<PAGE>
[TEMPLETON INSTITUTIONAL FUNDS, INC.]
[LOGO OF TEMPLETON GROWTH SERIES SEMI-ANNUAL REPORT APPEARS HERE]
Growth Series
SEMI-ANNUAL REPORT
[June 30, 1996]
<PAGE>
- -------------------------------------------------------------
Mutual funds, annuities, and other investment products:
. are not FDIC insured;
. are not deposits or obligations of, or guaranteed by,
any financial institution;
. are subject to investment risks, including possible
loss of the principal amount invested.
- -------------------------------------------------------------
<PAGE>
June 30, 1996
Dear Shareholder...
Investors have reason to be pleased with the favorable returns attained
in the first half of 1996, as they were achieved against a backdrop of slowing
earnings momentum, a rash of IPO's, and higher interest rates in the U.S. The
huge inflow of money into U.S. based mutual funds - more in the first half of
1996 than in all of 1995 - had much to do with this positive result, as it
literally swamped any negative developments that might have impeded the markets'
advance under more normal circumstances. This extreme appetite for equities in
1996 represents a continuation of a longer-term trend. According to J.P. Morgan,
U.S. mutual fund investors have realigned their portfolios substantially since
1989, as the then 55/45 debt/equity mix has been altered to the current 36/64
level. This massive reallocation towards equities, which clearly has been one of
the primary engines of the long bull market in the U.S., advanced at a seemingly
unsustainable rate in early 1996. Bouts of speculation, particularly in the high
growth and small cap segments of the market, were inevitable in such an
environment, but, to the great comfort of long-term investors like Templeton,
the market began to punish the speculators late in the second quarter before
this behavior could spread throughout the marketplace. While we are hopeful that
speculative activity will continue to wane, there is no denying that the
seemingly universal acceptance of equities as the investment of choice in the
U.S. is making it harder for Templeton's team of security analysts to identify
U.S. stocks that qualify as bargains based on our long-term estimates of
earnings power. Outside the U.S., however, equities are not nearly as popular,
as performance has generally trailed that of the U.S. over the last two years,
creating more bargains.
- -------------------------------------------------------------------------------
TOTAL RETURNS AS OF 6/30/96
<TABLE>
<CAPTION>
CUMULATIVE CUNULATIVE
ONE-YEAR THREE YEAR SINCE
AVERAGE AVERAGE INCEPTION/1,3/
ANNUAL/1,2/ ANNUAL/1,2/ (10/18/90)
<S> <C> <C> <C>
TIFI Growth Series 16.85 15.11 53.76
MSCI EAFE Index 19.00 13.60 48.77
</TABLE>
/1/Past expense reductions by the Fund's manager increased the Fund's total
returns.
/2/Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/3/The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
To their credit, U.S. mutual fund investors, sensing that better value
could be found overseas, increased their commitment to foreign markets during
the current mutual fund stampede, as inflows into global and international funds
through April 1996 were 605% greater than through
continued...
<PAGE>
Templeton Institutional Funds, Inc. Growth Series
[letter continued.............................................................]
April 1995 ($14.8 billion vs. $2.1 billion), and represented 20.6% of all equity
fund inflows (J.P. Morgan, June 1996). Global and international funds now
constitute 10.4% of the U.S. mutual fund assets, more than twice the level seen
as recently as 1992. These increased flows into foreign markets from the U.S.,
combined with lower interest rates in Europe, rebounding economies in Latin
America, and continued strong economic growth in Asia, resulted in favorable
first half 1996 returns in many foreign markets. Emerging stock markets and many
cyclical stocks in Europe, which are sensitive to trends in economic growth,
performed particularly well, as earlier fears of imminent recession were rapidly
transformed into concerns of overheated economic growth. Japan continued to
underperform other markets in dollar terms, due not only to its weak currency,
but also to its continued struggle to produce better economic growth and
earnings in its post-bubble economy. The value of the U.S. dollar strengthened
against many currencies in the first half, thereby undermining some of the local
currency gains achieved. These factors, combined with generally good stock
selection, enabled Templeton to produce an attractive return for your portfolio
versus its benchmark in the past six months. Of course, past performance is no
guarantee of future results.
