<PAGE>
[TEMPLETON INSTITUTIONAL FUNDS, INC.]
TIFI [LOGO OF TEMPLETON INSTITUTIONAL FUNDS APPEARS HERE]
Foreign Equity 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...
Equity investors achieved favorable investment returns in the first half of
1996. 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 advanced at
a seemingly unsustainable rate in early 1996. Bouts of speculation, particularly
in the high growth and small cap segments of the U.S. 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. Since equities
outside the U.S. are not nearly as popular, with performance generally trailing
that of the U.S. over the last two years, more bargains can be identified.
- --------------------------------------------------------------------------------
[Total Returns as of 6/30/96]
<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/ (10/18/90)
<S> <C> <C> <C> <C>
TIFI Foreign Equity
Series 16.88 15.31 12.99 95.10
MSCI EAFE Index 13.62 10.76 10.33 57.10
</TABLE>
/1/Past expense reductions by the Fund's manager increased the Fund's total
returns.
/2/Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/3/The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
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 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 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
Continued....
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
[letter continued ............................................................]
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
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 replaced by 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 very 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 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
<PAGE>
[LETTER CONTINUED.............................................................]
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
countries such as 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. These considerations represent just a few of
the factors that influence our analytical team's long-term sales forecasts.
As Templeton analysts examine 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. Many companies in these two areas
are already becoming more aggressive about re-engineering their businesses to
compete effectively against their restructured U.S. competition. Five years from
now, this trend 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). 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
3
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
[letter continued..............................................................]
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 forecasts. Nevertheless, to be
conservative, and in view of the expectation
- --------------------------------------------------------------------------------
[LINE CHART APPEARS HERE SHOWING PERCENTAGE COMPARISON OF SHARES OF NATIONAL
INCOME BETWEEN CORPORATE PROFITS AND COMPENSATION OF EMPLOYEES]
Source: U.S. Department Com
- --------------------------------------------------------------------------------
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 share prices have
4
<PAGE>
[letter continued..............................................................]
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 always monitor 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. Already,
there are 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 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. 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
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
[letter continued..............................................................]
- --------------------------------------------------------------------------------
[TOTAL RETURN INDEX COMPARISON GRAPH APPEARS HERE]
Total Return Index Comparison/1/
$5,000,000 Investment: 10/18/90 - 6/30/96
[GRAPH APPEARS HERE]
Period ended June 30, 1996
Since
Inception
One-Year (10/18/90)
Average Annual Total Return/1,2/ 16.88% 12.44%
Cumulative Total Return/1,3/ 16.88% 95.10%
/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 the their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
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 challenges 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. And we believe that while the high
expectations for future equity performance in the U.S. are of short-term
concern, the longer-term trend towards increased equity investment worldwide
could mean that demand for equities will remain strong and valuations above
average. 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.
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1996 -------------------------------------------------
(UNAUDITED) 1995 1994 1993+ 1992+ 1991
