FL 33733-8030.

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT
AGENCY. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.

SUMMARY

This is only a summary of certain information contained in this
Prospectus/Proxy Statement. For more complete information, you should read the
rest of this Prospectus/Proxy Statement, including the Agreement and Plan
(attached as Exhibit A), the Growth Fund Prospectus (enclosed as Exhibit B), the
Annual Report to Shareholders of Growth Fund (enclosed as Exhibit C), and the
SemiAnnual Report to Shareholders of Growth Fund (enclosed as Exhibit D).

WHAT PROPOSAL AM I VOTING ON?

At a meeting held on July 21, 1999, the Board of Directors of TIFI approved
the Agreement and Plan and recommended that shareholders of Growth Series vote
to approve the Agreement and Plan. If shareholders of Growth Series vote to
approve the Agreement and Plan, it will result in the transfer of the net assets
of Growth Series to Growth Fund, in exchange for an equal value of Advisor Class
shares of Growth Fund. Advisor Class shares of Growth Fund will then be
distributed to Growth Series shareholders and Growth Series will be liquidated
and terminated. (The proposed transaction is referred to in this
Prospectus/Proxy Statement as the "Transaction."). As a result of the
Transaction, you will cease to be a shareholder of Growth Series and will become
a shareholder of Growth Fund. This exchange will occur on the closing date of
the Transaction, which is the specific date on which the Transaction takes
place.

This means that your shares of Growth Series will be exchanged for an equal
value of Advisor Class shares of Growth Fund. You will receive Advisor Class
shares of Growth Fund equal in value to your investment in shares of Growth
Series.

Like Growth Series, Growth Fund is a mutual fund in the Franklin Templeton
Group of Funds. Growth Fund and Growth Series have identical investment goals,
and similar, but not identical, policies and strategies. For the reasons set
forth in the "Reasons for the Transaction" section, the Boards of Directors of
TIFI and Growth Fund determined that the Transaction is in the best interests of
the Growth Series and Growth Fund. The Boards of Directors of TIFI and Growth
Fund also concluded that no dilution in value would result to the current
shareholders of Growth Series or Growth Fund as a result of the Transaction.

THE TIFI BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE TO APPROVE THE AGREEMENT AND PLAN.

HOW WILL THE SHAREHOLDER VOTING BE HANDLED?

Shareholders who own shares of Growth Series at the close of business on
Monday, August 23, 1999 will be entitled to vote at the Meeting and will be
entitled to one vote for each full share and a fractional vote for each
fractional share that they hold. To approve the Transaction, holders of a
majority of the outstanding voting securities must be voted in favor of the
Agreement and Plan.

Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed proxy
card. If you return your signed proxy card, your vote will be officially cast at
the Meeting by the persons appointed as proxies.

You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/Proxy Statement.

WHAT ARE THE GENERAL TAX CONSEQUENCES OF THE TRANSACTION?

It is expected that shareholders of Growth Series will not recognize any
gain or loss for federal income tax purposes as a result of the exchange of
their shares for Advisor Class shares of Growth Fund. You should, however,
consult your tax advisor regarding the effect, if any, of the Transaction in
light of your individual circumstances. You also should consult your tax advisor
about state and local tax consequences. For more information about the tax
consequences of the Transaction, please see the section "Information About the
Transaction - What are the tax consequences of the Transaction?"

COMPARISONS OF SOME IMPORTANT FEATURES

HOW DO THE INVESTMENT GOALS, POLICIES AND STRATEGIES OF THE FUNDS COMPARE?

Important differences between the funds are that Growth Series tends to
invest more of its assets in securities of smaller companies than Growth Fund,
and Growth Fund tends to invest more of its assets in emerging markets than
Growth Series. Further, Growth Series generally may invest up to 35% of its
total assets in debt securities of companies and governments located anywhere in
the world, while Growth Fund generally invests up to 25% of its total assets in
such securities. Each fund may invest no more than 5% of its total assets in
debt securities rated lower than BBB by Standard & Poor's Corporation or Baa by
Moody's Investors Services, Inc.

As the Templeton investment philosophy is "bottom-up", value-oriented, and
long-term, each manager, in choosing equity investments, focuses on the market
price of a company's securities relative to that manager's evaluation of the
company's long-term earnings, asset value and cash flow potential. The managers
also consider a company's historical value measures, including price/earnings
ratio, profit margins and liquidation value.

Further, in selecting securities for Growth Series, the manager attempts to
identify companies that offer above-average opportunities for capital
appreciation in various countries and industries where economic and political
factors, including currency movements, are favorable to capital growth.

For more information about the funds' investment goals, policies,
strategies and risks, please see "Comparison of Investment Goals, Policies,
Strategies and Risks."

WHO MANAGES THE FUNDS?

The management of the business and affairs of each fund is the
responsibility of each fund's respective Board of Directors. Both TIFI and
Growth Fund are open-end management investment companies, commonly referred to
as "mutual funds." Growth Fund was organized as a Maryland corporation on
November 10, 1986, and is registered with the SEC. Growth Series is a series of
TIFI, also a Maryland corporation, which was organized on July 6, 1990, and is
also registered with the SEC.

Investment Counsel manages the assets of Growth Series and makes its
investment decisions. Global Advisors manages the assets of Growth Fund and
makes its investment decisions. Investment Counsel and Global Advisors are both
wholly owned subsidiaries of Resources. Resources is a publicly owned company
engaged in various aspects of the financial services industry through its
subsidiaries. Together, the managers and their affiliates serve as investment
manager or administrator to 54 registered investment companies, with
approximately 162 U.S.-based funds or series. As of August 31, 1999, they have
over $222 billion in combined assets under management for more than 7 million
U.S.-based mutual fund shareholder and other accounts. The principal
shareholders of Resources are Charles B. Johnson and Rupert H. Johnson, Jr.

Growth Series' lead portfolio manager is Mr. Gary P. Moytl, CFA and
Director and Executive Vice President of Investment Counsel. Mr. Moytl has been
a manager of Growth Series since its inception. He joined the Franklin Templeton
Group in 1981. The following individuals have secondary portfolio management
responsibilities for Growth Fund: Mr. Mark R. Beveridge, Senior Vice President
of Investment Counsel, Mr. Gary Clemons, Senior Vice President of Investment
Counsel, Mr. Simon Rudolph, Senior Vice President of Investment Counsel, and Mr.
Guang Yang, Vice President of Investment Counsel. Mr. Beveridge has been a
manager of Growth Series since 1996. He joined the Franklin Templeton Group in
1985. Mr. Clemons has been a manager of Growth Series since 1994. He joined the
Franklin Templeton Group in 1990. Mr. Rudolph has been a manager of the fund
since 1998. He joined the Franklin Templeton Group in 1997. Mr. Yang has been a
manager of the fund since 1998. He joined the Franklin Templeton Group in 1995.

Growth Fund's lead portfolio manager is Mr. Mark G. Holowesko, CFA and
President of Global Advisors. Mr. Holowesko has been a manager of Growth Fund
since 1987. He joined the Franklin Templeton Group in 1985. The following
individuals have secondary portfolio management responsibilities for Growth
Fund: Mr. Jeffrey A. Everett CFA, Executive Vice President of Global Advisors,
and Mr. Chris Maura, CFA, Vice President of Global Advisors. Mr. Everett has
been a manager of Growth Fund since 1994. He joined the Franklin Templeton Group
in 1989. Mr. Maura has been a manager of Growth Fund since June 1999. He joined
the Franklin Templeton Group in 1993. Before June 1999, Mr. Richard Sean
Farrington was a manager of Growth Fund.

Growth Series has a management agreement with Investment Counsel under
which Investment Counsel receives a management fee (before any waiver) equal to
an annual rate of 0.70% of its average daily net assets. Investment Counsel has
agreed to waive its fees in order to limit the fund's total expenses to an
annual rate of 0.90% of average daily net assets. Investment Counsel may end
this arrangement at any time after May 1, 2000, upon notice to the fund's Board
of Directors. This voluntary arrangement did not result in any fee reductions
for the fund for its last fiscal year. Growth Fund does not have a similar
arrangement with Global Advisors. Growth Series paid 0.70% of its average daily
net assets to Investment Counsel for the fiscal year ended December 31, 1998.

Growth Fund has a management agreement with Global Advisors under which
Global Advisors receives a management fee equal to an annual rate of 0.75% of
the value of average daily net assets up to and including $200 million; 0.675%
of the value of average daily net assets over $200 million and up to and
including $1.3 billion; and 0.60% of the value of average daily net assets over
$1.3 billion. Each class of the fund's shares pays its proportionate share of
the management fee. The fund paid 0.61% of its average daily net assets to
Global Advisors for the fiscal year ended August 31, 1998.

WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY BE AFTER THE
TRANSACTION?

The following table describes the fees and expenses that you may pay if you
buy and hold shares of Growth Series or Advisor Class shares of Growth Fund. The
table also shows the estimated expense levels of Growth Fund after the proposed
Transaction.

FEE TABLE FOR GROWTH SERIES AND GROWTH FUND*

PROJECTED
ACTUAL AFTER TRANSACTION
--------------------------------------------------------
GROWTH FUND - GROWTH FUND -
GROWTH SERIES ADVISOR CLASS ADVISOR CLASS
--------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge
(as a percentage of offering price)................ None None None
Paid at time of purchase......................... None None None
Paid at time of redemption....................... None None None
Exchange fee (per transaction)(1) $5.00 $5.00 $.00

ANNUAL FUND OPERATING EXPENSES
(as percentage of average net assets)
Management Fees 0.70% 0.61% 0.61%
Rule 12b-1 Fees................................... None None None
Other Expenses.................................... .19% 0.22% 0.22%
---- ----- -----
Total Annual Fund Operating Expenses............. 0.89% 0.83% 0.83%
===== ===== =====
</TABLE>

1. This fee is only for Market Timers. We process all other exchanges without a
fee.

* Information provided for Growth Series is for the fiscal year ended December
31, 1998. Information provided for Growth Fund Advisor Class shares is for the
fiscal year ended August 31, 1998.

EXAMPLE

The following expense example can help you compare the cost of investing in
Growth Series versus the cost of investing in Advisor Class shares of Growth
Fund. Assume the annual return for each fund is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $10,000 that you invest in a fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>

Growth Series $91 $284 $493 $1,096
Growth Fund - Advisor Class $85 $265 $460 $1,025
Projected Growth Fund - Advisor Class
(after Transaction) $85 $265 $460 $1,025
</TABLE>

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. Each
fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends and are not directly charged to your account.

WHERE CAN I FIND MORE FINANCIAL INFORMATION ABOUT THE FUNDS?

For Growth Fund - Advisor Class shares, per share income information is
shown immediately below under the heading "Financial Highlights." Also, the
current Annual and SemiAnnual Reports to Shareholders of Growth Fund, which are
enclosed with and considered a part of this Prospectus/Proxy Statement, contain
more financial information about Growth Fund and a discussion of Growth Fund's
performance during the fiscal year ended August 31, 1998.

The Growth Series Prospectus, as well as its Annual Report to Shareholders
for the fiscal year ended December 31, 1998 and SemiAnnual Report to
Shareholders for the six month period ended June 30, 1999, contain more
financial information about Growth Series. These documents are available free of
charge upon request (see "Information About Growth Series").

FINANCIAL HIGHLIGHTS
GROWTH FUND - ADVISOR CLASS

SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED AUGUST 31,
----------------------------
(UNAUDITED) 1998 1997+
--------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $16.80 $22.49 $19.37
------ ------ ------
Income from investment operations:
Net investment income .16 .56 .37
Net realized and unrealized gains (losses) 1.66 (2.78) 2.75
---- ------ ----
Total from investment operations 1.82 (2.22) 3.12
---- ------ ----
Less distribution from:
Net investment income (.44) (.59) --
Net realized gains (2.03) (2.88) --
------ ------ --
Total distributions (2.47) (3.47) --
------ ------ --
Net asset value, end of period $16.15 $16.80 $22.49
======= ====== ======
Total return (%)* 11.31 (12.41) 16.11

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) $41,208 $36,301 $29,531
Ratios to average net assets: (%)
Expenses .87** .83 .83**
Net investment income 2.01** 2.81 3.68**
Portfolio turnover rate (%) 11.77 48.23 41.81
</TABLE>

* Total return is not annualized.
** Annualized.
+ For the period January 2, 1997 (effective date) to August 31, 1997.

WHAT ARE OTHER KEY FEATURES OF THE FUNDS?

TRANSFER AGENCY AND CUSTODY SERVICES. Investor Services, a wholly owned
subsidiary of Resources, is the shareholder servicing agent and acts as the
funds' transfer agent and dividend-paying agent.

The Chase Manhattan Bank acts as the custodian of the securities and other
assets of both funds. The main office of the Chase Manhattan Bank that provides
custody services is MetroTech Center, Brooklyn, NY 11245. As a foreign custody
manager, the bank selects and monitors foreign sub-custodian banks, selects and
evaluates non-compulsory foreign depositories, and monitors and furnishes
information relevant to the selection of compulsory depositories.

ADMINISTRATIVE SERVICES. FT Services, a wholly owned subsidiary of
Resources, provides certain administration services and facilities for each
fund.

DISTRIBUTION SERVICES. Pursuant to underwriting agreements with each fund,
Distributors acts as principal underwriter in a continuous public offering of
the funds' shares. Distributors pays the expenses of the distribution of fund
shares, including advertising expenses and the costs of printing sales materials
and prospectuses used to offer shares to the public.

PURCHASES, EXCHANGES AND REDEMPTIONS. Growth Series and Growth Fund-Advisor
Class shares are sold without sales loads and are not subject to distribution
(12b-1) or service fees. Each fund's minimum initial and subsequent investments
vary, depending on factors such as the type of shareholder and the method of
investment.

You may sell (redeem) your shares at any time. Shares of each fund may be
redeemed at their respective Net Asset Value per share. Shares of each fund may
be exchanged for shares of other Franklin Templeton Funds, subject to certain
limitations, as provided in the prospectus of the respective Franklin Templeton
Fund. Because an exchange is technically a sale and a purchase of shares, an
exchange is a taxable transaction.

Additional information and specific instructions explaining how to buy,
sell, and exchange Advisor Class shares of Growth Fund and shares of Growth
Series are outlined in the current prospectuses of Growth Fund and Growth Series
under the heading "Your Account." The accompanying Growth Fund Prospectus also
lists phone numbers for you to call if you have any questions about your account
under the heading "Questions." These phone numbers are the same for Growth Fund
and Growth Series.

DIVIDENDS, DISTRIBUTIONS AND TAXES. Both funds declare dividends. The
amount of these dividends will vary depending on changes in the funds' net
investment income. Neither fund pays "interest" nor guarantees any amount of
dividends or return on an investment in its shares.

Unlike Growth Series, Growth Fund automatically reinvests distributions
in additional shares unless you select a different option. Specific instructions
explaining how to select a different option are outlined in the attached Growth
Fund Prospectus under the heading "Investor Services - Distribution Options."

Distributions from the funds, whether you receive them in cash or in
additional shares, are generally subject to income tax. Each fund will send you
a statement in January of the current year that reflects the amount of ordinary
dividends, capital gain distributions and non-taxable distributions you received
from the fund in the prior year.

Ordinary dividends and capital gain distributions that you receive from a
fund, and gains arising from redemptions or exchanges of your fund shares, will
generally be subject to state and local income tax. The holding of fund shares
may also be subject to state and local intangible taxes.

For more information about the tax implications of investments in the
funds, see the attached Growth Fund Prospectus or the current Growth Series
Prospectus under the heading "Distribution and Taxes."

RISKS

As with most investments, investments in Growth Fund and Growth Series
involve risks. There can be no guarantee against losses resulting from an
investment in either fund, nor can there be any assurance that either fund will
achieve its investment goal. The risks associated with an investment in each
fund include risks associated with stock investing generally. Because the
securities a fund holds fluctuate in price, the value of your investment in a
fund will go up and down. This means you could lose money over short or even
extended periods. Stocks tend to go up and down more dramatically over the short
term than the long term. These price movements may result from factors affecting
individual companies, industries or the securities markets as a whole. Value
stock prices are considered "cheap" relative to the company's perceived value.
They may not increase in value, as anticipated by a manager, if other investors
fail to recognize the company's value and bid up the price or in markets
favoring faster-growing companies.

In addition, each fund may invest 100% of its assets in securities of
issuers in emerging markets. Such securities are subject to greater risks due to
a lack of established legal, business and social frameworks to support
securities markets. Because Growth Fund tends to invest a greater portion of its
assets in these securities than Growth Series, it has greater exposure to these
risks.

Growth Series tends to invest more of its assets in smaller companies than
Growth Fund and, as a result, has greater exposure to the risks of investing in
smaller companies.

For more information about the risks of the funds, see "What are the risk
factors associated with investments in the funds?" under the heading "Comparison
of Investment Goals, Policies, Strategies and Risks."

REASONS FOR THE TRANSACTION

The Board of Directors of TIFI, on behalf of Growth Series, has recommended
the Transaction for purposes of combining Growth Series with a larger fund.
Because of the relatively low demand for Growth Series, Investment Counsel
recommended to the Board of Directors of TIFI that the assets of Growth Series
be combined with a larger fund that has the same investment goal and similar
policies. A larger fund should be better able to diversify its investments and
to obtain certain savings in costs for its shareholders. The Transaction was
also recommended to combine similar funds within the Franklin Templeton Group to
eliminate duplication of expenses and internal competition.

At a meeting of TIFI's Board of Directors held on July 21, 1999, the Board
of Directors discussed with management the potential benefits and costs to
shareholders of Growth Series. In deciding whether to recommend approval of the
Transaction to shareholders, the Board of Directors considered, among other
things: the expense ratios of Growth Fund and Growth Series; the comparative
investment performance of Growth Fund and Growth Series; the compatibility of
the investment policies, restrictions and investments of Growth Series with
those of Growth Fund; the tax consequences of the Transaction; and the
significant experience of Global Advisors. During the course of its
deliberations, the Board of Directors also considered that the expenses of the
Transaction will be shared one-quarter by Growth Fund, one-quarter by Growth
Series, one-quarter by Investment Counsel and one-quarter by Global Advisors.

The Board of Directors concluded that the Transaction is in the best
interests of Growth Series and that no dilution of value would result to the
shareholders of Growth Series as a result of the Transaction. It then decided to
approve the Agreement and Plan and to recommend that shareholders of Growth
Series approve the Agreement and Plan. As required by law, the Board members
approving the Agreement and Plan included a majority of the directors who are
not interested persons of Growth Series.

The Board of Directors' conclusion was based on a number of factors,
including that the Transaction would permit shareholders to pursue their
investment goals in a larger fund. A larger fund should have an enhanced ability
to effect portfolio transactions on more favorable terms and should have greater
investment flexibility. A fund with higher aggregate net assets may also be able
to reduce or eliminate certain duplicative costs and expenses. This may result
in lower overall expense ratios through the spreading of fixed costs of fund
operations over a larger asset base. However, variable expenses that are based
on the value of assets or the number of shareholder accounts, such as custody
and transfer agent fees, would be largely unaffected by the Transaction.

The Board of Directors of Growth Fund also determined that the Transaction
was in the best interests of Growth Fund and that no dilution would result to
its shareholders.

FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS OF TIFI, ON BEHALF
OF GROWTH SERIES, RECOMMENDS THAT YOU VOTE FOR THE AGREEMENT AND PLAN.

If shareholders of Growth Series do not approve the Agreement and Plan, the
Board of Directors will consider other possible courses of action for Growth
Series, including liquidation and termination.

INFORMATION ABOUT THE TRANSACTION

This is only a summary of the Agreement and Plan. You should read the
actual Agreement and Plan. It is attached as Exhibit A.

HOW WILL THE TRANSACTION BE CARRIED OUT?

If the shareholders of Growth Series approve the Agreement and Plan, the
Transaction will take place after various conditions are satisfied by TIFI on
behalf of Growth Series, and by Growth Fund, including the delivery of certain
documents. TIFI and Growth Fund will agree on a specific date for the actual
Transaction to take place. This is called the closing date. If the shareholders
of Growth Series do not approve the Agreement and Plan, the Transaction will not
take place.

In anticipation of the proposed Transaction, the Board of Directors decided
to close Growth Series to new investors effective after the close of business on
August 10, 1999. If you were a shareholder of record as of the close of business
on August 10, 1999, you may continue to add to your existing account, subject to
your applicable minimum additional investment amount, or buy additional shares
through the reinvestment of dividend and capital gain distributions until the
date of the Meeting. If the Transaction is approved by Growth Series'
shareholders, Growth Series will also be closed to purchases by existing
shareholders, except through the reinvestment of dividend or capital gain
distributions or through established automatic investment plans, including
automatic salary deferrals through defined contribution plans.

If the shareholders approve the Agreement and Plan, Growth Series will
deliver to Growth Fund substantially all of its assets on the closing date. In
exchange, Growth Series will receive Advisor Class shares of Growth Fund which
have a value equal to the dollar value of the assets delivered to Growth Fund.
The stock transfer books of Growth Series will be permanently closed as of 4:00
p.m. Eastern time on the closing date. Growth Series will only accept requests
for redemption received in proper form before 4:00 p.m. Eastern time on the
closing date. Requests received after that time will be considered requests to
redeem shares of Growth Fund.

Although you may redeem your shares, please keep in mind that if you sell
ALL the shares in your account, your account will be closed and you will not be
allowed to buy additional shares of Growth Series or to reopen your account in
Growth Series. If you sell your shares in Growth Series, you may reinvest some
or all of the proceeds in most of the other Franklin Templeton Funds within 365
days without an initial sales charge.

To the extent permitted by law, the funds may agree to amend the Agreement
and Plan without shareholder approval. The funds may also agree to terminate and
abandon the Transaction at any time before or, to the extent permitted by law,
after the approval of Growth Series' shareholders.

WHO WILL PAY THE EXPENSES OF THE TRANSACTION?

The expenses resulting from the Transaction will be paid one-quarter by
Growth Fund, one-quarter by Growth Series, one-quarter by Investment Counsel and
one-quarter by Global Advisors.

WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?

The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions and representations received
from TIFI, on behalf of Growth Series, and Growth Fund, it is the opinion of
Dechert Price & Rhoads, special tax counsel to the funds, that shareholders of
Growth Series will not recognize any gain or loss for federal income tax
purposes as a result of the exchange of their shares of Growth Series for
Advisor Class shares of Growth Fund and that neither Growth Fund nor its Advisor
Class shareholders will recognize any gain or loss upon receipt of the assets of
the Growth Series.

You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Transaction in light of your individual circumstances.
You should also consult your tax advisor as to state and local tax consequences,
if any, of the Transaction, because this discussion only relates to the federal
income tax consequences.

WHAT SHOULD I KNOW ABOUT GROWTH FUND'S ADVISOR CLASS SHARES?

Advisor Class shares of Growth Fund will be distributed to shareholders of
Growth Series. Advisor Class shares are sold without sales loads and are not
subject to distribution (12b-1) or service fees. Each share will be fully paid
and non-assessable when issued with no personal liability attaching to the
ownership thereof. Each Growth Fund Advisor Class share will have no preemptive
or conversion rights and will be transferable upon the books of Growth Fund. The
shares of Growth Fund will be recorded electronically in each shareholder's
account. Growth Fund will then send a confirmation to each shareholder. As
described in its prospectus, Growth Fund does not issue share certificates
unless requested. Former shareholders of Growth Series whose shares are
represented by outstanding share certificates will not be allowed to redeem
shares of Growth Fund until the certificates have been returned.

Both Growth Fund and Growth Series have non-cumulative voting rights. This
gives the holders of more than 50% of the shares voting the ability to elect
100% of the directors.

Like Growth Series, Growth Fund does not routinely hold shareholders'
meetings. Growth Fund may hold special meetings for matters requiring
shareholder approval. A meeting of shareholders may also be called by its
respective Board of Directors in such Board's discretion or at the request of
its shareholders who hold at least 10% of the fund's outstanding shares in order
to consider the removal of a director.

WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE CAPITALIZATION BE
AFTER THE TRANSACTION?

The following table sets forth, as of July 31, 1999, the capitalization of
Growth Series and Advisor Class shares of Growth Fund. The table also shows the
projected capitalization of Growth Fund as adjusted to give effect to the
proposed Transaction. The capitalization of Advisor Class shares of Growth Fund
is likely to be different when the Transaction is consummated.

PRO FORMA PRO FORMA
GROWTH FUND - GROWTH FUND - GROWTH FUND - ALL
GROWTH SERIES ADVISOR CLASS ADVISOR CLASS CLASSES
(UNAUDITED) (UNAUDITED) * (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Net assets..................... $62,375,933 $50,484,101 $112,860,034 $14,530,639,800
Total shares outstanding....... 8,222,882 2,575,701 5,758,147 744,236,047
Net Asset Value per share...... $7.59 $19.60 $19.60 n/a**

</TABLE>

* Growth Fund offers three additional share classes, Classes A, B and C. As
of July 31, 1999, Growth Fund has 741,053,601 shares outstanding of all of
its classes, reflecting combined net assets of $14,468,263,867.

** Net Asset Value is only calculated on a per class basis.

COMPARISON OF INVESTMENT GOALS, POLICIES, STRATEGIES AND RISKS

This section describes key investment goals, policies, strategies and risks
of Growth Fund and Growth Series, and certain noteworthy differences between the
investment policies and strategies. For a complete description of Growth Fund's
investment policies and risks, you should read the Growth Fund Prospectus, which
is enclosed with this Prospectus/Proxy Statement as Exhibit B.

ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT GOALS, POLICIES,
STRATEGIES AND RISKS OF THE FUNDS?

Important differences between the funds are that Growth Series tends to
invest more of its assets in securities of smaller companies than Growth Fund,
and Growth Fund tends to invest more of its assets in emerging markets than
Growth Series. Further, Growth Series generally MAY invest up to 35% of its
total assets in debt securities of companies and governments located anywhere in
the world, while Growth Fund generally invests up to 25% of its total assets in
such securities. Each fund may invest no more than 5% of its total assets in
debt securities rated lower than BBB by Standard & Poor's Corporation or Baa by
Moody's Investors Services, Inc.

Further, in selecting securities for Growth Series, Investment Counsel
attempts to identify companies that offer above-average opportunities for
capital appreciation in various countries and industries where economic and
political factors, including currency movements, are favorable to capital
growth.

HOW DO THE TYPES OF SECURITIES THE FUNDS BUY AND THE INVESTMENT POLICIES OF THE
FUNDS COMPARE?

EQUITY SECURITIES.

Each fund normally invests at least 65% of its total assets in equity
securities. The equity securities in which the funds primarily invest are issued
by companies located anywhere in the world. Equity securities generally entitle
the holder to participate in a company's general operating results. These
include common stocks and preferred stocks.

FOREIGN SECURITIES.

Each fund may invest up to 100% of its assets in foreign securities located
anywhere in the world, including emerging markets. Growth Series will, under
normal conditions, invest at least 65% of its total assets in at least three
nations. Each fund may invest up to 100% of its total assets in emerging
markets. Each fund may also buy foreign securities that are traded in the U.S.
or directly in foreign markets, and may buy securities denominated in foreign
currencies. Growth Fund may invest no more than 15% of its total assets in
foreign securities that are not listed on a recognized U.S. or foreign
securities exchange. Each fund may invest no more than 5% of its total assets in
securities of Russian issuers.

DEPOSITORY RECEIPTS.

Each fund may invest in American, European and Global Depository Receipts.
Depository Receipts are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or
domestic company.

DEBT SECURITIES.

Each fund has the ability to invest in debt securities. Debt securities
represent an obligation of the issuer to repay a loan of money to it, and
generally provide for the payment of interest. These include bonds, notes and
debentures.

Growth Series generally MAY invest up to 35% of its total assets in
debt securities of companies and governments located anywhere in the world,
whereas Growth Fund generally invests up to 25% of its total assets in such
securities. Each fund may invest no more than 5% of its total assets in debt
securities rated lower than BBB by Standard & Poor's Corporation or Baa by
Moody's Investors Services, Inc.

OPTIONS.

Although Growth Fund has the authority to buy and sell put and call options
on securities indices in standardized contracts traded on national securities
exchanges, boards of trade or similar entities or quoted on NASDAQ, it does not
currently intend to enter into such transactions. An option on a securities
index is a contract that allows the buyer of the option the right to receive
from the seller cash, in an amount equal to the difference between the index's
closing price and the option's exercise price. The fund may only buy options if
the total premiums it paid for such options are 5% or less of its total assets.

Growth Series may buy and sell options on securities, securities indices,
foreign currencies and, for hedging purposes, futures contracts, although the
fund does not currently intend to enter into options on securities or securities
indices. An option on a security, foreign currencies or a futures contract is a
contract that allows the buyer of the option the right to buy or sell a
specified security, foreign currency or futures contract from or to the seller
at a specified price (or exchange rate) during the term of the option. Growth
Series may buy and sell options on securities or indices only if (1) the value
of the underlying securities on which options may be written at any one time
will not exceed 25% of its total assets; and (ii) with respect to purchases, the
fund's premiums, in the aggregate, do not exceed 5% of its total assets.

Each fund may only sell covered options on securities and securities
indices. This means that, with respect to any call option written, the fund will
own the underlying securities or comparable securities satisfying the cover
requirements of the securities exchanges.

FUTURES CONTRACTS.

Although Growth Fund has the authority to invest up to 20% of its total
assets buying and selling stock index futures contracts traded on a recognized
stock exchange or board of trade, it does not currently intend to enter into
such transactions. A stock index futures contract is a contract to buy or sell
units of a stock index at a specified future date at a price agreed upon when
the contract is made. The value of a unit is the current value of the stock
index.

For hedging purposes only, Growth Series may buy and sell financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of these futures contracts, provided that (i) the fund does not
commit more than 5% of its total assets to initial margin deposits on futures
contracts and related options, and (ii) the value of the underlying securities
on which futures contracts will be written at any one time does not exceed 25%
of the fund's total assets.

Although Growth Series has the authority to buy and sell financial
futures contracts, it presently has no intention of entering into such
transactions. A financial futures contract is an agreement between two parties
to buy or sell a specified debt security at a set price on a future date. A
futures contract on a foreign currency is an agreement to buy or sell a
specified amount of a currency for a set price on a future date. The fund may
not commit more than 5% of its total assets to initial margin deposits on
futures contracts and related options. The value of the underlying securities on
which futures contracts may be written at any one time will not exceed 25% of
the total assets of the fund.

FOREIGN CURRENCY EXCHANGE CONTRACTS.

To hedge against currency risks, Growth Series may enter into forward
foreign currency contracts, which are agreements to buy or sell a specific
currency at a set price on a future date. Growth Fund has no stated policy on
forward foreign currency contracts. Neither fund presently intends to enter into
such contracts.

STRUCTURED INVESTMENTS.

Included among the issuers of debt securities in which the funds may invest
are entities organized and operated solely for the purpose of restructuring the
investment characteristics of various securities. These entities are typically
organized by investment banking firms that receive fees in connection with
establishing each entity and arranging for the placement of its securities. This
type of restructuring involves the deposit with or purchase by an entity, such
as a corporation or trust, of specified instruments and the issuance by that
entity of one or more classes of securities ("structured investments") backed
by, or representing interests in, the underlying instruments. Growth Series may
invest no more than 5% of its total assets in structured investments. Growth
Fund does not have a similar limitation.

REPURCHASE AGREEMENTS.

Each fund will generally have a portion of its assets in cash and cash
equivalents for a variety of reasons, including waiting for a special investment
opportunity or taking a defensive position. To earn income on this portion of
its assets, each fund may enter into repurchase agreements with certain banks
and broker-dealers. Under a repurchase agreement, the fund agrees to buy a U.S.
government security from a bank or broker-dealer at one price and agrees to sell
the security back to the bank or broker-dealer at a higher price after a short
period of time (generally, less than seven days). The bank or broker-dealer must
transfer to the fund's custodian securities with an initial value of at least
102% of the dollar amount invested by the fund in each repurchase agreement. If
the bank or broker-dealer does not purchase the securities as agreed, the funds
may experience a loss or delay in the liquidation of the securities underlying
the repurchase agreement and may also incur liquidation costs. Both funds intend
to enter into repurchase agreements with banks or broker-dealers considered to
be creditworthy by their managers.

TEMPORARY INVESTMENTS.

The manager of each fund may take a temporary defensive position when
the manager believes the markets or the economy are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Under these circumstances, the fund may be unable to pursue its investment goal
because it may not invest or may invest less in global equity securities.

ILLIQUID SECURITIES.

Growth Fund may not invest more than 15% of its total assets in securities
of foreign issuers that are not listed on a recognized U.S. or foreign
securities exchange or 10% of its total assets in securities with a limited
trading market. Such a market can result from political or economic conditions
affecting previously established securities markets, particularly in emerging
market countries. Growth Series may not invest more than 10% of its net assets
in illiquid securities, nor more than 10% of its net assets in securities which
are not publicly traded or which cannot be readily resold because of legal or
contractual restrictions, or which are not otherwise readily marketable.
Illiquid securities are generally securities that cannot be sold within seven
days in the normal course of business at approximately the amount at which the
fund has valued them.

CONCENTRATION.

Each fund may invest in any industry, although neither will concentrate
(invest more than 25% of its total assets) in any one industry. Each fund may
invest more than 25% of its assets in any one country.

DIVERSIFICATION.

Each fund is a diversified fund, which means it is limited in the amount of
assets that may be invested in the securities of one issuer and, therefore,
invests in a greater number of individual issuers than a non-diversified fund.
Economic, business, political or other changes can affect all securities of a
similar type. Because each fund is diversified, it may be less sensitive to
these changes than a non-diversified fund. Further, neither fund will invest
more than 5% of its total assets in any one company or government, exclusive of
U.S. Government securities.

HOW DO THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?

As summarized below, each fund has adopted similar restrictions as
fundamental policies, which may not be changed without the approval of the
lesser of (i) a majority of the outstanding shares of the fund, or (ii) 67% or
more of the shares represented at a shareholders' meeting at which the holders
of more than 50% of the outstanding shares are represented.

Neither fund may invest in real estate or mortgages on real estate
(although each 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, with respect to Growth Series, 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, for Growth Series, futures contracts as described in the
fund's SAI and, for Growth Fund, stock index futures contracts). As an operating
policy, Growth Fund may not invest in closed-end investment companies.

Neither fund may invest more than 25% of the value of its total assets in
one particular industry.

Each fund is generally prohibited from borrowing money, except that Growth
Fund may borrow money as a temporary measure in amounts not exceeding 5% of the
value of its net assets and Growth Series may borrow money from banks in amounts
not exceeding 33% of the value of its total assets (including the amount
borrowed).

Neither fund may participate on a joint or a joint and several basis in any
trading account in securities. This policy does not prohibit either fund from
participating in combined purchase and sale orders with other investment
companies or clients supervised by its manager.

Neither fund may purchase or retain securities of any company in which
directors or officers of the fund or the 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.

Neither fund may invest more than 5% of its total assets in warrants,
whether or not listed on the New York Stock Exchange or the 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 a fund in
units or attached to securities are not included in this restriction. For Growth
Fund, this restriction does not apply to options on securities indices.

Neither fund may 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.

Neither fund may 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 (with respect to Growth Series, from a
bank or broker-dealer) U.S. 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.

Neither fund may act as an underwriter; issue senior securities (except,
for Growth Series, as set forth in the fundamental policy regarding borrowing).
Neither fund may purchase on margin or sell short. Growth Series, however, 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. Similarly, Growth Fund may make margin
payments in connection with, and purchase and sell, stock index futures
contracts and options on securities indices.

The following policies are fundamental for Growth Fund only. These are not
fundamental policies for Growth Series.

Growth Fund seeks to achieve its investment goal of long-term capital
growth through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation. Although the fund generally invests in
common stock, it may also invest in preferred stocks and certain debt securities
(which may include structured investments, as described under "Goal and
Strategies-Structured Investments"), rated or unrated, such as convertible bonds
and bonds selling at a discount. Whenever, in the judgment of the manager,
market or economic conditions warrant, the fund may, for temporary defensive
purposes, invest without limit in U.S. Government securities, bank time deposits
in the currency of any major nation and commercial paper meeting certain quality
ratings, and purchase from banks or broker-dealers Canadian or U.S. government
securities with a simultaneous agreement by the seller to repurchase them within
no more than seven days at the original purchase price plus accrued interest.

Growth Fund may not pledge, mortgage or hypothecate its assets other
than to secure temporary borrowings, and then only to such extent not exceeding
10% of the value of its total assets, as the Board of Directors may by
resolution approve. For purposes of this restriction, collateral arrangements
with respect to margin for a stock index futures contract are not deemed to be a
pledge of assets.

Growth Fund may not invest more than 15% of its total assets in securities
of foreign companies that are not listed on a recognized U.S. or foreign
securities exchange, including no more than 10% of its total assets (including
warrants) may be invested in securities with a limited trading market. The
fund's position in the latter type of securities may be of such size as to
affect adversely their liquidity and marketability and the fund may not be able
to dispose of its holdings in these securities at current market prices.

Further, Growth Fund may not: (i) purchase more than 10% of any class of
securities of any one company, including more than 10% of its outstanding voting
securities, or invest in any company for the purpose of exercising control; (ii)
invest in "letter stocks" or securities on which there are sales restrictions
under a purchase agreement; or (iii) invest more than 5% of its total assets in
securities issued by any one company or government, exclusive of U.S. Government
securities.

The following policy is fundamental for Growth Series only. Growth Fund is
not subject to this policy.

Growth Series may not 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.

WHAT ARE THE RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE FUNDS?

Like all investments, an investment in either fund involves risk. There is
no assurance that either fund will meet its investment goal. The achievement of
each fund's goal depends upon market conditions, generally, and on the manager's
analytical and portfolio management skills. The risks of the funds are basically
the same as those of other investments in U.S. or foreign equity securities.
Because the securities each fund holds fluctuate in price, the value of your
investment in a fund will go up and down. This means you could lose money over
short or even extended periods.

EQUITY RISKS.

Stocks tend to go up and down more dramatically over the short term than
the long term. These price movements may result from factors affecting
individual companies, industries or the securities markets as a whole. Value
stock prices are considered "cheap" relative to the company's perceived value.
They may not increase in value, as anticipated by the manager, if other
investors fail to recognize the company's value and bid up the price or in
markets favoring faster-growing companies.

FOREIGN SECURITIES RISK.

Securities of companies and governments located outside the U.S. may
involve risks that can increase the potential for losses in the funds.
Investments in Depositary Receipts also involve some or all of the following
risks:

COUNTRY RISK. General securities market movements in any country where a
fund has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect the fund's share
price and fund performance.

The political, economic and social structures of some countries the funds
invest in may be less stable and more volatile than those in the U.S. The risks
of investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.

Each fund's investments in developing or emerging markets are subject to
all of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
Volatility in these markets can be disconcerting and declines in excess of 50%
are not unusual.

While each fund may invest in developing or emerging markets, Growth Fund
generally invests a higher percentage of its assets in such markets. Growth
Series, on the other hand, generally invests a higher percentage of its assets
in more developed countries.

COMPANY RISK. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and companies
generally have less government supervision and regulation than in the U.S.

A fund may have greater difficulty voting proxies, exercising shareholder
rights, pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S. companies in U.S.
courts.

CURRENCY RISK.

Many of the funds' investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced
a new single currency, the Euro, which will replace the national currency for
participating member countries.

Because the change to a single currency is new and untested, it is not
possible to predict the impact of the Euro on the business or financial
condition of European issuers that a fund may hold in its portfolio, and their
impact on fund performance. To the extent a fund holds non-U.S. dollar (Euro or
other) denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.

SMALL CAP SECURITIES RISK.

Historically, smaller company securities have been more volatile in price
than larger company securities, especially over the short-term. Among the
reasons for the greater price volatility are the less certain growth prospects
of smaller companies, the lower degree of liquidity in the markets for such
securities, and the greater sensitivity of smaller companies to changing
economic condition.

In addition, small companies may lack depth of management, they may be
unable to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not yet
established and may never become established.

Therefore, while smaller companies may offer greater opportunities for
capital growth then larger, more established companies, they also involve
greater risks and should be considered speculative.

Growth Series generally invests a higher percentage of its assets in
smaller companies than Growth Fund.

DERIVATIVE SECURITIES RISK.

Option transactions, foreign currency exchange transactions and futures
contracts are considered derivative investments since their value depends on the
value of the underlying asset to be purchased or sold. A fund's investment in
derivatives may involve a small investment relative to the amount of risk
assumed. To the extent a fund enters into any of these transactions, their
success will depend upon the manager's ability to predict market movements.

ILLIQUID SECURITIES RISK.

Investments by a fund in illiquid securities involve the possibility
that the securities cannot be readily sold or can only be resold at a price
significantly lower than the value reflected on the fund's books, which may have
a negative effect on the value of the fund's shares.

INTEREST RATE RISK.

When interest rates rise, debt security prices fall. The opposite is also
true: Debt security prices go up when interest rates fall. Generally, interest
rates rise during time of inflation or a growing economy, and fall during an
economic slowdown or recession. Securities with longer maturities usually are
more sensitive to interest rate changes than securities with shorter maturities.

CREDIT RISK.

This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.

YEAR 2000 RISK.

When evaluating current and potential portfolio positions, Year 2000 is one
of the factors each fund's manager considers.

The managers will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the U.S.
may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit any
company and its major suppliers to verify their Year 2000 readiness.

If a company in which a fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of a fund's portfolio holdings
will have a similar impact on the price of the fund's shares and the fund's
performance.

Each fund's business operations depend on a worldwide network of computer
systems that contain date fields, including securities trading systems,
securities transfer agent operations and stock market links. Many of the systems
currently use a two digit date field to represent the date, and unless these
systems are changed or modified, they may not be able to distinguish the Year
1900 from the Year 2000 (commonly referred to as the Year 2000 problem). In
addition, the fact that the Year 2000 is a leap year may create difficulties for
some systems.