Looking forward, our team of over thirty investment professionals
located in Edinburgh, Fort Lauderdale, Nassau, and Toronto will continue to
implement the Templeton investment philosophy of scouring the world for stocks
that are selling at bargain prices in relation to their long-term earnings power
or asset value. The methodologies we have used successfully for over fifty years
continue to be diligently applied in a disciplined fashion. Nevertheless, we are
aware that bear markets have not become extinct. While we have never been able
to predict when a bear market might begin, we believe that by remaining focused
on identifying unusually inexpensive shares and by avoiding short-term trends
and fads, we stand the best chance of producing superior long-term results for
our clients.
The Templeton approach to investing has always been differentiated from
that of our competition by our focus on longer-term trends and identifying
value. When Templeton security analysts attempt to estimate the future earnings
power or asset value of a particular company, they expend much effort analyzing
data specific to the company itself and the industry in which it operates. Their
judgments on the many factors involved in dissecting a company's financial
statements and corporate strategies form the basis for achieving the ultimate
goal of producing a conservative estimate of long-term earnings power or asset
value. We do not limit ourselves, however, simply to company-specific
information in formulating our estimates. The Templeton analyst also considers a
number of other long-term trends that may impact future earnings capacity. While
many analysts may be concerned about the outcome of upcoming elections or
reserve bank policy changes, the Templeton research team is more concerned about
the political and economic trends that will be impacting
GEOGRAPHIC DISTRIBUTION ON 6/30/96
(% of Equity Assets)
[GRAPH APPEARS HERE]
FUND ASSET ALLOCATION ON 6/30/96
[GRAPH APPEARS HERE]
*Equity includes convertible and preferred stocks
2
<PAGE>
the company we are studying five years from now. This will be far more
relevant to the accuracy of our long-term earnings and NAV estimates than any
short-term development in the same area.
For example, the Templeton analyst's sales forecasts are currently
influenced by our expectation that economic growth should be reasonably strong
five years from now. We have several reasons for making this projection. First,
the rapid economic development of the emerging market nations of the world,
combined with their enormous populations, suggests a bias towards more rapid
world economic growth. This development is being spurred on by the adoption by
many of these nations of capitalistic economic policies that are further
stimulating rapid growth. While we anticipate that there will be many economic
accidents along the road to higher levels of prosperity, it will be difficult
for the emerging nations to turn away from capitalism. Second, the ability to
transfer capital and technology across national borders has never been greater,
and this too should boost the world's economic growth as capital and production
are allocated more efficiently. Third, the General Agreements on Tariffs and
Trade (GATT), and many regional trade treaties, have expanded global trade and
have been estimated to add as much as 1% annually to world GNP growth. Fourth,
we expect that the U.S. will remain the world's dominant military power and that
this, combined with the acceptance of capitalism worldwide, will help keep
economically disruptive warfare to a minimum. Fifth, the aging of the developed
world's population is likely to increase the demands on governments to provide
costly pension and health care services. As baby boomers grow older in the U.S.,
Europe, and Japan, they will no doubt become more insecure about their ability
to sustain their living standards in retirement. It is our expectation that many
will increasingly look to their governments for support. The overall political
spectrum already seems to be drifting somewhat to the left in the developed
world, and a continuation of this trend could easily result in looser fiscal and
monetary policy. In the U.S., the pressure for more government spending can be
seen in the disappearance of a balanced federal budget as a campaign issue, and
by the fact that the primary budget surplus (the federal budget balance less
interest payments) is currently at record levels following several years of
relative spending restraint. This, in turn, could usher in a period of higher
inflation that could also result in higher sales levels for many companies.
These considerations represent just a few of the factors that influence our
analytical team's long-term sales forecasts.
As Templeton analysts work their way through a company's income
statement, their forecasted profit margins five years from now will not only
consider company specific items, but will also keep in mind several factors that
we anticipate may impact profitability. First, in Europe and Japan, the
opportunity for margin improvement from restructuring is substantial. Already,
many companies in these two areas are becoming more aggressive about re-
engineering their businesses to compete effectively against their restructured
U.S. competition. Five years from now, this trend
Industry Diversification on 6/30/96
(% of Total Portfolio)
Banking 16.1%
Telecommunications 8.4%
Utilities, Electrical & Gas 8.1%
Merchandising 6.2%
Financial Services 5.0%
Insurance 5.4%
Business & Public Services 4.3%
Chemicals 4.0%
Multi-industry 3.8%
Electrical & Electronics 3.3%
10 Largest Positions on 6/30/96
(% of Total Portfolio)
Sony Corp. 1.4%
Rhone-Poulenc SA 1.3%
Astra AB 1.3%
Bayer AG 1.3%
Asea AB, A 1.2%
Societe Elf Aquitaine SA 1.2%
Telefonica de Espana SA 1.2%
Iberdrola SA 1.2%
Banque Nationale de Paris
(BNP) 1.2%
Telecomunicacoes Brasileiras SA
(Telebras) 1.1%
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
[Letter continued.............................................................]