------------- ---------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $ 14.04 $ 12.86 $ 13.32 $ 10.05 $ 10.63 $10.16
---------- ---------- ---------- -------- ------- ------
Income from investment
operations:
Net investment income .31 .31 .20 .23 .27 .31
Net realized and
unrealized gain (loss) 1.15 1.35 (.16) 3.19 (.41) 1.30
---------- ---------- ---------- -------- ------- ------
Total from investment
operations 1.46 1.66 .04 3.42 (.14) 1.61
---------- ---------- ---------- -------- ------- ------
Distributions:
Dividends from net in-
vestment income (.01) (.31) (.19) (.09) (.24) (.44)
Distributions from net
realized gains (.05) (.17) (.31) (.06) (.20) (.70)
---------- ---------- ---------- -------- ------- ------
Total distributions (.06) (.48) (.50) (.15) (.44) (1.14)
---------- ---------- ---------- -------- ------- ------
Change in net asset
value 1.40 1.18 (.46) 3.27 (.58) .47
---------- ---------- ---------- -------- ------- ------
Net asset value, end of
period $ 15.44 $ 14.04 $ 12.86 $ 13.32 $ 10.05 $10.63
========== ========== ========== ======== ======= ======
TOTAL RETURN* 10.42% 13.00% .24% 34.03% (1.33)% 16.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000) $2,462,752 $1,817,883 $1,093,227 $407,970 $ 566 $1,181
Ratio of expenses to av-
erage net assets .87%** .88% .95% 1.03% 8.82% 9.15%
Ratio of expenses, net
of reimbursement, to
average net assets .87%** .88% .95% 1.00% 1.00% 1.00%
Ratio of net investment
income to average net
assets 4.61%** 2.70% 2.03% 1.73% 2.38% 2.47%
Portfolio turnover rate 4.51% 20.87% 7.90% 42.79% 8.45% 76.16%
Average commission rate
paid (per share) $ .0194
</TABLE>
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: 79.9%
- ---------------------------------------------------------------------------------------
Appliances & Household Durables: 1.3%
Sony Corp. Jpn. 471,700 $ 31,077,416
- ---------------------------------------------------------------------------------------
Automobiles: 2.0%
Regie Nationale des
Usines Renault SA Fr. 619,900 16,014,912
Volvo AB, ADR Swe. 5,325 119,812
Volvo AB, B Swe. 1,407,750 32,105,460
--------------
48,240,184
- ---------------------------------------------------------------------------------------
Banking: 13.9%
ABN Amro NV, ADR Neth. 2,269 121,865
Argentaria Corporacion
Bancaria de Espana SA,
ADR Sp. 1,648,000 36,256,000
Australia & New Zealand
Banking Group Ltd. Aus. 3,126,161 14,791,126
Banco Bilbao Vizcaya Sp. 787,580 31,932,660
Banco Bilbao Vizcaya,
ADR Sp. 2,640 105,930
Banco di Sardegna SPA,
di Risp Itl. 983,450 6,236,168
Banco Totta & Acores SA Port. 444,000 8,687,141
Banque Nationale de
Paris, ADR, 144A Fr. 877,000 30,806,026
Barclays PLC U.K. 1,178,188 14,143,672
Barclays PLC, ADR U.K. 2,095 99,512
BPI Socieda de Gestora
de Participacoes Socias
SA Port. 441,600 5,599,336
C.S. Holding, ADR Swtz. 1,190 28,316
Canadian Imperial Bank
of Commerce Can. 736,800 23,772,965
Daegu Bank Co. Ltd. Kor. 536,637 7,923,863
Deutsche Bank AG Ger. 679,900 32,243,095
HSBC Holdings PLC H.K. 570 86,154
HSBC Holdings PLC H.K. 1,583,230 23,930,228
Komercni Banka AS CSK. 132,500 10,811,707
*Komercni Banka AS, GDR,
144A CSK. 326,500 8,815,500
*Merita Ltd., A Fin. 5,530,800 11,702,743
National Bank of Canada Can. 1,065,400 8,896,217
National Bank of Greece
SA Gr. 48,210 2,370,918
*Philippine National
Bank Phil. 431,604 7,207,128
*PT Panin Bank, fgn. Indo. 4,772,000 4,408,077
Sparbanken Sverige AB, A Swe. 90,000 1,169,008
Sparbanken Sverige AB,
A, 144A Swe. 374,320 4,862,033
Stadshypotek AB, A Swe. 225,000 5,029,452
Stadshypotek AS, A, 144A Swe. 380,000 8,494,185
Svenska Handelsbanken, A Swe. 1,289,650 26,977,273
Westpac Banking Corp. Aus. 1,000,970 4,429,175
--------------
341,937,473
- ---------------------------------------------------------------------------------------
Beverages & Tobacco: 0.2%
*Swedish Match AB Swe. 1,182,750 3,679,905
- ---------------------------------------------------------------------------------------
Broadcasting & Publishing: 0.4%
News Corp. Ltd. Aus. 1,219,915 6,912,868
News Corp. Ltd., ADR Aus. 1,450 34,075
Sing Tao Holdings Ltd. H.K. 6,201,400 3,665,201
--------------
10,612,144
- ---------------------------------------------------------------------------------------
Building Materials & Components: 1.1%
Pioneer International
Ltd. Aus. 7,972,612 23,184,395
Pioneer International
Ltd., ADR Aus. 16,960 49,320
Unione Cementi Marchino
Emiliane (Unicem), di
Risp Itl. 1,168,200 3,805,659
--------------
27,039,374
- ---------------------------------------------------------------------------------------
Business & Public Services: 2.4%
Ecco SA Fr. 33,124 8,338,549
+Esselte AB, B Swe. 929,400 19,020,344
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------
Business & Public Services (cont.)