When the Year 2000 arrives, a fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including securities
trade processing, interest and dividend payments, securities pricing,
shareholder account services, reporting, custody functions and others. The fund
could experience difficulties in effecting transactions if any of its foreign
sub-custodians, or if foreign broker-dealers or foreign markets are not ready
for Year 2000.

The funds' managers and their affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to address
their Year 2000 problems. Of course, a fund's ability to reduce the effects of
the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the fund and its manager may have no control.

VOTING INFORMATION

HOW MANY VOTES ARE NECESSARY TO APPROVE THE AGREEMENT AND PLAN?

A majority of the Growth Series' securities outstanding and entitled to
vote is necessary to approve the Agreement and Plan. Each shareholder will be
entitled to one vote for each full share, and a fractional vote for each
fractional share of Growth Series held at the close of business on Monday,
August 23, 1999 (the "Record Date"). If sufficient votes to approve the
Agreement and Plan are not received by the date of the Meeting, the Meeting may
be adjourned to permit further solicitations of proxies. The holders of a
majority of shares entitled to vote at the Meeting and present in person or by
proxy (whether or not sufficient to constitute a quorum) may adjourn the
Meeting.

Under relevant state law, and TIFI's governing documents, abstentions and
broker non-votes will be included for purposes of determining whether a quorum
is present at the Meeting, but will be treated as votes not cast and, therefore,
will not be counted for purposes of determining whether the matters to be voted
upon at the Meeting have been approved, and will have the same effect as a vote
against the Agreement and Plan.

HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?

You can vote in any one of two ways:

o By mail, with the enclosed proxy card.
o In person at the Meeting.

A proxy card is, in essence, a ballot. IF YOU SIMPLY SIGN AND DATE THE PROXY BUT
GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED IN FAVOR OF THE AGREEMENT
AND PLAN AND IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT UPON ANY UNEXPECTED
MATTERS THAT COME BEFORE THE MEETING OR ADJOURNMENT(S) OF THE MEETING.

CAN I REVOKE MY PROXY?

You may revoke your proxy at any time before it is voted by sending a
written notice to TIFI expressly revoking your proxy, by signing and forwarding
to TIFI a later-dated proxy, or by attending the Meeting and voting in person.

WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?

The Board of Directors of TIFI does not intend to bring any matters before
the Meeting other than those described in this Prospectus/Proxy Statement. It is
not aware of any other matters to be brought before the Meeting by others. If
any other matter legally comes before the Meeting, proxies for which discretion
has been granted will be voted in accordance with the views of management.

WHO IS ENTITLED TO VOTE?

Shareholders of record of Growth Series on the Record Date will be entitled
to vote at the meeting. On the Record Date, there were 8,242,129 outstanding
shares of Growth Series.

WHAT OTHER SOLICITATIONS WILL BE MADE?

Growth Series will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy material to the beneficial owners of the shares of
record. Growth Series may reimburse broker-dealer firms, custodians, and
nominees and fiduciaries for their reasonable expenses incurred in connection
with such proxy solicitation. In addition to solicitations by mail, officers and
employees of TIFI, without extra pay, may conduct additional solicitations by
telephone, personal interviews and other means. The costs of any such additional
solicitations and of any adjourned session or sessions will be shared
one-quarter by Growth Series, one-quarter by Growth Fund, one-quarter by
Investment Counsel, and one-quarter by Global Advisors.

ARE THERE DISSENTERS' RIGHTS?

Shareholders of Growth Series will not be entitled to any "dissenters'
rights" as the proposed Transaction involves two open-end investment companies
registered under the 1940 Act (commonly called mutual funds). Although no
dissenters' rights may be available, you have the right to redeem your shares at
Net Asset Value until 4:00 p.m. Eastern time on the closing date. After that
time on closing date, you may redeem your Growth Fund shares or exchange them
for shares of certain other funds in the Franklin Templeton Funds, subject to
the terms in the prospectus of the respective fund.

INFORMATION ABOUT GROWTH FUND

Information about Growth Fund is included in the Growth Fund Prospectus,
which is enclosed with and considered a part of this Prospectus/Proxy Statement.
Additional information about Growth Fund is included in its SAI dated January 1,
1999, which has been filed with the SEC and is incorporated by reference into
the SAI relating to this Prospectus/Proxy Statement. You may request a free copy
of Growth Fund's SAI and other information by calling 1-800/DIAL-BEN(R)
(1-800/342-5236) or by writing to Growth Fund at 100 Fountain Parkway, P.O. Box
33030, St. Petersburg, FL 33733-8030. Growth Fund's Annual and SemiAnnual
Reports to Shareholders are enclosed with and considered a part of this
Prospectus/Proxy Statement.

Growth Fund files proxy materials, reports and other information with the
SEC in accordance with the informational requirements of the Securities Exchange
Act of 1934 and the 1940 Act. These materials can be inspected and copied at:
the SEC's Public Reference Room at 450 Fifth Street N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC located in New York City at 7
World Trade Center, Suite 1300, New York, NY 10048 and in Chicago at 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such material can
be obtained from the SEC's Public Reference Section, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's internet address at HTTP://WWW.SEC.GOV.

INFORMATION ABOUT GROWTH SERIES

Information about Growth Series is included in the current Growth Series
Prospectus, dated May 1, 1999, as amended August 19, 1999, and SAI dated May 1,
1999, as well as in Growth Series' Annual Report to Shareholders dated December
31, 1998, and SemiAnnual Report to Shareholders dated June 30, 1999. These
documents have been filed with the SEC and the Growth Series Prospectus and
Annual Report are incorporated by reference herein. You may request free copies
of these documents and other information relating to Growth Series by calling
1-800/321-8563 or by writing to 100 Fountain Parkway, P.O. Box 33030, St.
Petersburg, FL 33733-8030. Reports and other information filed by Growth Series
can be inspected and copied at: the SEC's Public Reference Room at 450 Fifth
Street N.W., Washington, D.C. 20549, and at the Regional Offices of the SEC
located in New York City at 7 World Trade Center, Suite 1300, New York, NY 10048
and in Chicago at 500 West Madison Street, Suite 1400, Chicago, IL 60661. Also,
copies of such material can be obtained from the SEC's Public Reference Section,
Washington, DC 20549-6009, at prescribed rates, or from the SEC's internet
address at HTTP://WWW.SEC.GOV.

PRINCIPAL HOLDERS OF SHARES

As of the Record Date, the officers and Directors of TIFI, as a group,
owned less than 1% of the outstanding voting shares of Growth Series. In
addition, as of the Record Date, the officers and Directors of Growth Fund, as a
group, owned less than 1% of the outstanding shares of Class A, Class B, Class C
and Advisor Class. Except as listed below, as of the Record Date, no other
person owned (beneficially or of record) 5% or more of the outstanding shares of
either Growth Series or Advisor Class shares of Growth Fund.

NAME AND ADDRESS FUND PERCENTAGE(%)
<S> <C> <C>

Peter Norton TTEE Growth Series 35.36
Norton Family Cru Trust
DTD 2-15-92
225 Arizona Ave. 2nd Fl. W
Santa Monica, CA 90401-1210

T. Rowe Price TTEE Growth Series 29.67
FBO Honeywell
10090 Red Run Blvd.
Owings Mills, MD 21117

Peter Norton TTEE Growth Series 12.24
Norton Family Foundation Trust
DTD 12-12-88
225 Arizona Ave. 2nd Fl. W
Santa Monica, CA 90401-1210

National City Bank Growth Series 8.54
Cust. Mt. Union College
Attn. Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984

Northern Trust Company Cust. Growth Series 6.96
FBO Peter Norton
DTD 4-28-89
P.O. Box 92956
Chicago, IL 60675-2956

Franklin Templeton Growth Fund 31.82
Trust Company /1/ Advisor Class
Trustees for ValuSelect
Franklin Templeton 401K
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438

Franklin Templeton Growth Fund 13.10
Trust Company /1/ Advisor Class
Trustees for ValuSelect
Franklin Resources Profit
Sharing Plan
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438

Jupiter & Co. Growth Fund 11.52
C/O Investors Bank & Trust Co. Advisor Class
P.O. Box 9130 FPG 90
Boston, MA 02117-9130

</TABLE>

- --------
1. Franklin Templeton Trust Company is a California corporation and is wholly
owned by Franklin Resources, Inc.

GLOSSARY OF USEFUL TERMS AND DEFINITIONS

1940 ACT -- Investment Company Act of 1940, as amended

DISTRIBUTORS -- Franklin/Templeton Distributors, Inc., 777 Mariners Island
Boulevard, San Mateo, CA 94404, the principal underwriter for each fund

FRANKLIN TEMPLETON FUNDS -- The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds, except Franklin Templeton
Variable Insurance Products Trust, Templeton Capital Accumulator Fund, Inc., and
Templeton Variable Products Series Fund

FRANKLIN TEMPLETON GROUP -- Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS -- All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES-- Franklin Templeton Services, Inc., the funds' administrator

GLOBAL ADVISORS -- Templeton Global Advisors, Ltd., the investment manager for
Growth Fund, located at Lyford Cay, Nassau, Bahamas.

INVESTMENT COUNSEL -- Templeton Investment Counsel, Inc., the investment manager
for Growth Series, located at 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091.

INVESTOR SERVICES -- Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Boulevard, San Mateo, CA 94404, the shareholder servicing and transfer
agent to the funds.

MARKET TIMERS -- Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges

NASD -- National Association of Securities Dealers, Inc.

NET ASSET VALUE (NAV) -- The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.

RESOURCES -- Franklin Resources, Inc.

SAI -- Statement of Additional Information

SEC -- U.S. Securities and Exchange Commission

SECURITIES DEALER -- A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity

U.S. -- United States

EXHIBITS TO PROSPECTUS AND PROXY STATEMENT

EXHIBIT

A Agreement and Plan of Reorganization between Templeton Institutional
Funds, Inc. on behalf of Growth Series and Templeton Growth Fund,
Inc. (attached)

B Prospectus of Templeton Growth Fund, Inc. - Advisor Class shares,
dated January 1, 1999, as supplemented August 10, 1999 (enclosed)

C Annual Report to Shareholders of Templeton Growth Fund, Inc. dated
August 31, 1998 (enclosed)

D SemiAnnual Report to Shareholders of Templeton Growth Fund, Inc.
dated February 28, 1999 (enclosed)

EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement and Plan"), made as of
this 27th day of September, 1999, by and between Templeton Growth Fund, Inc.
("Growth Fund, Inc."), a corporation created under the laws of the State of
Maryland on November 10, 1986, with its principal place of business at 500 East
Broward Boulevard, Fort Lauderdale, Florida 33394 and Templeton Institutional
Funds, Inc.("TIFI"), a corporation created under the laws of the State of
Maryland on July 6, 1990, with its principal place of business at 500 East
Broward Boulevard, Fort Lauderdale, Florida 33394, on behalf of Growth Series
("Growth Series"), a series of TIFI.

PLAN OF REORGANIZATION

The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Growth Fund, Inc. of
substantially all of the property, assets and goodwill of Growth Series in
exchange solely for Advisor Class common stock, par value $0.01 per share, of
Growth Fund, Inc. ("Growth Fund Shares"); (ii) the distribution of Growth Fund
Shares to the shareholders of Growth Series according to their respective
interests; and (iii) the subsequent termination of Growth Series as soon as
practicable after the closing (as defined in Section 3, hereinafter called the
"Closing"), all upon and subject to the terms and conditions of this Agreement
and Plan hereinafter set forth.

AGREEMENT

In order to consummate the Agreement and Plan and in consideration of the
promises, covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto covenant and agree as follows:

1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND TERMINATION OF GROWTH SERIES.

(a) Subject to the terms and conditions of this Agreement and Plan, and in
reliance on the representations and warranties of Growth Fund, Inc. herein
contained, and in consideration of the delivery by Growth Fund, Inc. of the
number of its Growth Fund Shares hereinafter provided, TIFI, on behalf of Growth
Series, agrees that it will convey, transfer and deliver to Growth Fund, Inc. at
the Closing all of Growth Series' then existing assets, free and clear of all
liens, encumbrances, and claims whatsoever (other than shareholders' rights of
redemption), except for cash, bank deposits, or cash equivalent securities in an
estimated amount necessary to: (i) pay the costs and expenses of carrying out
this Agreement and Plan (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), which costs and expenses shall be established on Growth Series'
books as liability reserves; (ii) discharge its unpaid liabilities on its books
at the closing date (as defined in Section 3, hereinafter called the "Closing
Date"), including, but not limited to, its income dividends and capital gains
distributions, if any, payable for the period prior to, and through, the Closing
Date; and (iii) pay such contingent liabilities as the Board of Directors shall
reasonably deem to exist against Growth Series, if any, at the Closing Date, for
which contingent and other appropriate liabilities reserves shall be established
on Growth Series' books (hereinafter "Net Assets"). Growth Series shall also
retain any and all rights that it may have over and against any person that may
have accrued up to and including the close of business on the Closing Date.

(b) Subject to the terms and conditions of this Agreement and Plan, and in
reliance on the representations and warranties of TIFI herein contained, and in
consideration of such sale, conveyance, transfer, and delivery, Growth Fund,
Inc. agrees at the Closing to deliver to TIFI the number of Growth Fund Shares,
determined by dividing the aggregate Net Assets of Growth Series on the Closing
Date by the net asset value per share of Growth Fund Shares, as of 4:00 p.m.
Eastern time on the Closing Date. All such values shall be determined in the
manner and as of the time set forth in Section 2 hereof.

(c) Immediately following the Closing, Growth Series shall liquidate and
distribute pro rata to its shareholders of record as of the close of business on
the Closing Date, Growth Fund Shares received by Growth Series pursuant to this
Section 1. Such liquidation and distribution shall be accomplished by the
establishment of accounts on the share records of Growth Fund, Inc. of the type
and in the amounts due such shareholders based on their respective holdings as
of the close of business on the Closing Date. Fractional Growth Fund Shares
shall be carried to the third decimal place. As promptly as practicable after
the Closing, each holder of any outstanding certificate or certificates
representing common stock of Growth Series shall be entitled to surrender the
same to the transfer agent for Growth Fund, Inc. in exchange for the number of
Growth Fund Shares into which the shares of Growth Series theretofore
represented by the certificate or certificates so surrendered shall have been
converted. Certificates for Growth Fund Shares shall not be issued, unless
specifically requested by the shareholders. Until so surrendered, each
outstanding certificate which, prior to the Closing, represented shares of
beneficial interest of Growth Series shall be deemed for all Growth Fund, Inc.'s
purposes to evidence ownership of the number of Growth Fund Shares into which
the shares of beneficial interest of Growth Series (which prior to the Closing
were represented thereby) have been converted.

2. VALUATION.

(a) The value of Growth Series' Net Assets to be acquired by Growth Fund,
Inc., hereunder shall be computed as of 4:00 p.m. Eastern time on the Closing
Date using the valuation procedures set forth in Growth Series' currently
effective prospectus.

(b) The net asset value of a share of Advisor Class common stock of Growth
Fund, Inc. shall be determined to the nearest full cent as of 4:00 p.m. Eastern
time on the Closing Date using the valuation procedures set forth in Growth
Fund, Inc.'s currently effective prospectus.

(c) The net asset value of a share of common stock of Growth Series shall
be determined to the fourth decimal place as of 4:00 p.m. Eastern time on the
Closing Date using the valuation procedures set forth in Growth Series'
currently effective prospectus.

3. CLOSING AND CLOSING DATE.

The Closing Date shall be October 28, 1999, or such later date as the
parties may mutually agree. The Closing shall take place at the principal office
of Growth Fund, Inc. at 5:00 p.m. Eastern time on the Closing Date. TIFI shall
have provided for delivery as of the Closing of those Net Assets of Growth
Series to be transferred to Growth Fund, Inc.'s Custodian, The Chase Manhattan
Bank, MetroTech Center, Brooklyn, New York 11245. Also, TIFI shall deliver at
the Closing a list of names and addresses of the shareholders of record of
Growth Series' shares and the number of shares of common stock owned by each
such shareholder, indicating thereon which such shares are represented by
outstanding certificates and which by book-entry accounts, all as of 4:00 p.m.
Eastern time on the Closing Date, certified by its transfer agent or by its
President to the best of its or his knowledge and belief. Growth Fund, Inc.
shall issue and deliver a certificate or certificates evidencing the Advisor
Class shares of Growth Fund, Inc. to be delivered to said transfer agent
registered in such manner as TIFI may request, or provide evidence satisfactory
to TIFI that such Growth Fund Shares have been registered in an account on the
books of Growth Fund, Inc. in such manner as TIFI may request.

4. REPRESENTATIONS AND WARRANTIES BY TIFI.

TIFI represents and warrants to Growth Fund, Inc. that:

(a) TIFI is a corporation created under the laws of the State of Maryland
on July 6, 1990, and is validly existing and in good standing under the laws of
that state. TIFI is duly registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, management investment company and all
of Growth Series' shares sold were sold pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "1933 Act"),
except for those shares sold pursuant to the private offering exemption for the
purpose of raising the required initial capital.

(b) TIFI is authorized to issue 1,140,000,000 shares of common stock, par
value $0.01 per share, each outstanding share of which is fully paid,
non-assessable, freely transferable and has full voting rights, and currently
issues shares of four (4) series, including Growth Series. TIFI is authorized to
issue 120,000,000 common shares of Growth Series.

(c) The financial statements appearing in Growth Series' Annual Report to
Shareholders for the fiscal year ended December 31, 1998, audited by McGladrey &
Pullen, LLP, and the SemiAnnual Report to Shareholders for the six-month period
ended June 30, 1999, copies of which have been delivered to Growth Fund, Inc.,
fairly present the financial position of Growth Series as of such dates and the
results of its operations for the periods indicated in conformity with generally
accepted accounting principles applied on a consistent basis.

(d) The books and records of Growth Series made available to Growth Fund,
Inc. and/or its counsel accurately summarize the accounting data represented and
contain no material omissions with respect to the business and operations of
Growth Series.

(e) TIFI has the necessary power and authority to conduct Growth Series'
business as such business is now being conducted.

(f)TIFI is not a party to or obligated under any provision of its Articles
of Incorporation, as supplemented, or By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree that would
be violated by TIFI's execution of or performance under this Agreement and Plan.

(g)TIFI has elected to treat Growth Series as a regulated investment
company ("RIC") for federal income tax purposes under Part I of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and Growth Series
has qualified as a RIC for each taxable year since its inception, and will
qualify as a RIC as of the Closing Date.

5. REPRESENTATIONS AND WARRANTIES BY GROWTH FUND, INC.

Growth Fund, Inc. represents and warrants to TIFI that:

(a) Growth Fund, Inc. is a corporation created under the laws of the State
of Maryland on November 10, 1986, and is validly existing and in good standing
under the laws of that state. Growth Fund, Inc. is duly registered under the
1940 Act as an open-end, management investment company and all of Growth Fund,
Inc.'s shares sold were sold pursuant to an effective registration statement
filed under the 1933 Act, except for those shares sold pursuant to the private
offering exemption for the purpose of raising the required initial capital.

(b) Growth Fund, Inc. is authorized to issue 1,800,000,000 common shares,
par value $0.01 per share, each outstanding share of which is fully paid,
non-assessable, freely transferable and has full voting rights. Growth Fund
Shares to be issued pursuant to this Agreement and Plan will be fully paid,
non-assessable, freely transferable and have full voting rights. Growth Fund,
Inc. is authorized to issue 100,000,000 Advisor Class common shares.

(c) At the Closing, Growth Fund Shares will be eligible for offering to the
public in those states of the United States and jurisdictions in which the
shares of Growth Series are presently eligible for offering to the public, and
there are a sufficient number of Growth Fund Shares registered under the 1933
Act to permit the transfers contemplated by this Agreement and Plan to be
consummated.

(d) The financial statements appearing in Growth Fund, Inc's Annual Report
to Shareholders for the fiscal year ended August 31, 1998, audited by McGladrey
& Pullen, LLP, and SemiAnnual Report to Shareholders for the six month period
ended February 28, 1999, copies of which have been delivered to TIFI, fairly
present the financial position of Growth Fund, Inc. as of such dates and the
results of its operations for the periods indicated in conformity with generally
accepted accounting principles applied on a consistent basis.

(e) Growth Fund, Inc. has the necessary power and authority to conduct
Growth Fund, Inc.'s business as such business is now being conducted.

(f) Growth Fund, Inc. is not a party to or obligated under any provision of
its Articles of Incorporation, as amended, restated and supplemented, or
By-laws, or any contract or any other commitment or obligation, and is not
subject to any order or decree, that would be violated by Growth Fund, Inc.'s
execution of or performance under this Agreement and Plan.

(g) Growth Fund, Inc. has elected to be treated as a RIC for federal income
tax purposes under Part I of Subchapter M of the Code, and Growth Fund, Inc. has
qualified as a RIC for each taxable year since commencement of operations as an
investment company regulated by the 1940 Act and will qualify as a RIC as of the
Closing Date.

6. REPRESENTATIONS AND WARRANTIES BY TIFI AND GROWTH FUND, INC.

TIFI and Growth Fund, Inc. each represents and warrants to the other that:

(a) The statement of assets and liabilities to be furnished by it as of
4:00 p.m. Eastern time on the Closing Date for the purpose of determining the
number of Growth Fund Shares to be issued pursuant to Section 1 of this
Agreement and Plan will accurately reflect its Net Assets in the case of Growth
Series and its net assets in the case of Growth Fund, Inc. and outstanding
common shares, as of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.

(b) At the Closing, it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in "(a)" above, free and clear of all liens or encumbrances of any
nature whatsoever, except such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto, or
materially affect title thereto.

(c) Except as disclosed in its currently effective prospectus, there is no
material suit, judicial action, or legal or administrative proceeding pending or
threatened against it.

(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.

(e) The execution, delivery, and performance of this Agreement and Plan
have been duly authorized by all necessary action of its Board of Directors and
this Agreement and Plan constitutes a valid and binding obligation enforceable
in accordance with its terms.

(f) It anticipates that consummation of this Agreement and Plan will not
cause Growth Fund, Inc., and Growth Series, in the case of TIFI, to fail to
conform to the requirements of Subchapter M of the Code for federal income
taxation as a RIC at the end of its fiscal year.

(g) It has the necessary power and authority to conduct Growth Fund, Inc.'s
business and Growth Series' business, in the case of TIFI, as such business is
now being conducted.

7. COVENANTS OF TIFI AND GROWTH FUND, INC.

(a) TIFI, on behalf of Growth Series, and Growth Fund, Inc., each covenant
to operate their respective businesses as presently conducted between the date
hereof and the Closing.

(b) TIFI undertakes that it will not acquire Growth Fund Shares for the
purpose of making distributions thereof to anyone other than Growth Series
shareholders.

(c) TIFI undertakes that, if this Agreement and Plan is consummated, it
will terminate Growth Series and rescind the establishment of Growth Series as a
series of TIFI.

(d) TIFI and Growth Fund, Inc. each agree that, by the Closing, all of
their federal and other tax returns and reports required by law to be filed by
TIFI, on behalf of Growth Series, or by Growth Fund, Inc. on or before such date
shall have been filed, and all federal and other taxes shown as due on said
returns shall have either been paid or adequate liability reserves shall have
been provided for the payment of such taxes.

(e) At the Closing, TIFI will provide Growth Fund, Inc. with a copy of the
shareholder ledger accounts of Growth Series, certified by its transfer agent or
its President to the best of its or his knowledge and belief, for all the
shareholders of record of Growth Series' shares as of 4:00 p.m. Eastern time on
the Closing Date who are to become shareholders of Growth Fund, Inc. as a result
of the transfer of assets that is the subject of this Agreement and Plan.

(f) TIFI agrees to mail to each shareholder of record entitled to vote at
the meeting of Growth Series' shareholders at which action on this Agreement and
Plan is to be considered, in sufficient time to comply with requirements as to
notice thereof, a Combined Prospectus and Proxy Statement that complies in all
material respects with the applicable provisions of Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.

(g) Growth Fund, Inc. will file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating to
Growth Fund Shares issuable hereunder ("Registration Statement"), and will use
its best efforts to provide that the Registration Statement becomes effective as
promptly as practicable. At the time it becomes effective, the Registration
Statement will (i) comply in all material respects with the applicable
provisions of the 1933 Act, and the rules and regulations promulgated
thereunder; and (ii) not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. At the time the Registration Statement
becomes effective, at the time of Growth Series shareholders' meeting, and at
the Closing Date, the prospectus and statement of additional information
included in the Registration Statement will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

8. CONDITIONS PRECEDENT TO BE FULFILLED BY TIFI AND GROWTH FUND, INC.

The obligations of TIFI and Growth Fund, Inc. to effectuate this Agreement
and Plan hereunder shall be subject to the following respective conditions:

(a) That: (i) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (ii) the other party shall have
performed all obligations required by this Agreement and Plan to be performed by
it prior to the Closing; and (iii) the other party shall have delivered to such
party a certificate signed by the President and by the Secretary or equivalent
officer to the foregoing effect.

(b) That each party shall have delivered to the other party a copy of the
resolutions approving this Agreement and Plan adopted by its Board of Directors,
certified by its Secretary or equivalent officer.

(c) That the U.S. Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan of Reorganization under Section 25(c) of the 1940 Act.
And, further, no other legal, administrative or other proceeding shall have been
instituted or threatened that would materially affect the financial condition of
either party or would prohibit the transactions contemplated hereby.

(d) That this Agreement and Plan and the transactions contemplated hereby
shall have been adopted and approved by the appropriate action of the
shareholders of Growth Series at an annual or special meeting or any adjournment
thereof.

(e) That each party shall have declared a distribution or distributions
prior to the Closing Date that, together with all previous distributions, shall
have the effect of distributing to its shareholders (i) all of its net
investment income and all of its net realized capital gains, if any, for the
period from the close of its last fiscal year to 4:00 p.m. Eastern time on the
Closing Date; and (ii) any undistributed net investment income and net realized
capital gains from any period to the extent not otherwise declared for
distribution.

(f) That there shall be delivered to TIFI and Growth Fund, Inc. an opinion
from Dechert Price & Rhoads, special tax counsel to TIFI and Growth Fund, Inc.,
to the effect that, provided the acquisition contemplated hereby is carried out
in accordance with this Agreement and Plan and based upon certificates of the
officers of TIFI and Growth Fund, Inc. with regard to matters of fact:

(1) The acquisition by Growth Fund, Inc. of substantially all the
assets of Growth Series as provided for herein in exchange for Growth
Fund Shares will qualify as a reorganization within the meaning of
Section 368(a)(1)(C) of the Code, and Growth Series and Growth Fund,
Inc. will each be a party to the respective reorganization within the
meaning of Section 368(b) of the Code;

(2) No gain or loss will be recognized by Growth Series upon the
transfer of substantially all of its assets to Growth Fund, Inc. in
exchange solely for voting shares of Growth Fund, Inc. (Code Sections
361(a) and 357(a)). No opinion, however, will be expressed as to
whether any accrued market discount will be required to be recognized
as ordinary income pursuant to Section 1276 of the Code;

(3) No gain or loss will be recognized by Growth Fund, Inc. upon the
receipt of substantially all of the assets of Growth Series in
exchange solely for voting shares of Growth Fund, Inc. (Code Section
1032(a));

(4) The basis of the assets of Growth Series received by Growth Fund,
Inc. will be the same as the basis of such assets to Growth Series
immediately prior to the exchange (Code Section 362(b));

(5) The holding period of the assets of Growth Series received by
Growth Fund, Inc. will include the period during which such assets
were held by Growth Series (Code Section 1223(2));

(6) No gain or loss will be recognized to the shareholders of Growth
Series upon the exchange of their shares in Growth Series for voting
shares of Growth Fund, Inc. (Code Section 354(a));

(7) The basis of Growth Fund Shares received by Growth Series'
shareholders shall be the same as the basis of the shares of Growth
Series exchanged therefor (Code Section 358(a)(1));

(8) The holding period of Growth Fund Shares received by Growth
Series' shareholders (including fractional shares to which they may be
entitled) will include the holding period of Growth Series' shares
surrendered in exchange therefor, provided that Growth Series' shares
were held as a capital asset on the date of the exchange (Code Section
1223(1)); and

(9) Growth Fund, Inc. will succeed to and take into account as of the
date of the proposed transfer the items of Growth Series described in
Section 381(c) of the Code (as defined in Section 1.381(b)-1(b) of the
Income Tax Regulations), subject to the conditions and limitations
specified in Sections 381(b) and (c), 382, 383 and 384 of the Code and
the Income Tax Regulations thereunder.

(g) That Growth Fund, Inc. shall have received an opinion in form and
substance satisfactory to it from Dechert Price & Rhoads, special counsel to
Growth Series, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:

(1) TIFI was created as a corporation under the laws of the State of
Maryland on July 6, 1990, and is a validly existing corporation and in
good standing under the laws of that state;

(2) TIFI is authorized to issue 120,000,000 common shares of Growth
Series, par value $0.01 per share. Assuming that the initial common
shares were issued in accordance with the 1940 Act and the Articles of
Incorporation, as supplemented, and By-laws of TIFI, and that all
other outstanding shares of Growth Series were sold, issued and paid
for in accordance with the terms of Growth Series' prospectus in
effect at the time of such sales, each such outstanding share is fully
paid, non-assessable, freely transferable and has full voting rights;

(3) TIFI is an open-end investment company of the management type
registered as such under the 1940 Act;

(4) Except as disclosed in Growth Series' currently effective
prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against
TIFI, the unfavorable outcome of which would materially and adversely
affect TIFI or Growth Series;

(5) All actions required to be taken by TIFI to authorize this
Agreement and Plan and to effect the transactions contemplated hereby
have been duly authorized by all necessary action on the part of TIFI;
and

6) Neither the execution, delivery, nor performance of this Agreement
and Plan by TIFI violates any provision of its Articles of
Incorporation, as supplemented, or By-laws, or the provisions of any
agreement or other instrument known to such counsel to which TIFI is a
party or by which TIFI, on behalf of Growth Series, is otherwise
bound; this Agreement and Plan is the legal, valid and binding
obligation of TIFI and Growth Series and is enforceable against TIFI
and/or Growth Series in accordance with its terms.

In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of TIFI with regard to matters of fact,
and certain certifications and written statements of governmental officials with
respect to the good standing of TIFI.

(h) That TIFI shall have received an opinion in form and substance
satisfactory to it from Dechert Price & Rhoads, special counsel to Growth Fund,
Inc., to the effect that, subject in all respects to the effects of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other laws now
or hereafter affecting generally the enforcement of creditors' rights:

(1) Growth Fund, Inc. was created as a corporation under the laws of
the State of Maryland on November 10, 1986, and is a validly existing
corporation and in good standing under the laws of that state;

(2) Growth Fund, Inc. is an open-end investment company of the
management type registered as such under the 1940 Act;

(3) Except as disclosed in Growth Fund, Inc.'s currently effective
prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against
Growth Fund, Inc., the unfavorable outcome of which would materially
and adversely affect Growth Fund, Inc.;

(4) Growth Fund Shares to be issued pursuant to the terms of this
Agreement and Plan have been duly authorized by the Board of Directors
of Growth Fund, Inc. and, when issued and delivered as provided in
this Agreement and Plan, will have been validly issued and fully paid,
will be non-assessable by Growth Fund, Inc. and freely transferable,
and have full voting rights;

(5) All actions required to be taken by Growth Fund, Inc. to authorize
this Agreement and Plan and to effect the Plan of Reorganization
contemplated hereby have been duly authorized by all necessary action
on the part of Growth Fund, Inc.;

(6) Neither the execution, delivery, nor performance of this Agreement
and Plan by Growth Fund, Inc. violates any provision of its Articles
of Incorporation, as amended, restated and supplemented, or By-laws,
or the provisions of any agreement or other instrument known to such
counsel to which Growth Fund, Inc. is a party or by which Growth Fund,
Inc. is otherwise bound; this Agreement and Plan is the legal, valid
and binding obligation of Growth Fund, Inc. and is enforceable against
Growth Fund, Inc. in accordance with its terms; and

(7) The registration statement of Growth Fund, Inc., of which the
prospectus, dated January 1, 1999, of Growth Fund, Inc. is a part (the
"Prospectus"), is, at the time of the signing of this Agreement and
Plan, effective under the 1933 Act, and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of such
registration statement has been issued, and no proceedings for such
purpose have been instituted or are pending before or threatened by
the U.S. Securities and Exchange Commission under the 1933 Act, and
nothing has come to counsel's attention that causes it to believe
that, at the time the Prospectus became effective, or at the time of
the signing of this Agreement and Plan, or at the Closing, such
Prospectus (except for the financial statements and other financial
and statistical data included therein, as to which counsel need not
express an opinion), contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and such
counsel knows of no legal or government proceedings required to be
described in the Prospectus, or of any contract or document of a
character required to be described in the Prospectus that is not
described as required.

In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Growth Fund, Inc. with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Growth Fund, Inc.

(i) That TIFI shall have received a certificate from the President and
Secretary of Growth Fund, Inc. to the effect that the statements contained in
Growth Fund, Inc.'s Prospectus, at the time the Prospectus became effective, at
the date of the signing of this Agreement and Plan, and at the Closing, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.

(j) That Growth Fund, Inc.'s Registration Statement with respect to Growth
Fund Shares to be delivered to Growth Series' shareholders in accordance with
this Agreement and Plan shall have become effective, and no stop order
suspending the effectiveness of the Registration Statement or any amendment or
supplement thereto, shall have been issued prior to the Closing Date or shall be
in effect at Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.

(k) Growth Fund Shares to be delivered hereunder shall be eligible for sale
by Growth Fund, Inc. with each state commission or agency with which such
eligibility is required in order to permit Growth Fund Shares lawfully to be
delivered to each Growth Series shareholder.

(l) That, at the Closing, TIFI, on behalf of Growth Series, transfers to
Growth Fund, Inc. aggregate Net Assets of Growth Series comprising at least 90%
in fair market value of the total net assets and 70% of the fair market value of
the total gross assets recorded on the books of Growth Series on the Closing
Date.

9. BROKERAGE FEES AND EXPENSES.

(a) TIFI and Growth Fund, Inc. each represents and warrants to the other
that there are no broker or finders' fees payable by it in connection with the
transactions provided for herein.

(b) The expenses of entering into and carrying out the provisions of this
Agreement and Plan shall be borne one-quarter by Growth Series, one-quarter by
Growth Fund, Inc., one-quarter by Templeton Investment Counsel, Inc., and
one-quarter by Templeton Global Advisors Limited.

10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.

(a) Anything contained in this Agreement and Plan to the contrary
notwithstanding, this Agreement and Plan may be terminated and the Plan of
Reorganization abandoned at any time (whether before or after approval thereof
by the shareholders of Growth Series) prior to the Closing or the Closing may be
postponed as follows:

(1) by mutual consent of TIFI and Growth Fund, Inc.;

(2) by Growth Fund, Inc. if any condition of its obligations set forth
in Section 8 has not been fulfilled or waived; or

(3) by TIFI if any condition of its obligations set forth in Section 8
has not been fulfilled or waived.

An election by TIFI, on behalf of Growth Series, or Growth Fund, Inc. to
terminate this Agreement and Plan and to abandon the Plan of Reorganization
shall be exercised, respectively, by the Board of Directors of TIFI or Growth
Fund, Inc.

(b) If the transactions contemplated by this Agreement and Plan have not
been consummated by January 31, 2000, the Agreement and Plan shall automatically
terminate on that date, unless a later date is agreed to by both Growth Fund,
Inc. and TIFI.

(c) In the event of termination of this Agreement and Plan pursuant to the
provisions hereof, the same shall become void and have no further effect, and
neither TIFI nor Growth Fund, Inc., nor their directors, officers, agents or
shareholders shall have any liability in respect of this Agreement and Plan.

(d) At any time prior to the Closing, any of the terms or conditions of
this Agreement and Plan may be waived by the party who is entitled to the
benefit thereof by action taken by that party's Board of Directors, if, in the
judgment of such Board of Directors, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement and Plan
to its shareholders, on behalf of whom such action is taken.

(e) The respective representations and warranties contained in Sections 4
to 6 hereof shall expire with and be terminated by the Plan of Reorganization,
and neither TIFI nor Growth Fund, Inc., nor any of their officers, directors,
agents or shareholders shall have any liability with respect to such
representations or warranties after the Closing. This provision shall not
protect any officer, director, agent or shareholder of TIFI or Growth Fund, Inc.
against any liability to the entity for which that officer, director, agent or
shareholder so acts or to its shareholders to which that officer, director,
agent or shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.

(f) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Agreement and Plan shall be issued prior to the Closing and
shall impose any terms or conditions that are determined by action of the Board
of Directors of TIFI or Growth Fund, Inc. to be acceptable, such terms and
conditions shall be binding as if a part of this Agreement and Plan without
further vote or approval of the shareholders of Growth Series, unless such terms
and conditions shall result in a change in the method of computing the number of
Growth Fund Shares to be issued to Growth Series in which event, unless such
terms and conditions shall have been included in the proxy solicitation material
furnished to the shareholders of Growth Series prior to the meeting at which the
transactions contemplated by this Agreement and Plan shall have been approved,
this Agreement and Plan shall not be consummated and shall terminate unless
Growth Series shall promptly call a special meeting of shareholders at which
such conditions so imposed shall be submitted for approval.

11. ENTIRE AGREEMENT AND AMENDMENTS.

This Agreement and Plan embodies the entire agreement between the parties
and there are no agreements, understandings, restrictions, or warranties between
the parties other than those set forth herein or herein provided for. This
Agreement and Plan may be amended only by mutual consent of the parties in
writing. Neither this Agreement and Plan nor any interest herein may be assigned
without the prior written consent of the other party.

12. COUNTERPARTS.

This Agreement and Plan may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all such counterparts together
shall constitute but one instrument.

13. NOTICES.

Any notice, report, or demand required or permitted by any provision of
this Agreement and Plan shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to
Templeton Growth Fund, Inc. at 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091, Attention: Secretary, or Templeton Institutional Funds, Inc., at 500
East Broward Boulevard, Fort Lauderdale, FL 33394-3091, Attention: Secretary, as
the case may be.

14. GOVERNING LAW.

This Agreement and Plan shall be governed by and carried out in accordance
with the laws of the State of Maryland.

IN WITNESS WHEREOF, Templeton Growth Fund, Inc. and Templeton Institutional
Funds, Inc., on behalf of Growth Series, have each caused this Agreement and
Plan to be executed on its behalf by its duly authorized officers, all as of the
date and year first-above written.

TEMPLETON GROWTH FUND, INC.

Attest:

/s/BARBARA J. GREEN By:/s/DEBORAH R. GATZEK
- ------------------------- ------------------------------
Barbara J. Green Deborah R. Gatzek
Secretary Vice President

TEMPLETON INSTITUTIONAL FUNDS, INC.,
ON BEHALF OF GROWTH SERIES

Attest:

/s/BARBARA J. GREEN By:/s/DEBORAH R. GATZEK
- ------------------------ ---------------------------------
Barbara J. Green Deborah R. Gatzek
Secretary Vice President

EXHIBIT B

o 101 PA-1

SUPPLEMENT DATED AUGUST 10, 1999
TO THE PROSPECTUS OF

TEMPLETON GROWTH FUND, INC. - ADVISOR CLASS
dated January 1, 1999

The prospectus is amended as follows:

I. The list of qualified investors on page 13 is amended to add the following:

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class or
Class Z shares of any of the Franklin Templeton Funds and $50 additional.

o Defined contribution plans such as employer stock, bonus, pension or
profit sharing plans that meet the requirements for qualification under
section 401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.

o Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. Minimum investments: No initial or additional
minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton
Funds for purposes of determining whether you meet the $5 million minimum,
as long as $1 million is in Advisor Class or Class Z shares of any of the
Franklin Templeton Funds.

o Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of an established group of 11 or
more investors. Minimum investments: $5 million initial and $50 additional.
For minimum investment purposes, the group's investments are added together.
The group may combine all of its shares in the Franklin Templeton Funds for
purposes of determining whether it meets the $5 million minimum, as long as
$1 million is in Advisor Class or Class Z shares of any of the Franklin
Templeton Funds. There are certain other requirements and the group must
have a purpose other than buying fund shares without a sales charge.

Please note that Advisor Class shares of the fund generally are not
available to retirement plans through Franklin Templeton's ValuSelect(R)
program. Retirement plans in the ValuSelect program before January 1, 1998,
however, may invest in the fund's Advisor Class shares.

The Franklin Templeton Funds include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.

II. The "Investor Services - Distribution Options" section on page 15 is
amended to add the following:

For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.

III. The "Investor Services" section on page 15 is amended to add the
following:

RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at 1-800/527-2020.

IV. The "Investor Services -Exchange Privilege" section on page 16 is amended
to add the following:

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares
for Class A shares of those funds (without any sales charge)* or for shares
of Templeton Institutional Funds, Inc.

V. The "Selling Shares" section on page 17 is amended to add the following:

RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.

Please keep this supplement for future reference.

PROSPECTUS

TEMPLETON
GROWTH
FUND, INC.
ADVISOR CLASS

INVESTMENT STRATEGY
GLOBAL GROWTH

January 1, 1999

[FRANKLIN TEMPLETON LOGO]
FRANKLIN(R) TEMPLETON(R)

LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

CONTENTS

THE FUND
- -------------------------------------------------------------------------------
INFORMATION ABOUT THE 2 Goal and Strategies
FUND YOU SHOULD KNOW
BEFORE INVESTING 3 Main Risks

6 Performance

7 Fees and Expenses

8 Management

10 Distributions and Taxes

12 Financial Highlights

YOUR ACCOUNT
- -------------------------------------------------------------------------------
INFORMATION ABOUT 13 Qualified Investors
QUALIFIED INVESTORS,
ACCOUNT TRANSACTIONS 14 Buying Shares
AND SERVICES
15 Investor Services

17 Selling Shares

19 Account Policies

21 Questions

FOR MORE INFORMATION
- -------------------------------------------------------------------------------
WHERE TO LEARN MORE Back Cover
ABOUT THE FUND

THE FUND

GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
[GRAPHIC OF TARGET]

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located anywhere in the world,
including emerging markets.