could be in full bloom. Second, in the emerging markets, many companies are not
being managed nearly as well as they could be. As protective trade barriers come
down and these companies are exposed to true competition, margins will fall and
be offset somewhat by improved managerial practices. Third, wage pressures may
build as workers become a more potent political force in the emerging markets
and as U.S. workers demand a greater portion of a company's revenues after many
years of losing out relative to increasing corporate profits (see Table 1).
- -------------------------------------------------------------------------------
Table 1
Shares of National Income
[LINE CHART APPEARS HERE SHOWING PERCENTAGE COMPARISON OF SHARES OF NATIONAL
INCOME BETWEEN CORPORATE PROFITS AND COMPENSATION OF EMPLOYEES]
SOURCE: U.S. Department of Com
- -------------------------------------------------------------------------------
Restructuring and currently high salaries may mean that just the opposite occurs
in Europe. Fourth, the rapidly advancing ease of computer use may result in
companies attempting to offset wage pressures by further increasing the
application of technology to improve productivity. Fifth, our expectation that
inflation could increase will likely mean higher interest rates, and therefore,
increased interest costs for companies. All of these factors, as well as many
others, contribute to the analysis we perform in order to make conservative
forecasts of a company's long-term profitability.
Tax rates and the number of shares outstanding are also important
projections that the Templeton analyst must make when forecasting future
earnings power. Again, company-level analysis provides most of the insight we
need to make sensible determinations about these
4
<PAGE>
[Letter Continued.............................................................]
forecasts. Nevertheless, to be conservative, and in view of the expectation that
political forces will be leaning towards a larger role for government as time
passes, we generally assume somewhat higher tax rates in making our long-term
earnings forecasts. Additionally, we are biased toward assuming more, rather
than fewer, shares outstanding as the above average economic growth we believe
is possible will result in the need for many companies to raise additional
equity financing in order to adequately finance growth in productive capacity.
By carefully analyzing all the information relevant to each company we
investigate, the Templeton analyst formulates a reasonable estimate of long-term
earnings power. Often we find that share prices have fallen to unusually
inexpensive levels versus our estimate of future profits, due to some recent
occurrence that has disappointed those investors who are focused more on
momentum and trends rather than long-term value. These stocks are added to the
Templeton Bargain List and become eligible for inclusion in our managed
portfolios. Our team of securities analysts then monitors each stock's progress
towards attaining our long-term forecasts, as we patiently wait for other
investors to begin to focus on the value we have already identified.
While we are always keeping a keen eye on potential changes in long-
term conditions that might affect our earnings estimates, we also remain aware
of developments that may impact how investors will value those earnings. In this
regard, we are becoming increasingly optimistic that the growing popularity of
equity investing that we have witnessed in the U.S. will take hold elsewhere as
well. There are already literally tens of millions of shareholders in some of
the former communist countries due to privatizations of formerly state-owned
enterprises. Should this eventually prove to be a positive experience for them,
these shareholders are likely to continue investing in equities. Throughout the
emerging markets, mutual funds and pension funds are being developed that will
heighten people's awareness of the stock market. It is worth noting that if
savings of just $400 per capita can be amassed in the five most populous
emerging market nations, $1 trillion of investable funds will be created. In
Europe and Japan it seems obvious that governments will have to turn to IRAs and
401(k)-style plans to help address the massive shortfall that will occur under
current pay-as-you-go retirement schemes. As in the U.S., this could condition
the populace to take a long-term view of investing and to favor equities over
bonds. Such a reallocation towards equities, coupled with a rapid increase in
retirement assets controlled by individuals, could fuel strong demand for
shares. Even in the U.S., demand for equities may grow over the longer-term, as
there is now talk of placing some of Social Security's assets into the stock
market. Moreover, the State of California is considering allowing those people
entitled to benefits under the State's defined benefit plan to swap into a
401(k)-style plan. To be sure, a significant bear market might stymie such
trends, but the fact that savers are becoming more comfortable with the long-
term benefits of equity investing bodes well for
5
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
[letter continued ............................................................]
the long-term demand for stocks. This, in turn, could lead to investors being
willing to pay higher multiples than those observed currently for the stocks we
hold in the Fund.