Hyder PLC U.K. 998,333 $ 11,069,853
Societe Generale de
Surveillance Holdings
Ltd., br. Swtz. 5,120 12,265,067
*Waste Management
International PLC U.K. 1,412,600 7,897,503
*Waste Management
International PLC, ADR U.K. 9,480 105,465
--------------
58,696,781
- ---------------------------------------------------------------------------------------
Chemicals: 4.3%
Akzo Nobel NV Neth. 123,064 14,756,135
Akzo Nobel NV, ADR Neth. 650 38,837
Bayer AG Ger. 842,780 29,684,526
Bayer AG, ADR Ger. 3,450 121,612
European Vinyls Corp.
EVC International NV Neth. 183,140 5,691,246
Rhone-Poulenc SA, A Fr. 1,419,622 37,337,776
Rhone-Poulenc SA, ADR Fr. 4,390 116,335
Solvay SA Bel. 29,517 18,270,430
Solvay SA, ADR Bel. 1,615 99,965
--------------
106,116,862
- ---------------------------------------------------------------------------------------
Construction & Housing: 1.4%
Daito Trust Construction
Co. Ltd. Jpn. 1,337,000 20,036,369
*Fletcher Challenge
Building Ltd. N.Z. 1,366,250 2,678,940
*Fletcher Challenge
Building Ltd., ADR N.Z. 3,700 73,538
Kyudenko Corp. Jpn. 909,000 12,210,262
--------------
34,999,109
- ---------------------------------------------------------------------------------------
Data Processing & Reproduction: 0.6%
*Newbridge Networks
Corp. Can. 237,900 15,552,152
- ---------------------------------------------------------------------------------------
Electrical & Electronics: 2.9%
ABB AG, br. Swtz. 19,606 24,275,215
Alcatel Alsthom Cie
Generale D'Electricite
SA, ADR Fr. 5,125 90,328
Alcatel Alsthom SA Fr. 196,500 17,150,897
BBC Brown Boveri Ltd.,
ADR Swtz. 735 91,004
Hitachi Ltd. Jpn. 3,255,000 30,338,557
--------------
71,946,001
- ---------------------------------------------------------------------------------------
Electronic Components & Instruments: 1.1%
BICC U.K. 5,865,209 28,236,657
- ---------------------------------------------------------------------------------------
Energy Equipment & Services: 1.0%
Koninklijke Pakhoed NV Neth. 946,542 24,697,226
- ---------------------------------------------------------------------------------------
Energy Sources: 4.0%
Fletcher Challenge
Energy Ltd. N.Z. 1,366,250 3,026,732
Hafslund ASA, B Nor. 1,057,790 6,763,936
MOL Magyar Olay-Es
Gazipari RT, GDS 144A Hun. 1,339,742 14,804,149
Repsol SA Sp. 915,500 31,862,447
Saga Petroleum AS, A Nor. 728,500 10,719,756
Societe Elf Aquitaine SA Fr. 442,308 32,552,424
--------------
99,729,444
- ---------------------------------------------------------------------------------------
Financial Services: 3.1%
Axa SA Fr. 580,354 31,769,002
*Capital Portugal Fund Port. 50,850 5,018,413
Chile Fund Inc. Chil. 342,600 8,393,700
*India Fund, B Ind. 4,097,698 7,859,139
*Korea International
Trust Kor. 72 3,348,000
London Pacific Group
Ltd. U.K. 1,212,080 4,847,040
Singapore Fund Sing. 13,634 177,242
</TABLE>
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------
Financial Services (cont.)
Thai Fund Inc. Thai. 483,210 $ 11,415,836
Thailand International
Fund Thai. 95 3,206,250
--------------
76,034,622
- ---------------------------------------------------------------------------------------
Food & Household Products: 2.0%
Albert Fisher Group PLC U.K. 28,258,845 20,626,253
Hillsdown Holdings PLC U.K. 6,580,972 17,783,096
Hillsdown Holdings PLC,
ADR U.K. 10,200 110,568
+Vetropack AG Swtz. 1,160 3,804,039
Vitro SA Mex. 2,642,800 6,132,272
--------------
48,456,228
- ---------------------------------------------------------------------------------------
Forest Products & Paper: 2.4%
Cartiere Burgo SPA Itl. 2,218,760 12,131,298
*Fletcher Challenge
Energy Ltd., ADR N.Z. 3,875 86,219
Fletcher Challenge Ltd.
Forestry Division N.Z. 3,915,408 4,875,774
Fletcher Challenge Ltd.