- --------------------------------------------------------------------------------
The fund invests primarily in a globally diversified portfolio of common stocks.
- --------------------------------------------------------------------------------

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund also invests in American, European and Global Depositary Receipts. These
are certificates issued typically by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic company.
Depending upon current market conditions, the fund generally invests up to 25%
of its total assets in debt securities of companies and governments located
anywhere in the world. Debt securities represent an obligation of the issuer to
repay a loan of money to it, and generally provide for the payment of interest.
These include bonds, notes and debentures.

The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its evaluation of the
company's long-term earnings, asset value and cash flow potential. A company's
historical value measures, including price/earnings ratio, profit margins and
liquidation value, will also be considered.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the manager believes the markets or the economy are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Under these circumstances, the fund may be unable to pursue its investment goal,
because it may not invest or may invest less in global stocks.

MAIN RISKS
- --------------------------------------------------------------------------------
[GRAPHIC LINE GRAPH]

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities markets as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies.

- --------------------------------------------------------------------------------
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods.
- --------------------------------------------------------------------------------

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.

COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.

The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.

The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines in
excess of 50% are not unusual.

COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts.

CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.

- --------------------------------------------------------------------------------
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal.
- --------------------------------------------------------------------------------

EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for the
eleven participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.

Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares and fund performance. To the extent the
fund holds non-U.S. dollar (euro or other) denominated securities, it will still
be exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.

ILLIQUID SECURITIES The fund may invest up to 10% of its total assets in
securities with a limited trading market. Such a market can result from
political or economic conditions affecting previously established securities
markets, particularly in emerging market countries.

INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices go up when interest rates fall. Generally,
interest rates rise during times of inflation or a growing economy, and fall
during an economic slowdown or recession. Securities with longer maturities
usually are more sensitive to interest rate changes than securities with shorter
maturities.

CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit any company and its major suppliers to verify their Year
2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 9 for more information.

More detailed information about the fund, its policies and risks can be found in
the fund's Statement of Additional Information (SAI).

PERFORMANCE
- --------------------------------------------------------------------------------
[GRAPHIC OF BULL AND BEAR]

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS(1, 2)

YEAR TOTAL RETURNS
- ------------------------ -----------------
88 23.60% Best Quarter:
89 22.56% Q1 '91 14.81%
90 -9.06%
91 31.33%
92 4.21% Worst Quarter:
93 32.70% Q3 '90 -15.52%
94 0.82% ------------------
95 19.83%
96 20.55%
97 16.42%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Templeton Growth Fund - Advisor Class(2) 16.42% 17.61% 15.55%
MSCI World Index(3) 16.23% 15.88% 11.14%
</TABLE>

1. As of September 30, 1998, the fund's year-to-date return was -11.19%.

2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.

3. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1,500 securities in 23 countries and is
designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

FEES AND EXPENSES
- ------------------------------------------------------------------------------
[GRAPHIC OF PERCENT SIGN]

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's expenses for the fiscal year ended
August 31, 1998.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Advisor Class
- -----------------------------------------------------------------
Maximum sales charge (Load) imposed on purchases None
Exchange fee(1) None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Advisor Class
- ----------------------------------------------------------------
Management fees 0.61%
Distribution and service (12b-1) fees None
Other expenses 0.22%
-----
Total annual fund operating expenses 0.83%
=====

1. There is a $5 fee for each exchange by a market timer (see page 20).

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
$85 $265 $460 $1,025

MANAGEMENT
- ------------------------------------------------------------------------------
[GRAPHIC OF SUITCASE]

Templeton Global Advisors Limited (Global Advisors), Lyford Cay, Nassau,
Bahamas, is the fund's investment manager. Together, Global Advisors and its
affiliates manage over $216 billion in assets.

The fund's lead portfolio manager is:

MARK G. HOLOWESKO CFA, PRESIDENT OF GLOBAL ADVISORS
Mr. Holowesko has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1985.

The following individuals have secondary portfolio management responsibilities:

JEFFREY A. EVERETT CFA, EXECUTIVE VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Everett has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1989.

RICHARD SEAN FARRINGTON CFA, VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Farrington has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1991.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended August 31, 1998, the fund paid
0.61% of its average daily net assets to the manager.

YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.

When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.

The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.

DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
[GRAPHIC OF MONEY]

INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income and
any net realized capital gains. The amount of this distribution will vary and
there is no guarantee the fund will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN.

TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the fund or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.

BACKUP WITHHOLDING
- --------------------------------------------------------------------------------
By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS instructs the fund to do so.
- --------------------------------------------------------------------------------

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The tax rate on any gain from the sale or
exchange of your shares depends on how long you have held your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Any foreign taxes the fund
pays on its investments may be passed through to you as a foreign tax credit.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about federal, state, local or foreign tax consequences
of your investment in the fund.

FINANCIAL HIGHLIGHTS
[GRAPHIC OF DOLLAR BILLS]
- -------------------------------------------------------------------------------

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by McGladrey & Pullen, LLP.

<TABLE>
<CAPTION>
ADVISOR CLASS YEAR ENDED AUGUST 31,
- ---------------------------------------------------------------------------------------
1998 1997(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 22.49 19.37
----- -----
Net investment income .56 .37
Net realized and unrealized gains (losses) (2.78) 2.75
----- -----
Total from investment operations (2.22) 3.12
----- -----
Distributions from net investment income (.59) --
Distributions from net realized gains (2.88) --
----- -----
Total distributions (3.47) --
----- -----
Net asset value, end of year 16.80 22.49
===== =====
Total return (%)(2) (12.41) 16.11
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 36,301 29,531
Ratios to average net assets: (%)
Expenses .83 .83(3)
Net investment income 2.81 3.68(3)
Portfolio turnover rate (%) 48.23 41.81
</TABLE>

1. For the period January 2, 1997 (effective date) through August 31, 1997.
2. Total return is not annualized.
3. Annualized.

YOUR ACCOUNT

QUALIFIED INVESTORS
- --------------------------------------------------------------------------------
[GRAPHIC OF PEN AND PAPER]

The following investors may qualify to buy Advisor Class shares of the fund.

- - Qualified registered investment advisors or certified financial planners
with clients invested in any series of Franklin Mutual Series Fund Inc. on
October 31, 1996, or who buy through a broker-dealer or service agent who
has an agreement with Franklin Templeton Distributors, Inc.
(Distributors). Minimum investments: $1,000 initial and $50 additional.

- - Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.

- - Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.

- - Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

- - Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.

- - The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial minimum and $50 additional.

Buying Shares
- --------------------------------------------------------------------------------
[GRAPHIC OF PEN AND WRITING PAPER]

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).

BUYING SHARES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[GRAPHIC OF HANDSHAKE] THROUGH YOUR Contact your investment Contact your investment
INVESTMENT representative representative
REPRESENTATIVE

- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF LETTER] BY MAIL Make your check payable to Make your check payable to
Templeton Growth Fund, Inc. Templeton Growth Fund, Inc. Include
your account number on the check.
Mail the check and your signed
application to Investor Services. Fill out the deposit slip from your
account statement. If you do not
have a slip, include a note with your
name, the fund name, and your
account number.

Mail the check and deposit slip or
note to Investor Services.

- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF WIRE] BY WIRE Call to receive a wire control Call to receive a wire control number
number and wire instructions. and wire instructions.
1-800/632-2301
(or 1-650/312-2000 Mail your signed application to To make a same day wire
collect) Investor Services. Please include the investment, please call us by
wire control number or your new 1:00 p.m. pacific time and make
account number on the application. sure your wire arrives by 3:00 p.m.

To make a same day wire
investment, please call us by
1:00 p.m. pacific time and make
sure your wire arrives by 3:00 p.m.

- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF ARROWS] BY EXCHANGE Call Shareholder Services at the Call Shareholder Services at the
number below, or send signed number below, or send signed
written instructions. (Please see written instructions. (Please see
page 16 for information on page 16 for information on
exchanges.) exchanges.)

- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY, P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)

INVESTOR SERVICES
- ------------------------------------------------------------------------------
[GRAPHIC OF PERSON]

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class of the fund or in Advisor Class or
Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.

For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
20).

* If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class shares.

- --------------------------------------------------------------------------------
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequence as ordinary sales and purchases.
- --------------------------------------------------------------------------------

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

SELLING SHARES
- ------------------------------------------------------------------------------
[GRAPHIC OF CERTIFICATE]

You can sell your shares at any time.

SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

- - you are selling more than $100,000 worth of shares

- - you want your proceeds paid to someone who is not a registered owner

- - you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account

- - you have changed the address on your account by phone within the last 15
days

- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------

We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

SELLING SHARES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[GRAPHIC OF HANDS SHAKING] Through your Contact your investment representative
investment
representative
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF ENVELOPE] BY MAIL Send written instructions and endorsed share
certificates (if you hold share certificates) to
Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.

Specify the fund, the account number and the dollar
value or number of shares you wish to sell. Be sure to
include all necessary signatures and any additional
documents, as well as signature guarantees if required.

A check will be mailed to the name(s) and address on the
account, or otherwise according to your written
instructions.
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF TELEPHONE] BY PHONE As long as your transaction is for $100,000 or less, you
1-800/632-2301 do not hold share certificates and you have not changed
your address by phone within the last 15 days, you can
sell your shares by phone.

A check will be mailed to the name(s) and address on the
account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF WIRE] BY WIRE You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account. See
the policies above for selling shares by mail or phone.

Before requesting a wire, please make sure we have your
bank account information on file. If we do not have this
information, you will need to send written instructions
with your bank's name and address, your bank account
number, the ABA routing number, and a signature
guarantee.

Requests received in proper form by 1:00 p.m. pacific
time will be wired the next business day.
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF ARROWS] BY EXCHANGE Obtain a current prospectus for the fund you are
considering.

Call Shareholder Services at the number below, or send
signed written instructions. See the policies above for
selling shares by mail or phone.

If you hold share certificates, you will need to return
them to the fund before your exchange can be processed.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY, P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)

ACCOUNT POLICIES
- --------------------------------------------------------------------------------
[GRAPHIC OF NOTE PAD]

CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.

If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and other
information about your account directly from the fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5. You will be
considered a market timer if you have (i) requested an exchange out of the fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
the fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise made large or frequent exchanges. Shares under common ownership or
control are combined for these limits.

ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:

- - The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.

- - At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.

- - The fund may modify or discontinue the exchange privilege on 60 days'
notice.

- - You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

- - In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.

- - For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check would be harmful to existing
shareholders.

- - To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may receive
up to 0.25% of the amount invested. This amount is paid by Franklin Templeton
Distributors, Inc. from its own resources.

QUESTIONS
- ------------------------------------------------------------------------------
[GRAPHIC OF QUESTION MARK]

If you have any questions about the fund or your account, you can write to us at
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030. You can
also call us at one of the following numbers. For your protection and to help
ensure we provide you with quality service, all calls may be monitored or
recorded.

<TABLE>
<CAPTION>
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
--------------- ---------------- ----------------------
<S> <C> <C>
Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/ 342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/ 527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/ 524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/ 321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/ 851-0637 5:30 a.m. to 5:00 p.m.
</TABLE>

FOR MORE INFORMATION

You can learn more about the fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com

You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
DC 20549-6009. You can also visit the SEC's Internet site at http://www.sec.gov.

Investment Company Act file #811-4892 101 PA 01/99

EXHIBIT C

Annual Report

AUGUST 31, 1998

TEMPLETON
GROWTH FUND, INC.

[FRANKLIN TEMPLETON(R) LOGO]
[Celebrating Over 50 Years LOGO]

Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.

In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds which are managed by many of the investment professionals he
selected and trained.

[PHOTO]

MARK G. HOLOWESKO, CFA

Portfolio Manager
Templeton Growth Fund

Mark G. Holowesko is president and portfolio manager of Templeton Growth Fund,
as well as several other Templeton funds. He joined the Templeton organization
in 1985 in Nassau, Bahamas, and serves as chief investment officer of equity
research worldwide, as well as an officer and director of Templeton Worldwide
Inc. Mr. Holowesko received a B.A. in economics from Holy Cross College and an
M.B.A. from Babson College. He is a Chartered Financial Analyst and a former
director of the International Society of Financial Analysts.
CONTENTS

Shareholder Letter 1

Performance Summaries
Class I 8
Class II 12
Advisor Class 16

Financial Highlights &
Statement of Investments 21

Financial Statements 32

Notes to the Financial
Statements 35

Independent Auditor's Report 39

Tax Designation 40

[PYRAMID GRAPHIC]

SHAREHOLDER LETTER

Your Fund's Goal: Templeton Growth Fund seeks long-term capital growth through a
flexible policy of investing in the equity and debt securities of companies and
governments of any nation.

Dear Shareholder:

This annual report of Templeton Growth Fund covers the fiscal year ended August
31, 1998, a difficult time for the Fund. Early in the period, we boosted our
exposure to Asia and decreased our European and U.S. positions. Unfortunately,
these moves resulted in poor short-term performance for the Fund, as many Asian
shares continued to fall in value and U.S. and European stock prices rose.
Within this environment, the Fund's Class I shares provided a 12-month
cumulative total return of -12.61%, as discussed in the Performance Summary on
page 8.

This was not the first time we have experienced poor performance while
repositioning the Fund to take advantage of long-term opportunities. In the
mid-to-late 1980s, we sold our Japanese holdings and bought U.S. shares. As a
result, at the end of 1989, the Fund had no Japanese exposure and a large

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 24 of
this report.
TEMPLETON GROWTH FUND
VS. THE MSCI WORLD INDEX

Based on Total Net Assets
12/31/89

[Pie Chart]

TEMPLETON GROWTH FUND

North America 49%
Europe 25%
Japan 0%
Pacific Ex-Japan 15%
Latin America 3%
Short Term
Investments &
Other Net Assets 8%

[Pie Chart]

MSCI WORLD INDEX

Japan 40%
North America 34%
Europe 24%
Pacific Ex-Japan 2%

U.S. position. Consequently, as investor enthusiasm for Japanese stocks and
neglect for U.S. securities reached a peak during that period, the Fund lagged
market indices like the MSCI World Index,(1) which had a large weighting in
Japan. But in 1989, Japan's market began a 10-year correction and the U.S.
entered the early stages of one of its greatest bull markets. So our actions
proved correct over time, illustrating that, although value investing tends to
lag in the later stages of market advances when many investors pick stocks based
on momentum, fads and momentum typically fade and the market usually returns to
its roots in value.

There are some striking similarities between the current investment environment
and that of the late 1980s. A decade ago, valuations were ignored by many
investors, as evidenced by the number of Japanese shares selling at more than 80
times earnings. In 1998, investors also seemed to show a lack of respect for
valuations. Many price/earnings (p/e) ratios of Internet stocks exceeded even
those of Japanese shares during the 1980s, and some of the most overvalued
equities in January were the top performers during the first half of 1998. For
example, the 20% most expensive stocks in the Morgan Stanley Capital
International(R) All Country World Free Index(2) rose 20%. Conversely, the
cheapest 20% advanced only 5%.(3)

1. The Morgan Stanley Capital International(R) (MSCI) World Index includes
approximately 1,500 companies representing the stock markets of 23 countries,
including the U.S., Canada, the United Kingdom, and Japan. An index is an
unmanaged group of securities that is used to measure market performance. One
cannot invest directly in an index.

2. The unmanaged Morgan Stanley Capital International(R) (MSCI) All Country
World Free Index represents the stock markets of 48 developed and emerging
countries, including the U.S., Germany, Mexico, Indonesia, Thailand, and Japan.

3. Stock rankings measured by 1997 year-end p/e ratios, which averaged 57 for
the 20% most expensive stocks and 8 for the cheapest 20% of the stocks.
Performance is measured in U.S. dollars and includes reinvested dividends.

2
In the late 1980s, we were too quick to sell Japanese securities and buy U.S.
stocks; we now believe that in 1998, we were too quick to sell some of our
European and U.S. holdings and increase our positions in Asia and Latin America.
On August 31, 1998, the MSCI World Index, which significantly outperformed the
Fund during the reporting period, had a North American weighting of 51% (most of
which was in the U.S.) and a European weighting of 37%. The Fund, on the other
hand, only had a European weighting of 29% and a North American weighting of
28%, most of which was in the U.S.

ASIA

During the reporting period, Asia experienced dramatic stock price declines, and
its share of world stock market capitalization shrank appreciably. At their
height in the 1980s, Asian stocks accounted for more than half the value of
equities worldwide. However, as the chart on the following page shows, between
1993 and 1998, Asia's share of global stock value dropped from 38% to 14%.
During the same period, the value of North American stocks increased from 37% to
51% of equities worldwide.(4)

As many Asian shares declined in value, we slowly built positions in companies
that we considered to have above average long-term potential. Our largest Asian
exposure was Hong Kong SAR, which

TEMPLETON GROWTH FUND
VS. THE MSCI WORLD INDEX

Based on Total Net Assets
8/31/98

TEMPLETON GROWTH FUND

Europe 29%
North America 28%
Pacific Ex-Japan 15%
Latin America 7%
Japan 1%
Middle East/Africa 1%
Short Term
Investments &
Other Net Assets 19%

MSCI WORLD INDEX

North America 51%
Europe 37%
Japan 10%
Pacific Ex-Japan 2%

4. Source: IFC 1998 Emerging Market Factbook.

3
HOW THE ASIAN SHARE OF WORLD
STOCK MARKET CAPITALIZATION
HAS SHRUNK

12/31/93 Total $12.7 Trillion

Asia (including Japan) $4.9 Trillion 38%
North America $4.7 Trillion 37%
Euro Area $2.8 Trillion 22%
Other Countries $356 Billion 3%

6/30/98 Total $24.0 Trillion

North America $12.2 Trillion 51%
Euro Area $7.5 Trillion 31%
Asia (including Japan) $3.4 Trillion 14%
Other Countries $910 Billion 4%

represented 8.7% of the Fund's total net assets on August 31, 1998. The stocks
of Hong Kong companies we bought have what we consider to be solid balance
sheets, dividend yields three times the level of the U.S. market, p/e ratios a
quarter of those of Europe, and discounts as high as 50% of the replacement cost
of their plant and equipment. Hong Kong real estate prices, which fell
substantially during the reporting period, remain its primary economic problem.
The possible devaluation of the Hong Kong dollar is also a major concern, but,
in our opinion, is not likely. So far Hong Kong has fought off currency
speculators, and has over $90 billion in foreign currency reserves to support
its currency.(5) It also has one of the freest market economies in the world,
lacks the elements of crony capitalism found in many other parts of Asia, and
its companies generally have little corporate debt. In our current opinion, the
selling in Hong Kong's financial markets during the Fund's fiscal year was
excessive in relation to economic conditions, and we are optimistic about Hong
Kong's future.

EUROPE

As numerous Asian stocks sank to historic lows, many European share prices
reached all-time highs. This was particularly true of southern European equity
markets, which were boosted by interest rates declining in anticipation of the
new common currency (the euro) being introduced in early 1999. We took profits
in several of our southern European holdings, but maintained investments in the

5. Source: Bloomberg.

4
Nordic region and the United Kingdom. Although European stock valuations are
close to record highs, they are still cheaper on average than those of other
developed markets.

UNITED STATES

Stocks have become an increasingly important part of the U.S. economy largely
because of their value relative to the size of the economy and the average
household's net worth. Fueled by low interest rates, benign inflation and
investor enthusiasm, the U.S. stock market advanced during most of the Fund's
fiscal year, and by July 17, 1998, the Dow Jones(R) Industrial Average (the Dow)
had increased 24.3% from its level at the beginning of the reporting period.
However, in August, growing concerns about Asia's continuing financial problems
and Russia's economic and political crisis sent the U.S. market plummeting. On
August 26, the Dow dropped 0.9%, the next day it tumbled 4.2%, and on August 31,
it plunged an additional 6.4%.(6),(8) These declines nearly eliminated all
previous gains in the Index for the reporting period, and on August 31, the Dow
was only 0.7% higher than it had been 12 months earlier.(7),(8)

Our U.S. equity holdings, which represented 25.9% of the Fund's total net assets
as of August 31, 1998, were concentrated in the automobile, aerospace, forest
products, and energy sectors. Our largest U.S. positions at the close of the
period were General Motors Corp., Boeing Co., and Motorola Inc.

TOP 10 EQUITY HOLDINGS
8/31/98

<TABLE>
<CAPTION>
NAME, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
----------------- ----------
<S> <C>
General Motors Corp.
Automobiles, U.S. 2.2%

Philips Electronics NV
Electrical & Electronics,
Netherlands 2.2%

HSBC Holdings Plc.
Banking, Hong Kong** 2.0%

Boeing Co.
Aerospace & Military
Technology, U.S. 1.6%

Motorola Inc.
Electrical & Electronics, U.S. 1.4%

American Stores Co.
Merchandising, U.S. 1.3%

Deutsche Bank AG
Banking, Germany 1.2%

YPF Sociedad Anonima
(and YPF Sociedad
Anonima ADR)
Energy Sources, Argentina 1.2%

Archer-Daniels Midland Co.
Food & Household
Products, U.S. 1.2%

Bell Atlantic Corp.
Telecommunications, U.S. 1.1%
</TABLE>

**Hong Kong reverted to the sovereignty of China on July 1, 1997.

6. Source: Bloomberg.

7. Source: Standard & Poor's(R) Micropal.

8. The Dow's market return, calculated by Wilshire Associates Inc., includes
reinvested dividends. An index is an unmanaged group of securities that is used
to measure market performance. One cannot invest directly in an index.

5
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*

Equity Investments
(80.2% of Total Net Assets)
8/31/98

<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
------- ----------
<S> <C>
United States 25.9%

United Kingdom 9.3%

Hong Kong** 8.7%

Sweden 4.7%

Netherlands 3.7%

Australia 3.5%

Germany 3.1%

Brazil 2.5%

France 2.5%

Argentina 2.2%
</TABLE>

*Does not include fixed-income securities and short-term investments and other
net assets.

**Hong Kong reverted to the sovereignty of China on July 1, 1997.

Looking forward, we are confident about our ability to deal with future
volatility in global stock markets. Turbulent markets are not new to us, and
where many people see only risk, we see potential returns. Our investment
approach is based on a philosophy comprising four basic principles: the patience
to look beyond the emotions of the moment to the longer-term value of a
security, the discipline to subject an idea to rigorous and detailed analysis,
the courage to think independently, and the common sense to know that share
prices become cheap under the pressure of selling, or expensive during periods
of "irrational exuberance." We will consistently use this approach in the future
in our efforts to protect the Fund's assets and produce profits for our
shareholders.

This discussion reflects our views, opinions and portfolio holdings as of August
31, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and the Fund's portfolio composition. Although historical performance
is no guarantee of future results, these insights may help you better understand
our investment and management philosophy.

Please remember that there are special risks associated with global investing
related to market, currency, economic, social, political and other factors.
Emerging markets involve similar but heightened risks, in addition to those
associated with their relatively small size and lesser liquidity. Investing in
any emerging market means accepting

6
a certain amount of volatility and, in some cases, severe market corrections.
While short-term volatility can be disconcerting, declines of as much as 40% to
50% are not unusual in emerging markets. For example, the Hong Kong equity
market has increased 785% in the last 15 years, but has suffered six declines of
more than 20% during that time.(9) These risks and other considerations are
discussed in the Fund's prospectus.

Thank you for investing in Templeton Growth Fund. We welcome your comments and
look forward to serving you in the future.

Sincerely,

/s/ Mark G. Holowesko

Mark G. Holowesko, CFA
President
Templeton Growth Fund, Inc.

9. Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1998. Market returns are measured in Hong Kong dollars.

7
PERFORMANCE SUMMARY

CLASS I

Templeton Growth Fund - Class I produced a - 12.61% cumulative total return for
the one-year period ended August 31, 1998. Cumulative total return measures the
change in value of an investment, assuming reinvestment of all distributions,
and does not include the initial sales charge. While we expect market volatility
in the short term, we have always maintained a long-term perspective when
managing the Fund, and we encourage shareholders to view their investments in a
similar manner. As you can see from the table on page 11, the Fund's Class I
shares delivered a cumulative total return of 214.67% for the 10-year period
ended August 31, 1998.

The Fund's share price, as measured by net asset value, decreased $5.69, from
$22.47 on August 31, 1997, to $16.78 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 54.5 cents ($0.545) in
income dividends, 33 cents ($0.33) in short-term capital gains, and $2.55 in
long-term capital gains. Distributions will vary depending on income earned by
the Fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the Fund's operating expenses.

Past performance is not predictive of future results.

8
The graph on page 10 compares the performance of the Fund's Class I shares over
the past ten years and the unmanaged Morgan Stanley Capital International(R)
(MSCI) World Index, which includes approximately 1,500 companies representing
the stock markets of 23 countries, including the U.S., Canada, the United
Kingdom, and Japan. It also shows the Fund's performance versus the Consumer
Price Index (CPI), a commonly used measure of inflation. Please remember, the
Fund's performance differs from that of an index because an index is not managed
according to any investment strategy, does not contain cash (the Fund generally
carries a certain percentage of cash at any given time), and includes no sales
charges or management or operating expenses. Of course, one cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.

Past performance is not predictive of future results.

9
CLASS I

Total Return Index Comparison
$10,000 Investment (9/1/88 - 8/31/98)

[LINE GRAPH]

The following line graph hypothetically compares the performance of the
Templeton Growth Fund Class I shares to that of the MSCI World Index and CPI,
based on a $10,000 investment from 9/1/88 to 8/31/98.

<TABLE>
<CAPTION>
Total Return Index Comparison

Templeton Growth MSCI World CPI
Fund -Class I Index
--------------------------------------------------
<S> <C> <C> <C>
9/1/88 $9,427 $10,000 $10,000
Sep 88 $9,751 $10,426 $10,068
Oct-88 $10,016 $11,122 $10,101
Nov-88 $9,988 $11,511 $10,110
Dec-88 $10,012 $11,617 $10,127
Jan-89 $10,719 $12,039 $10,178
Feb-89 $10,427 $11,966 $10,218
Mar-89 $10,617 $11,891 $10,277
Apr-89 $10,974 $12,167 $10,345
May-89 $11,054 $11,871 $10,404
Jun-89 $10,988 $11,739 $10,429
Jul-89 $11,957 $13,068 $10,455
Aug-89 $12,102 $12,753 $10,472
Sep-89 $12,117 $13,115 $10,505
Oct-89 $11,622 $12,680 $10,556
Nov-89 $11,836 $13,188 $10,580
Dec-89 $12,271 $13,615 $10,597
Jan-90 $11,726 $12,981 $10,706
Feb-90 $11,726 $12,426 $10,756
Mar-90 $11,983 $11,678 $10,815
Apr-90 $11,609 $11,512 $10,833
May-90 $12,676 $12,726 $10,857
Jun-90 $12,746 $12,638 $10,916
Jul-90 $13,089 $12,755 $10,958
Aug-90 $11,859 $11,563 $11,058
Sep-90 $10,768 $10,346 $11,151
Oct-90 $10,616 $11,314 $11,218
Nov-90 $10,959 $11,131 $11,243
Dec-90 $11,160 $11,366 $11,243
Jan-91 $11,790 $11,784 $11,311
Feb-91 $12,668 $12,877 $11,327
Mar-91 $12,813 $12,499 $11,344
Apr-91 $13,017 $12,599 $11,360
May-91 $13,571 $12,886 $11,393
Jun-91 $12,889 $12,093 $11,428
Jul-91 $13,673 $12,666 $11,445
Aug-91 $13,741 $12,628 $11,478
Sep-91 $13,878 $12,961 $11,529
Oct-91 $14,085 $13,174 $11,546
Nov-91 $13,731 $12,602 $11,579
Dec-91 $14,656 $13,522 $11,588
Jan-92 $14,789 $13,274 $11,604
Feb-92 $15,074 $13,047 $11,647
Mar-92 $14,818 $12,435 $11,705
Apr-92 $15,236 $12,610 $11,722
May-92 $15,806 $13,113 $11,738
Jun-92 $15,502 $12,676 $11,781
Jul-92 $15,464 $12,711 $11,806
Aug-92 $15,017 $13,023 $11,839
Sep-92 $14,979 $12,905 $11,873
Oct-92 $14,773 $12,559 $11,915
Nov-92 $14,952 $12,786 $11,931
Dec-92 $15,274 $12,892 $11,924
Jan-93 $15,476 $12,937 $11,983
Feb-93 $15,816 $13,245 $12,024
Mar-93 $16,368 $14,017 $12,067
Apr-93 $16,697 $14,668 $12,100
May-93 $17,186 $15,009 $12,117
Jun-93 $17,112 $14,885 $12,134
Jul-93 $17,558 $15,194 $12,133
Aug-93 $18,546 $15,893 $12,167
Sep-93 $18,471 $15,602 $12,192
Oct-93 $19,322 $16,034 $12,243
Nov-93 $18,960 $15,130 $12,251
Dec-93 $20,268 $15,873 $12,251
Jan-94 $21,395 $16,923 $12,285
Feb-94 $20,855 $16,706 $12,328
Mar-94 $20,061 $15,989 $12,370
Apr-94 $20,406 $16,486 $12,386
May-94 $20,602 $16,531 $12,394
Jun-94 $20,142 $16,488 $12,436
Jul-94 $21,073 $16,805 $12,469
Aug-94 $21,798 $17,314 $12,521
Sep-94 $21,303 $16,862 $12,554
Oct-94 $21,500 $17,344 $12,563
Nov-94 $20,615 $16,596 $12,579
Dec-94 $20,434 $16,759 $12,579
Jan-95 $20,270 $16,511 $12,629
Feb-95 $20,875 $16,755 $12,679
Mar-95 $21,265 $17,566 $12,721
Apr-95 $22,008 $18,181 $12,763
May-95 $22,662 $18,340 $12,789
Jun-95 $22,990 $18,338 $12,814
Jul-95 $24,022 $19,259 $12,814
Aug-95 $23,871 $18,834 $12,848
Sep-95 $24,412 $19,386 $12,872
Oct-95 $23,632 $19,084 $12,915
Nov-95 $24,171 $19,751 $12,906
Dec-95 $24,486 $20,332 $12,897
Jan-96 $25,361 $20,702 $12,973
Feb-96 $25,446 $20,832 $13,015
Mar-96 $25,742 $21,184 $13,082
Apr-96 $26,321 $21,685 $13,132
May-96 $26,632 $21,707 $13,157
Jun-96 $26,660 $21,821 $13,166
Jul-96 $25,799 $21,055 $13,191
Aug-96 $26,462 $21,301 $13,216
Sep-96 $26,999 $22,139 $13,258
Oct-96 $27,440 $22,297 $13,300
Nov-96 $28,932 $23,550 $13,325
Dec-96 $29,519 $23,178 $13,325
Jan-97 $30,229 $23,460 $13,367
Feb-97 $30,471 $23,734 $13,407
Mar-97 $30,335 $23,269 $13,441
Apr-97 $31,014 $24,034 $13,457
May-97 $32,555 $25,522 $13,449
Jun-97 $33,855 $26,798 $13,465
Jul-97 $35,139 $28,037 $13,481
Aug-97 $33,945 $26,165 $13,506
Sep-97 $36,136 $27,590 $13,540
Oct-97 $33,774 $26,143 $13,574
Nov-97 $33,876 $26,609 $13,566
Dec-97 $34,295 $26,938 $13,550
Jan-98 $34,348 $27,693 $13,574
Feb-98 $36,240 $29,571 $13,601
Mar-98 $37,849 $30,824 $13,629
Apr-98 $38,043 $31,129 $13,653
May-98 $36,894 $30,744 $13,678
Jun-98 $35,833 $31,478 $13,694
Jul-98 $34,985 $31,432 $13,710
Aug-98 $29,664 $27,245 $13,727
</TABLE>

THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS I SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.

*Performance figures represent the change in value of an investment over the
period shown and have been restated to include the current, maximum 5.75%
initial sales charge, assuming reinvestment of distributions at net asset value.
Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge; thus, actual total returns would have been lower. On January 1, 1993,
the Fund implemented a Rule 12b-1 plan, which affects subsequent performance.
Past performance is not predictive of future results.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.
***Source: U.S. Bureau of Labor Statistics (8/31/98).

Past performance is not predictive of future results.

10
CLASS I
Periods ended 8/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (11/29/54)
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Cumulative Total
Return(1) -12.61% 59.95% 214.67% 33,782.59%
Average Annual Total
Return(2) -17.63% 8.55% 11.49% 14.08%
Value of $10,000
Investment(3) $8,237 $15,071 $29,664 $3,193,461
</TABLE>

<TABLE>
<CAPTION>
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 17.47% 9.51% 10.85% 28.28% -12.61%
</TABLE>

1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to include the
current, maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares
were offered at a higher sales charge; thus actual total returns would have been
lower.

3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and have been restated to include the current,
maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares were
offered at a higher sales charge; thus actual total returns would have been
lower.

4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include the sales charge.

On January 1, 1993, the Fund's Class I shares implemented a Rule 12b-1 plan,
which affects subsequent performance. All calculations assume reinvestment of
distributions at net asset value. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.

Past performance is not predictive of future results.

CLASS II

Templeton Growth Fund - Class II produced a - 13.32% cumulative total return for
the one-year period ended August 31, 1998. Cumulative total return measures the
change in value of an investment, assuming reinvestment of all distributions,
and does not include sales charges.

The Fund's share price, as measured by net asset value, decreased $5.69, from
$22.18 on August 31, 1997, to $16.49 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 42.51 cents ($0.4251)
in income dividends, 33 cents ($0.33) in short-term capital gains, and $2.55 in
long-term capital gains. Distributions will vary depending on income earned by
the Fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the Fund's operating expenses.

Past performance is not predictive of future results.

The graph on page 14 compares the performance of the Fund's Class II shares
since inception and the unmanaged Morgan Stanley Capital International(R) (MSCI)
World Index, which includes approximately 1,500 companies representing the stock
markets of 23 countries, including the U.S., Canada, the United Kingdom, and
Japan. The graph also compares the Fund's performance versus the Consumer Price
Index (CPI), a commonly used measure of inflation. Please remember, the Fund's
performance differs from that of an index because an index is not managed
according to any investment strategy, does not contain cash (the Fund generally
carries a certain percentage of cash at any given time), and includes no sales
charges or management or operating expenses. Of course, one cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.

Past performance is not predictive of future results.

CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/98)

[LINE GRAPH]

The following line graph hypothetically compares the performance of the
Templeton Growth Fund Class II shares to that of the MSCI World Index and CPI,
based on a $10,000 investment from 9/1/88 to 8/31/98.

<TABLE>
<CAPTION>
Total Return Index Comparison

Templeton Growth MSCI World Index CPI
Fund- Class II
---------------------------------------------------
<S> <C> <C> <C>
5/1/95 $9,898 $10,000 $10,000
May 95 $10,187 $10,088 $10,020
Jun-95 $10,329 $10,086 $10,040
Jul-95 $10,788 $10,593 $10,040
Aug-95 $10,708 $10,359 $10,067
Sep-95 $10,941 $10,663 $10,086
Oct-95 $10,588 $10,497 $10,119
Nov-95 $10,818 $10,863 $10,112
Dec-95 $10,960 $11,183 $10,105
Jan-96 $11,340 $11,387 $10,164
Feb-96 $11,372 $11,458 $10,197
Mar-96 $11,493 $11,651 $10,250
Apr-96 $11,746 $11,927 $10,289
May-96 $11,873 $11,940 $10,309
Jun-96 $11,880 $12,002 $10,316
Jul-96 $11,493 $11,581 $10,335
Aug-96 $11,778 $11,716 $10,355
Sep-96 $12,006 $12,177 $10,388
Oct-96 $12,191 $12,264 $10,421
Nov-96 $12,847 $12,953 $10,441
Dec-96 $13,107 $12,748 $10,441
Jan-97 $13,412 $12,904 $10,473
Feb-97 $13,506 $13,054 $10,505
Mar-97 $13,439 $12,799 $10,531
Apr-97 $13,729 $13,219 $10,544
May-97 $14,405 $14,038 $10,537
Jun-97 $14,973 $14,739 $10,550
Jul-97 $15,527 $15,421 $10,563
Aug-97 $14,993 $14,392 $10,583
Sep-97 $15,947 $15,175 $10,609
Oct-97 $14,898 $14,379 $10,636
Nov-97 $14,928 $14,636 $10,629
Dec-97 $15,108 $14,816 $10,617
Jan-98 $15,124 $15,232 $10,636
Feb-98 $15,944 $16,265 $10,657
Mar-98 $16,637 $16,954 $10,678
Apr-98 $16,716 $17,122 $10,697
May-98 $16,196 $16,910 $10,717
Jun-98 $15,723 $17,314 $10,730
Jul-98 $15,337 $17,288 $10,742
Aug-98 $12,991 $14,985 $10,755
</TABLE>

THE HISTORICAL DATA SHOWN PERTAINS ONLY TO THE FUND'S CLASS II SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown and include all sales charges, assuming reinvestment of
distributions at net asset value. Past performance is not predictive of future
results.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.

***Source: U.S. Bureau of Labor Statistics (8/31/98).

Past performance is not predictive of future results.

CLASS II
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/95)

<S> <C> <C> <C>
Cumulative Total Return(1) - 13.32% 21.37% 31.22%
Average Annual Total Return(2) - 15.03% 6.31% 8.16%
Value of $10,000 Investment(3) $8,497 $12,015 $12,991
</TABLE>

1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.

3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include all sales charges.

All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility and the economic, social
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.

Past performance is not predictive of future results.

ADVISOR CLASS

Templeton Growth Fund - Advisor Class produced a -12.41% cumulative total
return for the one-year period ended August 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions.

The Fund's share price, as measured by net asset value, decreased $5.69, from
$22.49 on August 31, 1997, to $16.80 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 59.13 cents ($0.5913)
in income dividends, 33 cents ($0.33) in short-term capital gains, and $2.55 in
long-term capital gains. Distributions will vary depending on income earned by
the Fund and any profits realized from the sale of securities in the portfolio,
as well as the level of the Fund's operating expenses.

Past performance is not predictive of future results.

16
The graph on the following page compares the performance of the Fund's Advisor
Class shares over a ten-year period and the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index. The MSCI World Index includes approximately
1,500 companies representing the stock markets of 23 countries, including the
U.S., Canada, the United Kingdom, and Japan. The graph also compares the Fund's
performance versus the Consumer Price Index (CPI), a commonly used measure of
inflation. Please remember, the Fund's performance differs from that of an index
because an index is not managed according to any investment strategy, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no management or operating expenses. Of course, one
cannot invest directly in an index, nor is an index representative of the Fund's
portfolio.

Past performance is not predictive of future results.

ADVISOR CLASS
Total Return Index Comparison
$10,000 Investment (9/1/88 - 8/31/98)

[LINE GRAPH]

The following line graph hypothetically compares the performance of the
Templeton Growth Fund Advisor shares to that of the MSCI World Index and CPI,
based on a $10,000 investment from 9/1/88 to 8/31/98.