Over the years, the Templeton research team has always focused on
anticipating those trends, whether they be company-specific or of a more general
nature, that would influence investor behavior in the longer term. This has
aided us greatly in making the Templeton name one of the world's most recognized
in the field of global investment management. While the high expectations for
future equity performance in the U.S. are of short-term concern, the long-term
trend towards increased equity investment worldwide could mean that demand for
equities will remain strong and valuations above average.
The Templeton approach leaves to other investors the arduous task of
competing for smaller returns in the area of short-term prognostication.
Instead, we focus on those situations that others often ignore, where the
opportunity for sizable long-term investment returns might be realized. By doing
so, we believe we greatly enhance the possibility of achieving superior
investment results for our clients. While we are always searching for new
methodologies that might further bolster our stock selection skills, our
research staff remains committed to exploiting those methods that have already
proven to be worthwhile. The current market environment presents a serious
challenge for bargain hunters like Templeton, but our staff's careful and
disciplined implementation of our investment process has seen our firm through
both bull and bear markets successfully in the past. Accordingly, we look
forward to a bright future where the relationship we have enjoyed with you will
grow only stronger. Please feel free to contact us with any questions or
comments you might have.
Sincerely,
/S/Donald F. Reed
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
/s/Gary P. Motyl
Gary P. Motyl, C.F.A.
Executive Vice President & Director
Templeton Investment Counsel, Inc.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 1-800-362-6243.
- -------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 05/03/93 - 6/30/96
[Graph Appears Here]
Period ended June 30, 1996
<TABLE>
<CAPTION>
Since
Inception
One-Year (05/03/93)
<S> <C> <C>
Average Annual Total Return/1,2/ 16.85% 14.59%
Cumulative Total Return/1,3/ 16.85% 53.76%
</TABLE>
/1/Past expense reductions by the Fund's manager increased the Fund's total
returns.
/2/Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/3/The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
6
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than the their original cost. Past
performance cannot guarantee future results.
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED MAY 3, 1993
ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1996 ------------------ OPERATIONS) TO
(UNAUDITED) 1995 1994 DECEMBER 31, 1993
------------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.86 $ 10.94 $ 11.80 $ 10.00
-------- -------- -------- --------
Income from investment
operations:
Net investment income .21 .27 .20 .06
Net realized and
unrealized gain (loss) 1.02 1.62 (.36) 1.94
-------- -------- -------- --------
Total from investment
operations 1.23 1.89 (.16) 2.00
-------- -------- -------- --------
Distributions:
Dividends from net
investment income -- (.27) (.20) (.05)
Distributions from net
realized gains (.14) (.70) (.50) (.15)
-------- -------- -------- --------
Total distributions (.14) (.97) (.70) (.20)
-------- -------- -------- --------
Change in net asset value 1.09 .92 (.86) 1.80
-------- -------- -------- --------
Net asset value, end of
period $ 12.95 $ 11.86 $ 10.94 $ 11.80
======== ======== ======== ========
TOTAL RETURN* 10.39% 17.59% (1.32)% 20.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000) $236,360 $226,963 $194,059 $184,013
Ratio of expenses to
average net assets .87%** .88% .95% 1.00%**
Ratio of net investment
income to average net
assets 3.33%** 2.28% 1.69% 1.19%**
Portfolio turnover rate 10.81% 30.20% 17.23% 17.32%
Average commission rate
paid (per share) $ .0254
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMOM STOCKS: 91.5%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.4%
Sony Corp. Jpn. 51,000 $ 3,360,077
- -------------------------------------------------------------------------------
Automobiles: 2.4%
Ford Motor Co. U.S. 46,000 1,489,250
Regie Nationale des Usines
Renault SA Fr. 64,000 1,653,419
Volvo AB, B Swe. 112,000 2,554,297
------------
5,696,966
- -------------------------------------------------------------------------------
Banking: 15.1%
Argentaria Corporacion Bancaria
de Espana SA, ADR Sp. 116,750 2,568,500
Australia & New Zealand Banking
Group Ltd. Aus. 480,150 2,271,783
Banco Bilbao Vizcaya Sp. 58,000 2,351,627
Banco de Andalucia Sp. 10,950 1,526,952