<TABLE>
<CAPTION>
Total Return Index Comparison

Templeton Growth MSCI World CPI
Fund- Advisor Class Index
----------------------------------------------------------
<S> <C> <C> <C>
9/1/88 $10,000 $10,000 $10,000
Sep 88 $10,344 $10,426 $10,068
Oct-88 $10,626 $11,122 $10,101
Nov-88 $10,595 $11,511 $10,110
Dec-88 $10,621 $11,617 $10,127
Jan-89 $11,370 $12,039 $10,178
Feb-89 $11,061 $11,966 $10,218
Mar-89 $11,262 $11,891 $10,277
Apr-89 $11,641 $12,167 $10,345
May-89 $11,726 $11,871 $10,404
Jun-89 $11,656 $11,739 $10,429
Jul-89 $12,684 $13,068 $10,455
Aug-89 $12,838 $12,753 $10,472
Sep-89 $12,854 $13,115 $10,505
Oct-89 $12,329 $12,680 $10,556
Nov-89 $12,556 $13,188 $10,580
Dec-89 $13,017 $13,615 $10,597
Jan-90 $12,439 $12,981 $10,706
Feb-90 $12,439 $12,426 $10,756
Mar-90 $12,712 $11,678 $10,815
Apr-90 $12,315 $11,512 $10,833
May-90 $13,447 $12,726 $10,857
Jun-90 $13,521 $12,638 $10,916
Jul-90 $13,885 $12,755 $10,958
Aug-90 $12,580 $11,563 $11,058
Sep-90 $11,423 $10,346 $11,151
Oct-90 $11,262 $11,314 $11,218
Nov-90 $11,625 $11,131 $11,243
Dec-90 $11,839 $11,366 $11,243
Jan-91 $12,507 $11,784 $11,311
Feb-91 $13,438 $12,877 $11,327
Mar-91 $13,592 $12,499 $11,344
Apr-91 $13,809 $12,599 $11,360
May-91 $14,396 $12,886 $11,393
Jun-91 $13,673 $12,093 $11,428
Jul-91 $14,505 $12,666 $11,445
Aug-91 $14,577 $12,628 $11,478
Sep-91 $14,721 $12,961 $11,529
Oct-91 $14,942 $13,174 $11,546
Nov-91 $14,566 $12,602 $11,579
Dec-91 $15,548 $13,522 $11,588
Jan-92 $15,689 $13,274 $11,604
Feb-92 $15,991 $13,047 $11,647
Mar-92 $15,719 $12,435 $11,705
Apr-92 $16,162 $12,610 $11,722
May-92 $16,767 $13,113 $11,738
Jun-92 $16,444 $12,676 $11,781
Jul-92 $16,404 $12,711 $11,806
Aug-92 $15,930 $13,023 $11,839
Sep-92 $15,890 $12,905 $11,873
Oct-92 $15,671 $12,559 $11,915
Nov-92 $15,861 $12,786 $11,931
Dec-92 $16,203 $12,892 $11,924
Jan-93 $16,417 $12,937 $11,983
Feb-93 $16,777 $13,245 $12,024
Mar-93 $17,363 $14,017 $12,067
Apr-93 $17,713 $14,668 $12,100
May-93 $18,231 $15,009 $12,117
Jun-93 $18,152 $14,885 $12,134
Jul-93 $18,625 $15,194 $12,133
Aug-93 $19,673 $15,893 $12,167
Sep-93 $19,594 $15,602 $12,192
Oct-93 $20,497 $16,034 $12,243
Nov-93 $20,113 $15,130 $12,251
Dec-93 $21,501 $15,873 $12,251
Jan-94 $22,696 $16,923 $12,285
Feb-94 $22,123 $16,706 $12,328
Mar-94 $21,281 $15,989 $12,370
Apr-94 $21,647 $16,486 $12,386
May-94 $21,854 $16,531 $12,394
Jun-94 $21,366 $16,488 $12,436
Jul-94 $22,355 $16,805 $12,469
Aug-94 $23,123 $17,314 $12,521
Sep-94 $22,599 $16,862 $12,554
Oct-94 $22,808 $17,344 $12,563
Nov-94 $21,868 $16,596 $12,579
Dec-94 $21,676 $16,759 $12,579
Jan-95 $21,503 $16,511 $12,629
Feb-95 $22,144 $16,755 $12,679
Mar-95 $22,558 $17,566 $12,721
Apr-95 $23,346 $18,181 $12,763
May-95 $24,040 $18,340 $12,789
Jun-95 $24,388 $18,338 $12,814
Jul-95 $25,483 $19,259 $12,814
Aug-95 $25,323 $18,834 $12,848
Sep-95 $25,897 $19,386 $12,872
Oct-95 $25,069 $19,084 $12,915
Nov-95 $25,641 $19,751 $12,906
Dec-95 $25,975 $20,332 $12,897
Jan-96 $26,904 $20,702 $12,973
Feb-96 $26,993 $20,832 $13,015
Mar-96 $27,308 $21,184 $13,082
Apr-96 $27,922 $21,685 $13,132
May-96 $28,251 $21,707 $13,157
Jun-96 $28,281 $21,821 $13,166
Jul-96 $27,368 $21,055 $13,191
Aug-96 $28,071 $21,301 $13,216
Sep-96 $28,640 $22,139 $13,258
Oct-96 $29,108 $22,297 $13,300
Nov-96 $30,691 $23,550 $13,325
Dec-96 $31,314 $23,178 $13,325
Jan-97 $32,067 $23,460 $13,368
Feb-97 $32,323 $23,734 $13,408
Mar-97 $32,179 $23,269 $13,441
Apr-97 $32,900 $24,034 $13,457
May-97 $34,535 $25,522 $13,449
Jun-97 $35,929 $26,798 $13,465
Jul-97 $37,291 $28,037 $13,481
Aug-97 $36,041 $26,165 $13,507
Sep-97 $38,365 $27,591 $13,541
Oct-97 $35,892 $26,143 $13,575
Nov-97 $36,001 $26,609 $13,566
Dec-97 $36,456 $26,938 $13,550
Jan-98 $36,531 $27,693 $13,575
Feb-98 $38,542 $29,571 $13,602
Mar-98 $40,252 $30,824 $13,629
Apr-98 $40,478 $31,129 $13,654
May-98 $39,237 $30,744 $13,678
Jun-98 $38,129 $31,478 $13,694
Jul-98 $37,227 $31,432 $13,711
Aug-98 $31,570 $27,245 $13,727
</TABLE>

THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S ADVISOR CLASS SHARES. THE
FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH
AFFECT THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of distributions at net asset value. On
January 2, 1997, the Fund began selling Advisor Class shares to certain eligible
investors as described in the prospectus. This share class does not have sales
charges or a Rule 12b-1 plan. Performance quotations have been calculated as
follows: (a) For periods prior to January 2, 1997, figures reflect the Fund's
Class I performance, excluding the effect of the Class I sales charge, but
including the effect of Class I expenses, containing Rule 12b-1 fees; and (b)
for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Past performance is not predictive of future results.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.

***Source: U.S. Bureau of Labor Statistics (8/31/98).

Past performance is not predictive of future results.

ADVISOR CLASS
Periods ended 8/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
OF THE FUND
1-YEAR* 5-YEAR* 10-YEAR* (11/29/54)*

<S> <C> <C> <C> <C>
Cumulative Total Return(1) -12.41% 60.47% 215.70% 33,893.42%
Average Annual Total Return(1) -12.41% 9.92% 12.18% 14.24%
Value of $10,000 Investment(2) $8,759 $16,047 $31,570 $3,399,342
</TABLE>

8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
<S> <C> <C> <C> <C> <C>

One-Year Total Return(3),* 17.47% 9.51% 10.85% 28.39% -12.41%
</TABLE>

*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Class I expenses, containing Rule 12b-1
fees; and (b) for periods after January 1, 1997, figures reflect actual Advisor
Class performance, including the deduction of all fees and expenses applicable
only to that class. Since January 2, 1997 (commencement of sales), the
cumulative total return of Advisor Class shares was 1.70%.

1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.

2. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.

3. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated.

Past performance is not predictive of future results.

TEMPLETON GROWTH FUND

CLASS I

If you had invested $10,000 in Templeton Growth Fund - Class I at inception, it
would be worth more than $3.1 million today. The chart below illustrates the
cumulative total return of a hypothetical $10,000 investment in the Fund on
November 29, 1954 (inception), with income dividends and capital gains
reinvested as shown through August 31, 1998.*

[3-D GRAPH]

The following mountain chart illustrates the cumulative total return of a
$10,000 investment in the Fund on November 29, 1954 (inception).
<TABLE>
Principal + Principal + Total Value Principal Income Cap Gains
Dividends Cap Gains
<S> <C> <C> <C> <C> <C> <C>
11/54 $9,425 $9,425 $9,425 $9,425 $0 $0
12/54 $9,576 $9,576 $9,576 $9,576 $0 $0
12/55 $10,250 $10,250 $10,250 $10,250 $0 $0
12/56 $10,726 $10,726 $10,726 $10,726 $0 $0
12/57 $8,911 $8,911 $8,911 $8,911 $0 $0
12/58 $13,261 $13,261 $13,261 $13,261 $0 $0
12/59 $15,118 $15,118 $15,118 $15,118 $0 $0
12/60 $17,210 $17,210 $17,210 $17,210 $0 $0
12/61 $20,358 $20,358 $20,358 $20,358 $0 $0
12/62 $17,606 $17,606 $17,606 $17,606 $0 $0
12/63 $18,511 $18,511 $18,511 $18,511 $0 $0
12/64 $23,802 $23,506 $23,802 $23,506 $296 $0
12/65 $29,073 $28,313 $29,073 $28,313 $760 $0
12/66 $27,532 $26,485 $27,532 $26,485 $1,048 $0
12/67 $31,314 $29,632 $31,314 $29,632 $1,682 $0
12/68 $43,140 $40,283 $43,140 $40,283 $2,857 $0
12/69 $51,622 $47,446 $51,622 $47,446 $4,176 $0
12/70 $48,298 $43,676 $48,298 $43,676 $4,622 $0
12/71 $57,875 $52,568 $58,888 $51,555 $6,320 $1,013
12/72 $95,625 $87,992 $99,262 $84,354 $11,271 $3,637
12/73 $78,886 $79,615 $89,415 $69,086 $9,801 $10,529
12/74 $68,188 $69,154 $78,623 $58,718 $9,469 $10,435
12/75 $93,732 $93,527 $108,183 $79,076 $14,655 $14,451
12/76 $136,290 $135,840 $158,747 $113,384 $22,907 $22,456
12/77 $155,058 $162,989 $191,092 $126,956 $28,103 $36,033
12/78 $184,487 $192,793 $227,799 $149,482 $35,006 $43,311
12/79 $231,142 $241,866 $288,936 $184,072 $47,071 $57,794
12/80 $275,936 $302,407 $363,734 $214,609 $61,327 $87,798
12/81 $276,914 $296,032 $362,862 $210,085 $66,829 $85,948
12/82 $293,516 $322,039 $402,077 $213,478 $80,038 $108,561
12/83 $392,896 $419,717 $534,385 $278,228 $114,668 $141,489
12/84 $391,769 $423,667 $545,974 $269,463 $122,307 $154,205
12/85 $482,619 $536,261 $697,673 $321,206 $161,412 $215,055
12/86 $572,151 $637,582 $845,831 $363,902 $208,249 $273,680
12/87 $550,763 $653,004 $872,099 $331,668 $219,095 $321,336
12/88 $682,365 $784,305 $1,077,886 $388,784 $293,580 $395,521
12/89 $831,578 $935,100 $1,321,060 $445,617 $385,960 $489,483
12/90 $737,439 $834,403 $1,201,437 $370,405 $367,034 $463,998
12/91 $912,476 $1,101,650 $1,577,840 $436,287 $476,190 $665,364
12/92 $889,020 $1,161,912 $1,644,334 $406,598 $482,422 $755,314
12/93 $1,121,884 $1,558,305 $2,181,979 $498,209 $623,674 $1,060,095
12/94 $1,068,974 $1,589,760 $2,199,827 $458,907 $610,067 $1,130,853
12/95 $1,203,903 $1,922,768 $2,636,096 $490,575 $713,328 $1,432,194
12/96 $1,434,286 $2,296,081 $3,177,869 $552,498 $881,788 $1,743,583
12/97 $1,510,347 $2,730,272 $3,692,080 $548,539 $961,808 $2,181,733
8/31/98 $1,306,372 $2,361,545 $3,193,461 $474,458 $831,914 $1,887,087
</TABLE>

*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current,
maximum 5.75% initial sales charge; thus actual total return for purchasers of
shares during the periods shown may differ. Prior to July 1, 1992, these shares
were offered at a higher initial sales charge. On January 1, 1993, the Fund's
Class I shares implemented a Rule 12b-1 plan, which will affect subsequent
performance.

Except as noted, all figures assume reinvestment of income dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares.

The historical data shown above pertain only to Class I shares of the Fund. The
Fund offers other share classes, subject to different fees and expenses, which
will affect their performance. Please see the prospectus for more details.

Past performance is not predictive of future results.

TEMPLETON GROWTH FUND, INC.
Financial Highlights

<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year................ $22.47 $18.75 $18.96 $18.95 $17.47
--------------------------------------------------------------------
Income from investment operations:
Net investment income............................ .50 .54 .50 .39 .29
Net realized and unrealized gains (losses)....... (2.76) 4.48 1.34 1.20 2.58
--------------------------------------------------------------------
Total from investment operations.................. (2.26) 5.02 1.84 1.59 2.87
--------------------------------------------------------------------
Less distributions from:
Net investment income............................ (.55) (.49) (.44) (.29) (.27)
Net realized gains............................... (2.88) (.81) (1.61) (1.29) (1.12)
--------------------------------------------------------------------
Total distributions............................... (3.43) (1.30) (2.05) (1.58) (1.39)
--------------------------------------------------------------------
Net asset value, end of year...................... $16.78 $22.47 $18.75 $18.96 $18.95
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Return*..................................... (12.61)% 28.28% 10.85% 9.51% 17.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)................... $11,116,564 $12,129,283 $8,450,737 $6,964,298 $5,611,560
Ratios to average net assets:
Expenses......................................... 1.08% 1.08% 1.09% 1.12% 1.10%
Net investment income............................ 2.53% 2.81% 2.87% 2.40% 1.76%
Portfolio turnover rate........................... 48.23% 41.81% 19.63% 35.21% 27.35%
</TABLE>

*Total return does not reflect sales commissions.
21
TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS II
-------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------
1998 1997 1996 1995+
-------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $22.18 $18.57 $18.90 $17.48
-------------------------------------------
Income from investment operations:
Net investment income...................................... .38 .42 .49 .04
Net realized and unrealized gains (losses)................. (2.77) 4.39 1.19 1.38
-------------------------------------------
Total from investment operations............................ (2.39) 4.81 1.68 1.42
-------------------------------------------
Less distributions from:
Net investment income...................................... (.42) (.39) (.40) --
Net realized gains......................................... (2.88) (.81) (1.61) --
-------------------------------------------
Total distributions......................................... (3.30) (1.20) (2.01) --
-------------------------------------------
Net asset value, end of year................................ $16.49 $22.18 $18.57 $18.90
-------------------------------------------
-------------------------------------------
Total Return*............................................... (13.32)% 27.30% 9.99% 8.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $872,219 $755,184 $280,087 $42,548
Ratios to average net assets:
Expenses................................................... 1.83% 1.84% 1.87% 1.86%**
Net investment income...................................... 1.79% 2.14% 2.25% 1.61%**
Portfolio turnover rate..................................... 48.23% 41.81% 19.63% 35.21%
</TABLE>

*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
22
TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------
YEAR ENDED AUGUST 31,
---------------------
1998 1997+
---------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $22.49 $19.37
---------------------
Income from investment operations:
Net investment income...................................... .56 .37
Net realized and unrealized gains (losses)................. (2.78) 2.75
---------------------
Total from investment operations............................ (2.22) 3.12
---------------------
Less distributions from:
Net investment income...................................... (.59) --
Net realized gains......................................... (2.88) --
---------------------
Total distributions......................................... (3.47) --
---------------------
Net asset value, end of year................................ $16.80 $22.49
---------------------
---------------------
Total Return*............................................... (12.41)% 16.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $36,301 $29,531
Ratios to average net assets:
Expenses................................................... .83% .83%**
Net investment income...................................... 2.81% 3.68%**
Portfolio turnover rate..................................... 48.23% 41.81%
</TABLE>

*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
23

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 77.0%
AEROSPACE & MILITARY TECHNOLOGY 2.8%
Boeing Co. ................................................. United States 6,411,000 $ 198,340,313
*General Motors Corp., H.................................... United States 1,631,300 58,930,713
Raytheon Co., A............................................. United States 1,647,015 73,806,860
---------------
331,077,886
---------------
APPLIANCES & HOUSEHOLD DURABLES .7%
Sony Corp. ................................................. Japan 956,700 69,860,309
Toro Co. ................................................... United States 550,000 12,100,000
---------------
81,960,309
---------------
AUTOMOBILES 5.0%
Autoliv Inc., ADR........................................... Sweden 1,201,152 36,977,714
Fiat SpA, di Risp........................................... Italy 3,589,960 6,525,515
Ford Motor Co. ............................................. United States 3,016,600 132,730,400
General Motors Corp. ....................................... United States 4,556,700 263,149,425
Volkswagen AG............................................... Germany 368,350 27,153,672
Volvo AB, B................................................. Sweden 4,741,000 130,712,634
---------------
597,249,360
---------------
BANKING 5.9%
Australia & New Zealand Banking Group Ltd. ................. Australia 14,055,105 71,035,993
Bangkok Bank Public Co. Ltd., fgn. ......................... Thailand 24,930,800 17,552,711
Citicorp.................................................... United States 103,000 11,136,875
Deutsche Bank AG............................................ Germany 2,300,000 149,724,979
Development Bank of Singapore Ltd., fgn. ................... Singapore 3,392,500 11,747,677
Guoco Group Ltd. ........................................... Hong Kong 19,237,000 11,605,453
HSBC Holdings Plc. ......................................... Hong Kong 11,336,941 240,660,558
*Kookmin Bank............................................... South Korea 1,424,403 3,923,568
National Australia Bank Ltd. ............................... Australia 10,723,122 132,685,204
National Australia Capital Securities Plc. ................. Australia 1,329,253 36,055,988
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 773,440 11,601,600
Union Bank of Norway, Primary Capital Cert. ................ Norway 385,000 9,302,744
---------------
707,033,350
---------------
BROADCASTING & PUBLISHING .1%
South China Morning Post Holdings, Ltd. .................... Hong Kong 30,911,000 10,171,766
South China Morning Post Holdings, Ltd., 144A............... Hong Kong 8,976,000 2,953,698
---------------
13,125,464
---------------
BUILDING MATERIALS & COMPONENTS 1.6%
Caradon Plc. ............................................... United Kingdom 5,154,667 11,954,677
Cemex SA.................................................... Mexico 2,019,680 4,051,718
*Cemex SA, ADR.............................................. Mexico 22,092 88,638
Cemex SA, B................................................. Mexico 4,694,000 11,535,483
Cemex SA, B, ADR............................................ Mexico 777,000 3,818,948
+Hepworth Plc. ............................................. United Kingdom 16,767,410 42,536,925
</TABLE>

24
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUILDING MATERIALS & COMPONENTS (CONT.)
+Owens Corning.............................................. United States 3,313,700 $ 116,186,606
*Siam Cement Public Co. Ltd., fgn. ......................... Thailand 923,530 5,907,065
---------------
196,080,060
---------------
BUSINESS & PUBLIC SERVICES 1.1%
Columbia HCA Healthcare Corp. .............................. United States 1,155,200 26,064,200
*Humana Inc. ............................................... United States 8,335,200 108,357,600
---------------
134,421,800
---------------
CHEMICALS 3.9%
BASF AG..................................................... Germany 2,671,000 107,536,717
Cookson Group Plc. ......................................... United Kingdom 11,025,284 28,800,621
DSM NV...................................................... Netherlands 1,273,290 112,097,891
Eastman Chemical Co. ....................................... United States 1,100,000 56,718,750
European Vinyls Corporation Evc International NV............ Netherlands 388,971 4,905,993
Imperial Chemical Industries Plc. .......................... United Kingdom 551,888 6,071,609
Lyondell Chemical Co. ...................................... United States 2,568,600 55,385,438
Rhone-Poulenc SA, A......................................... France 1,800,000 90,913,706
---------------
462,430,725
---------------
CONSTRUCTION & HOUSING .1%
Fletcher Challenge Building Ltd. ........................... New Zealand 5,267,917 6,135,959
Hollandsche Beton Groep NV.................................. Netherlands 588,511 9,551,974
---------------
15,687,933
---------------
ELECTRICAL & ELECTRONICS 5.7%
ABB AB, A................................................... Sweden 11,700,000 130,188,049
General Electric Co. Plc. .................................. United Kingdom 18,500,000 121,280,497
Gold Peak Industries (Holdings) Ltd. ....................... Hong Kong 4,307,000 666,959
Hitachi Ltd. ............................................... Japan 1,648,500 8,254,760
Motorola Inc. .............................................. United States 3,817,600 164,395,400
Philips Electronics NV...................................... Netherlands 4,005,600 261,263,225
---------------
686,048,890
---------------
ELECTRONIC COMPONENTS & INSTRUMENTS .1%
BICC Plc. .................................................. United Kingdom 9,641,820 14,288,603
---------------
ENERGY SOURCES 7.8%
Amerada Hess Corp. ......................................... United States 2,008,000 98,643,000
*Barrett Resources Corp. ................................... United States 1,100,000 22,343,750
Burlington Resources Inc. .................................. United States 1,000,000 29,562,500
Norsk Hydro AS.............................................. Norway 3,251,577 117,224,773
Occidental Petroleum Corp. ................................. United States 5,000,000 92,500,000
Perez Companc SA, B......................................... Argentina 6,863,400 27,184,501
*Ranger Oil Ltd. ........................................... Canada 2,810,900 14,932,906
*Renaissance Energy Ltd. ................................... Canada 5,250,000 57,395,390
</TABLE>

25
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES (CONT.)
Repsol SA................................................... Spain 2,429,700 $ 109,508,063
Saga Petroleum AS, A........................................ Norway 1,052,250 11,157,461
Saga Petroleum AS, B........................................ Norway 1,927,910 18,831,844
Societe Elf Aquitane SA..................................... France 1,305,000 133,370,558
Transportadora de Gas del Sur SA, B, ADR.................... Argentina 1,400,000 13,300,000
Valero Energy Corp., new.................................... United States 2,500,000 44,687,500
Woodside Petroleum Ltd. .................................... Australia 679,200 3,070,507
YPF Sociedad Anonima........................................ Argentina 1,400,000 31,366,273
YPF Sociedad Anonima, ADR................................... Argentina 5,282,800 116,881,950
---------------
941,960,976
---------------
FINANCIAL SERVICES 1.0%
Lend Lease Corp. Ltd. ...................................... Australia 923,300 17,462,226
Merrill Lynch & Co. Inc. ................................... United States 1,580,300 104,299,800
---------------
121,762,026
---------------
FOOD & HOUSEHOLD PRODUCTS 3.1%
Archer-Daniels Midland Co. ................................. United States 9,232,794 138,491,908
Embotelladora Andina SA, B, ADR............................. Chile 186,700 2,088,706
Hillsdown Holdings Plc. .................................... United Kingdom 20,423,076 48,391,052
IBP Inc. ................................................... United States 3,750,000 62,109,375
Panamerican Beverages Inc., A............................... Mexico 616,400 9,823,875
Tate & Lyle Plc. ........................................... United Kingdom 13,600,000 100,601,149
Vitro SA de CV.............................................. Mexico 6,090,720 7,648,911
Vitro SA de CV, ADR......................................... Mexico 962,440 3,669,303
---------------
372,824,279
---------------
FOREST PRODUCTS & PAPER 5.4%
Aracruz Celulose SA, ADR.................................... Brazil 2,338,900 14,764,306
Assidomaen AB............................................... Sweden 1,198,100 27,699,850
+Boise Cascade Corp. ....................................... United States 3,082,600 75,331,037
Carter Holt Harvey Ltd. .................................... New Zealand 21,502,738 15,134,142
Champion International Corp. ............................... United States 1,000,000 33,000,000
Enso OY, A.................................................. Finland 98,700 827,596
Enso OY, R.................................................. Finland 4,973,575 41,981,264
Fletcher Challenge Paper Ltd. .............................. New Zealand 18,802,836 11,649,548
International Paper Co. .................................... United States 3,400,000 125,800,000
Metsa Serla OY, B........................................... Finland 2,611,000 19,947,082
Mitsubishi Paper Mills Ltd. ................................ Japan 4,647,000 7,833,317
Mo Och Domsjoe AB, B........................................ Sweden 2,950,000 57,991,172
Norske Skogindustrier AS, A................................. Norway 994,000 27,467,386
*PT Tjiwi Kimia TBK......................................... Indonesia 11,861,214 1,663,790
*Sappi Ltd. ................................................ South Africa 3,000,000 9,361,503
St. Joe Co. ................................................ United States 661,800 13,277,363
Stora Kopparbergs Bergslags AB, A........................... Sweden 1,414,200 17,134,824
Stora Kopparbergs Bergslags AB, B........................... Sweden 2,085,800 25,272,109
</TABLE>

26
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER (CONT.)
Svenska Cellulosa AB, B..................................... Sweden 1,642,844 $ 34,935,545
UPM-Kymmene Corp. .......................................... Finland 4,301,840 86,569,846
---------------
647,641,680
---------------
HEALTH & PERSONAL CARE .1%
Aetna Inc. ................................................. United States 117,500 7,072,031
Ono Pharmaceutical Co. Ltd. ................................ Japan 173,000 4,080,246
---------------
11,152,277
---------------
INDUSTRIAL COMPONENTS 2.4%
BTR Plc. ................................................... United Kingdom 47,031,250 103,168,066
Goodyear Tire & Rubber Co. ................................. United States 1,722,600 84,407,400
*RMI Titanium Co. .......................................... United States 462,700 8,270,763
Sandvik AB, B............................................... Sweden 2,156,000 43,848,769
SKF AB, A................................................... Sweden 1,002,995 15,500,708
SKF AB, B................................................... Sweden 2,480,374 38,026,084
---------------
293,221,790
---------------
INSURANCE 1.1%
American General Corp. ..................................... United States 1,100,000 70,675,000
American International Group Inc. .......................... United States 137,813 10,654,629
+W R Berkley Corp. ......................................... United States 1,690,650 53,466,806
---------------
134,796,435
---------------
LEISURE & TOURISM .5%
Rank Group Plc. ............................................ United Kingdom 9,845,000 46,818,935
Shangri-La Asia Ltd. ....................................... Hong Kong 23,233,000 13,191,710
---------------
60,010,645
---------------
MACHINERY & ENGINEERING 1.2%
+Agco Corp. ................................................ United States 5,739,500 49,503,188
Harnischfeger Industries Inc. .............................. United States 1,786,700 28,698,869
Makita Corp. ............................................... Japan 840,000 9,768,964
New Holland NV.............................................. Netherlands 1,600,000 17,700,000
Valmet (OY)................................................. Finland 2,000,000 26,831,881
Vickers Group Plc. ......................................... United Kingdom 5,396,988 14,550,060
---------------
147,052,962
---------------
MERCHANDISING 2.6%
American Stores Co. ........................................ United States 5,405,000 156,745,000
Best Denki Co. Ltd. ........................................ Japan 529,000 2,922,445
*CompUSA Inc. .............................................. United States 2,000,000 23,750,000
Dairy Farm International Holdings Ltd. ..................... Hong Kong 36,629,531 34,798,054
</TABLE>

27
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING (CONT.)
Gucci Group NV.............................................. Netherlands 700,000 $ 24,281,250
Safeway Plc. ............................................... United Kingdom 4,309,883 22,480,761
W.H. Smith Group............................................ United Kingdom 5,740,290 44,408,211
---------------
309,385,721
---------------
METALS & MINING 4.3%
AK Steel Holding Corp. ..................................... United States 1,029,900 14,289,862
Alcan Aluminum Ltd. ........................................ Canada 3,463,361 65,429,987
Alcan Aluminum Ltd., fgn. .................................. Canada 1,500,000 28,500,000
Anglo American Platinum Corp. Ltd. ......................... South Africa 3,000,000 37,352,632
Billiton Plc. .............................................. United Kingdom 19,141,800 32,854,443
British Steel Plc. ......................................... United Kingdom 63,665,600 114,337,742
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,177,905 18,846,480
Grupo Mexico SA de CV, B.................................... Mexico 6,004,300 10,780,578
Industrias Penoles SA....................................... Mexico 3,223,400 7,727,495
Iscor Ltd. ................................................. South Africa 21,374,700 4,224,874
*Maanshan Iron & Steel Co. Ltd., H.......................... China 8,979,000 247,962
Minorco SA, ADR............................................. Luxembourg 2,013,724 16,864,939
Outokumpu OY, A............................................. Finland 666,200 6,951,544
Pechiney SA, A.............................................. France 2,368,775 76,754,723
Pohang Iron & Steel Co. Ltd. ............................... South Korea 1,022,390 39,878,793
+Titanium Metals............................................ United States 2,322,000 26,703,000
WMC Ltd. ................................................... Australia 6,933,500 17,021,394
---------------
518,766,448
---------------
MISC MATERIALS & COMMODITIES .8%
Agrium Inc. ................................................ Canada 6,182,100 52,161,469
De Beers/Centenary Linked Units, Reg. ...................... South Africa 870,850 10,531,115
De Beers/Centenary Linked Units, ADR........................ South Africa 2,950,000 33,925,000
---------------
96,617,584
---------------
MULTI-INDUSTRY 5.7%
Alfa SA de CV, A............................................ Mexico 6,608,600 14,914,840
Amoy Properties Ltd. ....................................... Hong Kong 53,975,000 25,945,501
Broken Hill Proprietary Co. Ltd. ........................... Australia 15,752,699 108,714,528
Cheung Kong Holdings Ltd. .................................. Hong Kong 30,000,000 116,141,021
DESC SA de CV, B............................................ Mexico 2,059,000 7,331,812
DESC SA de CV, C, ADR....................................... Mexico 25,800 399,900
Elementis Plc. ............................................. United Kingdom 19,800,000 32,823,724
First Pacific Co. .......................................... Hong Kong 37,473,000 11,605,740
Hicom Holdings BHD.......................................... Malaysia 1,289,800 187,988
Hutchison Whampoa Ltd. ..................................... Hong Kong 10,000,000 43,359,315
Inchcape Plc. .............................................. United Kingdom 26,000,000 70,530,317
Jardine Matheson Holdings Ltd. ............................. Hong Kong 10,087,768 17,956,227
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,245,732 16,667,506
Metra OY, B................................................. Finland 284,280 7,585,391
</TABLE>

28
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Pacific Dunlop Ltd. ........................................ Australia 18,044,277 $ 31,452,465
Pilkington Plc.............................................. United Kingdom 40,000,000 52,244,679
*Saab AB, B................................................. Sweden 1,254,300 10,390,082
Swire Pacific Ltd., A....................................... Hong Kong 33,386,500 96,292,298
Swire Pacific Ltd., B....................................... Hong Kong 24,783,300 11,113,659
Wheelock and Company Ltd. .................................. Hong Kong 10,000,000 5,258,607
---------------
680,915,600
---------------
REAL ESTATE .9%
Hang Lung Development Co. Ltd. ............................. Hong Kong 27,818,000 21,538,739
Hong Kong Land Holdings Ltd. ............................... Hong Kong 13,093,000 10,736,260
New World Development Co. Ltd. ............................. Hong Kong 17,699,244 19,071,477
Rouse Co. .................................................. United States 1,732,500 49,809,375
Wereldhave NV............................................... Netherlands 160,000 9,125,399
---------------
110,281,250
---------------
RECREATION & OTHER CONSUMER GOODS
Yue Yuen Industrial (Holdings) Ltd. ........................ Hong Kong 1,677,000 3,029,732
---------------
TELECOMMUNICATIONS 4.9%
Bell Atlantic Corp. ........................................ United States 3,100,000 136,787,500
Hong Kong Telecommunications Ltd. .......................... Hong Kong 41,597,548 73,541,321
PT Indosat TBK, ADR......................................... Indonesia 544,700 3,268,200
Rostelecom.................................................. Russia 11,958,000 7,294,380
Rostelecom, ADR............................................. Russia 7,000 25,375
SK Telecom Co. Ltd., ADR.................................... South Korea 7,484,398 44,906,388
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 15,000,000 31,551,644
Telecom Argentina Stet-France SA, ADR....................... Argentina 2,974,700 66,558,913
Telefonica de Argentina SA, B, ADR.......................... Argentina 566,000 12,664,250
Telefonica del Peru SA, B................................... Peru 8,459,874 11,227,437
Telefonica del Peru SA, B, ADR.............................. Peru 1,083,200 13,946,200
Telefonica SA............................................... Spain 1,389,200 51,944,847
Telefonos de Mexico SA (Telmex), L.......................... Mexico 14,118,470 25,066,144
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 2,900,000 103,493,750
---------------
582,276,349
---------------
TRANSPORTATION 1.6%
Cathay Pacific Airways Ltd. ................................ Hong Kong 35,082,000 25,578,550
Hitachi Zosen Corp. ........................................ Japan 4,496,000 5,572,633
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 4,621,630 53,398,830
Singapore Airlines Ltd., fgn. .............................. Singapore 23,586,900 100,934,932
Stolt Nielsen SA............................................ Norway 463,500 4,866,750
Stolt Nielsen SA, ADR....................................... Norway 459,000 4,590,000
---------------
194,941,695
---------------
</TABLE>

29
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 6.6%
*CEZ AS..................................................... Czech Republic 186,161 $ 3,378,810
CLP Holdings Ltd. .......................................... Hong Kong 17,999,900 75,723,525
Electrabel SA............................................... Belgium 154,364 50,291,801
Entergy Corp. .............................................. United States 3,600,000 103,725,000
Gener SA, ADR............................................... Chile 1,252,800 16,521,300
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 41,999,600 124,656,842
Illinova Corp. ............................................. United States 2,900,000 74,856,250
Korea Electric Power Corp. ................................. South Korea 6,273,800 80,832,373
Mosenergo................................................... Russia 100,000,000 1,500,000
National Grid Group Plc. ................................... United Kingdom 11,900,000 86,033,339
Potomac Electric Power Co. ................................. United States 4,000,000 98,000,000
Thames Water Group Plc. .................................... United Kingdom 4,170,833 75,148,892
---------------
790,668,132
---------------
WHOLESALE & INTERNATIONAL TRADE
Sime Darby Hongkong Ltd. ................................... Hong Kong 6,660,000 1,632,943
---------------
TOTAL COMMON STOCKS (COST $10,967,607,988).................. 9,258,342,904
---------------
PREFERRED STOCKS 3.4%
Ballast Nedam NV, ctf., cvt., pfd........................... Netherlands 92,082 3,562,882
Banco Bradesco SA, pfd. .................................... Brazil 3,171,500,000 17,785,623
*Banco Bradesco SA, rts., pfd. ............................. Brazil 76,911,803 8,496
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. ... Brazil 120,400,000 1,841,448
*Centrais Eletricas Brasileiras SA (Electrobras), ADR,
pfd. ..................................................... Brazil 3,759,200 28,747,388
Centrais Geradoras Do Sul Do Brasil SA (Gerasul), ADR,
pfd. ..................................................... Brazil 350,790 1,773,473
Cia Vale do Rio Doce, pfd. ................................. Brazil 949,560 12,586,571
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,350,400 17,899,771
Fiat SpA, pfd. ............................................. Italy 30,914,350 56,636,842
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 250,000,000 25,490,696
+++Receipts of Telebras Stock............................... Brazil 875,600,000 62,123,035
++Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. .... Brazil 1,025,000 72,454,688
*Telecomunicacoes de Minas Gerais Celular SA Telemig, C,
pfd. ..................................................... Brazil 38,363,000 945,303
Telecomunicacoes de Minas Gerais SA Telemig, B, pfd. ....... Brazil 38,363,000 1,533,021
Usinas Siderurgicas de Minas Gerais SA, pfd. ............... Brazil 4,188,959 17,440,648
Volkswagen AG, pfd. ........................................ Germany 1,718,960 86,264,792
---------------
TOTAL PREFERRED STOCKS (COST $626,056,787).................. 407,094,677
---------------
</TABLE>

30
TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 6.5%
U.S. Treasury Bonds:
14.00%, 11/15/11.......................................... United States $ 97,000,000 $ 153,260,097
7.875%, 2/15/21........................................... United States 128,500,000 168,254,816
6.25%, 8/15/23............................................ United States 155,303,000 172,095,292
U.S. Treasury Notes:
6.375%, 7/15/99........................................... United States 78,000,000 78,828,828
6.00%, 10/15/99........................................... United States 108,000,000 109,012,608
6.375%, 1/15/00........................................... United States 98,000,000 99,684,424
---------------
TOTAL BONDS (COST $727,148,534)............................. 781,136,065
---------------
SHORT TERM INVESTMENTS (COST $1,621,608,892) 13.5%
U.S. Treasury Bills, 4.809% to 5.11%, with maturities to
1/21/99................................................... United States 1,636,830,000 1,622,674,363
---------------
TOTAL INVESTMENTS (COST $13,942,422,201) 100.4%............. 12,069,248,009
OTHER ASSETS, LESS LIABILITIES (.4%)........................ (44,164,385)
---------------
TOTAL NET ASSETS 100.0%..................................... $12,025,083,624
---------------
---------------
</TABLE>

*Non-income producing.
**Securities traded in U.S. dollars.
+The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in affiliated companies at August 31,
1998, were $363,727,562.
++Includes securities of twelve new holding companies deemed received in
conjunction with the "split-up" of Telecomunicacoes Brasileiras SA (Telebras).
+++Receipts of Telebras stock represent a basket of twelve new holding companies
to be received in conjunction with the "split-up" of Telecomunicacoes
Brasileiras SA (Telebras).
See Notes to Financial Statements.
31

TEMPLETON GROWTH FUND, INC.
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998

<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost
$13,942,422,201).......................................... $12,069,248,009
Receivables:
Investment securities sold................................ 6,564,732
Capital shares sold....................................... 14,887,373
Dividends and interest.................................... 43,079,342
---------------
Total assets........................................... 12,133,779,456
---------------
Liabilities:
Payables:
Investment securities purchased........................... 45,702,869
Capital shares redeemed................................... 47,390,000
To affiliates............................................. 12,629,800
Funds advanced by custodian................................ 340,423
Accrued liabilities........................................ 2,632,740
---------------
Total liabilities...................................... 108,695,832
---------------
Net assets, at value........................................ $12,025,083,624
---------------
---------------
Net assets consist of:
Undistributed net investment income........................ $ 268,936,336
Net unrealized depreciation................................ (1,873,174,192)
Accumulated net realized gain.............................. 1,445,822,503
Capital shares............................................. 12,183,498,977
---------------
Net assets, at value........................................ $12,025,083,624
---------------
---------------
CLASS I:
Net asset value per share ($11,116,564,018 / 662,531,683
shares outstanding)...................................... $16.78
---------------
---------------
Maximum offering price per share ($16.78 / 94.25%)......... $17.80
---------------
---------------
CLASS II:
Net asset value per share ($872,218,980 / 52,878,215 shares
outstanding)*............................................ $16.49
---------------
---------------
Maximum offering price per share ($16.49 / 99.00%)......... $16.66
---------------
---------------
ADVISOR CLASS:
Net asset value and maximum offering price per share
($36,300,626 / 2,160,456 shares outstanding)............. $16.80
---------------
---------------
</TABLE>

*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
32

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $27,208,792)
Dividends.................................................. $ 312,010,645
Interest................................................... 200,283,993
--------------
Total investment income............................... $ 512,294,638
Expenses:
Management fees (Note 3)................................... 86,332,815
Administrative fees (Note 3)............................... 11,225,977
Distribution fees (Note 3)
Class I................................................... 32,554,592
Class II.................................................. 9,490,143
Transfer agent fees (Note 3)............................... 13,062,513
Custodian fees............................................. 2,328,928
Reports to shareholders.................................... 3,100,000
Registration and filing fees............................... 1,432,500
Professional fees.......................................... 157,307
Directors' fees and expenses............................... 153,000
Other...................................................... 415,491
--------------
Total expenses........................................ 160,253,266
---------------
Net investment income........................... 352,041,372
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,803,793,777
Foreign currency transactions............................. (8,898,389)
--------------
Net realized gain..................................... 1,794,895,388
Net unrealized depreciation on investments............ (3,948,921,534)
---------------
Net realized and unrealized loss............................ (2,154,026,146)
---------------
Net decrease in net assets resulting from operations........ $(1,801,984,774)
---------------
---------------
</TABLE>

See Notes to Financial Statements.
33

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 352,041,372 $ 299,645,065
Net realized gain from investments and foreign currency
transactions............................................ 1,794,895,388 1,454,846,690
Net unrealized appreciation (depreciation) on
investments............................................. (3,948,921,534) 835,123,789
----------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (1,801,984,774) 2,589,615,544
Distributions to shareholders from:
Net investment income:
Class I.................................................. (309,635,887) (224,233,853)
Class II................................................. (16,109,670) (6,799,222)
Advisor Class............................................ (846,245) --
Net realized gains:
Class I.................................................. (1,624,126,003) (372,774,314)
Class II................................................. (109,111,611) (13,998,148)
Advisor Class............................................ (4,067,274) --
Capital share transactions (Note 2):
Class I.................................................. 2,570,690,896 1,795,361,405
Class II................................................. 389,245,855 388,966,140
Advisor Class............................................ 17,030,051 27,036,800
----------------------------------
Net increase (decrease) in net assets................... (888,914,662) 4,183,174,352
Net assets:
Beginning of year.......................................... 12,913,998,286 8,730,823,934
----------------------------------
End of year................................................ $12,025,083,624 $12,913,998,286
----------------------------------
----------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 268,936,336 $ 243,486,766
----------------------------------
----------------------------------
</TABLE>

See Notes to Financial Statements.
34

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Growth Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks long-term capital growth through a flexible policy of investing in the
equity and debt securities of companies and governments of any nation. The
following summarizes the Fund's significant accounting policies.

a. SECURITY VALUATION:

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.

b. FOREIGN CURRENCY TRANSLATION:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.

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 and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

35
TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

e. ACCOUNTING ESTIMATES:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.

2. CAPITAL STOCK

The Fund offers three classes of shares: Class I, Class II and Advisor Class
shares. The shares differ by their initial sales load, distribution fees, voting
rights on matters affecting a single class of shares and the exchange privilege
of each class.

At August 31, 1998, there were 1.8 billion shares authorized ($0.01 par value)
of which 1.2 billion, 400 million, and 200 million were designated Class I
shares, Class II shares and Advisor Class shares, respectively. Transactions in
the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold....................................... 162,377,765 $ 3,342,332,950 116,375,056 $ 2,413,664,953
Shares issued on reinvestment of distributions.... 84,313,094 1,737,946,375 28,725,892 533,837,608
Shares redeemed................................... (123,878,907) (2,509,588,429) (55,979,411) (1,152,141,156)
-----------------------------------------------------------------------
Net increase...................................... 122,811,952 $ 2,570,690,896 89,121,537 $ 1,795,361,405
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>

36
TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (continued)

2. CAPITAL STOCK (CONT.)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold.............................................. 21,887,098 $ 446,684,900 19,727,633 $406,674,814
Shares issued on reinvestment of distributions........... 5,371,460 109,391,107 977,215 18,004,847
Shares redeemed.......................................... (8,429,791) (166,830,152) (1,736,615) (35,713,521)
--------------------------------------------------------------
Net increase............................................. 18,828,767 $ 389,245,855 18,968,233 $388,966,140
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1998 1997*
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold.............................................. 1,306,769 $ 26,289,488 1,386,033 $ 28,617,159
Shares issued on reinvestment of distributions........... 235,380 4,848,120 -- --
Shares redeemed.......................................... (694,766) (14,107,557) (72,960) (1,580,359)
--------------------------------------------------------------
Net increase............................................. 847,383 $ 17,030,051 1,313,073 $ 27,036,800
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

*Effective date of Advisor Class share was January 2, 1997.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Fund are also officers or directors of Templeton Global
Advisors Ltd. (TGAL), Franklin Templeton Services, Inc. (FT Services),
Franklin/Templeton Distributors, Inc. (Distributors) and Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter and transfer agent, respectively.

The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>

37
TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>

The Fund reimburses Distributors up to 0.25% and 1.00% per year of the average
daily net assets of Class I and Class II shares, respectively, for costs
incurred in marketing the Fund's Class I and Class II shares. Under the Class I
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At August 31, 1998, there were no unreimbursed costs. Distributors
received net commissions from sales of Fund shares, and received contingent
deferred sales charges for the period of $4,661,855 and $474,453, respectively.

Legal fees of $96,132 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

At August 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $13,945,283,035 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................... $ 826,462,684
Unrealized depreciation.................................... (2,702,497,710)
---------------
Net unrealized depreciation................................ $(1,876,035,026)
---------------
---------------
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998 aggregated $7,140,301,074 and $5,590,440,851,
respectively.

TEMPLETON GROWTH FUND, INC.
Independent Auditor's Report

THE BOARD OF DIRECTORS AND SHAREHOLDERS
TEMPLETON GROWTH FUND, INC.

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Growth Fund, Inc. as of August 31,
1998, and the related statement of operations 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 the periods indicated in the
accompanying financial statements. 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Growth Fund, Inc. as of August 31, 1998, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.

[McGladrey & Pullen, LLP]

New York, New York
September 29, 1998

TEMPLETON GROWTH FUND, INC.
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amounts as capital gain dividends for the fiscal year
ended August 31, 1998:

<TABLE>
<S> <C>
28% Rate Gain.............................................. $ 116,868,640
20% Rate Gain.............................................. 1,405,957,643
--------------
Total...................................................... $1,522,826,283
==============
</TABLE>

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
12.44% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1998.

PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com

SHAREHOLDER SERVICES
1-800/632-2301

FUND INFORMATION
1-800/342-5236

This report must be preceded or accompanied by the current prospectus of
Templeton Growth Fund, Inc. which contains more complete information including
risk factors, charges and expenses. Like any investment in securities, the value
of the Fund's portfolio will be subject to the risk of loss from market,
currency, economic, political and other factors, as well as investment decisions
by the Investment Manager, which will not always be profitable or wise. The Fund
and its investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.

[LOGO] Printed on recycled paper

101 A98 10/98

EXHIBIT D

SEMI ANNUAL REPORT

[GRAPHIC]
February 28, 1999

TEMPLETON GROWTH FUND, INC.

[LOGO FRANKLIN TEMPLETON]

[LOGO CELEBRATING OVER 50 YEARS]

[PHOTO OF MARK G. HOLOWESKO, CFA]

MARK G. HOLOWESKO, CFA
Portfolio Manager
Templeton Growth Fund

Mark G. Holowesko is president and portfolio manager of Templeton Growth Fund
and several other Templeton funds. He joined the Templeton organization in 1985
in Nassau, Bahamas, and serves as chief investment officer of equity research
worldwide, as well as an officer and director of Templeton Worldwide Inc. Mr.
Holowesko received a B.A. in economics from Holy Cross College and an M.B.A.
from Babson College. He is a Chartered Financial Analyst and a former director
of the International Society of Financial Analysts.

SHAREHOLDER LETTER

Your Fund's Goal: Templeton Growth Fund seeks long-term capital growth. Under
normal market conditions, the Fund will invest primarily in the equity
securities of companies located anywhere in the world, including emerging
markets.

Dear Shareholder:

We are pleased to bring you this semiannual report of Templeton Growth Fund,
which covers the six months ended February 28, 1999. During this time,
relatively low interest rates, benign inflation and increasing productivity
contributed to a rise in many global equity markets, and on February 28, 1999,
the Morgan Stanley Capital International(R) (MSCI) World Index was 22.77% higher
than on September 1, 1998.(1) Within this environment, the Fund's Class A shares
provided an 11.09% six-month cumulative total return, as shown in the
Performance Summary on page 8.

CONTENTS

Shareholder Letter ............. 1

Performance Summary ............ 7

Financial Highlights &
Statement of Investments ....... 10

Financial Statements ........... 22

Notes to Financial
Statements ..................... 25

[FUND CATEGORY PYRAMID]

Global
Growth
Growth & Income
Income
Tax-Free Income

(1). Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index
tracks the performance of approximately 1,500 securities in 23 countries, and is
designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 14 of
this report.

GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/28/99

[THIS CHART SHOWS IN BAR CHART FORMAT THE GEOGRAPHIC DISTRIBUTION OF TEMPLETON
GROWTH FUND'S PORTFOLIO HOLDINGS ON FEBRUARY 28, 1999, BASED ON TOTAL NET
ASSETS.]

European Stocks 32.7%
North American Stocks 30.5%
Asian Stocks 16.2%
Latin American Stocks 8.0%
Australian & New Zealand Stocks 4.0%
Mid-East/African Stocks 1.0%
Fixed-Income Securities 6.0%
Short-Term Investments & Other Net Assets 1.6%

The underperformance of the Fund relative to the index was largely due to our
value-oriented investment philosophy, which involves purchasing securities we
consider undervalued and holding them until their value is recognized by the
market. During the period under review, "growth" investors seemed to ignore
fundamental values, as share prices were pushed to record levels in a
momentum-driven market. At the end of the reporting period, the MSCI World Index
was trading at 29.8 times earnings, 14.7 times cash earnings and 3.55 times book
value. Globally, the most expensive stocks, as measured by price-to-earnings
(P/E) ratios, outperformed the least expensive by 2.8 times. In North America,
the ratio was 5.7 times, and in Europe, 4.1 times.(2)

ASIA

Improving economic conditions in many Asian countries drove up stock prices
there and, although they remained below their collective peak, Far East markets,
as measured by the Morgan Stanley Capital International(R) (MSCI) Far East
Index, rose 24% on average during the reporting period.(3) The best performing
Asian equity market was Korea's, which rose 91.8% in U.S. dollar terms.(4)

On February 28, 1999, Hong Kong represented the Fund's largest country weighting
in Asia. In our opinion, the long-term impact of the region's financial problems
on many quality companies has been over-estimated. For example, shares of HSBC
Holdings PLC, a bank and financial organization with subsidiaries in Asia,
Europe, the U.S. and the Middle East, were selling at a discount to those of
other international banks on a price-to-book-value basis as of February 28,
1999.

(2). Source: MSCI. Ratios calculated on a cap weighted basis.

(3). Source: Standard & Poor's Micropal. The unmanaged MSCI Far East Index
includes approximately 400 companies representing the stock markets of Hong
Kong, Japan and Singapore. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

(4). Source: Bloomberg.

EUROPE

Events culminating in the euro's successful introduction on January 1, 1999,
helped boost many European equity markets, and the Morgan Stanley Capital
International(R) All Country (MSCI AC) Europe Index rose 10.84% from September
1, 1998 to February 28, 1999.(5) In mainland Europe, we bought additional shares
of UPM-Kymmene Corp., one of the world's largest forest product companies.
Despite a management team which, in our opinion, is excellent, its shares were
trading at a single-digit P/E ratio and at a discount to the company's peer
group. We also took advantage of opportunities to buy shares of several European
energy and chemical companies, many of which are consolidating in efforts to
enhance value. And in the United Kingdom, we initiated a position in British
Airways PLC, an international and domestic passenger airline, which we believe
could benefit from higher operating margins resulting from improved cost
efficiencies and lower fuel prices.

LATIN AMERICA

Although Latin American companies saw a record number of mergers, equity markets
in the region posted mixed results during the reporting period. Mexico's market
rose 44.4%, Argentina's 7.2%, and Brazil's, where the lack of a strong
international financial policy kept the equity market under pressure, declined
21.4%.(6) As of February 28, 1999, our Brazilian holdings included shares of
several Telebras subsidiaries which we believed were undervalued. The portfolio
also included a position in Telmex, a provider of local and international
telephone services in Mexico. In spite of increased competition arising from the
deregulation of the Mexican telephone market, Telmex experienced only modest
market-share loss during the six months under review.

TOP 10 EQUITY HOLDINGS
2/28/99

[THIS CHART SHOWS IN TABLE FORMAT THE TOP 10 EQUITY HOLDING OF TEMPLETON
GROWTH FUND AS OF FEBRUARY 28, 1999, BASED ON TOTAL NET ASSETS.]

NAME, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------
HSBC Holdings PLC
Banking, Hong Kong* 2.3%

General Motors Corp.
Automobiles, U.S. 1.9%

Koninklijke Philips Electronics NV
Electrical & Electronics,
Netherlands 1.9%

Boeing Co.
Aerospace & Military
Technology, U.S. 1.8%

Telefonos de Mexico SA
(Telmex), L, ADR
Telecommunications, Mexico 1.6%

YPF Sociedad Anonima, ADR
Energy Sources, Argentina 1.5%

Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong* 1.4%

Ford Motor Co.
Automobiles, U.S. 1.4%

National Australia Bank Ltd.
Banking, Australia 1.4%

American Stores Co.
Merchandising, U.S. 1.4%

* Hong Kong reverted to the sovereignty of China on July 1, 1997.

(5). Source: Standard & Poor's Micropal. The unmanaged MSCI AC Europe Index
measures the weighted average performance, in U.S. dollars, of about 60% of the
market capitalization listed on European stock exchanges (approximately 700
securities). It includes reinvested dividends. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.

UNITED STATES

During the reporting period, the U.S. economy performed extremely well. Money
flowing to the perceived safety of the U.S. market, and frenzied purchasing of
Internet-related stocks pushed many prices to record levels, with the S&P 500(R)
Index rising from 994.24 on September 1, 1998 to 1,238.33 on February 28, 1999.
(7)

However, declines in share prices of cyclical and commodity related companies,
as well as underperformance of the average stock relative to more popular blue
chip stocks, enabled us to discover some stocks we considered bargains in the
U.S. We took advantage of weakness in the energy sources sector by adding
positions in Burlington Resources Inc., Occidental Petroleum Corp., and Valero
Energy Corp. As of February 28, 1999, automobiles, aerospace and military
technology, energy sources, and forest product and paper companies comprised the
Fund's main U.S. holdings. General Motors Corp., one of the top holdings, has
been experiencing favorable cost and margin trends, and we believe its North
American operations could begin to show a turnaround. Boeing Co., the world's
leading commercial aircraft manufacturer, has been focusing on profitability,
reducing costs and reexamining its manufacturing process. Its share price, in
our opinion, does not reflect the possibility of replacement demand for American
commercial aircraft, increased defense spending, or a resurgence of Asian
orders.

TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
Equity Investments
(92.4% of Total Net Assets)
2/28/99

% OF TOTAL
COUNTRY NET ASSETS
-------------------------------
United States 27.6%

United Kingdom 11.7%

Hong Kong** 10.8%

Netherlands 4.6%

Sweden 4.4%

Australia 3.8%

Germany 3.4%

Argentina 2.7%

France 2.7%

Mexico 2.6%

* Does not include fixed-income securities and short-term investments and
other net assets.

** Hong Kong reverted to the sovereignty of China on July 1, 1997.

(6). Source: Bloomberg.
(7). Source: Standard & Poor's Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.

Looking forward, we are optimistic about the Fund's prospects, and remain
confident in our value style of investing. It has rewarded shareholders with
long-term results in the past, and we firmly believe it would be wrong to change
our style now.

This discussion reflects our views, opinions and portfolio holdings as of
February 28, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and portfolio composition. Although past performance is not
predictive of future results, these insights may help you better understand our
investment and management philosophy.

Please remember, there are special risks associated with global investing
related to market, currency, economic, social, political and other factors.
Emerging market securities involve similar but heightened risks, in addition to
those associated with the relatively small size and lesser liquidity of those
markets. Investing in any emerging market means accepting a certain amount of
volatility and, in some cases, severe market corrections. For example, Taiwan's
equity market has increased 951% in the last 15 years, but has suffered six
declines of more than 20% during that time.(8) While short-term volatility can
be disconcerting, declines in excess of 50% are not unusual in emerging markets.
These risks and considerations are discussed in the Fund's prospectus.

Thank you for investing in Templeton Growth Fund. We welcome your comments and
look forward to serving you in the future.

Sincerely,

/s/ Mark G. Holowesko
- ---------------------------
Mark G. Holowesko, CFA
President
Templeton Growth Fund, Inc.

(8). Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market returns are measured in U.S. dollars and do not
include reinvested dividends.

PERFORMANCE SUMMARY AS OF 2/28/99

Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class' operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.

PRICE AND DISTRIBUTION INFORMATION (9/1/98 - 2/28/99)

<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 8/31/98
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.65 $16.13 $16.78
</TABLE>

<TABLE>
<CAPTION>
Distributions
-------------
<S> <C>
Dividend Income $0.4050
Long-Term Capital Gain $1.6950
Short-Term Capital Gain $0.3400
TOTAL $2.4400
</TABLE>

<TABLE>
<CAPTION>
Class B Change 2/28/99 1/1/99
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.25 $16.12 $16.37
</TABLE>

<TABLE>
<CAPTION>
Class C Change 2/28/99 8/31/98
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.63 $15.86 $16.49
</TABLE>

<TABLE>
<CAPTION>
Distributions
-------------
<S> <C>
Dividend Income $0.3104
Long-Term Capital Gain $1.6950
Short-Term Capital Gain $0.3400
TOTAL $2.3454
</TABLE>

<TABLE>
<CAPTION>
Advisor Class Change 2/28/99 8/31/98
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.65 $16.15 $16.80
</TABLE>

<TABLE>
<CAPTION>
Distributions
-------------
<S> <C>
Dividend Income $0.4398
Long-Term Capital Gain $1.6950
Short-Term Capital Gain $0.3400
TOTAL $2.4748
</TABLE>

CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to July 1,
1992, Fund shares were offered at a higher initial sales charge. Thus, actual
total returns would have been lower. On January 1, 1993, the Fund implemented a
Rule 12b-1 plan, which affects subsequent performance.

CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.

CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.

ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.

Templeton Growth Fund paid distributions derived from long-term capital gains of
$1.6950 per share in October, 1998. The Fund hereby designates such
distributions as capital gain dividends per Internal Revenue Code Section 852
(b)(3).

Past performance is not predictive of future results.

(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.

(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge(s) for that class. Six-month return has not
been annualized. Since Class B shares have existed for less than one year, the
figures for that class represent aggregate total return from inception;
therefore, average annual total returns are not provided.

(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.

(4). One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.

(5). On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class. Since
January 2, 1997 (commencement of sales), the cumulative and average annual total
return of Advisor Class shares were 13.21% and 5.92% respectively.

Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.

PERFORMANCE

<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (11/29/54)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return (1) 11.09% -9.07% 58.02% 216.04% 37,541.64%

Average Annual
Total Return (2) 4.73% -14.29% 8.29% 11.54% 14.19%

Value of $10,000
Investment (3) $10,473 $8,571 $14,890 $29,794 $3,547,753
</TABLE>

<TABLE>
<CAPTION>
2/28/95 2/28/96 2/28/97 2/28/98 2/28/99
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year
Total Return (4) 0.10% 21.90% 19.75% 18.93% -9.07%
</TABLE>

<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------
<S> <C>
Cumulative Total Return (1) - 1.53%
Aggregate Total Return (2) - 5.47%
Value of $10,000 Investment (3) $9,453
</TABLE>

<TABLE>
<CAPTION>
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative
Total Return (1) 10.79% - 9.69% 26.61% 45.47%
Average Annual
Total Return (2) 8.71% - 11.35% 7.82% 9.98%
Value of $10,000
Investment (3) $10,871 $8,865 $12,535 $14,402
</TABLE>

<TABLE>
<CAPTION>
2/28/97 2/28/98 2/28/99
-----------------------------------
<S> <C> <C> <C>
One-Year
Total Return (4) 18.77% 18.05% - 9.69%
</TABLE>

<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS (5) 6-MONTH 1-YEAR 5-YEAR 10-YEAR (11/29/54)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return (1) 11.31% - 8.82% 58.85% 217.70% 37,739.14%
Average Annual
Total Return (2) 11.31% - 8.82% 9.70% 12.25% 14.36%
Value of $10,000
Investment (3) $11,131 $9,118 $15,885 $31,770 $3,783,914
</TABLE>

<TABLE>
<CAPTION>
2/28/95 2/28/96 2/28/97 2/28/98 2/28/99
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year
Total Return (4) 0.10% 21.90% 19.75% 19.24% - 8.82%
</TABLE>

Past performance is not predictive of future results.

TEMPLETON GROWTH FUND

CLASS A

If you had invested $10,000 in Templeton Growth Fund - Class A at inception, it
would have been worth more than $3.5 million on February 28, 1999. The chart
below illustrates the cumulative total return of a hypothetical $10,000
investment in the Fund on November 29, 1954 (inception), with income dividends
and capital gains reinvested as shown through February 28, 1999.*

$3,547,753
Total value of investment
2/28/99

[GRAPH]

[THE FOLLOWING CHART SHOWS IN GRAPH FORMAT THE CUMULATIVE TOTAL RETURN OF A
$10,000 INVESTMENT IN THE FUND ON NOVEMBER 29, 1954 (INCEPTION) AS OF FEBRUARY
28, 1999.]

PRINCIPAL INCOME PRINCIPAL + CAP GAINS PRINCIPAL + TOTAL VALUE
DIVIDENDS CAP GAINS
<S> <C> <C> <C> <C> <C> <C>

11/29/54 $9,425 $0 $9,425 $0 $9,425 $9,425
12/31/54 $9,576 $0 $9,576 $0 $9,576 $9,576
12/31/55 $10,250 $0 $10,250 $0 $10,250 $10,250
12/31/56 $10,726 $0 $10,726 $0 $10,726 $10,726
12/31/57 $8,911 $0 $8,911 $0 $8,911 $8,911
12/31/58 $13,261 $0 $13,261 $0 $13,261 $13,261
12/31/59 $15,118 $0 $15,118 $0 $15,118 $15,118
12/31/60 $17,210 $0 $17,210 $0 $17,210 $17,210
12/31/61 $20,358 $0 $20,358 $0 $20,358 $20,358
12/31/62 $17,606 $0 $17,606 $0 $17,606 $17,606
12/31/63 $18,511 $0 $18,511 $0 $18,511 $18,511
12/31/64 $23,506 $296 $23,802 $0 $23,506 $23,802
12/31/65 $28,313 $760 $29,073 $0 $28,313 $29,073
12/31/66 $26,484 $1,048 $27,532 $0 $26,484 $27,532
12/31/67 $29,632 $1,682 $31,314 $0 $29,632 $31,314
12/31/68 $40,283 $2,857 $43,140 $0 $40,283 $43,140
12/31/69 $47,446 $4,176 $51,622 $0 $47,446 $51,622
12/31/70 $43,676 $4,622 $48,298 $0 $43,676 $48,298
12/31/71 $51,555 $6,320 $57,875 $1,013 $52,568 $58,888
12/31/72 $84,354 $11,271 $95,625 $3,637 $87,991 $99,262
12/31/73 $69,085 $9,801 $78,886 $10,529 $79,614 $89,415
12/31/74 $58,719 $9,469 $68,188 $10,435 $69,154 $78,623
12/31/75 $79,077 $14,655 $93,732 $14,451 $93,528 $108,183
12/31/76 $113,384 $22,907 $136,291 $22,456 $135,840 $158,747
12/31/77 $126,955 $28,103 $155,058 $36,033 $162,988 $191,091
12/31/78 $149,482 $35,006 $184,488 $43,311 $192,793 $227,799
12/31/79 $184,071 $47,071 $231,142 $57,794 $241,865 $288,936
12/31/80 $214,609 $61,327 $275,936 $87,798 $302,407 $363,734
12/31/81 $210,086 $66,829 $276,915 $85,947 $296,033 $362,862
12/31/82 $213,478 $80,038 $293,516 $108,561 $322,039 $402,077
12/31/83 $278,228 $114,668 $392,896 $141,489 $419,717 $534,385
12/31/84 $269,463 $122,307 $391,770 $154,204 $423,667 $545,974
12/31/85 $321,206 $161,412 $482,618 $215,055 $536,261 $697,673
12/31/86 $363,902 $208,249 $572,151 $273,680 $637,582 $845,831
12/31/87 $331,668 $219,095 $550,763 $321,336 $653,004 $872,099
12/31/88 $388,784 $293,580 $682,364 $395,521 $784,305 $1,077,885
12/31/89 $445,618 $385,960 $831,578 $489,482 $935,100 $1,321,060
12/31/90 $370,405 $367,034 $737,439 $463,998 $834,403 $1,201,437
12/31/91 $436,286 $476,190 $912,476 $665,363 $1,101,649 $1,577,839
12/31/92 $406,597 $482,422 $889,019 $755,314 $1,161,911 $1,644,333
12/31/93 $498,209 $623,674 $1,121,883 $1,060,095 $1,558,304 $2,181,978
12/31/94 $458,906 $610,067 $1,068,973 $1,130,853 $1,589,759 $2,199,826
12/31/95 $490,575 $713,327 $1,203,902 $1,432,193 $1,922,768 $2,636,095
12/31/96 $552,497 $881,788 $1,434,285 $1,743,583 $2,296,080 $3,177,868
12/31/97 $548,540 $961,807 $1,510,347 $2,181,732 $2,730,272 $3,692,079
12/31/98 $462,866 $892,107 $1,354,973 $2,245,565 $2,708,431 $3,600,538
2/28/99 $456,082 $879,028 $1,335,110 $2,212,643 $2,668,725 $3,547,753

</TABLE>

Total Value of Investment with Capital Gains and Dividends Reinvested

Value of Investment with Capital Gains Reinvested

Value of Investment with Dividends Reinvested

* Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current,
maximum 5.75% initial sales charge; thus actual total return for purchasers of
shares during the periods shown may differ. Prior to July 1, 1992, these shares
were offered at a higher initial sales charge. On January 1, 1993, the Fund's
Class A shares implemented a plan of distribution under Rule 12b-1, which will
affect subsequent performance.

Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.

The historical data shown above pertain only to Class A shares of the Fund. The
Fund offers other share classes, subject to different fees and expenses, which
will affect their performance. Please see the prospectus for more details.
Past performance is not predictive of future results.

TEMPLETON GROWTH FUND, INC.
Financial Highlights

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period... $16.78 $22.47 $18.75 $18.96 $18.95 $17.47
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income................. .15 .50 .54 .50 .39 .29
Net realized and unrealized gains
(losses)............................ 1.64 (2.76) 4.48 1.34 1.20 2.58
------------------------------------------------------------------------------------
Total from investment operations....... 1.79 (2.26) 5.02 1.84 1.59 2.87
------------------------------------------------------------------------------------
Less distributions from:
Net investment income................. (.41) (.55) (.49) (.44) (.29) (.27)
Net realized gains.................... (2.03) (2.88) (.81) (1.61) (1.29) (1.12)
------------------------------------------------------------------------------------
Total distributions.................... (2.44) (3.43) (1.30) (2.05) (1.58) (1.39)
------------------------------------------------------------------------------------
Net asset value, end of period......... $16.13 $16.78 $22.47 $18.75 $18.96 $18.95
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Total Return*.......................... 11.09% (12.61)% 28.28% 10.85% 9.51% 17.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)...... $11,710,624 $11,116,564 $12,129,283 $8,450,737 $6,964,298 $5,611,560
Ratios to average net assets:
Expenses.............................. 1.12%** 1.08% 1.08% 1.09% 1.12% 1.10%
Net investment income................. 1.77%** 2.53% 2.81% 2.87% 2.40% 1.76%
Portfolio turnover rate................ 11.77% 48.23% 41.81% 19.63% 35.21% 27.35%
</TABLE>

*Total return does not reflect sales commissions and is not annualized.
**Annualized.

TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS B
-----------------
PERIOD ENDED
FEBRUARY 28, 1999
(UNAUDITED)+
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $16.37
-----------------
Income from investment operations:
Net investment income...................................... --
Net realized and unrealized losses......................... (.25)
-----------------
Total from investment operations............................ (.25)
-----------------
Net asset value, end of period.............................. $16.12
-----------------
-----------------
Total Return*............................................... (1.53)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $2,892
Ratios to average net assets:
Expenses................................................... 1.94%**
Net investment income...................................... .07%**
Portfolio turnover rate..................................... 11.77%
</TABLE>

*Total return does not reflect the contingent deferred sales charge and is not
annualized.
**Annualized.
+For the period January 1, 1999 (effective date) to February 28, 1999.

TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 -------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995+
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........... $16.49 $22.18 $18.57 $18.90 $17.48
------------------------------------------------------------------------
Income from investment operations:
Net investment income......................... .10 .38 .42 .49 .04
Net realized and unrealized gains (losses).... 1.61 (2.77) 4.39 1.19 1.38
------------------------------------------------------------------------
Total from investment operations............... 1.71 (2.39) 4.81 1.68 1.42
------------------------------------------------------------------------
Less distributions from:
Net investment income......................... (.31) (.42) (.39) (.40) --
Net realized gains............................ (2.03) (2.88) (.81) (1.61) --
------------------------------------------------------------------------
Total distributions............................ (2.34) (3.30) (1.20) (2.01) --
------------------------------------------------------------------------
Net asset value, end of period................. $15.86 $16.49 $22.18 $18.57 $18.90
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Return*.................................. 10.79% (13.32)% 27.30% 9.99% 8.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).............. $879,765 $872,219 $755,184 $280,087 $42,548
Ratios to average net assets:
Expenses...................................... 1.87%** 1.83% 1.84% 1.87% 1.86%**
Net investment income......................... 1.03%** 1.79% 2.14% 2.25% 1.61%**
Portfolio turnover rate........................ 11.77% 48.23% 41.81% 19.63% 35.21%
</TABLE>

*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.

TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------
(UNAUDITED) 1998 1997+
---------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $16.80 $22.49 $19.37
---------------------------------------------
Income from investment operations:
Net investment income...................................... .16 .56 .37
Net realized and unrealized gains (losses)................. 1.66 (2.78) 2.75
---------------------------------------------
Total from investment operations............................ 1.82 (2.22) 3.12
---------------------------------------------
Less distributions from:
Net investment income...................................... (.44) (.59) --
Net realized gains......................................... (2.03) (2.88) --
---------------------------------------------
Total distributions......................................... (2.47) (3.47) --
---------------------------------------------
Net asset value, end of period.............................. $16.15 $16.80 $22.49
---------------------------------------------
---------------------------------------------
Total Return*............................................... 11.31% (12.41)% 16.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $41,208 $36,301 $29,531
Ratios to average net assets:
Expenses................................................... .87%** .83% .83%**
Net investment income...................................... 2.01%** 2.81% 3.68%**
Portfolio turnover rate..................................... 11.77% 48.23% 41.81%
</TABLE>

*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 89.5%
AEROSPACE & MILITARY TECHNOLOGY 4.1%
Boeing Co. ................................................. United States 6,411,000 $ 227,991,188
*General Motors Corp., H.................................... United States 2,031,300 95,851,969
Raytheon Co., A............................................. United States 2,147,015 113,523,418
Rolls-Royce PLC............................................. United Kingdom 18,575,804 81,240,500
---------------
518,607,075
---------------
APPLIANCES & HOUSEHOLD DURABLES 1.2%
Sony Corp................................................... Japan 1,856,700 140,523,944
Toro Co. ................................................... United States 550,000 16,431,250
---------------
156,955,194
---------------
AUTOMOBILES 5.3%
Autoliv Inc., SDR........................................... Sweden 1,201,152 45,379,138
Bayerische Motorenwerke AG BMW.............................. Germany 72,645 52,792,129
Fiat SpA, di Risp........................................... Italy 390,260 632,761
Ford Motor Co. ............................................. United States 3,016,600 178,922,088
General Motors Corp. ....................................... United States 2,944,500 243,105,281
Volkswagen AG............................................... Germany 368,350 24,119,960
Volvo AB, B................................................. Sweden 4,741,000 123,176,733
---------------
668,128,090
---------------
BANKING 5.9%
Australia & New Zealand Banking Group Ltd. ................. Australia 14,055,105 90,765,935
Banco Popular Espanol SA.................................... Spain 255,500 17,123,086
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 3,391,200 5,724,695
Deutsche Bank AG, Br. ...................................... Germany 1,469,399 76,458,107
Development Bank of Singapore Ltd., fgn. ................... Singapore 1,795,500 13,033,537
Guoco Group Ltd. ........................................... Hong Kong 19,237,000 29,794,973
HSBC Holdings PLC........................................... Hong Kong 10,238,141 288,072,632
National Australia Bank Ltd. ............................... Australia 10,723,122 178,780,846
National Australia Capital Securities PLC................... Australia 1,215,253 36,837,357
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 773,440 10,441,440
---------------
747,032,608
---------------
BROADCASTING & PUBLISHING .2%
South China Morning Post Holdings, Ltd. .................... Hong Kong 30,911,000 13,265,667
South China Morning Post Holdings, Ltd., 144A............... Hong Kong 8,976,000 3,852,112
---------------
17,117,779
---------------
BUILDING MATERIALS & COMPONENTS 1.4%
Caradon PLC................................................. United Kingdom 5,154,667 12,716,970
Cemex SA.................................................... Mexico 4,814,087 13,806,347
Cemex SA, A, ADR............................................ Mexico 22,092 126,716
Cemex SA, B................................................. Mexico 4,694,000 14,452,145
Cemex SA, B, ADR............................................ Mexico 777,000 4,784,540
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUILDING MATERIALS & COMPONENTS (CONT.)
+Hepworth PLC............................................... United Kingdom 16,767,410 $ 41,232,217
+Owens Corning.............................................. United States 2,893,300 92,043,106
---------------
179,162,041
---------------
BUSINESS & PUBLIC SERVICES 1.2%
*Humana Inc. ............................................... United States 8,335,200 145,866,000
---------------
CHEMICALS 4.7%
Akzo Nobel NV............................................... Netherlands 2,622,200 99,453,329
BASF AG..................................................... Germany 2,671,000 91,774,850
Bayer AG, Br. .............................................. Germany 904,100 31,759,372
Cookson Group PLC........................................... United Kingdom 24,025,284 62,158,908
DSM NV, Br. ................................................ Netherlands 1,273,290 110,423,086
Eastman Chemical Co. ....................................... United States 1,100,000 51,906,250
European Vinyls Corporation Evc International NV............ Netherlands 388,433 2,281,263
Imperial Chemical Industries PLC............................ United Kingdom 1,621,988 14,109,440
+Lyondell Chemical Co. ..................................... United States 5,068,600 67,792,525
Rhone-Poulenc SA, A......................................... France 1,400,000 64,163,785
---------------
595,822,808
---------------
CONSTRUCTION & HOUSING
Hollandsche Beton Groep NV.................................. Netherlands 544,171 5,197,088
---------------
ELECTRICAL & ELECTRONICS 6.4%
ABB AB, A................................................... Sweden 12,973,000 147,510,576
Alcatel SA.................................................. France 900,000 96,821,999
Fuji Photo Film Co. Ltd. ................................... Japan 1,267,000 46,558,112
General Electric Co. PLC.................................... United Kingdom 18,500,000 148,925,859
Koninklijke Philips Electronics NV.......................... Netherlands 3,371,830 235,041,665
Motorola Inc. .............................................. United States 1,967,600 138,223,900
---------------
813,082,111
---------------
ELECTRONIC COMPONENTS & INSTRUMENTS .1%
BICC PLC.................................................... United Kingdom 8,340,220 11,958,119
---------------
ENERGY EQUIPMENT & SERVICES .2%
Baker Hughes Inc. .......................................... United States 1,503,000 27,054,000
---------------
ENERGY SOURCES 8.3%
Amerada Hess Corp. ......................................... United States 2,108,000 95,650,500
*Barrett Resources Corp. ................................... United States 1,100,000 18,081,250
Burlington Resources Inc. .................................. United States 2,700,000 87,412,500
Norsk Hydro AS.............................................. Norway 3,551,577 120,457,074
Occidental Petroleum Corp. ................................. United States 6,000,000 90,375,000
Perez Companc SA, B......................................... Argentina 6,863,400 27,945,216
*Ranger Oil Ltd. ........................................... Canada 2,810,900 7,905,656
*Renaissance Energy Ltd. ................................... Canada 5,250,000 46,257,039
Repsol SA................................................... Spain 1,029,700 54,144,168
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES (CONT.)
Saga Petroleum AS........................................... Norway 3,754,160 $ 31,535,608
Shell Transport & Trading Co. PLC........................... United Kingdom 19,784,000 110,294,960
Shell Transport & Trading Co. PLC, Reg D.................... United Kingdom 36,000 1,208,250
Societe Elf Aquitaine SA.................................... France 1,030,000 107,415,336
+Valero Energy Corp., new................................... United States 2,907,700 51,066,481
YPF Sociedad Anonima........................................ Argentina 1,400,000 40,756,303
YPF Sociedad Anonima, ADR................................... Argentina 5,282,800 153,201,200
---------------
1,043,706,541
---------------
FINANCIAL SERVICES 1.3%
Lend Lease Corp. Ltd. ...................................... Australia 3,029,190 37,619,408
Merrill Lynch & Co. Inc. ................................... United States 1,580,300 121,288,025
---------------
158,907,433
---------------
FOOD & HOUSEHOLD PRODUCTS 2.3%
Archer-Daniels Midland Co. ................................. United States 9,232,794 139,646,007
Hillsdown Holdings PLC...................................... United Kingdom 10,211,538 11,451,214
Panamerican Beverages Inc., A............................... Mexico 1,216,400 19,234,325
Tate & Lyle PLC............................................. United Kingdom 13,600,000 98,587,037
*Terranova Foods PLC........................................ United Kingdom 3,325,382 4,368,353
Vitro SA de CV, A........................................... Mexico 6,090,720 9,201,851
Vitro SA de CV, ADR......................................... Mexico 962,440 4,330,980
---------------
286,819,767
---------------
FOREST PRODUCTS & PAPER 6.5%
Aracruz Celulose SA, ADR.................................... Brazil 2,338,900 30,113,338
Assidomaen AB............................................... Sweden 1,198,100 21,826,250
+Boise Cascade Corp. ....................................... United States 3,082,600 95,753,263
Bowater Inc. ............................................... United States 2,145,000 90,358,125
Carter Holt Harvey Ltd. .................................... New Zealand 21,502,738 19,721,803
Champion International Corp. ............................... United States 1,000,000 37,000,000
Fletcher Challenge Paper Ltd. .............................. New Zealand 18,802,836 13,008,047
International Paper Co. .................................... United States 3,400,000 142,800,000
Metsa Serla OY, B........................................... Finland 2,611,000 18,085,965
Mitsubishi Paper Mills Ltd. ................................ Japan 3,946,000 6,584,981
Mo Och Domsjoe AB, B........................................ Sweden 2,950,000 77,365,815
Norske Skogindustrier AS, A................................. Norway 994,000 29,569,507
Sappi Ltd. ................................................. South Africa 2,730,600 9,741,123
St. Joe Co. ................................................ United States 661,800 14,270,063
*Stora Enso OY, A........................................... Finland 98,700 877,622
*Stora Enso OY, A, fgn. .................................... Finland 718,823 6,108,106
Stora Enso OY, R............................................ Finland 4,973,575 44,224,115
*Stora Enso OY, R, fgn. .................................... Finland 4,361,145 38,657,906
Svenska Cellulosa AB, B..................................... Sweden 287,244 5,742,070
UPM-Kymmene Corp. .......................................... Finland 4,801,840 124,664,928
---------------
826,473,027
---------------
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL COMPONENTS 1.9%
Goodyear Tire & Rubber Co. ................................. United States 1,722,600 $ 79,670,250
Michelin SA, B.............................................. France 715,491 31,888,616
*RTI International Metals Inc. ............................. United States 462,700 4,916,188
Sandvik AB, A............................................... Sweden 130,100 2,497,335
Sandvik AB, B............................................... Sweden 3,656,000 70,178,750
SKF AB, A................................................... Sweden 1,002,995 13,305,411
SKF AB, B................................................... Sweden 2,480,374 34,268,525
---------------
236,725,075
---------------
INSURANCE 2.3%
Ace Ltd. ................................................... Bermuda 2,000,000 54,500,000
American General Corp. ..................................... United States 1,100,000 80,575,000
American International Group Inc. .......................... United States 137,813 15,702,012
Partnerre Ltd. ............................................. Bermuda 739,400 31,979,050
+W R Berkeley Corp. ........................................ United States 1,690,650 48,394,856
XL Capital Ltd., A.......................................... Bermuda 1,000,000 61,250,000
---------------
292,400,918
---------------
LEISURE & TOURISM .5%
Rank Group PLC.............................................. United Kingdom 6,565,891 24,981,563
Shangri-La Asia Ltd. ....................................... Hong Kong 48,233,000 34,551,083
---------------
59,532,646
---------------
MACHINERY & ENGINEERING 1.6%
+Agco Corp. ................................................ United States 5,739,500 37,665,469
BTR Siebe PLC............................................... United Kingdom 25,067,656 105,817,298
New Holland NV.............................................. Netherlands 1,600,000 15,900,000
Valmet (OY)................................................. Finland 2,000,000 20,857,347
Vickers Group PLC........................................... United Kingdom 8,396,988 19,908,913
---------------
200,149,027
---------------
MERCHANDISING 4.6%
American Stores Co. ........................................ United States 5,157,600 174,069,000
*CompUSA Inc. .............................................. United States 189,200 1,986,600
Dairy Farm International Holdings Ltd. ..................... Hong Kong 36,629,531 39,193,598
Gucci Group NV, Reg D....................................... Netherlands 1,366,900 95,683,000
Marks & Spencer PLC......................................... United Kingdom 6,989,000 47,136,731
Safeway PLC................................................. United Kingdom 14,432,027 62,424,262
Sears Roebuck & Co. ........................................ United States 2,600,000 105,625,000
W.H. Smith Group............................................ United Kingdom 5,740,290 50,347,774
---------------
576,465,965
---------------
METALS & MINING 4.7%
AK Steel Holding Corp. ..................................... United States 1,629,900 35,552,194
Alcan Aluminum Ltd. ........................................ Canada 3,463,361 83,974,170
Alcan Aluminum Ltd., fgn. .................................. Canada 1,500,000 36,468,750
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING (CONT.)
Anglo American Platinum Corp. Ltd. ......................... South Africa 3,000,000 $ 49,297,821
Billiton PLC................................................ United Kingdom 19,141,800 41,627,941
British Steel PLC........................................... United Kingdom 63,665,600 126,725,366
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,177,905 9,864,954
Cyprus Amax Minerals Co. Inc. .............................. United States 1,142,500 12,853,125
Grupo Mexico SA de CV, B.................................... Mexico 6,004,300 16,495,992
Industrias Penoles SA....................................... Mexico 3,223,400 9,649,153
Iscor Ltd. ................................................. South Africa 21,374,700 3,657,334
Minorco SA, ADR............................................. Luxembourg 1,399,224 21,950,327
Outokumpu OY, A............................................. Finland 660,300 5,791,533
Pechiney SA, A.............................................. France 1,356,639 44,826,647
*Pohang Iron & Steel Co. Ltd. .............................. South Korea 1,093,160 57,815,075
+Titanium Metals............................................ United States 2,322,000 16,399,125
WMC Ltd. ................................................... Australia 7,933,500 24,631,467
---------------
597,580,974
---------------
MISC MATERIALS & COMMODITIES .9%
+Agrium Inc. ............................................... Canada 6,182,100 49,456,800
De Beers/Centenary Linked Units, Reg........................ South Africa 870,850 15,013,201
De Beers/Centenary Linked Units, ADR........................ South Africa 2,950,000 50,518,750
---------------
114,988,751
---------------
MULTI-INDUSTRY 6.4%
Alfa SA de CV, A............................................ Mexico 6,608,600 16,264,259
Amoy Properties Ltd. ....................................... Hong Kong 57,698,000 41,331,212
Broken Hill Proprietary Co. Ltd. ........................... Australia 11,287,048 84,734,861
Cheung Kong Holdings Ltd. .................................. Hong Kong 26,562,000 180,845,471
DESC SA de CV, B............................................ Mexico 10,295,000 9,803,777
DESC SA de CV, C, ADR....................................... Mexico 25,800 495,038
Elementis PLC............................................... United Kingdom 20,177,882 23,758,840
First Pacific Co. Ltd. ..................................... Hong Kong 37,473,000 22,611,245
*Hicom Holdings Bhd. ....................................... Malaysia 1,120,800 315,503
Hutchison Whampoa Ltd. ..................................... Hong Kong 12,000,000 83,249,976
Inchcape PLC................................................ United Kingdom 26,000,000 61,853,193
Jardine Matheson Holdings Ltd. ............................. Hong Kong 10,087,768 26,429,952
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,245,732 20,656,311
*Metra OY, B................................................ Finland 284,280 5,170,997
Pacific Dunlop Ltd. ........................................ Australia 14,221,277 24,814,205
Pilkington PLC.............................................. United Kingdom 40,000,000 40,370,382
*Saab AB, B................................................. Sweden 1,254,300 11,041,643
Swire Pacific Ltd., A....................................... Hong Kong 33,386,500 136,601,213
Swire Pacific Ltd., B....................................... Hong Kong 24,783,300 15,114,206
Wheelock and Company Ltd. .................................. Hong Kong 10,338,809 6,371,890
---------------
811,834,174
---------------
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 1.3%
Boston Properties Inc. ..................................... United States 460,700 $ 14,886,369
Hang Lung Development Co. Ltd. ............................. Hong Kong 24,309,000 23,374,793
Hong Kong Land Holdings Ltd. ............................... Hong Kong 13,093,000 13,747,650
New World Development Co. Ltd. ............................. Hong Kong 17,699,244 32,553,222
Rouse Co. .................................................. United States 2,532,500 59,197,188
*Wereldhave NV.............................................. Netherlands 313,594 16,902,646
---------------
160,661,868
---------------
TELECOMMUNICATIONS 5.1%
Bell Atlantic Corp. ........................................ United States 2,100,000 120,618,750
Hong Kong Telecommunications Ltd. .......................... Hong Kong 41,597,548 69,796,796
PT Indosat TBK, ADR......................................... Indonesia 36,075 468,975
Rostelekom.................................................. Russia 3,872,000 3,058,880
SK Telecom Co. Ltd., ADR.................................... South Korea 7,403,850 74,963,981
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 16,023,500 43,327,718
Telecom Argentina Stet-France SA, ADR....................... Argentina 2,974,700 80,502,819
Telefonica de Argentina SA, B, ADR.......................... Argentina 960,080 28,082,340
Telefonica del Peru SA, B................................... Peru 8,459,874 10,171,696
Telefonica del Peru SA, B, ADR.............................. Peru 1,083,200 12,795,300
Telefonos de Mexico SA (Telmex), L.......................... Mexico 14,118,470 39,994,059
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 2,900,000 165,843,750
---------------
649,625,064
---------------
TEXTILES & APPAREL .1%
*Adidas-Salomon AG.......................................... Germany 187,160 17,854,113
---------------
TRANSPORTATION 3.0%
British Airways PLC......................................... United Kingdom 13,046,000 96,504,285
Cathay Pacific Airways Ltd. ................................ Hong Kong 33,892,000 37,838,831
Hitachi Zosen Corp. ........................................ Japan 3,725,000 4,552,255
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 4,621,630 54,307,225
Singapore Airlines Ltd., fgn. .............................. Singapore 23,586,900 173,956,812
Stolt Nielsen SA............................................ Norway 463,500 4,982,625
Stolt Nielsen SA, ADR....................................... Norway 459,000 5,364,563
---------------
377,506,596
---------------
UTILITIES ELECTRICAL & GAS 8.0%
*CEZ AS..................................................... Czech Republic 2,047,771 2,668,369
CLP Holdings Ltd. .......................................... Hong Kong 18,639,900 87,813,410
Electrabel SA............................................... Belgium 154,273 64,354,509
Entergy Corp. .............................................. United States 3,600,000 101,700,000
Gener SA, ADR............................................... Chile 1,467,200 22,008,000
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 41,999,600 119,530,338
Iberdrola SA, Br. .......................................... Spain 5,700,000 89,165,157
Illinova Corp. ............................................. United States 2,900,000 68,875,000
*Korea Electric Power Corp. ................................ South Korea 6,273,800 148,191,925
National Grid Group PLC..................................... United Kingdom 2,504,100 18,112,222
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS (CONT.)
National Power PLC.......................................... United Kingdom 3,800,000 $ 30,224,921
Potomac Electric Power Co. ................................. United States 5,187,734 126,451,016
Powergen PLC................................................ United Kingdom 907,444 11,091,919
Thames Water Group PLC...................................... United Kingdom 3,826,785 62,776,390
Transportadora de Gas del Sur SA, B, Reg S, ADR............. Argentina 1,400,000 13,825,000
Veba AG..................................................... Germany 900,000 47,521,817
---------------
1,014,309,993
---------------
TOTAL COMMON STOCKS (COST $11,818,808,718).................. 11,311,524,845
---------------
PREFERRED STOCKS 2.9%
Ballast Nedam NV, ctf., cvt., pfd. ......................... Netherlands 86,182 2,440,854
Banco Bradesco SA BBD, pfd. ................................ Brazil 3,171,500,000 12,748,339
*Banco Bradesco SA BBD, rts., pfd. ......................... Brazil 131,455,953 525,064
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. ... Brazil 120,400,000 1,650,693
Centrais Eletricas Brasileiras SA (Electrobras), ADR,
pfd. ..................................................... Brazil 3,986,800 27,329,662
*Centrais Geradoras Do Sul Do Brasil SA (Gerasul), ADR,
pfd. ..................................................... Brazil 350,790 1,060,128
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 949,560 12,155,301
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,350,400 17,286,447
Embotelladora Andina SA, B, ADR, pfd. ...................... Chile 183,500 2,133,188
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 2,525,000 34,403,125
Fiat SpA, pfd. ............................................. Italy 18,931,350 28,907,742
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 250,000,000 19,792,383
Tele Celular Sul Participacoes SA, ADR, pfd. ............... Brazil 102,500 1,652,813
Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ...... Brazil 341,663 896,865
Tele Leste Celular Participacoes SA, ADR, pfd. ............. Brazil 20,500 429,219
Tele Nordeste Celular Participacoes SA, ADR, pfd. .......... Brazil 51,250 781,563
Tele Norte Celular Participacoes SA, ADR, pfd. ............. Brazil 20,500 498,406
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 205,000 2,729,063
Telecomunicacoes Brasileiras SA (Telebras), unit, pfd. ..... Brazil 875,600,000 56,709,622
Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ...... Brazil 1,025,000 176,172
*Telecomunicacoes de Minas Gerais SA Telemig, C, pfd. ...... Brazil 38,363,000 344,984
Telecomunicacoes de Minas Gerais SA Telemig, B, pfd. ....... Brazil 38,363,000 631,529
Telecomunicacoes de Sao Paulo SA (Telesp), pfd. ............ Brazil 220,000,000 20,548,108
*Telemig Celular Participacoes SA, ADR, pfd. ............... Brazil 51,250 948,125
Telesp Celular Participacoes SA, ADR, pfd. ................. Brazil 410,000 8,610,000
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 1,025,000 16,912,500
Usinas Siderurgicas de Minas Gerais SA, pfd. ............... Brazil 4,188,959 5,104,972
Volkswagen AG, pfd. ........................................ Germany 2,218,960 88,178,662
---------------
TOTAL PREFERRED STOCKS (COST $651,392,142).................. 365,585,529
---------------
</TABLE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 6.0%
U.S. Treasury Bonds:
14.00%, 11/15/11.......................................... United States $ 97,000,000 $ 147,470,360
7.875%, 2/15/21........................................... United States 128,500,000 160,343,972
6.25%, 8/15/23............................................ United States 155,303,000 163,990,339
U.S. Treasury Notes:
6.375%, 7/15/99........................................... United States 78,000,000 78,487,500
6.00%, 10/15/99........................................... United States 108,000,000 108,708,804
6.375%, 1/15/00........................................... United States 98,000,000 99,133,174
---------------
TOTAL BONDS (COST $727,148,534)............................. 758,134,149
---------------
SHORT TERM INVESTMENTS 1.7% (COST $208,084,188)
U.S. Treasury Bills, 4.07% to 4.57%, with maturities to
5/20/99................................................... United States 209,431,000 208,055,426
---------------
TOTAL INVESTMENTS (COST $13,405,433,582) 100.1%............. 12,643,299,949
OTHER ASSETS, LESS LIABILITIES (.1%)........................ (8,811,357)
---------------
TOTAL NET ASSETS 100.0%..................................... $12,634,488,592
---------------
---------------
</TABLE>

*Non-income producing.
**Securities denominated in U.S. dollars.
+The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in affiliated companies at February
28, 1999 were $499,803,842.
See Notes to Financial Statements.