Banco di Sardegna SPA, di Risp Itl. 80,000 507,289
BankAmerica Corp. U.S. 21,500 1,628,625
Banque Nationale de Paris, ADR,
144A Fr. 77,500 2,722,311
Barclays PLC U.K. 82,533 990,775
BPI Socieda de Gestora de
Participacoes Socias SA Port. 86,991 1,103,016
Canadian Imperial Bank of
Commerce Can. 68,000 2,194,030
Daegu Bank Co. Ltd. Kor. 59,374 876,703
Deutsche Bank AG Ger. 50,500 2,394,876
First Chicago NBD Corp. U.S. 39,820 1,557,958
*Glendale Federal Bank FSB U.S. 119,000 2,156,875
HSBC Holdings PLC H.K. 151,069 2,283,380
Komercni Banka AS CSK. 9,000 734,380
*Komercni Banka AS, GDR, 144A CSK. 27,000 729,000
*Merita Ltd., A Fin. 605,000 1,280,133
National Bank of Canada Can. 148,000 1,235,818
National Bank of Greece SA Gr. 8,250 405,726
National Westminster Bank PLC U.K. 97,277 930,591
*PT Panin Bank, fgn. Indo. 984,200 909,143
Svenska Handelsbanken, A Swe. 108,000 2,259,175
------------
35,618,666
- -------------------------------------------------------------------------------
Beverages & Tobacco: 0.1%
*Swedish Match AB Swe. 112,000 348,467
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.2%
News Corp. Ltd. Aus. 91,707 519,674
- -------------------------------------------------------------------------------
Building Materials & Components: 1.8%
*Owens Corning U.S. 42,900 1,844,700
Pioneer International Ltd. Aus. 800,000 2,326,404
------------
4,171,104
- -------------------------------------------------------------------------------
Business & Public Services: 4.3%
Esselte AB, A Swe. 105,000 2,125,057
Hyder PLC U.K. 142,833 1,583,780
*Mid American Waste System Inc. U.S. 445,000 417,188
*Novacare Inc. U.S. 82,500 629,063
Societe Generale de Surveillance
Holdings Ltd., br. Swtz. 520 1,245,671
Wheelabrator Technologies Inc. U.S. 145,000 2,211,250
WMX Technologies Inc. U.S. 61,000 1,997,750
------------
10,209,759
- -------------------------------------------------------------------------------
Chemicals: 4.0%
Akzo Nobel NV Neth. 12,500 1,498,827
Bayer AG Ger. 88,500 3,117,160
European Vinyls Corp. EVC
International NV Neth. 22,785 708,065
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Chemicals (cont.)
Rhone-Poulenc SA, A Fr. 119,663 $ 3,147,282
Solvay SA Bel. 1,800 1,114,164
------------
9,585,498
- -------------------------------------------------------------------------------
Construction & Housing: 1.5%
Daito Trust Construction Co.
Ltd. Jpn. 105,000 1,573,537
Kaufman & Broad Home Corp. U.S. 55,200 800,400
Kyudenko Corp. Jpn. 89,000 1,195,504
------------
3,569,441
- -------------------------------------------------------------------------------
Electrical & Electronics: 3.3%
Alcatel Alsthom SA Fr. 25,500 2,225,689
Asea AB, A Swe. 27,425 2,911,913
Hitachi Ltd. Jpn. 282,000 2,628,409
------------
7,766,011
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 1.0%
BICC U.K. 475,000 2,286,775
- -------------------------------------------------------------------------------
Energy Equipment & Services: 1.2%
Koninklijke Pakhoed NV Neth. 45,000 1,174,142
World Fuel Services Corp. U.S. 96,000 1,740,000
------------
2,914,142
- -------------------------------------------------------------------------------
Energy Sources: 3.1%
Hafslund ASA, B Nor. 86,000 549,919
Repsol SA Sp. 69,000 2,401,430
Saga Petroleum AS, A Nor. 110,000 1,618,632
Societe Elf Aquitane SA Fr. 39,128 2,879,693
------------
7,449,674
- -------------------------------------------------------------------------------
Financial Services: 5.0%
*Capital Portugal Fund Port. 6,000 592,143
Chile Fund Inc. Chil. 16,500 404,250
Dean Witter Discover & Co. U.S. 35,842 2,051,954
Federal National Mortgage Assn. U.S. 65,600 2,197,600
*India Fund, B Ind. 761,728 1,460,949
*Korea International Trust Kor. 20 930,000
*Korea International Trust, IDR Kor. 2 101,000
Thai Fund Inc. Thai. 50,158 1,184,983
Thailand International Fund Thai. 42 1,417,500
*Turkish Growth Fund Tur. 110,000 1,443,750
------------
11,784,129
- -------------------------------------------------------------------------------
Food & Household Products: 1.7%
Albert Fisher Group PLC U.K. 2,209,447 1,612,685
Hillsdown Holdings PLC U.K. 614,942 1,661,696
Vitro SA Mex. 337,960 784,192
------------
4,058,573
- -------------------------------------------------------------------------------
Forest Products & Paper: 2.7%
Carter Holt Harvey Ltd. N.Z. 415,000 950,780
Fletcher Challenge Ltd. Forestry
Division N.Z. 630,000 784,525
Georgia-Pacific Corp. U.S. 18,000 1,278,000
International Paper Co. U.S. 28,000 1,032,500
Metsa Serla OY, B Fin. 112,500 801,567
PT Barito Pacific Timber, fgn. Indo. 465,000 304,672
</TABLE>
9
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Forest Products & Paper (cont.)