TEMPLETON GROWTH FUND, INC.
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$13,405,433,582).......................................... $12,643,299,949
Cash....................................................... 57,698
Receivables:
Investment securities sold................................ 58,629,515
Capital shares sold....................................... 10,448,377
Dividends and interest.................................... 44,183,448
---------------
Total assets.......................................... 12,756,618,987
---------------
Liabilities:
Payables:
Investment securities purchased........................... 63,485,856
Capital shares redeemed................................... 45,752,174
To affiliates............................................. 11,504,097
Distributions to shareholders.............................. 21,609
Accrued expenses........................................... 1,366,659
---------------
Total liabilities..................................... 122,130,395
---------------
Net assets, at value........................................ $12,634,488,592
---------------
---------------
Net assets consist of:
Undistributed net investment income........................ $ 94,792,702
Net unrealized depreciation................................ (762,133,633)
Accumulated net realized gain.............................. 109,721,150
Capital shares............................................. 13,192,108,373
---------------
Net assets, at value........................................ $12,634,488,592
---------------
---------------
CLASS A:
Net asset value per share ($11,710,623,767 / 725,791,346
shares outstanding)...................................... $16.13
---------------
---------------
Maximum offering price per share ($16.13 / 94.25%)......... $17.11
---------------
---------------
CLASS B:
Net asset value per share ($2,891,681 / 179,398 shares
outstanding)*............................................ $16.12
---------------
---------------
CLASS C:
Net asset value per share ($879,764,796 / 55,483,353 shares
outstanding)*............................................ $15.86
---------------
---------------
Maximum offering price per share ($15.86 / 99.00%)......... $16.02
---------------
---------------
ADVISOR CLASS:
Net asset value per share ($41,208,348 / 2,550,858 shares
outstanding)............................................. $16.15
---------------
---------------
</TABLE>

*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $8,093,024)
Dividends.................................................. $138,647,848
Interest................................................... 46,578,726
------------
Total investment income............................... $ 185,226,574
Expenses:
Management fees (Note 3)................................... 39,003,262
Administrative fees (Note 3)............................... 5,090,810
Distribution fees (Note 3)
Class A................................................... 14,914,761
Class B................................................... 2,288
Class C................................................... 4,564,193
Transfer agent fees (Note 3)............................... 7,709,000
Custodian fees............................................. 2,029,000
Reports to shareholders.................................... 1,554,900
Registration and filing fees............................... 216,000
Professional fees.......................................... 99,800
Directors' fees and expenses............................... 105,000
Other...................................................... 84,592
------------
Total expenses........................................ 75,373,606
--------------
Net investment income........................... 109,852,968
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 114,157,166
Foreign currency transactions............................. (2,578,866)
------------
Net realized gain..................................... 111,578,300
Net unrealized appreciation on investments............ 1,111,040,559
--------------
Net realized and unrealized gain............................ 1,222,618,859
--------------
Net increase in net assets resulting from operations........ $1,332,471,827
--------------
--------------
</TABLE>

See Notes to Financial Statements.

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 109,852,968 $ 352,041,372
Net realized gain from investments and foreign currency
transactions............................................ 111,578,300 1,794,895,388
Net unrealized appreciation (depreciation) on
investments.............................................. 1,111,040,559 (3,948,921,534)
---------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 1,332,471,827 (1,801,984,774)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (266,935,436) (309,635,887)
Class C.................................................. (16,086,921) (16,109,670)
Advisor Class............................................ (974,245) (846,245)
Net realized gains:
Class A.................................................. (1,337,704,921) (1,624,126,003)
Class C.................................................. (105,466,786) (109,111,611)
Advisor Class............................................ (4,507,946) (4,067,274)
Capital share transactions (Note 2):
Class A.................................................. 963,135,160 2,570,690,896
Class B.................................................. 2,939,477 --
Class C.................................................. 36,284,563 389,245,855
Advisor Class............................................ 6,250,196 17,030,051
---------------------------------------
Net increase (decrease) in net assets................... 609,404,968 (888,914,662)
Net assets:
Beginning of period........................................ 12,025,083,624 12,913,998,286
---------------------------------------
End of period.............................................. $12,634,488,592 $12,025,083,624
---------------------------------------
---------------------------------------
Undistributed net investment income included in net assets:
End of period.............................................. $ 94,792,702 $ 268,936,336
---------------------------------------
---------------------------------------
</TABLE>

See Notes to Financial Statements.

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Growth Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks long-term capital growth. Under normal market conditions, the Fund invests
primarily in the equity securities of companies located anywhere in the world,
including emerging markets. The following summarizes the Fund's significant
accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

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, and the difference between the recorded
amounts of dividends, interest and foreign withholding taxes, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

e. ACCOUNTING ESTIMATES:

2. CAPITAL STOCK

The Fund offers four classes of shares; Class A, Class B, Class C, and Advisor
Class shares. Effective January 1, 1999, Class I and Class II shares were
renamed Class A and Class C respectively, and a fourth class of shares, Class B,
was established. The shares differ by their initial sales load, distribution
fees, voting rights on matters affecting a single class of shares and the
exchange privilege of each class.

At February 28, 1999, there were 1.8 billion shares authorized ($0.01 par value)
of which 1.2 billion, 100 million, 400 million and 100 million were designated
Class A shares, Class B shares, Class C shares and Advisor Class shares,
respectively. Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold....................................... 103,708,022 $ 1,710,182,026 162,377,765 $ 3,342,332,950
Shares issued on reinvestment of distributions.... 91,923,668 1,440,479,862 84,313,094 1,737,946,375
Shares redeemed................................... (132,372,027) (2,187,526,728) (123,878,907) (2,509,588,429)
-----------------------------------------------------------------------
Net increase...................................... 63,259,663 $ 963,135,160 122,811,952 $ 2,570,690,896
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (unaudited) (continued)

2. CAPITAL STOCK (CONT.)

PERIOD ENDED
FEBRUARY 28, 1999*
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold............................................. 183,445 $ 3,007,502
Shares redeemed......................................... (4,047) (68,025)
----------------------------
Net increase............................................ 179,398 $ 2,939,477
----------------------------
----------------------------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold............................................. 10,332,539 $ 167,498,758 21,887,098 $ 446,684,900
Shares issued on reinvestment of distributions.......... 6,946,379 107,252,391 5,371,460 109,391,107
Shares redeemed......................................... (14,673,780) (238,466,586) (8,429,791) (166,830,152)
----------------------------------------------------------------
Net increase............................................ 2,605,138 $ 36,284,563 18,828,767 $ 389,245,855
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold............................................. 610,022 $ 10,150,838 1,306,769 $ 26,289,488
Shares issued on reinvestment of distributions.......... 334,891 5,247,737 235,380 4,848,120
Shares redeemed......................................... (554,511) (9,148,379) (694,766) (14,107,557)
----------------------------------------------------------------
Net increase............................................ 390,402 $ 6,250,196 847,383 $ 17,030,051
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>

*Effective date of Class B shares was January 1, 1999.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:

The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets as follows:

The Fund reimburses Distributors up to 0.25%, 1.00% and 1.00% per year of the
average daily net assets of Class A, Class B and Class C shares, respectively,
for costs incurred in marketing the Fund's Class A, Class B and Class C shares.
Under the Class A distribution plan, costs exceeding the maximum may be
reimbursed in subsequent periods. At February 28, 1999, there were no
unreimbursed costs. Distributors received net commissions from sales of the
Fund's shares, and received contingent deferred sales charges for the period of
$886,224 and $317,151, respectively.

Legal fees of $99,800 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

At February 28, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $13,407,193,359 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation................................... $ 1,343,600,006
Unrealized depreciation................................... (2,107,493,416)
---------------
Net unrealized depreciation............................... $ (763,893,410)
===============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $2,157,634,682 and $1,394,396,395,
respectively.

Templeton Growth Fund, Inc.
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777

SEMIANNUAL REPORT

PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com

SHAREHOLDER SERVICES
1-800/632-2301

FUND INFORMATION
1-800/342-5236

This report must be preceded or accompanied by the current Templeton Growth
Fund, Inc. prospectus, which contains more complete information including risk
factors, charges and expenses. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors, as well as investment decisions by the
Investment Manager, which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.

To ensure the highest quality of service, telephone calls to or from
our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.

101 S99 04/99 [RECYCLE LOGO] Printed on recycled paper

EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY

PROXY PROXY

SPECIAL SHAREHOLDERS' MEETING OF
TEMPLETON INSTITUTIONAL FUNDS, INC. - GROWTH SERIES
OCTOBER 12, 1999

The undersigned hereby revokes all previous proxies for his or her shares and
appoints BARBARA J. GREEN, JAMES R. BAIO and BRUCE S. ROSENBERG, and each of
them, proxies of the undersigned with full power of substitution to each of
them, to vote all shares of Templeton Institutional Funds, Inc. - Growth Series
("Growth Series") that the undersigned is entitled to vote at Growth Series'
Special Meeting to be held at 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091 at 10:00 a.m., Eastern time on October 12, 1999, including any
adjournment(s) thereof, upon such business as may properly be brought before the
meeting.

IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.

YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY. THIS
WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT
RESPONDED.

Note: Please sign exactly as your name
appears on the proxy. If signing for estates,
trusts or corporations, title or capacity
should be stated. If shares are held
jointly, each holder must sign.

------------------------------------------
Signature

------------------------------------------
Date

(Please see reverse side)

EVERY SHAREHOLDER'S VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY

This proxy is solicited on behalf of the Board of Directors of Templeton
Institutional Funds, Inc., on behalf of its series, Growth Series. It will be
voted as specified. if no specification is made, this proxy shall be voted in
favor of Proposal 1, regarding the reorganization of Growth Series pursuant to
the Agreement and Plan of Reorganization with Templeton Growth Fund, Inc. If any
other matters properly come before the Special Meeting about which the
proxyholders were not aware prior to the time of the solicitation, authorization
is given the proxyholders to vote in accordance with the views of management on
such matters. Management is not aware of any such matters.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.

FOR AGAINST ABSTAIN

1. To approve an Agreement and Plan of |_| |_| |_|
Reorganization between Templeton
Institutional Funds, Inc., on behalf
of its series, Growth Series ("Growth
Series"), and Templeton Growth Fund,
Inc. ("Growth Fund, Inc."), that provides
for the acquisition of substantially
all of the assets of Growth Series in
exchange for Advisor Class shares of
Growth Fund, Inc., the distribution
of such shares to the shareholders of
Growth Series, and the liquidation and
termination of Growth Series.

GRANT WITHHOLD

2. To grant the proxyholders the authority |_| |_|
to vote upon any other business that may
legally come before the Special Meeting or
any adjournment(s) thereof.

IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY. . . TODAY

PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.

STATEMENT OF ADDITIONAL INFORMATION
FOR
TEMPLETON GROWTH FUND, INC.
DATED SEPTEMEBER 20, 1999

Acquisition of the Assets of
GROWTH SERIES,
A series of Templeton Institutional Funds, Inc.

By and in exchange for Advisor Class shares of the
TEMPLETON GROWTH FUND, INC.

This Statement of Additional Information (SAI) relates pecifically to the
proposed delivery of substantially all of the assets of Templeton Institutional
Funds, Inc. - Growth Series for Advisor Class shares of Templeton Growth Fund,
Inc.

This SAI consists of this Cover Page and the following documents. Each of
these documents is attached to and is legally considered to be a part of this
SAI:

1. Statement of Additional Information of Templeton Growth Fund, Inc.
-Advisor Class Shares dated January 1, 1999.

2. Annual Report of Templeton Institutional Funds, Inc.-Growth Series,
containing financial information regarding Growth Series for the
fiscal year ended December 31, 1998.

3. SemiAnnual Report of Templeton Institutional Funds, Inc.-Growth
Series, containing financial information regarding Growth Series for
the six months ended June 30, 1999.

4. SemiAnnual Report of Templeton Growth Fund, Inc. containing
financial information for the six months ended February 28, 1999.

This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated September 20, 1999, relating to the
above-referenced transaction. Audited financial information for Templeton Growth
Fund, Inc. is contained in that fund's Annual Report to Shareholders dated
August 31, 1998, which is enclosed with and considered a part of the
Prospectus/Proxy Statement. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN(R) or by writing to either fund at 100
Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.

TEMPLETON
GROWTH FUND, INC. -

ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION [GRAPHIC OMITTED]
FRANKLIN(R) TEMPLETON(R)
JANUARY 1, 1999 100 FOUNTAIN PARKWAY, P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN /R/
- --------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 1999, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.

The audited financial statements and auditor's report in each fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1998, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goal and Strategies.......................................... 2

Risks........................................................ 6

Officers and Directors........................................ 10

Management and Other Services................................. 15

Portfolio Transactions........................................ 17

Distributions and Taxes....................................... 18

Organization, Voting Rights and
Principal Holders............................................. 19

Buying and Selling Shares..................................... 20

Pricing Shares................................................ 22

The Underwriter............................................... 23

Performance................................................... 23

Miscellaneous Information..................................... 25

Description of Bond Ratings................................... 26

MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

/bullet/ ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT;

/bullet/ ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK;

/bullet/ ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

101 SAIA 01/99

GOAL AND STRATEGIES
- --------------------------------------------------------------------------------

The fund's investment goal is long-term capital growth. This goal is
fundamental, which means it may not be changed without shareholder approval.

The fund tries to achieve its goal by investing in the equity and debt
securities of companies and governments located anywhere in the world, including
emerging markets.

The fund may invest without percentage limitation in domestic or foreign
securities. It may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian securities. It may invest up
to 5% of its total assets in securities issued by any one company or foreign
government. It may invest any amount of its assets in U.S. government
securities. It may invest in any industry, although it will not concentrate
(invest more than 25% of its total assets) in any one industry. It may invest up
to 15% of its total assets in foreign securities that are not listed on a
recognized U.S. or foreign securities exchange, including up to 10% of its total
assets in securities with a limited trading market.

The fund's principal investments are in equity securities, including common and
preferred stocks. It also invests in American, European and Global Depositary
Receipts. Depending upon current market conditions, it generally invests up to
25% of its assets in rated and unrated debt securities.

EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The purchaser of an equity security
typically receives an ownership interest in the company as well as certain
voting rights. The owner of an equity security may participate in a company's
success through the receipt of dividends, which are distributions of earnings by
the company to its owners. Equity security owners may also participate in a
company's success or lack of success through increases or decreases in the value
of the company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive less
appreciation than common stockholders and may have greater voting rights as
well. Equity securities may also include convertible securities, warrants or
rights. Convertible securities typically are debt securities or preferred stocks
that are convertible into common stock after certain time periods or under
certain circumstances. Warrants or rights give the holder the right to buy a
common stock at a given time for a specified price.

DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments. A debt security typically has a fixed payment schedule
that obligates the issuer to pay interest to the lender and to return the
lender's money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.

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 debt
securities generally declines. These changes in market value will be reflected
in the fund's net asset value.

Independent rating organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower rating
indicates higher risk. The fund may buy debt securities that are rated Caa by
Moody's Investors Service, Inc. (Moody's) or CCC by Standard & Poor's
Corporation (S&P) or better; or unrated debt that it determines to be of
comparable quality. As an operating policy, the fund will not invest more than
5% of its total assets in non-investment grade securities (rated lower than Baa
by Moody's or BBB by S&P).

STRUCTURED INVESTMENTS Included among the issuers of debt securities in which
the fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms, which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities (structured
investments) backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions. The extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.

The fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the fund's assets that may be used for borrowing activities.

Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940 (1940 Act). As a
result, the fund's investment in these structured investments may be limited by
the restrictions contained in the 1940 Act. Structured investments are typically
sold in private placement transactions, and there currently is no active trading
market for structured investments. To the extent such investments are illiquid,
they will be subject to the fund's restrictions on investments in illiquid
securities.

DEPOSITARY RECEIPTS are certificates that give their holders the right to
receive securities (i) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (ii) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").

REPURCHASE AGREEMENTS The fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian, securities with an initial value of at least 102% of the
dollar amount invested by the fund in each repurchase agreement.

Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions upon the fund's ability to
dispose of the underlying securities. The fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
fund's board of directors, i.e., banks or broker-dealers that have been
determined by the manager to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.

LOANS OF PORTFOLIO SECURITIES The fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. These loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The fund may terminate the loans at any time and obtain the
return of the securities loaned within five business days. The fund will
continue to receive any interest or dividends paid on the loaned securities and
will continue to have voting rights with respect to the securities. However, as
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in collateral should the borrower fail.

STOCK INDEX FUTURES CONTRACTS Changes in interest rates, securities prices or
foreign currency valuations may affect the value of the fund's investments.
Although the fund has the authority to invest up to 20% of its total assets
buying and selling stock index futures contracts traded on a recognized stock
exchange or board of trade, it does not currently intend to enter into such
transactions.

A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. The value of a unit is the current value of the stock index. For example,
the S&P 500 Stock Index (S&P 500 Index) is composed of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The S&P 500
Index assigns relative weightings to the value of one share of each of these 500
common stocks included in the index, and the index fluctuates with changes in
the market values of the shares of those common stocks. In the case of the S&P
500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P
500 Index were $150, one contract would be worth $75,000 (500 units x $150). 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. For example, if the fund enters into a futures
contract to BUY 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
fund will gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to SELL 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the fund will lose $2,000 (500 units x loss of $4).

SECURITIES INDEX OPTIONS Although the fund has the authority to buy and sell put
and call options on securities indices in standardized contracts traded on
national securities exchanges, boards of trade, or similar entities or quoted on
NASDAQ, it does not currently intend to enter into such transactions. An option
on a securities index is a contract that allows the buyer of the option the
right to receive from the seller cash, in an amount equal to the difference
between the index's closing price and the option's exercise price. The fund may
only buy options if the total premiums it paid for such options are 5% or less
of its total assets.

Parties to an index futures contract must make initial margin deposits to secure
performance of the contract, which currently range from 1/2% to 5% of the
contract amount. Initial margin requirements are determined by the respective
exchanges on which the futures contracts are traded. There also are requirements
to make variation margin deposits as the value of the futures contract
fluctuates.

At the time the fund buys a stock index futures contract, an amount of cash,
U.S. government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
fund's custodian. When selling a stock index futures contract, the 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, the
fund may "cover" its position by owning 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 buy 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).

The fund may write call options and put options only if they are "covered." A
call option on an index is covered if the fund maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the fund holds a call on the same index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is maintained by the fund in cash or cash
equivalents in a segregated account with its custodian. A put option on an index
is covered if the fund maintains cash or cash equivalents equal to the exercise
price in a segregated account with its custodian. A put option is also covered
if the fund holds a put on the same index as the put written where the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the fund in cash or cash equivalents in a
segregated account with its custodian.

If an option written by the fund expires, the fund will realize a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the fund expires unexercised, the fund will realize a capital loss
equal to the premium paid.

Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
index, exercise price and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when the fund desires.

TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in: (i) U.S. government securities; (ii)
bank time deposits denominated in the currency of any major nation; (iii)
commercial paper rated A-1 by S&P or Prime-1 by Moody's or, if unrated, issued
by a company which, at the date of investment, had an outstanding debt issue
rated AAA or AA by S&P or Aaa or Aa by Moody's; and (iv) repurchase agreements
with banks and broker-dealers.

FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS The fund has adopted the
following investment policies and restrictions as fundamental policies. This
means they may only be changed if the change is approved by (i) more than 50% of
the fund's outstanding shares or (ii) 67% or more of the fund's shares present
at a shareholder meeting if more than 50% of the fund's outstanding shares are
represented at the meeting in person or by proxy, whichever is less.

The fund seeks to achieve its investment goal of long-term capital growth
through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation. Although the fund generally invests in
common stock, it may also invest in preferred stocks and certain debt securities
(which may include structured investments, as described under "Goal and
Strategies-Structured Investments"), rated or unrated, such as convertible bonds
and bonds selling at a discount. Whenever, in the judgment of the manager,
market or economic conditions warrant, the fund may, for temporary defensive
purposes, invest without limit in U.S. government securities, bank time deposits
in the currency of any major nation and commercial paper meeting the quality
ratings set forth under "Goal and Strategies-Temporary Investments", and
purchase from banks or broker-dealers Canadian or U.S. government securities
with a simultaneous agreement by the seller to repurchase them within no more
than seven days at the original purchase price plus accrued interest. The fund
may invest no more than 5% of its total assets in securities issued by any one
company or government, exclusive of U.S. government securities. The fund may not
invest more than 10% of its assets in securities with a limited trading market.

In addition, the fund may not:

1. Invest in real estate or mortgages on real estate (although the 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 interests (other than debentures
or equity stock interests) in oil, gas or other mineral exploration or
development programs; purchase or sell commodity contracts except stock
index futures contracts; invest in other open-end investment companies
or, as an operating policy approved by the board of directors, invest in
closed-end investment companies.

2. Purchase or retain securities of any company in which directors or
officers of the fund or the 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 more than 10% of any class of securities of any one company,
including more than 10% of its outstanding voting securities, or invest
in any company for the purpose of exercising control or management.

4. Act as an underwriter; issue senior securities; purchase on margin or
sell short; write, buy or sell puts, calls, straddles or spreads (but
the fund may make margin payments in connection with, and purchase and
sell, stock index futures contracts and options on securities
indices).

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 the fund may buy U.S. 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.

6. Borrow money for any purpose other than redeeming its shares or
purchasing its shares for cancellation, and then only as a temporary
measure to an amount not exceeding 5% of the value of its total assets,
or pledge, mortgage, or hypothecate its assets other than to secure such
temporary borrowings, and then only to such extent not exceeding 10% of
the value of its total assets as the board of directors may by
resolution approve. (For the purposes of this restriction, collateral
arrangements with respect to margin for a stock index futures contract
are not deemed to be a pledge of assets.)

7. Invest more than 5% of the value of the fund's total assets in
securities of issuers which have been in continuous operation less than
three years.

8. Invest more than 5% of the fund's total assets in warrants, whether or
not listed on the New York Stock Exchange or the 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. This restriction does not apply to options on
securities indices.

9. Invest more than 15% of the fund's total assets in securities of foreign
issuers that are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets (including
warrants) which may be invested in securities with a limited trading
market. The fund's position in the latter type of securities may be of
such size as to affect adversely their liquidity and marketability and
the fund may not be able to dispose of its holdings in these securities
at the current market price.

10. Invest more than 25% of the fund's total assets in a single industry.

11. Invest in "letter stocks" or securities on which there are sales
restrictions under a purchase agreement.

12. Participate on a joint or a joint and several basis in any trading
account in securities. (See "Portfolio Transactions" as to transactions
in the same securities for the fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)

The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.

If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.

If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value of liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.

None of the fund's investment policies or restrictions (except restrictions 9
and 10) shall be deemed to prohibit the fund from buying securities pursuant to
subscription rights distributed to the fund by any issuer of securities held at
the time in its portfolio, as long as such purchase is not contrary to the
fund's status as a diversified investment company under the 1940 Act.

RISKS
- --------------------------------------------------------------------------------

FOREIGN SECURITIES The fund has an unlimited right to buy securities in any
foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to buy such securities if they are
unlisted. Investors should consider carefully the substantial risks 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 U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The fund, 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 and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Although the fund may invest up to 15% of its total
assets in unlisted foreign securities, including up to 10% of its total assets
in securities with a limited trading market, in the opinion of management such
securities with a limited trading market generally do not present a significant
liquidity problem. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., 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 U.S.

EMERGING MARKETS. 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 that may restrict the
fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries may be slowed or
reversed by unanticipated political or social events in such countries.

In addition, many countries in which the fund 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 U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.

Investments in developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 expropriation, the fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, 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.

RUSSIAN SECURITIES. Investing in Russian companies involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets, and should be considered highly speculative. These
risks include, together with Russia's continuing political and economic
instability and the slow-paced development of its market economy, the following:
(i) delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (ii) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (iii) pervasiveness of corruption, insider trading, and crime in the
Russian economic system; (iv) currency exchange rate volatility and the lack of
available currency hedging instruments; (v) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (vi)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on the fund's ability to exchange local currencies for U.S. dollars; (vii) 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, a return to the centrally planned economy
that existed before the dissolution of the Soviet Union, or the nationalization
of privatized enterprises; (viii) the risks of investing in securities with
substantially less liquidity and in issuers having significantly smaller market
capitalizations, when compared to securities and issuers in more developed
markets; (ix) the difficulties associated in obtaining accurate market
valuations of many Russian securities, based partly on the limited amount of
publicly available information; (x) the financial condition of Russian
companies, including large amounts of inter-company debt that may create a
payments crisis on a national scale; (xi) dependency on exports and the
corresponding importance of international trade; (xii) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (xiii) possible difficulty in identifying a buyer of securities held by
the fund due to the underdeveloped nature of the securities markets; (xiv) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (xv) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (xvi) the difficulty
in obtaining information about the financial condition of Russian issuers, in
light of the different disclosure and accounting standards applicable to Russian
companies.

There is little long-term 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 nor are they licensed with any
governmental entity and it is possible for the fund to lose its registration
through fraud, negligence or even mere oversight. While the 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 the 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
500 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 buy and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. Further, this also could cause a delay in the sale of Russian company
securities by the fund if a potential buyer is deemed unsuitable, which may
expose the fund to potential loss on the investment.

CURRENCY The fund's management endeavors to buy and sell foreign currencies on
as favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies that would prevent the 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 that could affect investments in
securities of issuers in foreign nations.

The fund 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 fund 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 the fund's
portfolio securities are denominated may have a detrimental impact on the fund.
Through the fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places the fund's investments.

The exercise of this flexible policy may include decisions to buy 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.

EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.

Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect on
the fund, the fund's manager and its affiliated services providers are taking
steps they believe are reasonably designed to address the euro issue.

INTEREST RATE To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the value
of the fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the fund's shares.

Of course, interest rates have increased and decreased, sometimes very
dramatically, in the past. These changes are likely to occur again in the future
at unpredictable times.

LOW RATED SECURITIES Bonds rated Caa by Moody's are of poor standing. These
securities may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated CCC by S&P are regarded, on
balance, as speculative. These securities will have some quality and protective
characteristics, but these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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 to principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. The fund may invest up to 10% of
its total assets in defaulted debt securities. The purchase of defaulted debt
securities involves risks such as the possibility of complete loss of the
investment in the event the issuer does not restructure or reorganize to enable
it to resume paying interest and principal to holders.

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 the 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 the
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 the fund to achieve its investment
goal may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness 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, the fund may incur additional expenses to seek
recovery.

The fund 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 cash
interest until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, the fund must
distribute substantially all of its income to shareholders. Thus, the fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash in order to satisfy the distribution requirement.

DERIVATIVE SECURITIES are those whose values are dependent upon the performance
of one or more other securities or investments or indices; in contrast to common
stock, for example, whose value is dependent upon the operations of the issuer.
Stock index futures contracts and options on securities indices are considered
derivative investments. To the extent the fund enters into these transactions,
their success will depend upon the manger's ability to predict pertinent market
movements.

Some of the risks involved in stock index futures transactions relate to the
fund's ability to reduce or eliminate its futures positions, which will depend
upon the liquidity of the secondary markets for such futures. The fund intends
to buy or sell futures 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 for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by the fund for hedging purposes also depends upon the manager's
ability to predict correctly
movements in the direction of the market, as to which no assurance can be
given.

There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the fund seeks to close out an
option position. If the fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the fund is covered by an option on the same index
purchased by the fund, movements in the index may result in a loss to the fund;
however, such losses may be mitigated by changes in the value of the fund's
securities during the period the option was outstanding.

OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------

The fund has a board of directors. The board is responsible for the overall
management of the fund, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the fund who
are responsible for administering the fund's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.

The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.

POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
S. Joseph Fortunato (66) Director Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Park Avenue at Morris County director or trustee, as the case may be, of 51 of
P.O. Box 1945 the investment companies in the Franklin Templeton Group
Morristown, NJ 07962-1945 of Funds.
----------------------------------------------------------------------------------------------------------------------------------
John Wm. Galbraith (77) Director President, Galbraith Properties, Inc. (personal investment
360 Central Avenue company); Director Emeritus, Gulf West Banks, Inc. (bank holding
Suite 1300 company) (1995-present); director or trustee, as the case may be,
St. Petersburg, FL 33701 of 20 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Director, Mercantile Bank
(1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and Chairman, Templeton Funds Management, Inc.
(1974-1991).
----------------------------------------------------------------------------------------------------------------------------------
Andrew H. Hines, Jr. (75) Director Consultant for the Triangle Consulting Group;
150 2nd Avenue N. Executive-in-Residence of Eckerd College (1991-present); director
St. Petersburg, FL 33701 or trustee, as the case may be, of 22 of the investment companies
in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997),
Director, Checkers Drive-In Restaurant, Inc. (1994-1997), and
Chairman of the Board and Chief Executive Officer, Florida
Progress Corporation (holding company in the energy area)
(1982-1990) and director of various of its subsidiaries.
- -----------------------------------------------------------------------------------------------------------------------------------
* Charles B. Johnson (65) Director and Vice President, Chief Executive Officer and Director, Franklin
777 Mariners Island Blvd. President Resources, Inc.; Chairman of the Board and Director, Franklin
San Mateo, CA 94404 Advisers, Inc., Franklin Advisory Services, Inc., Franklin
Investment Advisory Services, Inc. and Franklin Templeton
Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services Inc.; and officer
and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 50 of the
investment companies in the Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Betty P. Krahmer (69) Director Director or trustee of various civic associations; director or
2201 Kentmere Parkway trustee, as the case may be, of 21 of the investment companies in
Wilmington, DE 19806 the Franklin Templeton Group of Funds; and FORMERLY, Economic
Analyst, U.S. Government.
- -----------------------------------------------------------------------------------------------------------------------------------

POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon S. Macklin (70) Director Director, Fund American Enterprises Holdings, Inc., Martek
8212 Burning Tree Road Biosciences Corporation, MCI WorldCom (information services),
Bethesda, MD 20817 MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the
case may be, of 49 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Chairman, White
River Corporation (financial services) and Hambrecht and Quist
Group (investment banking), and President, National Association of
Securities Dealers, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Fred R. Millsaps (69) Director Manager of personal investments (1978-present); director of
2665 NE 37th Drive various business and nonprofit organizations; director or
Fort Lauderdale, FL 33308 trustee, as the case may be, of 22 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman
and Chief Executive Officer, Landmark Banking Corporation
(1969-1978), Financial Vice President, Florida Power and Light
(1965-1969), and Vice President, Federal Reserve Bank of Atlanta
(1958-1965).
- -----------------------------------------------------------------------------------------------------------------------------------
Mark G. Holowesko (38) President President, Templeton Global Advisors Limited; Chief Investment
Lyford Cay Officer, Global Equity Group; Executive Vice President and
Nassau, Bahamas Director, Templeton Worldwide, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
- -----------------------------------------------------------------------------------------------------------------------------------
Rupert H. Johnson, Jr. (58) Vice President Executive Vice President and Director, Franklin Resources, Inc.
777 Mariners Island Blvd. and Franklin Templeton Distributors, Inc.; President and Director,
San Mateo, CA 94404 Franklin Advisers, Inc; Senior Vice President and Director,
Franklin Advisory Services, Inc. and Franklin Investment Advisory
Services, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and
of 53 of the investment companies in the Franklin Templeton Group
of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Harmon E. Burns (53) Vice President Executive Vice President and Director, Franklin Resources, Inc.,
777 Mariners Island Blvd. Franklin Templeton Distributors, Inc. and Franklin Templeton
San Mateo, CA 94404 Services, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc; and officer
and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------

POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles E. Johnson (42) Vice President Senior Vice President and Director, Franklin Resources, Inc.;
500 East Broward Blvd. Senior Vice President, Franklin Templeton Distributors, Inc.;
Fort Lauderdale, FL President and Director, Templeton Worldwide, Inc.; Chairman and
33394-3091 Director, Templeton Investment Counsel, Inc.; Vice
President, Franklin Advisers, Inc.; officer and/or director of
some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 34
of the investment companies in the Franklin Templeton Group of
Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Deborah R. Gatzek (50) Vice President Senior Vice President and General Counsel, Franklin Resources,
777 Mariners Island Blvd. Inc.; Senior Vice President, Franklin Templeton Services, Inc. and
San Mateo, CA 94404 Franklin Templeton Distributors, Inc.; Executive Vice President,
Franklin Advisers, Inc.; Vice President, Franklin Advisory
Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services,
Inc.; and officer of 53 of the investment companies in the
Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan (38) Vice President Senior Vice President and Chief Financial Officer, Franklin
777 Mariners Island Blvd. Resources, Inc.; Executive Vice President and Director, Templeton
San Mateo, CA 94404 Worldwide, Inc.; Executive Vice President, Chief Operating Officer
and Director, Templeton Investment Counsel, Inc.; Executive Vice
President and Chief Financial Officer, Franklin Advisers, Inc.;
Chief Financial Officer, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; Senior Vice President
and Chief Financial Officer, Franklin/Templeton Investor Services,
Inc.; officer and/or director of some of the other subsidiaries
of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
John R. Kay (58) Vice President Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant
500 East Broward Blvd. Vice President, Franklin Templeton Distributors, Inc.; officer
Fort Lauderdale, FL of 25 of the investment companies in the Franklin Templeton
33394-3091 Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------

* This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby
Overseas and Templeton Global Advisors Limited are limited partners of Darby
Emerging Markets Fund, L.P.
</FN>
</TABLE>

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.

The fund pays noninterested board members and Mr. Brady an annual retainer of
$12,000 and a fee of $900 per board meeting attended. Board members who serve on
the audit committee of the fund and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the fund. Members of a committee are not compensated
for any committee meeting held on the day of a board meeting. Noninterested
board members may also serve as directors or trustees of other funds in the
Franklin Templeton Group of Funds and may receive fees from these funds for
their services. The following table provides the total fees paid to
noninterested board members and Mr. Brady by the fund and by the Franklin
Templeton Group of Funds.

NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP OF
RECEIVED FROM FRANKLIN TEMPLETON FUNDS ON WHICH
NAME THE FUND(1) GROUP OF FUNDS(2) EACH SERVES(3)
- ------------------------------ --------------- -------------------- -------------------
<S> <C> <C> <C>
Harris J. Ashton ............. $18,825 $361,157 49
Nicholas F. Brady ............ 18,825 140,975 21
S. Joseph Fortunato .......... 18,825 367,835 51
John Wm. Galbraith ........... 18,487 134,425 20
Andrew H. Hines, Jr. ......... 19,437 208,075 22
Betty P. Krahmer ............. 18,825 141,075 21
Gordon S. Macklin ............ 18,825 361,157 49
Fred R. Millsaps ............. 19,437 210,075 22

<FN>
1. For the fiscal year ended August 31, 1998. During the period from September
1, 1997, through February 27, 1998, an annual retainer of $12,500 and fees at
the rate of $950 per board meeting attended were in effect.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
</FN>
</TABLE>

Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.

Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------

MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Global Advisors
Limited. The manager is wholly owned by Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.

The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance. The manager
renders its services to the fund from outside the U.S.

The Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Brazil, the
British Virgin Islands, Canada, China, Cyprus, France, Germany, Hong Kong,
India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United
Kingdom and the U.S.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages. Of course, any transactions for the accounts of the manager
and other access persons will be made in compliance with the fund's code of
ethics.

Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and 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 FEES The fund pays the manager a fee equal to an annual rate of:

/bullet/ 0.75% of the value of average daily net assets up to and including
$200 million;

/bullet/ 0.675% of the value of average daily net assets over $200 million and
up to and including $1.3 billion; and

/bullet/ 0.60% of the value of average daily net assets over $1.3 billion.

The fee is computed monthly, based on the fund's average daily net assets during
the month preceding each payment, according to the terms of the management
agreement. Each class of the fund's shares pays its proportionate share of the
fee.

For the last three fiscal years ended August 31, the fund paid the following
management fees:

MANAGEMENT
FEES PAID ($)
- -------------- --------------
1998 ......... 86,332,815
1997 ......... 65,767,491
1996 ......... 48,379,594

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.

The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of:

/bullet/ 0.15% of the fund's average daily net assets up to $200 million;

/bullet/ 0.135% of average daily net assets over $200 million up to $700
million;

/bullet/ 0.10% of average daily net assets over $700 million up to $1.2
billion; and

/bullet/ 0.075% of average daily net assets over $1.2 billion.

During the last three fiscal years ended August 31, the fund paid the following
administration fees:

ADMINISTRATION
FEES PAID ($)
- -------------- ---------------
1998 ......... 11,225,977
1997 ......... 8,655,311
1996 ......... 6,481,909

For the periods prior to October 1, 1996, Templeton Global Investors, Inc.
provided administrative services to the fund.

SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.

For its services, Investor Services receives a fixed fee per account. The fund
may also reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year may not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.

CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech Center,
Brooklyn, NY 11245, and at the offices of its branches and agencies throughout
the world, acts as custodian of the fund's assets. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and monitors and furnishes information
relevant to the selection of compulsory depositories.

AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is the
fund's independent auditor. The auditor gives an opinion on the financial
statements included in the fund's Annual Report to Shareholders and reviews the
fund's registration statement filed with the U.S. Securities and Exchange
Commission (SEC).

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.

When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The manager will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
manager, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.

The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the fund,
any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.

If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.

During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:

BROKERAGE
COMMISSIONS ($)
- -------------- ----------------
1998 ......... 26,366,655
1997 ......... 15,953,126
1996 ......... 7,918,000

As of August 31, 1998, the fund owned securities issued by Merrill Lynch & Co.
valued in the aggregate at $104,299,800. Except as noted, the fund did not own
any securities issued by its regular broker-dealers as of the end of the fiscal
year.

DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in any distribution and service (Rule 12b-1) fees of each class.
The fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.

DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the fund, constitutes the fund's net investment
income from which dividends may be paid to you. Any distributions by the fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the fund.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the fund's ordinary
income distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.

The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the fund's earnings and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January that are treated by you as received in December) to
avoid these excise taxes, but can give no assurances that its distributions will
be sufficient to eliminate all taxes.

REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your fund
shares, or exchange your fund shares for shares of a different Franklin
Templeton Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the fund on those shares.

All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.

U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 12.44% of the dividends paid by the fund for
the most recent fiscal year qualified for the dividends-received deduction. In
some circumstances, you will be allowed to deduct these qualified dividends,
thereby reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with respect
to dividends designated by the fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculations.

INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund and/or defer the fund's ability to recognize losses, and, in limited
cases, subject the fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the fund.

ORGANIZATION, VOTING RIGHTS AND
PRINCIPAL HOLDERS
- --------------------------------------------------------------------------------
The fund is a diversified, open-end management investment company, commonly
called a mutual fund. The fund was organized as a Maryland corporation on
November 10, 1986, from its predecessor entity, which commenced operations on
November 29, 1954, and is registered with the SEC.

The fund currently offers four classes of shares, Class A, Class B, Class C and
Advisor Class. Before January 1, 1999, Class A shares were designated Class I
and Class C shares were designated Class II. The fund began offering Class B
shares on January 1, 1999. The fund may offer additional classes of shares in
the future. The full title of each class is:

/bullet/ Templeton Growth Fund, Inc. - Class A

/bullet/ Templeton Growth Fund, Inc. - Class B

/bullet/ Templeton Growth Fund, Inc. - Class C

/bullet/ Templeton Growth Fund, Inc. - Advisor Class

Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.

The fund has noncumulative voting rights. For board member elections, this gives
holders of more than 50% of the shares voting the ability to elect all of the
members of the board. If this happens, holders of the remaining shares voting
will not be able to elect anyone to the board.

The fund does not intend to hold annual shareholder meetings. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, the fund is required to help you communicate
with other shareholders about the removal of a board member. A special meeting
may also be called by the board in its discretion.

As of December 14, 1998, the principal shareholders of the fund, beneficial or
or record, were:

NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)
- -------------------------- ----------- -------------
Jupiter & Co.
c/o Investor Bank &
Trust Co.
P.O. Box 9130 FPG 90
Boston, MA 02117-9130..... Advisor 10.95

Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Templeton 401K
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 34.62

Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Resources Profit
Sharing Plans
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 13.59

1. Franklin Templeton Trust Company is a California corporation and is wholly
owned by Franklin Resources, Inc.

From time to time, the number of fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.

As of December 14, 1998, the officers and board members, as a group, owned of
record and beneficially 2.70% of the fund's Advisor Class shares and less than
1% of the outstanding shares of the fund's other classes. The board members may
own shares in other funds in the Franklin Templeton Group of Funds.

BUYING AND SELLING SHARES
- --------------------------------------------------------------------------------

The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.

For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have his legal and investment advisors determine, the applicable
laws and regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.

When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.

If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.

DEALER COMPENSATION Distributors and/or its affiliates provide financial support
to various securities dealers that sell shares of the Franklin Templeton Group
of Funds. This support is based primarily on the amount of sales of fund shares.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.

EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the fund's investment goal exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.

The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.

SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. There are no service charges for establishing or maintaining a systematic
withdrawal plan. Once your plan is established, any distributions paid by the
fund will be automatically reinvested in your account.

Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.

You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. The fund may discontinue a systematic withdrawal plan by
notifying you in writing and will automatically discontinue a systematic
withdrawal plan if all shares in your account are withdrawn or if the fund
receives notification of the shareholder's death or incapacity.

REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
fund. In these circumstances, the securities distributed would be valued at the
price used to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. The fund does not intend to redeem illiquid
securities in kind. If this happens, however, you may not be able to recover
your investment in a timely manner.

SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.

The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the fund is not bound to
meet any redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person if,
for any reason, a redemption request by wire is not processed as described in
the prospectus.

Franklin/Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the fund may
reimburse Investor Services an amount not to exceed the per account fee that the
fund normally pays Investor Services. These financial institutions may also
charge a fee for their services directly to their clients.

If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.

In the event of disputes involving multiple claims of ownership or authority to
control your account, the fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.

PRICING SHARES
- --------------------------------------------------------------------------------

When you buy and sell shares, you pay the net asset value (NAV) per share.

The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.

The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.

The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.

Trading in securities on European, Far Eastern and some other securities
exchanges and over-the-counter markets is normally completed well before the
close of business of the NYSE on each day that the NYSE is open. Trading in
European or Far Eastern securities generally, or in a particular country or
countries, may not take place on every NYSE business day. Furthermore, trading
takes place in various foreign markets on days that are not business days for
the NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination of
the prices of many of the portfolio securities used in the calculation and, if
events materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.

Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.

THE UNDERWRITER
- --------------------------------------------------------------------------------

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

Distributors does not receive compensation from the fund for acting as
underwriter of the fund's Advisor Class shares.

PERFORMANCE
- --------------------------------------------------------------------------------

Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
nonstandardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.

For periods before January 2, 1997, Advisor Class standardized performance
quotations are calculated by substituting Class A performance for the relevant
time period, excluding the effect of Class A's maximum initial sales charge, and
including the effect of the distribution and service (Rule 12b-1) fees
applicable to the fund's Class A shares. For periods after January 2, 1997,
Advisor Class standardized performance quotations are calculated as described
below.

An explanation of these and other methods used by the fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.

The average annual total returns for the indicated periods ended August 31,
1998, were:

1 YEAR 5 YEARS 10 YEARS
- ----------------------- ------- ------ --------
Advisor Class ......... -12.41% 9.92% 12.18%

These figures were calculated according to the SEC formula:

P (1+T)/n/=ERV

where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period

CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
net asset value. Cumulative total return, however, is based on the actual return
for a specified period rather than on the average return over the periods
indicated above. The cumulative total returns for the indicated periods ended
August 31, 1998, were:

1 YEAR 5 YEARS 10 YEARS
- ----------------------- ------ ------- --------
Advisor Class ......... -12.41% 60.47% 215.70%

VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS The fund may include in its advertising or sales
material information relating to investment goals and performance results of
funds belonging to the Franklin Templeton Group of Funds. Franklin Resources,
Inc. is the parent company of the advisors and underwriter of the Franklin
Templeton Group of Funds.

COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:

(i) unmanaged indices so that you may compare the 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, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment goals 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.

From time to time, the fund and the manager may also refer to the following
information:

/bullet/ The manager's and its affiliates' market share of international
equities managed in mutual funds prepared or published by Strategic
Insight or a similar statistical organization.

/bullet/ The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International
/registered trademark/ or a similar financial organization.

/bullet/ The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International /registered trademark/ or a similar financial
organization.

/bullet/ The geographic and industry distribution of the fund's portfolio and
the fund's top ten holdings.

/bullet/ 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.

/bullet/ To assist investors in understanding the different returns and risk
characteristics of various investments, the fund may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).

/bullet/ The major industries located in various jurisdictions as published by
the Morgan Stanley Index.

/bullet/ Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.

/bullet/ Allegorical stories illustrating the importance of persistent
long-term investing.

/bullet/ The fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.

/bullet/ 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.

/bullet/ Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.

/bullet/ Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing.

- -------------------------
* Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is
no longer involved with the investment management process.

From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.

Advertisements or information may also compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. For example, as the general level of interest rates rise, the value
of the fund's fixed-income investments, if any, as well as the value of its
shares that are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
fund's shares can be expected to increase. CDs are frequently insured by an
agency of the U.S. government. An investment in the fund is not insured by any
federal, state or private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.

MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------

The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
fund cannot guarantee that these goals will be met.

The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $216 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 117 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.

The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has already
begun making necessary software changes to help the computer systems that
service the fund and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues to
seek reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis. Resources is
also beginning to develop a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems, especially
mission critical systems, or supplies of electricity or long distance voice and
data lines are limited.

DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------
CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.

A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S CORPORATION (S&P)

AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

COMMERCIAL PAPER RATINGS

MOODY'S

Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

TEMPLETON INSTITUTIONAL FUNDS, INC.

TIFI

Growth Series
ANNUAL REPORT

DECEMBER 31, 1998

[TEMPLETON LOGO]

Mutual funds, annuities, and other investment products:

- are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency of the U.S. government;

- are not deposits or obligations of, or guaranteed or endorsed by, any
bank;

- are subject to investment risks, including the possible loss of principal.

December 31, 1998

[Dear Logo] Shareholder:

Global stock market volatility in recent months has challenged
the resolve of many investors. With continued turmoil in Asia spreading to
Russia and Latin America, many investors sought refuge in the developed markets,
and in particular large, liquid growth stocks. For value investors like
Templeton, 1998 was a difficult year. We positioned the portfolio for the longer
term with the opportunities created, but found our short-term performance
negatively impacted by the changes. When confronted with such circumstances, we
believe it is important to remind ourselves we have a distinct style, one which
will not always be in favor. At the same time, we wish to reassure you that we
have maintained the same discipline and followed the same patient stock-picking
methodologies in this period that we have relied on in the past.

<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 12/31/98
CUMULATIVE
ONE-YEAR THREE-YEAR FIVE-YEAR SINCE
AVERAGE AVERAGE AVERAGE INCEPTION(1),(3)
ANNUAL(1),(2) ANNUAL(1),(2) ANNUAL(1),(2) (05/03/93)
<S> <C> <C> <C> <C>
TIFI Growth Series 2.98% 12.32% 10.46% 97.37%
MSCI AC World
Free Index(4) 21.97% 16.66% 14.78% 118.58%
MSCI World Index(4) 24.80% 18.24% 16.20% 129.19%
</TABLE>

(1)The Fund's Investment Manager and Fund Administrator have agreed in advance
to waive a portion of their respective fees in order to limit the total
expenses of the Fund to an annual rate of 0.90% of average net assets through
April 30, 1999. If these fee waivers are insufficient to so limit the Fund's
expenses, the Fund Administrator has agreed to make certain payments to
reduce the Fund's expenses. After April 30, 1999, these agreements may end at
any time upon notice to the Board. These voluntary agreements did not result
in any fee waivers or reimbursements for the Fund for the fiscal year ended
December 31, 1998.

(2)Average annual total return represents the average annual change in value of
an investment over the indicated periods.

(3)Cumulative total return represents the change in value of an investment over
the indicated periods.

(4)The index is unmanaged, does not contain cash, and does not include
management or operating expenses. The index includes reinvested dividends.
One cannot invest directly in an index.

All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 6 of
this report.

continued...

[PHOTO GARY MOTYL APPEARS HERE]

GARY MOTYL HAS BEEN A PORTFOLIO MANAGER AND RESEARCH ANALYST WITH TEMPLETON
INVESTMENT COUNSEL, INC. SINCE 1981. HE CURRENTLY MANAGES SEVERAL INSTITUTIONAL
MUTUAL FUNDS, AND IS RESPONSIBLE FOR MANAGING MANY OF OUR SEPARATE ACCOUNT
PORTFOLIOS. MR. MOTYL'S RESEARCH RESPONSIBILITIES INCLUDE THE GLOBAL AUTOMOBILE
INDUSTRY AND U.S.-BASED UTILITIES AS WELL AS COUNTRY COVERAGE OF GERMANY.

PRIOR TO JOINING THE TEMPLETON ORGANIZATION, MR. MOTYL WORKED FROM 1974 TO 1979
AS A SECURITY ANALYST WITH STANDARD & POOR'S CORPORATION. HE THEN WORKED AS A
RESEARCH ANALYST AND PORTFOLIO MANAGER FROM 1979 TO 1981 WITH LANDMARK FIRST
NATIONAL BANK. IN THIS CAPACITY HE HAD RESPONSIBILITY FOR EQUITY RESEARCH AND
MANAGED SEVERAL PENSION AND PROFIT SHARING PLANS.

MR. MOTYL HOLDS A BACHELOR OF SCIENCE IN FINANCE DEGREE FROM LEHIGH UNIVERSITY
IN PENNSYLVANIA AND A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM PACE
UNIVERSITY IN NEW YORK, AND IS A CHARTERED FINANCIAL ANALYST.

TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued

GEOGRAPHIC DISTRIBUTION ON 12/31/98
(Equity Assets as a Percentage of Total Net Assets)

[PIE CHART]

Europe 52.0%
Asia 14.7%
Latin America/Caribbean 9.0%
Australia/New Zealand 6.8%
North America 8.5%

FUND ASSET ALLOCATION ON 12/31/98

[PIE CHART]

Equity* 91.0%
Short-Term Investments &
Other Net Assets 9.0%

*Equity includes convertible and preferred securities

For the quarter and one year periods ended December 31, 1998,
Templeton Institutional Funds, Inc. Growth Series (the "Fund") reported
cumulative total returns of 18.07% and 2.98%, respectively, compared to the
unmanaged Morgan Stanley Capital International ("MSCI") World Index, which
reported cumulative total returns of 21.23% and 24.80% for these periods. The
MSCI All Country World Free Index reported cumulative total returns of 21.13%
and 21.97% for the quarter and one year periods ended December 31, 1998. Please
remember that the Fund's performance differs from that of an index because,
among other things, an index does not contain cash (the Fund generally carries a
certain percentage of cash at any given time), is not managed according to any
investment strategy, and includes no management or other operating expenses. Of
course, one cannot invest directly in an index.

The Fund's performance, and indeed that of many other value
investors, substantially lagged the benchmark indices in 1998. "Value" investing
is currently out of favor. In some ways this period may resemble that of the
late 1980s, when limited exposure to Japan caused value funds to underperform
benchmark indices and their peers. Like the Japanese market of the late 1980s,
securities markets in the U.S. and other developed countries in 1998 reached all
time highs and stock valuations that were not necessarily representative of
their long-term potential. As such, there were limited value investment
opportunities, and our low weighting in these highly valued markets caused our
funds to underperform. A good example is seen in the performance of our holdings
in the United Kingdom over the last quarter. During the year, industrial stocks
in the United Kingdom substantially underperformed the market. The market is
focused on the near term outlook for these companies, and included in their
pricing poor short-term earnings prospects. The valuations of these companies
are now at levels not seen in decades, presenting in our opinion good long-term
opportunities for the patient value manager. Not surprisingly, we have been
adding these stocks to the Fund's portfolio and they have provided volatile
short-term results, but we believe these stocks have the potential to provide
attractive returns as market expectations adjust over time.

Performance shortfalls may be explained in part by the early
timing of our purchases and our stock selection. As is customary at our
organization, we bought securities as they declined in price and offered what we
believed to be good long-term potential. By the same token, our lower
performance can be explained by what we did not buy. Internet stocks, for
example, soared to move some indices ahead, yet they are not value stocks. By
not participating in Internet or other growth stocks, the performance of our
portfolio came up short.

Looking back on the world markets, 1998 was another turbulent year in Asia.
Progress is being made in the search for new capital, restructuring, and the
opening of economies. In our view, the region appears to have passed the 'point
of maximum pessimism.' Templeton's analysts are trained to search for bargains
that often present themselves where gloom appears to be deep-seated. Many
bargains have been found throughout the region in companies where we believe the
problems are temporary and are not a reflection of their future value. Hong Kong
in particular is an area where we have found good value as it is trading at
roughly 18 times earnings, an extremely low figure when compared to Japan. Japan
remains a highly valued market, trading at 185 times earnings. In the fourth
quarter, the MSCI Japan Index was up 26.9%, and as such, finding bargains there
has been difficult. Our analysts have made a great effort to identify long-term
values in Japanese stocks throughout the year, and have laid the groundwork for
adding Japanese stocks to the Fund's portfolio in the future as we see bargains
arise. Generally speaking, throughout Asia our purchases of stocks have been
limited to companies that, in our opinion, are cheap, large, well diversified,
have solid balance sheets, and have strong earnings potential.

Throughout 1998, stocks in Latin America declined
significantly. The devaluation of the real has improved Brazil's export
potential and has made stocks there cheaper. Given this climate, we have been
able to identify many opportunities throughout Latin America, and are proceeding
with a cautious accumulation of stocks in Brazil, Argentina, and Chile. Our
analysts are carefully researching new opportunities in Latin America under
these conditions and we believe we are well positioned to find companies that
are trading at a fraction of what we consider to be their future earnings
potential.

In Europe, markets recovered from the sharp decline in late
August and early September, and with the help of low interest rates, the markets
there remained buoyant throughout the last quarter of 1998. On a country to
country basis, it has become more difficult to find value in Europe. One of the
opportunities, however, has been the stock market in the United Kingdom, which
has recently been trading at 18 times earnings as compared with the World Index
at 26 times earnings. Another area where we are searching for value is in
Scandinavia, which is relatively inexpensive with multiples of 15 to 20 times
earnings, depending on the country.

Sharp declines in the U.S. market brought new opportunities to
the surface, however the sharp recovery and re-emergence of record highs have
once again made the U.S. securities market an expensive market. Until we believe
the U.S. market can offer more than speculative fever and merger-related hype,
we will continue to focus on bargains in other areas. At Templeton, we stand by
the principles of discipline, value, and patience. It is important to know that
we are not willing to buy the "flavor of the year" in order to conform to the
general trend but rather we look where others are not. As was the case in 1998
with our underexposure to the U.S. market, this may adversely impact performance
from time to time.

In a volatile year like 1998, at times bargain stocks were in
abundance, and we were able to take advantage of some of these opportunities
around the globe. We reduced our holdings in expensive stocks, such as certain
banks and telecommunications, and purchased

INDUSTRY DIVERSIFICATION ON 12/31/98
(Percent of Total Net Assets)

Finance 23.1%
Services 21.7%
Energy 15.3%
Capital Equipment 10.0%
Materials 8.8%
Consumer Goods 8.2%
Multi-Industry 3.9%

10 LARGEST POSITIONS ON 12/31/98
(Percent of Total Net Assets)

Merita AS 2.8%
ING Groep NV 2.7%
Telefonos de Mexico SA
(Telmex), L, ADR 2.7%
Repsol SA 2.6%
Nokia Corp., A 2.6%
AXA-UAP 2.5%
Korea Electric Power Corp. 2.3%
Societe Elf Aquitaine SA, br. 2.2%
Banco Itau SA, pfd. 2.1%
Astra AB, A 2.1%

TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued

Total Return Index Comparison
$5,000,000 Investment: 05/03/93-12/31/98

[LINE GRAPH]

<TABLE>
<CAPTION>
TIFI MSCI World MSCI All Country CPI
Growth Series World Free
<S> <C> <C> <C> <C>
5/3/93 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00
5/31/93 $5,100,000.00 $5,116,064.50 $5,106,091.14 $5,006,322.58
6/30/93 $5,040,000.00 $5,074,112.77 $5,072,960.82 $5,013,331.43
7/31/93 $5,115,000.00 $5,179,654.32 $5,178,161.75 $5,013,331.43
8/31/93 $5,445,000.00 $5,417,918.42 $5,423,704.59 $5,027,368.76
9/30/93 $5,455,000.00 $5,318,770.51 $5,332,760.61 $5,037,926.23
10/31/93 $5,725,000.00 $5,466,100.45 $5,490,687.80 $5,058,581.73
11/30/93 $5,595,000.00 $5,157,812.39 $5,205,263.08 $5,062,122.74
12/31/93 $6,002,076.00 $5,411,060.97 $5,486,794.06 $5,062,122.74
1/31/94 $6,393,737.00 $5,768,732.10 $5,850,664.90 $5,075,790.47
2/28/94 $6,175,017.00 $5,694,892.33 $5,766,095.42 $5,093,048.16
3/31/94 $5,898,010.00 $5,450,581.45 $5,507,017.76 $5,110,364.52
4/30/94 $5,995,711.00 $5,620,094.54 $5,656,780.29 $5,117,519.03
5/31/94 $6,057,416.00 $5,635,268.79 $5,690,131.02 $5,121,101.30
6/30/94 $5,882,584.00 $5,620,617.09 $5,662,495.93 $5,138,513.04
7/31/94 $6,124,263.00 $5,728,532.94 $5,787,826.62 $5,152,387.03
8/31/94 $6,386,512.00 $5,902,107.49 $5,993,989.70 $5,172,996.57
9/30/94 $6,201,395.00 $5,748,062.48 $5,853,240.03 $5,186,963.66
10/31/94 $6,257,959.00 $5,912,457.07 $6,003,253.66 $5,190,594.54
11/30/94 $5,949,431.00 $5,657,038.92 $5,742,542.97 $5,197,342.31
12/31/94 $5,922,780.00 $5,713,043.61 $5,762,578.31 $5,197,342.31
1/31/95 $5,814,503.00 $5,628,490.56 $5,645,318.36 $5,218,131.68
2/28/95 $5,957,971.00 $5,711,792.22 $5,705,612.73 $5,239,004.21
3/31/95 $6,050,638.00 $5,988,242.97 $5,966,951.12 $5,256,292.92
4/30/95 $6,301,385.00 $6,197,831.47 $6,183,980.05 $5,273,638.69
5/31/95 $6,503,073.00 $6,251,752.61 $6,252,250.82 $5,284,185.97
6/30/95 $6,579,387.00 $6,251,127.43 $6,253,632.76 $5,294,754.34
7/31/95 $6,884,645.00 $6,564,934.03 $6,556,203.89 $5,294,754.34
8/31/95 $6,748,369.00 $6,419,848.99 $6,412,659.21 $5,308,520.70
9/30/95 $6,868,292.00 $6,607,950.56 $6,589,083.14 $5,319,137.74
10/31/95 $6,661,153.00 $6,504,866.53 $6,478,951.42 $5,336,690.89
11/30/95 $6,764,722.00 $6,731,886.37 $6,682,759.35 $5,332,955.21
12/31/95 $6,964,376.00 $6,929,803.83 $6,883,992.20 $5,329,222.14
1/31/96 $7,187,517.00 $7,056,619.24 $7,037,020.81 $5,360,664.55
2/29/96 $7,242,851.00 $7,101,075.95 $7,066,320.08 $5,377,818.68
3/31/96 $7,373,459.00 $7,220,374.02 $7,175,100.99 $5,405,783.34
4/30/96 $7,622,803.00 $7,391,496.89 $7,350,300.60 $5,426,865.89
5/31/96 $7,694,045.00 $7,398,888.38 $7,357,899.86 $5,437,176.94
6/30/96 $7,688,108.00 $7,437,362.60 $7,398,253.30 $5,440,439.24
7/31/96 $7,409,080.00 $7,175,567.44 $7,121,935.34 $5,450,776.08
8/31/96 $7,646,550.00 $7,259,521.58 $7,209,770.45 $5,461,132.55
9/30/96 $7,800,906.00 $7,544,820.78 $7,476,008.03 $5,478,608.18
10/31/96 $7,937,452.00 $7,599,143.48 $7,505,904.36 $5,496,139.72
11/30/96 $8,358,962.00 $8,026,215.35 $7,907,176.40 $5,506,582.39
12/31/96 $8,536,004.00 $7,899,401.15 $7,792,648.29 $5,506,582.39
1/31/97 $8,746,062.00 $7,995,773.84 $7,923,380.25 $5,524,203.45
2/28/97 $8,847,496.00 $8,089,324.39 $8,031,407.85 $5,541,328.48
3/31/97 $8,853,903.00 $7,930,773.64 $7,870,748.37 $5,555,181.80
4/30/97 $8,821,870.00 $8,191,696.09 $8,123,545.00 $5,561,848.02
5/31/97 $9,238,298.00 $8,698,762.08 $8,608,255.74 $5,558,510.91
6/30/97 $9,705,979.00 $9,133,700.18 $9,048,750.86 $5,565,181.13
7/31/97 $10,116,001.00 $9,555,677.13 $9,457,904.90 $5,571,859.34
8/31/97 $9,558,628.00 $8,918,313.46 $8,794,321.17 $5,582,445.88
9/30/97 $10,314,605.00 $9,404,361.55 $9,263,330.22 $5,596,401.99
10/31/97 $9,552,221.00 $8,910,632.57 $8,711,761.81 $5,610,393.00
11/30/97 $9,494,562.00 $9,070,132.89 $8,845,037.31 $5,607,026.76
12/31/97 $9,583,405.00 $9,181,695.52 $8,961,166.82 $5,600,298.33
1/31/98 $9,513,042.00 $9,438,783.00 $9,158,443.05 $5,610,938.89
2/28/98 $10,061,871.00 $10,078,732.49 $9,784,971.06 $5,621,599.68
3/31/98 $10,686,558.00 $10,506,070.74 $10,202,479.04 $5,632,280.72
4/30/98 $10,826,801.00 $10,610,080.84 $10,298,101.67 $5,642,418.82
5/31/98 $10,448,144.00 $10,478,515.84 $10,102,710.44 $5,652,575.18
6/30/98 $10,223,754.00 $10,728,952.37 $10,284,724.00 $5,659,358.27
7/31/98 $10,265,827.00 $10,712,858.94 $10,288,084.02 $5,666,149.50
8/31/98 $8,442,661.00 $9,285,906.13 $8,846,701.84 $5,672,948.88
9/30/98 $8,358,515.00 $9,452,123.85 $9,022,686.36 $5,679,756.42
10/31/98 $9,129,854.00 $10,308,486.27 $9,846,710.10 $5,693,387.83
11/30/98 $9,760,950.00 $10,922,872.05 $10,444,504.67 $5,693,387.83
12/31/98 $9,868,500.00 $11,458,092.78 $10,929,560.42 $5,689,971.80
</TABLE>

Periods ended December 31, 1998
SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (05/03/93)
Average Annual
Total Return(1),(2) 2.98% 10.46% 12.76%
Cumulative Total
Return(1),(3) 2.98% 64.42% 97.37%

(1) The Fund's Investment Manager and Fund Administrator have agreed in advance
to waive a portion of their respective fees in order to limit the total
expenses of the Fund to an annual rate of 0.90% of average net assets
through April 30, 1999. If these fee waivers are insufficient to so limit
the Fund's expenses, the Fund Administrator has agreed to make certain
payments to reduce the Fund's expenses. After April 30, 1999, these
agreements may end at any time upon notice to the Board. These voluntary
agreements did not result in any fee waivers or reimbursements for the Fund
for the fiscal year ended December 31, 1998.

(2) Average annual total return represents the average annual change in value of
an investment over the indicated periods.

(3) Cumulative total return represents the change in value of an investment over
the indicated periods.

(4) Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

(5) Source: U.S. Bureau of Labor Statistics (1/13/99).

All calculations assume reinvestment of distributions at net asset value.
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility, and the
economic, social, and political climates of the countries where the Fund
invests. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size
and lesser liquidity. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.

companies we consider world class that met our valuation criteria without paying
lofty premiums. Examples of purchases would include utility and
telecommunication firms in Latin America.

This discussion reflects our views, opinions, and portfolio
holdings as of December 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.

There are, of course, special risks involved in global
investing related to market, currency, economic, social, political and other
factors. Emerging market securities involve heightened risks related to the same
factors, in addition to those associated with their relatively small size and
lesser liquidity. Investing in any emerging market means accepting a certain
amount of volatility and, in some cases, severe market corrections. While
short-term volatility can be disconcerting, declines in excess of 50% are not
unusual in emerging markets. For example, the Hong Kong equity market has
increased 1049% in the last 15 years, but has suffered five declines of more
than 50% during that time.(1) These special risks and other considerations are
discussed in the Fund's prospectus.

We believe that going forward, we are well positioned for the
long term, regardless of what short-term market movements lie ahead. We also
believe that no one style, whether value or growth, can outperform the market
all the time. We will therefore continue to follow our value style and
disciplined approach that has worked for us throughout the years, and that we
believe will achieve the Fund's goal of long-term growth of capital. Thank you
for allowing us to serve your investment management needs.

Best regards,

/s/ Donald F. Reed

Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.

/s/ Gary P. Motyl

Gary P. Motyl, CFA
Executive Vice President
Templeton Investment Counsel, Inc.

(1) Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market returns are measured in Hong Kong dollars.

For the most current portfolio information, please call 1-800-362-6243.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Highlights

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $13.62 $13.41 $11.86 $10.94 $11.80
-------------------------------------------------------
Income from investment operations:
Net investment income...................................... .19 .73 .30 .27 .20
Net realized and unrealized gains (losses)................. .46 .89 2.32 1.62 (.36)
-------------------------------------------------------
Total from investment operations............................ .65 1.62 2.62 1.89 (.16)
-------------------------------------------------------
Less distributions from:
Net investment income...................................... (.19) (.87) (.29) (.27) (.20)
Net realized gains......................................... (7.47) (.54) (.74) (.70) (.50)
In excess of net realized gains............................ -- -- (.04) -- --
-------------------------------------------------------
Total distributions......................................... (7.66) (1.41) (1.07) (.97) (.70)
-------------------------------------------------------
Net asset value, end of year................................ $6.61 $13.62 $13.41 $11.86 $10.94
-------------------------------------------------------
-------------------------------------------------------
Total Return................................................ 2.98% 12.27% 22.57% 17.59% (1.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $55,779 $120,370 $268,158 $226,963 $194,059
Ratios to average net assets:
Expenses................................................... .89% .86% .87% .88% .95%
Net investment income...................................... 2.27% 2.15% 2.34% 2.28% 1.69%
Portfolio turnover rate..................................... 13.00% 16.73% 15.61% 30.20% 17.23%
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 85.6%
AUTOMOBILES 3.5%
*Circuit City Stores Inc., Carmax Group..................... United States 69,000 $ 375,188
Fiat SpA.................................................... Italy 128,500 446,220
Volvo AB, B................................................. Sweden 49,000 1,124,380
-----------
1,945,788
-----------
BANKING 11.3%
*Banca Nazionale del Lavoro SpA............................. Italy 65,200 194,895
Banque Nationale de Paris, ADR, 144A........................ France 10,000 823,816
Deutsche Bank AG, br........................................ Germany 15,200 896,888
Development Bank of Singapore Ltd., fgn..................... Singapore 125,000 1,128,788
HSBC Holdings Plc. ......................................... Hong Kong 31,069 773,993
*Komercni Banka AS, GDR, 144A............................... Czech Republic 27,000 112,050
Merita AS................................................... Finland 242,000 1,538,953
PT Bank Pan Indonesia TBK................................... Indonesia 2,952,600 148,558
*Thai Farmers Bank Public Co. Ltd., fgn..................... Thailand 400,000 704,555
-----------
6,322,496
-----------
BUILDING MATERIALS & COMPONENTS 1.2%
Pioneer International Ltd. ................................. Australia 320,000 677,139
-----------
BUSINESS & PUBLIC SERVICES 1.2%
Esselte AB, A............................................... Sweden 42,000 673,592
-----------
CHEMICALS 4.0%
Akzo Nobel NV............................................... Netherlands 20,000 911,174
Beijing Yanhua Petrochemical Company Ltd., ADR.............. China 34,000 136,000
Imperial Chemical Industries Plc............................ United Kingdom 52,000 449,014
Rhone-Poulenc SA, A......................................... France 13,963 718,872
-----------
2,215,060
-----------
CONSTRUCTION & HOUSING .2%
*Fairview Holdings Plc...................................... United Kingdom 64,884 94,997
-----------
DATA PROCESSING & REPRODUCTION 1.0%
*3Com Corp.................................................. United States 12,500 560,156
-----------
ELECTRICAL & ELECTRONICS 4.3%
ABB AB, A................................................... Sweden 70,250 749,664
Alcatel SA.................................................. France 5,416 663,160
General Electric Co. Plc. .................................. United Kingdom 112,084 1,006,994
-----------
2,419,818
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .4%
BICC Plc. .................................................. United Kingdom 193,861 227,389
-----------
ENERGY SOURCES 5.5%
Repsol SA................................................... Spain 27,600 1,474,509
Saga Petroleum AS, A........................................ Norway 44,000 401,365
Societe Elf Aquitaine SA, br................................ France 10,628 1,229,044
-----------
3,104,918
-----------
FINANCIAL SERVICES 6.5%
AXA-UAP..................................................... France 9,600 1,392,002
Housing Development Finance Corp. Ltd. ..................... India 5,895 302,197
Industrial Credit & Inv. Corp. of India (ICICI) Ltd., GDR,
144A...................................................... India 60,100 399,665
ING Groep NV................................................ Netherlands 25,055 1,528,639
-----------
3,622,503
-----------
</TABLE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 2.6%
Albert Fisher Group Plc. ................................... United Kingdom 914,593 $ 83,691
Archer-Daniels Midland Co. ................................. United States 32,025 550,430
Hillsdown Holdings Plc. .................................... United Kingdom 129,769 164,088
IBP Inc. ................................................... United States 17,800 518,425
*Terranova Foods Plc........................................ United Kingdom 64,884 119,826
-----------
1,436,460
-----------
FOREST PRODUCTS & PAPER 1.9%
Carter Holt Harvey Ltd. .................................... New Zealand 166,000 149,072
Fletcher Challenge Ltd. Forestry Division................... New Zealand 625,000 207,999
Metsa Serla OY, B........................................... Finland 45,000 359,933
Stora Kopparbergs Bergslags AB, B........................... Sweden 31,000 344,198
-----------
1,061,202
-----------
HEALTH & PERSONAL CARE 2.1%
Astra AB, A................................................. Sweden 57,600 1,176,047
-----------
INDUSTRIAL COMPONENTS 2.2%
BTR Plc. ................................................... United Kingdom 221,000 452,259
Exide Corp ................................................. United States 46,600 757,250
-----------
1,209,509
-----------
INSURANCE 1.8%
Presidential Life Corp...................................... United States 32,400 643,950
Zurich Allied AG............................................ Switzerland 520 385,031
-----------
1,028,981
-----------
MACHINERY & ENGINEERING 1.9%
New Holland NV.............................................. Netherlands 48,000 657,000
VA Technologie AG........................................... Austria 4,600 398,826
-----------
1,055,826
-----------
MERCHANDISING 1.9%
Safeway Plc. ............................................... United Kingdom 66,000 329,149
Storehouse.................................................. United Kingdom 312,100 711,383
-----------
1,040,532
-----------
METALS & MINING 1.7%
WMC Ltd. ................................................... Australia 308,560 931,136
-----------
MULTI-INDUSTRY 3.9%
Brierley Investments Ltd.................................... New Zealand 765,889 173,970
Foster Wheeler Corp. ....................................... United States 9,200 121,325
Hicom Holdings Bhd. ........................................ Malaysia 440,000 146,043
Hutchison Whampoa Ltd. ..................................... Hong Kong 123,000 869,244
Jardine Matheson Holdings Ltd. ............................. Hong Kong 97,531 251,630
Swire Pacific Ltd., A ...................................... Hong Kong 132,000 591,229
-----------
2,153,441
-----------
REAL ESTATE 1.3%
*Catellus Development Corp ................................. United States 50,000 715,625
-----------
TELECOMMUNICATIONS 14.8%
*Cable & Wireless Optus Ltd. ............................... Australia 156,452 329,142
Compania de Telecomunicaciones de Chile SA, ADR ............ Chile 50,900 1,052,994
*Digital Telecommunications Philippines Inc. ............... Philippines 5,015,000 122,474
Nokia Corp., A.............................................. Finland 11,700 1,432,622
Northern Telecom, Ltd. ..................................... Canada 10,080 505,260
Philippine Long Distance Telephone Co., ADR ................ Philippines 23,211 602,035
PT Indosat TBK, ADR ........................................ Indonesia 500 6,094
Rostelecom, ADR ............................................ Russia 21,500 90,031
Telecom Italia SpA, di Risp................................. Italy 167,400 1,052,048
Telefonica del Peru SA, B .................................. Peru 115,000 144,661
Telefonica SA .............................................. Spain 19,000 846,107
</TABLE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
*Telefonica SA, rts. ....................................... Spain 19,000 $ 16,944
Telefonos de Mexico SA (Telmex), L, ADR .................... Mexico 30,900 1,504,444
Videsh Sanchar Nigam Ltd., GDR, 144A ....................... India 42,700 523,075
-----------
8,227,931
-----------
TRANSPORTATION .6%
Mayne Nickless Ltd., A...................................... Australia 97,783 362,850
-----------
UTILITIES ELECTRICAL & GAS 9.8%
Centrais Eletricas Brasileiras SA (Electrobras)............. Brazil 14,000,000 241,010
*Centrais Geradoras Do Sul Do Brasil SA..................... Brazil 7,000,000 9,154
*Centrica Plc. ............................................. United Kingdom 244,000 490,192
*CEZ AS..................................................... Czech Republic 17,315 382,670
Endesa SA, br. ............................................. Spain 33,600 891,602
*Evn AG..................................................... Austria 6,200 878,277
Guangdong Electric Power Development Co Ltd., B, 144A....... China 728,000 198,274
Iberdrola SA, br. .......................................... Spain 57,600 1,079,272
Korea Electric Power Corp................................... South Korea 51,220 1,269,319
-----------
5,439,770
-----------
TOTAL COMMON STOCKS (COST $42,792,688)...................... 47,703,166
-----------
PREFERRED STOCKS 5.4%
Banco Itau SA, pfd. ........................................ Brazil 2,450,000 1,196,338
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 11,700 163,069
News Corp. Ltd., pfd. ...................................... Australia 158,353 964,460
*Tele Celular Sul Participacoes SA, ADR, pfd................ Brazil 1,170 20,402
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd....... Brazil 3,900 11,456
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 2,340 97,841
*Tele Leste Celular Participacoes SA, ADR, pfd. ............ Brazil 234 6,640
*Tele Nordeste Celular Participacoes SA, ADR, pfd. ......... Brazil 585 10,823
*Tele Norte Celular Participacoes SA, ADR, pfd. ............ Brazil 234 5,280
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 11,700 145,519
*Tele Sudeste Celular Participacoes SA, ADR, pfd............ Brazil 2,340 48,409
*Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..... Brazil 11,700 1,280
*Telemig Celular Participacoes SA, ADR, pfd................. Brazil 585 12,431
*Telesp Celular Participacoes SA, ADR, pfd.................. Brazil 4,680 81,900
*Telesp Participacoes SA, ADR, pfd.......................... Brazil 11,700 258,863
-----------
TOTAL PREFERRED STOCKS (COST $2,774,821).................... 3,024,711
-----------

PRINCIPAL
AMOUNT**
---------
SHORT TERM INVESTMENTS (COST $4,808,513) 8.6%
U.S. Treasury Bills, 4.34% to 4.46%, with maturities to
5/20/99................................................... United States $ 4,860,000 4,812,095
-----------
TOTAL INVESTMENTS (COST $50,376,022) 99.6%.................. 55,539,972
OTHER ASSETS, LESS LIABILITIES .4%.......................... 239,461
-----------
TOTAL NET ASSETS 100.0%..................................... $55,779,433
-----------
-----------
</TABLE>

*Non-income producing.
**Securities traded in U.S. dollars.
See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $50,376,022)..... $55,539,972
Cash....................................................... 50,046
Receivables:
Investment securities sold................................ 209,843
Capital shares sold....................................... 11,256
Dividends................................................. 197,160
-----------
Total assets........................................... 56,008,277
-----------
Liabilities:
Payables:
Investment securities purchased........................... 85,719
Capital shares redeemed................................... 42,226
Custodian fees............................................ 38,892
To affiliates............................................. 35,190
Accrued expenses........................................... 26,817
-----------
Total liabilities...................................... 228,844
-----------
Net assets, at value........................................ $55,779,433
-----------
-----------
Net assets consist of:
Undistributed net investment income........................ $ 34,134
Net unrealized appreciation................................ 5,163,950
Distributions in excess of net realized gain............... (455,797)
Capital shares............................................. 51,037,146
-----------
Net assets, at value........................................ $55,779,433
-----------
-----------
Net asset value per share ($55,779,433 / 8,444,751 shares
outstanding).............................................. $6.61
-----------
-----------
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $168,619)
Dividends.................................................. $1,686,929
Interest................................................... 273,883
----------
Total investment income............................... $ 1,960,812
Expenses:
Management fees (Note 3)................................... 434,268
Administrative fees (Note 3)............................... 52,170
Transfer agent fees (Note 3)............................... 200
Custodian fees............................................. 23,466
Reports to shareholders.................................... 2,000
Registration and filing fees............................... 16,000
Professional fees.......................................... 18,500
Directors' fees and expenses............................... 1,050
Amortization of organization costs......................... 501
Other...................................................... 1,408
----------
Total expenses........................................ 549,563
-----------
Net investment income........................... 1,411,249
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,813,092
Foreign currency transactions............................. (30,148)
----------
Net realized gain..................................... 1,782,944
Net unrealized depreciation........................... (1,330,371)
-----------
Net realized and unrealized gain............................ 452,573
-----------
Net increase in net assets resulting from operations........ $ 1,863,822
-----------
-----------
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,411,249 $ 5,989,235
Net realized gain from investments and foreign currency
transactions............................................ 1,782,944 75,507,706
Net unrealized depreciation on investments................ (1,330,371) (49,401,146)
--------------------------------
Net increase in net assets resulting from operations.... 1,863,822 32,095,795
Distributions to shareholders from:
Net investment income..................................... (1,406,840) (7,267,170)
Net realized gains........................................ (37,469,952) (5,222,663)
In excess of net realized gains........................... (455,797) --
Capital share transactions (Note 2)........................ (27,121,467) (167,394,086)
--------------------------------
Net decrease in net assets.............................. (64,590,234) (147,788,124)
Net assets:
Beginning of year.......................................... 120,369,667 268,157,791
--------------------------------
End of year................................................ $ 55,779,433 $ 120,369,667
--------------------------------
--------------------------------
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of year................................................ $ 34,134 $ (16,933)
--------------------------------
--------------------------------
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Growth Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks to achieve
long-term capital growth through a flexible policy of investing in stocks and
debt obligations of companies and governments of any nation including developing
nations. The following summarizes the Fund's significant accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.