Sappi Ltd. S.AF. 19,600 $ 216,672
Stora Kopparbergs Bergslags AB,
B Swe. 76,000 1,004,380
------------
6,373,096
- ------------------------------------------------------------------------------
Health & Personal Care: 2.5%
Astra AB, A Swe. 70,500 3,119,846
Bristol Myers Squibb Co. U.S. 17,500 1,575,000
*Nycomed ASA, B Nor. 86,000 1,192,595
------------
5,887,441
- ------------------------------------------------------------------------------
Industrial Components: 0.9%
Goodyear Tire & Rubber Co. U.S. 43,000 2,074,750
- ------------------------------------------------------------------------------
Insurance: 5.4%
Aegon NV Neth. 44,424 2,047,333
American International Group
Inc. U.S. 15,750 1,553,344
Capital RE Corp. U.S. 55,400 2,035,950
Cigna Corp. U.S. 15,000 1,768,125
Ing Groep NV Neth. 62,655 1,869,915
London Insurance Group Inc. Can. 66,500 1,393,078
Presidential Life Corp. U.S. 180,000 1,867,500
Zuerich Versicherung, new Swtz. 650 177,285
------------
12,712,530
- ------------------------------------------------------------------------------
Leisure & Tourism: 0.6%
Kuoni Reisen Holding AG, B Swtz. 630 1,446,191
- ------------------------------------------------------------------------------
Machinery & Engineering: 1.1%
Hitachi Koki Co. Ltd. Jpn. 115,000 1,134,920
VA Technologie AG, br., 144A Aust. 11,500 1,413,930
------------
2,548,850
- ------------------------------------------------------------------------------
Merchandising: 6.2%
Dairy Farm International
Holdings Ltd. H.K. 1,139,186 962,612
Dayton-Hudson Corp. U.S. 24,500 2,526,562
Home Depot Inc. U.S. 27,000 1,458,000
K Mart Corp. U.S. 150,000 1,856,250
Koninklijke Bijenkorf Beheer NV
(KBB) Neth. 15,588 1,317,965
Kwik Save Group PLC U.K. 191,000 1,343,692
Limited Inc. U.S. 53,500 1,150,250
*Waban Inc. U.S. 76,000 1,814,500
*Wessel & Vett AS, C Den. 39,000 2,296,859
------------
14,726,690
- ------------------------------------------------------------------------------
Metals & Mining: 1.8%
Elkem AS Nor. 87,000 1,199,760
RGC Ltd. Aus. 297,459 1,437,791
*Union Miniere NPV Bel. 21,000 1,630,273
------------
4,267,824
- ------------------------------------------------------------------------------
Multi-Industry: 3.8%
Amer Group Ltd., A Fin. 105,000 1,768,306
Hutchison Whampoa Ltd. H.K. 307,000 1,931,454
Jardine Matheson Holdings Ltd. H.K. 241,531 1,775,253
Jardine Strategic Holdings Ltd. H.K. 515,353 1,649,130
Swire Pacific Ltd., A H.K. 220,000 1,882,892
------------
9,007,035
- ------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate: 2.7%
American Health Properties Inc. U.S. 59,900 $ 1,325,287
Beacon Properties Corp U.S. 60,000 1,537,500
*Catellus Development Corp. U.S. 246,900 2,252,963
Summit Properties Inc., REIT U.S. 60,000 1,177,500
------------
6,293,250
- -------------------------------------------------------------------------------
Telecommunications: 5.8%
Compania de Telecomunicaciones
de Chile SA, ADR Chil. 16,500 1,619,062
Lucent Technologies Inc. U.S. 41,700 1,579,387
Nacional Financiera SA, Reg S Mxn. 39,275 1,345,169
Philippine Long Distance
Telephone Co., GDR, 144A Phil. 50,500 1,717,000
*SPT Telecom AS CSK. 20,000 2,442,482
STET (Sta Finanziaria Telefonica
Torino) SPA, di Risp Itl. 795,000 2,091,627
Telefonica de Espana SA Sp. 155,500 2,866,919
------------
13,661,646
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.0%
*Fruit of the Loom Inc., A U.S. 90,000 2,295,000
- -------------------------------------------------------------------------------
Transportation: 2.0%
Anangel-American Shipholdings
Ltd., ADR Gr. 52,000 507,000
Brambles Industries Ltd. Aus. 100,000 1,389,555
*OMI Corp. U.S. 190,300 1,641,338
Singapore Airlines Ltd., fgn. Sing. 103,000 1,087,668
------------
4,625,561
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 8.1%
American Electric Power Co. Inc. U.S. 45,000 1,918,125
British Gas PLC U.K. 610,000 1,705,181
*CEZ CSK. 43,315 1,723,910
Electricidad de Caracas Venz. 2,098,178 1,744,270
Endesa-Empresa Nacional de
Electricidad SA Sp. 21,000 1,310,808
Evn Energie-Versorgung
Niederoesterreich AG Aust. 15,400 2,129,397
Hongkong Electric Holdings Ltd. H.K. 672,000 2,048,794