Common expenses incurred by the Company are allocated among the funds comprising
the Company based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.

e. ACCOUNTING ESTIMATES:

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (continued)

2. CAPITAL STOCK

At December 31, 1998, there were 940 million shares authorized ($0.01 par
value), of which 120 million have been classified as Fund shares. Transactions
in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997
-------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,936,045 $ 15,134,178 2,784,905 $ 40,329,111
Shares issued on reinvestment of distributions.............. 5,406,284 38,984,371 914,805 12,348,992
Shares redeemed............................................. (7,737,881) (81,240,016) (14,852,462) (220,072,189)
---------------------------------------------------------------
Net decrease................................................ (395,552) $(27,121,467) (11,152,752) $(167,394,086)
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Company are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.

The Fund pays an investment management fee to TICI of 0.70% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Company's aggregate average daily
net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-------- ------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>

TICI and FT Services agreed in advance to limit total expenses of the Fund to an
annual rate of 0.90% of average daily net assets through April 30, 1999. For the
year ended December 31, 1998, no fee waiver or reimbursement was necessary under
the agreement.

Legal fees of $4,104 were paid to a law firm in which a partner is an officer of
the Fund.

4. INCOME TAXES

At December 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $50,671,008 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 15,901,825
Unrealized depreciation..................................... (11,032,861)
------------
Net unrealized appreciation................................. $ 4,868,964
============
</TABLE>

Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and losses on the sale of
securities and foreign currencies subsequent to October 31.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $7,438,285 and $21,368,317, respectively.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc. - Growth Series

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Growth Series of Templeton Institutional
Funds, Inc. as of December 31, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth Series of Templeton Institutional Funds, Inc. as of December 31, 1998,
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.

McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton Growth
Series Fund hereby designates $1,746,586 as a capital gain dividend for the
fiscal year ended December 31, 1998.

Under Section 854(b)(2) of the Internal Revenue Code, the Templeton Growth
Series Fund hereby designates 3.03% of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
December 31, 1998.

At December 31, 1998, more than 50% of the Templeton Growth Series Fund's total
assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. As in prior years, the Fund intends to make an election under
Section 853 of the Internal Revenue Code. This election will allow shareholders
to treat their proportionate share of foreign taxes paid by the Fund as having
been paid directly by them.

In January 1999, shareholders will receive Form 1099-DIV, which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.

The following table provides a breakdown by country of foreign source income and
foreign taxes paid to shareholders in December 1998.

<TABLE>
<CAPTION>
FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia................................................... $ 0.0021 $0.0085
Austria..................................................... 0.0005 0.0027
Brazil...................................................... 0.0022 0.0110
Canada...................................................... 0.0001 0.0005
Chile....................................................... 0.0003 0.0006
China....................................................... 0.0000 0.0007
Czech Republic.............................................. -0.0004 0.0000
Finland..................................................... 0.0014 0.0069
France...................................................... 0.0018 0.0211
Germany..................................................... 0.0002 0.0015
Hong Kong................................................... 0.0000 0.0189
India....................................................... 0.0000 0.0043
Indonesia................................................... 0.0001 0.0006
Italy....................................................... 0.0005 0.0028
Malaysia.................................................... 0.0001 0.0004
Mexico...................................................... 0.0000 0.0074
Netherlands................................................. 0.0016 0.0080
New Zealand................................................. 0.0006 0.0028
Norway...................................................... 0.0004 0.0020
Peru........................................................ 0.0000 0.0006
Philippines................................................. 0.0000 0.0003
Russia...................................................... 0.0000 0.0001
Singapore................................................... 0.0008 0.0022
South Korea................................................. 0.0003 0.0013
Spain....................................................... 0.0011 0.0105
Sweden...................................................... 0.0021 0.0107
Switzerland................................................. 0.0003 0.0014
United Kingdom.............................................. 0.0059 0.0444
--------------------------------------
TOTAL....................................................... $ 0.0220 $0.1722
--------------------------------------
--------------------------------------
</TABLE>

This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc., which contains more complete information,
including risk factors, charges, and expenses. Like any investment in
securities, the value of the Fund's portfolio will be subject to the risk of
loss from market, currency, economic, political and other factors, as well as
investment decisions by the Investment Manager, which will not always be
profitable or wise. The Fund and its investors are not protected from such
losses by the Investment Manager. Therefore, investors who cannot accept this
risk should not invest in shares of the Funds.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.

Principal Underwriter:

FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030

Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243

[RECYCLE LOGO]

ZT455 A 12/98

TEMPLETON INSTITUTIONAL FUNDS, INC.

[TEMPLETON GRAPHIC]

TIFI GROWTH SERIES

SEMIANNUAL REPORT

[LOGO] TEMPLETON JUNE 30, 1999

MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

- ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF
THE U.S. GOVERNMENT;

- ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK;

- ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.

June 30, 1999

Dear Shareholder:

During the middle of 1998, investors were clearly worried about the
health of the global economy and the potential for substantial earnings
shortfalls. The Asian crisis appeared to be highly contagious and investor
sentiment plummeted until the Federal Reserve Board (the "Fed") was apparently
able to identify and prescribe corrective measures. Three interest rate
reductions and an ample injection of liquidity seemed to reverse the course of
the Asian crisis and stabilize the global economy. Fortunately, the Templeton
Institutional Funds, Inc. Growth Series (the "Fund") was well-placed to take
advantage of the revitalized health of the global economy. The Fund's holdings
of emerging market and cyclical stocks rebounded forcefully in the first half of
1999 as earnings prospects improved and investors' fears abated. Moreover, the
Fund's underweighting of European shares was helpful to its performance relative
to its benchmarks as the euro's weakness, sluggish European economic growth, and
high equity valuations conspired to produce weak U.S. dollar returns. For the
quarter and year-to-date periods ended June 30, 1999, the Fund reported
cumulative total returns

TOTAL RETURNS AS OF 6/30/99

<TABLE>
<CAPTION>
CUMULATIVE
ONE-YEAR THREE-YEAR FIVE-YEAR SINCE
AVERAGE AVERAGE AVERAGE INCEPTION (1), (3)
ANNUAL (1), (2) ANNUAL (1), (2) ANNUAL (1), (2) (05/03/93)
<S> <C> <C> <C> <C>
TIFI Growth Series 11.71% 14.11% 14.19% 128.42%
MSCI AC World
Free Index (4) 16.71% 17.52% 16.22% 140.05%
MSCI World Index (4) 16.08% 18.76% 17.25% 149.11%
</TABLE>

(1) The Fund's manager and administrator have agreed in advance to reduce their
respective fees in order to limit the total expenses of the Fund to an annual
rate of 0.90% of average net assets. If these fee reductions are insufficient to
so limit the Fund's expenses, the administrator has agreed to assume as its own
expense certain expenses otherwise payable by the Fund. These voluntary
agreements did not result in any fee reductions for the Fund for the period
ended June 30, 1999. After May 1, 2000, the manager and administrator may end
this arrangement at any time.

(2) Average annual total return represents the average annual change in value of
an investment over the indicated periods.

(3) Cumulative total return represents the change in value of an investment over
the indicated periods.

(4) Source: Morgan Stanley Capital International. The MSCI AC World Free Index
measures the performance of securities located in 47 countries, including
emerging markets in Latin America, Asia and Eastern Europe. It includes
reinvested dividends. The MSCI World Index tracks the performance of
approximately 1500 securities in 22 countries and is designed to measure world
stock market performance. It includes reinvested dividends.

Indices are unmanaged, do not contain cash, and do not include management or
other operating expenses. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 6 of
this report.

continued...

[PHOTO OF GARY MOTYL]

TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued................................................................

GEOGRAPHIC DISTRIBUTION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)

[PIE CHART]

Europe 44.5%
North America 20.2%
Australia/New Zealand 5.4%
Latin America/Caribbean 9.0%
Asia 14.2%

FUND ASSET ALLOCATION ON 6/30/99

[PIE CHART]

Equity* 93.3%
Short-Term Investments & Other Net Assets 6.7%

*Equity includes convertible and preferred securities

of 14.86% and 15.73%, compared to the unmanaged Morgan Stanley Capital
International ("MSCI") All Country World Free Index returns of 5.64% and 9.82%,
respectively. The MSCI World Index reported cumulative total returns of 4.86%
and 8.69% for these periods. Please remember that the Fund's performance differs
from that of an index because, among other things, an index does not contain
cash (the Fund generally carries a certain percentage of cash at any given
time), is not managed according to any investment strategy, and includes no
management or other operating expenses. Of course, one cannot invest directly in
an index, nor is an index representative of the Fund's portfolio.

Given the economy's rapid progress, the Fed apparently determined that
a reduction in inflation fighting measures was warranted. The Fed's 25 basis
point rate hike on June 30, and recent statistics that indicate a slowing in the
very rapid growth rate of money supply in the near future, suggest that the Fed
believed the risk of a global economic crisis had diminished. Presumably, with
global economic stabilization in sight, the Fed could allow the world's various
central banks and finance ministries to focus on more localized problems.

In Europe, policymakers struggled with the need to stimulate sluggish
growth through lower interest rates while simultaneously defending the value of
the beleaguered euro. The weaker currency played a role in encouraging greater
exports and reduced imports, but we believe Europe will also need to address
structural impediments in the labor market to make the euro a long-term success.
Meanwhile, many European companies showed initiative by restructuring and/or
acquiring other companies to gain critical mass and reduce costs, and the Fund
benefited from these trends. Overall, we lightened our positions in European
stocks, as valuations for some stocks were beginning to look rather full to us.
This aided our performance relative to the indices in 1999's first half as
European stocks, particularly the most expensive shares in which we had little
exposure, performed poorly. During the period, we added Marks & Spencer Plc., a
well-known UK retailer which has experienced some operating problems of late.
The stock declined significantly and we believe it holds solid appreciation
potential over the next few years. We liquidated our position in Saga Petroleum
AS, the Norwegian energy company, which was the subject of a takeover bid. We
preferred to take cash rather than stock in the acquiring company. Also,
following strong share price performance, we reduced our position in Nokia
Corp., the Finnish telecommunications equipment maker.

In Latin America, we identified many stocks we believed to be bargain priced.
These markets were some of the primary beneficiaries of the receding atmosphere
of economic crisis during the second quarter of 1999, with Mexican stocks
advancing and even Brazilian stocks managing a double-digit U.S. dollar gain
despite the devaluation of the real. In our opinion, if inflation remains under
control, interest rates fall further, fiscal and trade imbalances are addressed,
and privatizations move forward, the potential for further gains on our holdings
may be significant. During the period, we added to our position in the Chilean
telecom company, Compania de Telecomunicaciones de Chile SA.

Southeast Asian stock markets were also major beneficiaries of the
improved health of the global economies and, again, the Fund was well exposed to
this trend. The Korean, Thai, and Singaporean stock markets each rose more than
50% in U.S. dollar terms, and the Hong Kong equities market, the Fund's greatest
exposure in Asia, advanced over 30% during the first six months of 1999.
Government-led bailouts to end the regional banking crisis, some progress on
debt restructuring, improved current account positions, and sharply falling
interest rates all appear to have signaled to the financial markets that the
"point of maximum pessimism" that Templeton's research analysts are always
searching for had passed. We are hopeful to take advantage of
attractively-priced new issues of equity, as we believe that many Asian
companies still need to sell shares in order to rebuild balance sheets weakened
by the economic crisis in 1997-98.

Japanese stocks also posted a strong advance in the second quarter.
While many challenges remain for the Japanese economy, investors' fears that the
nation was entering into a more rapid downward economic spiral never fully
materialized. Should Japan's policymakers find a way to inject liquidity into
its economy, dispose of excess manufacturing capacity, and remove some of the
structural impediments to free competition, we believe that better economic
growth might also be achieved. While many Japanese stocks are still not
inexpensive enough to meet our strict Templeton long-term value criteria, we
were able to identify several shares that could. For example, Nippon Telegraph &
Telephone Corp. has been added to the Fund. This Japanese telecommunications
giant is beginning a long-term restructuring program that we believe may improve
profitability. However, our holdings in these shares still represent an
underweighted position relative to the MSCI World Index and the MSCI AC World
Free Index, and this detracted from our returns versus the indices in the second
quarter.

We believe the Fed's highly successful measures for dealing with the
Asian crisis did have some unfortunate side effects for the U.S. economy. Rate
cuts and liquidity stimulated an already strong domestic economy to a growth
rate we believe to be in excess of its long run potential. While inflation
remained dormant, this growth trend reduced the available labor pool
dramatically, thereby threatening wage gains in excess of productivity growth.
Meanwhile, earnings growth was very strong, enabling the U.S. stock market to
shrug off rising interest rates and move to new record highs. Given these
considerations, as well as the high level of valuations in the U.S. stock
market, our holdings in U.S. stocks remain substantially below that of the MSCI
World Index and the MSCI AC World Free Index. This has impaired results in our
global portfolios thus far in 1999, but we believe that our long-standing
approach of focusing exclusively on bargain-priced shares should ultimately
yield attractive long-term results.

INDUSTRY DIVERSIFICATION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)

Finance 23.9%
Services 22.2%
Capital Equipment 13.8%
Energy 13.0%
Consumer Goods 9.1%
Materials 7.7%
Multi-Industry 3.6%

10 LARGEST POSITIONS ON 6/30/99
(Percent of Total Net Assets)

Volvo AB, B 2.3%
ING Groep NV 2.2%
Compania de Telecomunicaciones
de Chile SA, ADR 2.1%
Banco Itau SA, pfd. 2.0%
AXA SA 1.9%
General Electric Co. Plc. 1.8%
Astrazeneca Plc. 1.8%
Merita AS 1.7%
ABB Ltd. 1.7%
Development Bank of
Singapore Ltd., fgn. 1.6%

TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued................................................................

Total Return Index Comparison
$5,000,000 Investment: 05/03/93-6/30/99

Templeton Inst-Growth MSCI World MSCI All Country CPI
World Free
<S> <C> <C> <C> <C>
5/3/93 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00
5/31/93 $5,100,000.00 $5,116,064.50 $5,106,091.14 $5,006,322.58
6/30/93 $5,040,000.00 $5,074,112.77 $5,072,960.82 $5,013,331.43
7/31/93 $5,115,000.00 $5,179,654.32 $5,178,161.75 $5,013,331.43
8/31/93 $5,445,000.00 $5,417,918.42 $5,423,704.59 $5,027,368.76
9/30/93 $5,455,000.00 $5,318,770.51 $5,332,760.61 $5,037,926.23
10/31/93 $5,725,000.00 $5,466,100.45 $5,490,687.80 $5,058,581.73
11/30/93 $5,595,000.00 $5,157,812.39 $5,205,263.08 $5,062,122.74
12/31/93 $6,002,076.00 $5,411,060.97 $5,486,794.06 $5,062,122.74
1/31/94 $6,393,737.00 $5,768,732.10 $5,850,664.90 $5,075,790.47
2/28/94 $6,175,017.00 $5,694,892.33 $5,766,095.42 $5,093,048.16
3/31/94 $5,898,010.00 $5,450,581.45 $5,507,017.76 $5,110,364.52
4/30/94 $5,995,711.00 $5,620,094.54 $5,656,780.29 $5,117,519.03
5/31/94 $6,057,416.00 $5,635,268.79 $5,690,131.02 $5,121,101.30
6/30/94 $5,882,584.00 $5,620,617.09 $5,662,495.93 $5,138,513.04
7/31/94 $6,124,263.00 $5,728,532.94 $5,787,826.62 $5,152,387.03
8/31/94 $6,386,512.00 $5,902,107.49 $5,993,989.70 $5,172,996.57
9/30/94 $6,201,395.00 $5,748,062.48 $5,853,240.03 $5,186,963.66
10/31/94 $6,257,959.00 $5,912,457.07 $6,003,253.66 $5,190,594.54
11/30/94 $5,949,431.00 $5,657,038.92 $5,742,542.97 $5,197,342.31
12/31/94 $5,922,780.00 $5,713,043.61 $5,762,578.31 $5,197,342.31
1/31/95 $5,814,503.00 $5,628,490.56 $5,645,318.36 $5,218,131.68
2/28/95 $5,957,971.00 $5,711,792.22 $5,705,612.73 $5,239,004.21
3/31/95 $6,050,638.00 $5,988,242.97 $5,966,951.12 $5,256,292.92
4/30/95 $6,301,385.00 $6,197,831.47 $6,183,980.05 $5,273,638.69
5/31/95 $6,503,073.00 $6,251,752.61 $6,252,250.82 $5,284,185.97
6/30/95 $6,579,387.00 $6,251,127.43 $6,253,632.76 $5,294,754.34
7/31/95 $6,884,645.00 $6,564,934.03 $6,556,203.89 $5,294,754.34
8/31/95 $6,748,369.00 $6,419,848.99 $6,412,659.21 $5,308,520.70
9/30/95 $6,868,292.00 $6,607,950.56 $6,589,083.14 $5,319,137.74
10/31/95 $6,661,153.00 $6,504,866.53 $6,478,951.42 $5,336,690.89
11/30/95 $6,764,722.00 $6,731,886.37 $6,682,759.35 $5,332,955.21
12/31/95 $6,964,376.00 $6,929,803.83 $6,883,992.20 $5,329,222.14
1/31/96 $7,187,517.00 $7,056,619.24 $7,037,020.81 $5,360,664.55
2/29/96 $7,242,851.00 $7,101,075.95 $7,066,320.08 $5,377,818.68
3/31/96 $7,373,459.00 $7,220,374.02 $7,175,100.99 $5,405,783.34
4/30/96 $7,622,803.00 $7,391,496.89 $7,350,300.60 $5,426,865.89
5/31/96 $7,694,045.00 $7,398,888.38 $7,357,899.86 $5,437,176.94
6/30/96 $7,688,108.00 $7,437,362.60 $7,398,253.30 $5,440,439.24
7/31/96 $7,409,080.00 $7,175,567.44 $7,121,935.34 $5,450,776.08
8/31/96 $7,646,550.00 $7,259,521.58 $7,209,770.45 $5,461,132.55
9/30/96 $7,800,906.00 $7,544,820.78 $7,476,008.03 $5,478,608.18
10/31/96 $7,937,452.00 $7,599,143.48 $7,505,904.36 $5,496,139.72
11/30/96 $8,358,962.00 $8,026,215.35 $7,907,176.40 $5,506,582.39
12/31/96 $8,536,004.00 $7,899,401.15 $7,792,648.29 $5,506,582.39
1/31/97 $8,746,062.00 $7,995,773.84 $7,923,380.25 $5,524,203.45
2/28/97 $8,847,496.00 $8,089,324.39 $8,031,407.85 $5,541,328.48
3/31/97 $8,853,903.00 $7,930,773.64 $7,870,748.37 $5,555,181.80
4/30/97 $8,821,870.00 $8,191,696.09 $8,123,545.00 $5,561,848.02
5/31/97 $9,238,298.00 $8,698,762.08 $8,608,255.74 $5,558,510.91
6/30/97 $9,705,979.00 $9,133,700.18 $9,048,750.86 $5,565,181.13
7/31/97 $10,116,001.00 $9,555,677.13 $9,457,904.90 $5,571,859.34
8/31/97 $9,558,628.00 $8,918,313.46 $8,794,321.17 $5,582,445.88
9/30/97 $10,314,605.00 $9,404,361.55 $9,263,330.22 $5,596,401.99
10/31/97 $9,552,221.00 $8,910,632.57 $8,711,761.81 $5,610,393.00
11/30/97 $9,494,562.00 $9,070,132.89 $8,845,037.31 $5,607,026.76
12/31/97 $9,583,405.00 $9,181,695.52 $8,961,166.82 $5,600,298.33
1/31/98 $9,513,042.00 $9,438,783.00 $9,158,443.05 $5,610,938.89
2/28/98 $10,061,871.00 $10,078,732.49 $9,784,971.06 $5,621,599.68
3/31/98 $10,686,558.00 $10,506,070.74 $10,202,479.04 $5,632,280.72
4/30/98 $10,826,801.00 $10,610,080.84 $10,298,101.67 $5,642,418.82
5/31/98 $10,448,144.00 $10,478,515.84 $10,102,710.44 $5,652,575.18
6/30/98 $10,223,754.00 $10,728,952.37 $10,284,724.00 $5,659,358.27
7/31/98 $10,265,827.00 $10,712,858.94 $10,288,084.02 $5,666,149.50
8/31/98 $8,442,661.00 $9,285,906.13 $8,846,701.84 $5,672,948.88
9/30/98 $8,358,515.00 $9,452,123.85 $9,022,686.36 $5,679,756.42
10/31/98 $9,129,854.00 $10,308,486.27 $9,846,710.10 $5,693,387.83
11/30/98 $9,760,950.00 $10,922,872.05 $10,444,504.67 $5,693,387.83
12/31/98 $9,868,320.45 $11,458,092.78 $10,929,560.42 $5,689,971.80
1/31/99 $9,808,778.66 $11,710,577.47 $11,152,932.66 $5,703,858.17
2/28/99 $9,495,452.16 $11,400,682.10 $10,872,626.45 $5,710,800.91
3/31/99 $9,943,479.77 $11,877,040.11 $11,361,670.88 $5,728,158.95
4/30/99 $10,899,076.77 $12,346,905.43 $11,852,536.19 $5,769,818.30
5/31/99 $10,734,116.72 $11,897,396.09 $11,433,710.47 $5,769,818.30
6/30/99 $11,421,100.18 $12,456,573.71 $12,002,958.55 $5,769,818.30
</TABLE>

Periods ended June 30, 1999

Since
Inception
One-Year Five-Year (05/03/93)
- --------------------------------------------------------------
Average Annual
Total Return (1), (2) 11.71% 14.19% 14.36%
Cumulative Total
Return (1), (3) 11.71% 94.15% 128.42%

(2) Average annual total return represents the average annual change in value of
an investment over the indicated periods.

(3) Cumulative total return represents the change in value of an investment over
the indicated periods.

(4) Source: Morgan Stanley Capital International. The MSCI World Index tracks
the performance of approximately 1500 securities in 22 countries and is designed
to measure world stock market performance. It includes reinvested dividends. The
MSCI AC World Free Index measures the performance of securities located in 47
countries, including emerging markets in Latin America, Asia and Eastern Europe.
It includes reinvested dividends. Indices are unmanaged, do not contain cash and
do not include management or other operating expenses. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.

(5) Source: U.S. Bureau of Labor Statistics (7/15/99).

All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.

While the current elevated valuations attached to equities in many
parts of the world make the identification of bargains more challenging,
worthwhile opportunities present themselves as nations, industries, or
individual companies fall temporarily out of favor with investors. As other
investors scramble to pay high prices for those stocks with the most appealing
trend, Templeton's analysts diligently search for those shares selling at the
lowest prices in relation to long-term earnings potential. At Templeton, we
remain committed to implementing our disciplined investment process and we are
confident that, in so doing, we will build upon the strong relationship we enjoy
with you now.

This discussion reflects our views, opinions, and portfolio holdings as
of June 30, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and the Fund's portfolio composition. Although past performance is
not predictive of future results, these insights may help you better understand
our investment and management philosophy.

There are, of course, special risks involved in global investing
related to market, currency, economic, social, political and other factors.
Emerging market securities involve heightened risks related to the same factors,
in addition to those associated with their relatively small size and lesser
liquidity. Investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
For example, the Mexican Bolsa Index has increased 3,760% in the last 15 years,
but has suffered 8 declines of more than 15% during that time.(1) While
short-term volatility can be disconcerting, declines in excess of 50% are not
unusual in emerging markets. These special risks and other considerations are
discussed in the Fund's prospectus.

Thank you for allowing us to serve your investment management needs.

Best regards,

/s/DONALD F. REED
Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.

/s/GARY P. MOTYL
Gary P. Motyl, CFA
Executive Vice President
Templeton Investment Counsel, Inc.

(1) Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 1999. Market return is measured in U.S. dollars and does
not include reinvested dividends.

For the most current portfolio information, please call 1-800-362-6243.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------------------------------------
(UNAUDITED)+ 1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period................. $6.61 $13.62 $13.41 $11.86 $10.94 $11.80
------------------------------------------------------------------------
Income from investment operations:
Net investment income............................... .08 .19 .73 .30 .27 .20
Net realized and unrealized gains (losses).......... .96 .46 .89 2.32 1.62 (.36)
------------------------------------------------------------------------
Total from investment operations..................... 1.04 .65 1.62 2.62 1.89 (.16)
------------------------------------------------------------------------
Less distributions from:
Net investment income............................... -- (.19) (.87) (.29) (.27) (.20)
Net realized gains.................................. -- (7.47) (.54) (.74) (.70) (.50)
In excess of net realized gains..................... -- -- -- (.04) -- --
------------------------------------------------------------------------
Total distributions.................................. -- (7.66) (1.41) (1.07) (.97) (.70)
------------------------------------------------------------------------
Net asset value, end of period....................... $7.65 $6.61 $13.62 $13.41 $11.86 $10.94
========================================================================
Total Return*........................................ 15.73% 2.98% 12.27% 22.57% 17.59% (1.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).................... $62,425 $55,779 $120,370 $268,158 $226,963 $194,059
Ratios to average net assets:
Expenses............................................ .90%** .89% .86% .87% .88% .95%
Net investment income............................... 2.36%** 2.27% 2.15% 2.34% 2.28% 1.69%
Portfolio turnover rate.............................. 22.90% 13.00% 16.73% 15.61% 30.20% 17.23%
</TABLE>

* Total return is not annualized.
** Annualized.
+ Based on weighted average shares outstanding.
See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.6%
APPLIANCES & HOUSEHOLD DURABLES .8%
Sony Corp. ................................................. Japan 4,700 $ 506,733
-----------
AUTOMOBILES 3.5%
*Circuit City Stores Inc. - CarMax Group.................... United States 69,000 366,563
Fiat SpA.................................................... Italy 128,500 408,412
Volvo AB, B................................................. Sweden 49,000 1,420,665
-----------
2,195,640
-----------
BANKING 10.0%
*Banca Nazionale Del Lavoro SpA............................. Italy 119,200 375,903
Bank of America Corp. ...................................... United States 8,700 637,819
Banque Nationale de Paris, ADR, 144A........................ France 10,000 833,247
Deutsche Bank AG, Br. ...................................... Germany 15,200 926,390
Development Bank of Singapore Ltd., fgn. ................... Singapore 80,000 977,386
HSBC Holdings Plc. ......................................... Hong Kong 21,069 768,481
Merita AS................................................... Finland 192,000 1,090,977
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 200,000 618,305
-----------
6,228,508
-----------
BUILDING MATERIALS & COMPONENTS 1.3%
Pioneer International Ltd. ................................. Australia 320,000 815,462
-----------
BUSINESS & PUBLIC SERVICES .7%
Esselte AB, A............................................... Sweden 42,000 419,901
-----------
CHEMICALS 3.4%
Akzo Nobel NV............................................... Netherlands 20,000 841,497
Bayer AG, Br. .............................................. Germany 8,600 357,853
Beijing Yanhua Petrochemical Company Ltd., ADR.............. China 34,000 386,750
Imperial Chemical Industries Plc. .......................... United Kingdom 52,000 517,197
-----------
2,103,297
-----------
CONSTRUCTION & HOUSING .2%
Fairview Holdings Plc. ..................................... United Kingdom 64,884 137,557
-----------
DATA PROCESSING & REPRODUCTION 1.1%
*3Com Corp. ................................................ United States 24,500 653,844
-----------
ELECTRICAL & ELECTRONICS 5.1%
*ABB Ltd. .................................................. Sweden 11,235 1,050,569
Alcatel SA.................................................. France 5,416 762,384
General Electric Co. Plc. .................................. United Kingdom 112,084 1,139,532
*Meto AG.................................................... Sweden 42,000 207,975
-----------
3,160,460
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .4%
BICC Plc. .................................................. United Kingdom 193,861 276,543
-----------
ENERGY EQUIPMENT & SERVICES 3.0%
Sunoco Inc. ................................................ United States 20,000 603,750
TransCanada PipeLines Ltd. ................................. Canada 43,500 609,000
Transocean Offshore Inc. ................................... Cayman Islands 24,400 640,500
-----------
1,853,250
-----------
ENERGY SOURCES 3.7%
Occidental Petroleum Corp. ................................. United States 29,000 612,625
Repsol SA................................................... Spain 42,800 873,920
Societe Elf Aquitane SA, Br. ............................... France 5,628 825,889
-----------
2,312,434
-----------
</TABLE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 5.5%
AXA SA...................................................... France 9,600 $ 1,171,166
Housing Development Finance Corp. Ltd. ..................... India 5,895 302,083
ICICI Ltd., GDR, 144A....................................... India 60,100 619,030
ING Groep NV................................................ Netherlands 25,055 1,356,489
-----------
3,448,768
-----------
FOOD & HOUSEHOLD PRODUCTS 1.0%
Archer-Daniels Midland Co. ................................. United States 42,025 648,762
-----------
FOREST PRODUCTS & PAPER 2.3%
Carter Holt Harvey Ltd. .................................... New Zealand 166,000 198,797
Fletcher Challenge Ltd. Forestry Division................... New Zealand 625,000 351,058
Metsa Serla OY, B........................................... Finland 45,000 382,386
Stora Enso OYJ, R........................................... Finland 44,994 486,879
-----------
1,419,120
-----------
HEALTH & PERSONAL CARE 3.8%
Astrazeneca Plc. ........................................... United Kingdom 29,059 1,131,333
Pharmacia & Upjohn Inc. .................................... United States 11,100 630,619
Rhone-Poulenc SA, A......................................... France 13,963 638,033
-----------
2,399,985
-----------
INDUSTRIAL COMPONENTS 1.1%
Exide Corp. ................................................ United States 46,600 687,350
-----------
INSURANCE 5.2%
Ace Ltd. ................................................... Bermuda 21,800 615,850
Allstate Corp. ............................................. United States 12,300 441,263
Presidential Life Corp. .................................... United States 32,400 635,850
Torchmark Corp. ............................................ United States 18,500 631,313
XL Capital Ltd., A.......................................... Bermuda 10,700 604,550
Zurich Allied AG............................................ Switzerland 520 295,690
-----------
3,224,516
-----------
MACHINERY & ENGINEERING 2.9%
Invensys Plc. .............................................. United Kingdom 117,793 557,939
New Holland NV.............................................. Netherlands 48,000 822,000
VA Technologie AG, Br. ..................................... Austria 4,600 416,737
-----------
1,796,676
-----------
MERCHANDISING 2.7%
Hudsons Bay Co. ............................................ Canada 34,000 383,328
Marks & Spencer Plc. ....................................... United Kingdom 60,000 346,143
Safeway Plc. ............................................... United Kingdom 66,000 263,981
Storehouse.................................................. United Kingdom 312,100 671,505
-----------
1,664,957
-----------
METALS & MINING .7%
WMC Ltd. ................................................... Australia 108,560 466,345
-----------
MULTI-INDUSTRY 3.6%
Brierley Investments Ltd. .................................. New Zealand 765,889 215,097
Foster Wheeler Corp. ....................................... United States 24,200 341,825
Hutchison Whampoa Ltd. ..................................... Hong Kong 62,000 561,359
Jardine Matheson Holdings Ltd. ............................. Hong Kong 97,531 487,655
Swire Pacific Ltd., A....................................... Hong Kong 132,000 653,293
-----------
2,259,229
-----------
</TABLE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 1.2%
*Catellus Development Corp. ................................ United States 50,000 $ 775,000
-----------
TELECOMMUNICATIONS 12.1%
*Cable & Wireless Optus Ltd., 144A.......................... Australia 156,452 356,232
Compania de Telecomunicaciones de Chile SA, ADR............. Chile 53,300 1,319,175
Nippon Telegraph & Telephone Corp. ......................... Japan 43 500,909
Nokia Corp., A.............................................. Finland 7,300 639,889
Nortel Networks Corp. ...................................... Canada 10,080 875,070
Philippine Long Distance Telephone Co., ADR................. Philippines 23,211 699,231
PT Indosat, ADR............................................. Indonesia 500 9,750
*Rostelecom, ADR............................................ Russia 21,500 210,969
*Telecom Italia SpA, di Risp................................ Italy 75,700 411,795
Telefonica del Peru SA, B................................... Peru 115,000 172,733
*Telefonica SA.............................................. Spain 19,000 915,221
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 10,900 880,856
Videsh Sanchar Nigam Ltd., GDR, 144A........................ India 42,700 547,094
-----------
7,538,924
-----------
TRANSPORTATION 4.0%
Airborne Freight Corp. ..................................... United States 22,100 611,894
British Airways Plc. ....................................... United Kingdom 51,000 352,503
Burlington Northern Santa Fe Corp. ......................... United States 19,400 601,400
Canadian National Railway Co. .............................. Canada 9,200 621,715
Mayne Nickless Ltd., A...................................... Australia 97,783 334,616
-----------
2,522,128
-----------
UTILITIES ELECTRICAL & GAS 9.3%
Centrais Eletricas Brasileiras SA (Electrobras)............. Brazil 14,000,000 266,819
*Centrais Geradoras Do Sul Do Brasil SA..................... Brazil 7,000,000 5,592
Centrica Plc. .............................................. United Kingdom 219,600 516,618
*CEZ AS..................................................... Czech Republic 190,465 392,003
Endesa SA................................................... Spain 33,600 716,560
Evn AG...................................................... Austria 6,200 906,631
Guangdong Electric Power Development Co Ltd., B. ........... China 728,000 501,043
Iberdrola SA, Br. .......................................... Spain 57,600 877,335
Korea Electric Power Corp. ................................. South Korea 19,720 819,466
Veba AG..................................................... Germany 13,400 790,430
-----------
5,792,497
-----------
TOTAL COMMON STOCKS (COST $44,159,764)...................... 55,307,886
-----------
PREFERRED STOCKS 4.7%
Banco Itau SA, pfd. ........................................ Brazil 2,450,000 1,272,183
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 11,700 162,338
News Corp. Ltd., pfd. ...................................... Australia 83,353 635,023
Tele Celular Sul Participacoes SA, ADR, pfd. ............... Brazil 1,170 25,374
Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ...... Brazil 3,900 15,356
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 2,340 129,870
Tele Leste Celular Participacoes SA, ADR, pfd. ............. Brazil 234 6,962
Tele Nordeste Celular Participacoes SA, ADR, pfd. .......... Brazil 585 15,795
Tele Norte Celular Participacoes SA, ADR, pfd. ............. Brazil 234 6,333
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 11,700 217,181
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 2,340 67,860
*Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..... Brazil 11,700 731
Telemig Celular Participacoes SA, ADR, pfd. ................ Brazil 585 14,406
</TABLE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Telesp Celular Participacoes SA, ADR, pfd. ................. Brazil 4,680 $ 125,190
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 11,700 267,638
-----------
TOTAL PREFERRED STOCKS (COST $2,474,720).................... 2,962,240
-----------

<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $4,117,123) 6.6%
U.S. Treasury Bills, 4.355% to 4.85%, with maturities to
12/09/99.................................................. United States $4,170,000 4,118,500
-----------
TOTAL INVESTMENTS (COST $50,751,607) 99.9%.................. 62,388,626
OTHER ASSETS, LESS LIABILITIES .1%.......................... 36,362
-----------
TOTAL NET ASSETS 100.0%..................................... $62,424,988
===========
</TABLE>

*Non-income producing.
**Securities denominated in U.S. dollars.
See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $50,751,607)..... $62,388,626
Cash....................................................... 214,305
Receivables:
Capital shares sold....................................... 135,701
Dividends and interest.................................... 335,407
-----------
Total assets.......................................... 63,074,039
-----------
Liabilities:
Payables:
Investment securities purchased........................... 464,483
Capital shares redeemed................................... 76,893
To affiliates............................................. 45,817
Deferred tax liability (Note 1e)........................... 7,063
Accrued expenses........................................... 54,795
-----------
Total liabilities..................................... 649,051
-----------
Net assets, at value........................................ $62,424,988
===========
Net assets consist of:
Undistributed net investment income........................ $ 697,793
Net unrealized appreciation................................ 11,629,956
Accumulated net realized gain.............................. 800,760
Capital shares............................................. 49,296,479
-----------
Net assets, at value........................................ $62,424,988
===========
Net asset value per share ($62,424,988 / 8,164,260 shares
outstanding).............................................. $7.65
===========
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $96,440)
Dividends.................................................. $ 788,742
Interest................................................... 127,415
----------
Total investment income............................... $ 916,157
Expenses:
Management fees (Note 3)................................... 196,579
Administrative fees (Note 3)............................... 23,523
Transfer agent fees (Note 3)............................... 296
Reports to shareholders.................................... 8,200
Registration and filing fees............................... 5,300
Professional fees.......................................... 17,000
Directors' fees and expenses............................... 1,600
----------
Total expenses........................................ 252,498
----------
Net investment income........................... 663,659
----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,282,779
Foreign currency transactions............................. (26,222)
----------
Net realized gain..................................... 1,256,557
Net unrealized appreciation (depreciation) on:
Investments............................................... 6,473,069
Deferred taxes (Note 1e).................................. (7,063)
----------
Net unrealized appreciation........................... 6,466,006
----------
Net realized and unrealized gain............................ 7,722,563
----------
Net increase in net assets resulting from operations........ $8,386,222
==========
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 663,659 $ 1,411,249
Net realized gain from investments and foreign currency
transactions............................................ 1,256,557 1,782,944
Net unrealized appreciation (depreciation) on investments
and deferred taxes....................................... 6,466,006 (1,330,371)
----------------------------------
Net increase in net assets resulting from operations.... 8,386,222 1,863,822
Distributions to shareholders from:
Net investment income..................................... -- (1,406,840)
Net realized gains........................................ -- (37,469,952)
In excess of net realized gains........................... -- (455,797)
Capital share transactions (Note 2)........................ (1,740,667) (27,121,467)
----------------------------------
Net increase (decrease) in net assets................... 6,645,555 (64,590,234)
Net assets:
Beginning of period........................................ 55,779,433 120,369,667
----------------------------------
End of period.............................................. $62,424,988 $ 55,779,433
==================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 697,793 $ 34,134
==================================
</TABLE>

See Notes to Financial Statements.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Growth Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks to achieve
long-term capital growth. Under normal market conditions, the Fund invests
primarily in the equity securities of companies located anywhere in the world,
including emerging markets. The following summarizes the Fund's significant
accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

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, and the difference between the recorded
amounts of dividends, interest and foreign withholding taxes, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

e. DEFERRED TAXES:

Deferred taxes are recorded for estimated tax liabilities inherent in the Fund's
portfolio securities which may arise from subsequent sales of those securities
and asset repatriations from countries that impose such taxes.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
f. ACCOUNTING ESTIMATES:

2. CAPITAL STOCK

At June 30, 1999, there were 1.14 billion shares authorized ($0.01 par value),
of which 120 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, 1999 DECEMBER 31, 1998
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,157,028 $ 8,150,157 1,936,045 $ 15,134,178
Shares issued on reinvestment of distributions.............. -- -- 5,406,284 38,984,371
Shares redeemed............................................. (1,437,519) (9,890,824) (7,737,881) (81,240,016)
------------------------------------------------------------
Net decrease................................................ (280,491) $(1,740,667) (395,552) $(27,121,467)
============================================================
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

TICI and FT Services agreed in advance to limit total expenses of the Fund to an
annual rate of 0.90% of average daily net assets through April 30, 2000. For the
six months ended June 30, 1999, no fee waiver or reimbursement was necessary
under the agreement.

TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (unaudited) (continued)

4. INCOME TAXES

At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $51,003,662 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $16,550,124
Unrealized depreciation..................................... (5,165,161)
-----------
Net unrealized appreciation................................. $11,384,963
===========
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $11,746,270 and $11,965,463, respectively.

This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc. Growth Series, which contains more complete
information, including risk factors, charges, and expenses. Like any investment
in securities, the value of the Fund's portfolio will be subject to the risk of
loss from market, currency, economic, political and other factors, as well as
investment decisions by the manager, which will not always be profitable or
wise. The Fund and its investors are not protected from such losses by the
manager. Therefore, investors who cannot accept this risk should not invest in
shares of the Fund.

Principal Underwriter:

FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030

Institutional Services: 1-800-321-8563
[RECYCLED LOGO] Fund Information: 1-800-362-6243

ZT455 S 6/99