Iberdrola SA Sp. 269,000 2,763,447
Niagara Mohawk Power Corp Com. U.S. 85,000 658,750
Thames Water Group PLC U.K. 195,000 1,717,061
*Veba AG, wts. Ger. 5,100 1,455,849
------------
19,175,592
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.8%
Brierley Investments Ltd. N.Z. 1,915,889 1,819,020
------------
TOTAL COMMON STOCKS (cost $181,808,010) 216,253,432
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 1.4%
- -------------------------------------------------------------------------------
Hyder PLC, pfd. U.K. 121,900 184,103
News Corp. Ltd., pfd. Aus. 95,853 467,079
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR Braz. 38,000 2,645,750
------------
TOTAL PREFERRED STOCKS (cost $1,862,725) 3,296,932
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
BONDS: 4.4%
- -------------------------------------------------------------------------------
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 1,745,000 $ 2,512,800
Cia de Inversiones en
Telecomunicaciones
SA, 7.00%, 3/03/98 U.S. 40,935 2,374,230
Nacional Financiera SA,
11.25%, conv., pfd., 05/15/98 U.S. 30,900 1,058,325
PIV Investment Finance
(Cayman) Ltd.,
4.50%, conv., 12/01/00 U.S. 1,850,000 1,554,000
Softe SA, 4.25%, conv.,
7/30/98, 144A Itl. 1,700,000,000 1,689,734
U.S. Treasury Note, 5.125%,
4/30/98 U.S. 1,181,000 1,161,065
------------
TOTAL BONDS (cost $9,227,430) 10,350,154
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 2.5% (cost $5,
987,016)
- -------------------------------------------------------------------------------
U S Treasury Bills, 4.83% to
5.10% with
maturities to 9/12/96 U.S. 6,028,000 5,988,680
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost
$198,885,181) 235,889,198
OTHER ASSETS, LESS LIABILITIES: 0.2% 470,512
------------
TOTAL NET ASSETS: 100.0% $236,359,710
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$198,885,181) $235,889,198
Receivables:
Capital shares sold 154,596
Dividends and interest 1,205,688
Unamortized organization costs 2,638
------------
Total assets 237,252,120
------------
Liabilities:
Payables:
Investment securities purchased 379,088
Capital shares redeemed 280,521
Accrued expenses 232,801
------------
Total liabilities 892,410
------------
Net assets, at value $236,359,710
============
Net assets consist of:
Undistributed net investment income $ 3,769,208
Net unrealized appreciation 37,004,017
Accumulated net realized gain 5,354,224
Net capital paid in on shares of capital stock 190,232,261
------------
Net assets, at value $236,359,710
============
Shares outstanding 18,253,508
============
Net asset value per share ($236,359,710 / 18,253,508) $ 12.95
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $460,155 foreign taxes
withheld)
Dividends $ 4,416,910
Interest 341,904
-----------
Total income $ 4,758,814
Expenses:
Management fees (Note 3) 792,886
Administrative fees (Note 3) 103,353
Custodian fees 38,700
Reports to shareholders 8,500
Audit fees 12,000
Legal fees (Note 3) 300
Registration and filing fees 24,600
Directors' fees and expenses 5,000
Amortization of organization costs 710
Other 3,557
-----------
Total expenses 989,606
-----------
Net investment income 3,769,208
Realized and unrealized gain:
Net realized gain (loss) on:
Investments 7,415,802
Foreign currency transactions (110,156)
-----------
7,305,646
-----------
Net unrealized appreciation on:
Investments 11,325,320
Foreign currency translations of other assets and
liabilities 61,421
-----------
11,386,741
-----------
Net realized and unrealized gain 18,692,387
-----------
Net increase in net assets resulting from operations $22,461,595
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,769,208 $ 4,785,046
Net realized gain on investment and foreign
currency transactions 7,305,646 13,038,929
Net unrealized appreciation 11,386,741 15,928,251
------------ ------------
Net increase in net assets resulting from
operations 22,461,595 33,752,226
Distributions to shareholders:
From net investment income -- (4,785,045)
From net realized gain (2,376,355) (12,351,357)
Capital share transactions (Note 2) (10,688,539) 16,288,306
------------ ------------
Net increase in net assets 9,396,701 32,904,130
Net assets:
Beginning of period 226,963,009 194,058,879
------------ ------------
End of period $236,359,710 $226,963,009
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Notes to Financial Statements (unaudited)
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Growth Series (the Fund) is a separate series of Templeton Institutional
Funds, Inc. (the Company) which is an open-end, diversified management invest-
ment company registered under the Investment Company Act of 1940. The Fund
seeks to achieve long-term capital growth by investing in stocks and debt ob-
ligations of companies and governments of any nation. The following summarizes
the Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from invest-
ments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities at
the end of the fiscal period, resulting from changes in the exchange rate.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Reve-
nue Code applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no provision has been made
for federal income taxes.
d. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over a five
year period.
e. Security Transactions, Investment Income, Distributions, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders
are determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles. These differences all primarily
due to differing treatments for passive foreign investment companies held by
the Fund. Distributions are recorded on the ex-dividend date.
f. 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 report-
ing period. Actual results could differ from those estimates.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At June 30, 1996, there were 700 million shares of the Company's ($0.01 par
value) capital stock authorized of which 120 million shares have been classi-
fied as Fund shares. Transactions in the Fund's shares are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,106,066 $ 13,980,022 1,479,630 $ 17,359,602
Shares issued on
reinvestment of
distributions 193,428 2,373,364 1,442,985 16,551,516
Shares redeemed (2,187,226) (27,041,925) (1,521,712) (17,622,812)
---------- ------------ ---------- ------------
Net increase (decrease) (887,732) $(10,688,539) 1,400,903 $ 16,288,306
========== ============ ========== ============
</TABLE>
16
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Fund's investment manager, administrative manager, princi-
pal underwriter and transfer agent, respectively.
The Fund pays monthly an investment management fee to TICI equal, on an annual
basis, to 0.70% of the average daily net assets of the Fund. The Fund pays TGII
monthly its allocated share of an administrative fee of 0.15% per annum on the
first $200 million of the Company's aggregate average daily net assets, 0.135%
of the next $500 million, 0.10% of the next $500 million and 0.075% per annum
of such average net assets in excess of $1.2 billion. For the six months ended
June 30, 1996, no reimbursement was necessary under the agreement. For the six
months ended June 30, 1996, FTD and FTIS received no amounts with respect to
the Fund.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Company, which received fees of $300 for the six months ended June 30,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1996, aggregated $23,880,005 and $30,630,888, respective-
ly. The cost of securities for federal tax purposes aggregated $200,454,019.
Realized gains and losses are reported on an identified cost basis.
At June 30, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 46,380,617
Unrealized depreciation (10,945,438)
------------
Net unrealized appreciation $ 35,435,179
============
</TABLE>
17
<PAGE>
This report must be preceded or accompanied by the prospectus of the Templeton
Institutional Funds, Inc.
Investor should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
the securities for the Fund's protfolio. Like any investment in securities,
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
Principal Underwriter
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Institiutional Services: 1-800-321-8563
[RECYCLING LOGO APPEARS HERE] Fund Information: 1-800-362-6243