Forestry Division, ADR N.Z. 3,736 46,233
*Fletcher Challenge
Paper Ltd. N.Z. 2,732,500 5,301,481
Metsa Serla OY, B Fin. 1,251,500 8,916,993
PT Barito Pacific
Timber, fgn. Indo. 3,852,000 2,523,867
PT Pabrik Kertas Tjiwi
Kimia, fgn. Indo. 1,161,982 1,185,696
Sappi Ltd. S.AF. 204,100 2,256,264
Stora Kopparbergs
Bergslags AB, B Swe. 1,196,500 15,812,377
+Unipapel SA Sp. 309,693 5,685,548
--------------
58,821,750
- ---------------------------------------------------------------------------------------
Health & Personal Care: 1.8%
Astra AB, A Swe. 542,500 24,007,325
Hafslund Nycomed AS, ADR
B Nor. 4,350 27,816
Medeva PLC U.K. 1,739,171 6,779,288
*Nycomed ASA, B Nor. 1,057,790 14,668,778
--------------
45,483,207
- ---------------------------------------------------------------------------------------
Insurance: 4.2%
Ace Ltd. Bmu. 336,500 15,815,500
Aegon NV Neth. 544,690 25,102,688
GIO Austrailia Holdings
Ltd. Aus. 7,735,003 19,028,223
Ing Groep NV Neth. 849,353 25,348,603
London Insurance Group
Inc. Can. 519,600 10,884,864
Zuerich Versicherung,
new Swtz. 30,875 8,421,016
--------------
104,600,894
- ---------------------------------------------------------------------------------------
Leisure & Tourism: 0.6%
Kuoni Reisen Holding AG,
B Swtz. 6,395 14,679,984
- ---------------------------------------------------------------------------------------
Machinery & Engineering: 0.9%
Hitachi Koki Co. Ltd. Jpn. 602,000 5,941,061
*Hitachi Koki Co. Ltd.,
ADR Jpn. 1,050 103,688
VA Technologie AG, br.,
144A Aust. 135,550 16,665,932
--------------
22,710,681
- ---------------------------------------------------------------------------------------
Merchandising: 1.5%
Dairy Farm International
Holdings Ltd. H.K. 5,531,430 4,674,058
Koninklijke Bijenkorf
Beheer NV (KBB) Neth. 159,099 13,451,818
Kwik Save Group PLC U.K. 2,665,910 18,754,771
--------------
36,880,647
- ---------------------------------------------------------------------------------------
Metals & Mining: 1.6%
Boehler Uddeholm AG Aust. 80,450 6,238,473
Elkem AS Nor. 820,100 11,309,458
</TABLE>
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------
Metals & Mining (cont.)
*Inmet Mining Corp. Can. 461,500 $ 3,363,432
*Union Miniere NPV Bel. 248,670 19,304,765
--------------
40,216,128
- ---------------------------------------------------------------------------------------
Multi-Industry: 4.3%
Amer Group Ltd., A Fin. 695,000 11,704,505
BTR PLC, A U.K. 1,375,780 5,287,511
Compagnie Generale
D'Industrie Et de
Participati Fr. 25,000 5,753,997
+*Fotex First Hungarian-
American Photo-Service Hun. 3,330,000 3,017,798
Hutchison Whampoa Ltd. H.K. 3,149,500 19,814,701
Jardine Matheson
Holdings Ltd. H.K. 3,142,341 23,096,206
Jardine Strategic
Holdings Ltd. H.K. 4,796,890 15,350,048
Jardine Strategic
Holdings Ltd., ADR H.K. 9,120 58,368
*Jardine Strategic
Holdings Ltd., wts. H.K. 345,688 107,163
*Marine Wendel Fr. 29,105 2,410,211
Swire Pacific Ltd., A H.K. 2,195,000 18,786,132
--------------
105,386,640
- ---------------------------------------------------------------------------------------
Real Estate: 2.6%
Bail Investissement Fr. 87,364 13,756,104
*Fastighets AB Tornet, A Swe. 46,432 378,693
Hang Lung Development
Co. Ltd. H.K. 4,645,200 8,731,410
Hang Lung Development
Co. Ltd., ADR H.K. 7,770 73,025
New World Development
Co. Ltd. H.K. 3,246,447 15,056,351
Taylor Woodrow PLC U.K. 11,078,810 26,840,203
--------------
64,835,786
- ---------------------------------------------------------------------------------------
Telecommunications: 6.0%
Compania de
Telecomunicaciones de
Chile SA, ADR Chil. 74,120 7,273,025
Nacional Financiera Sa,
Reg. S Mex. 541,031 18,530,312
Philippine Long Distance
Telephone Co., GDR, 144A Phil. 585,500 19,907,000
*SPT Telecom AS CSK. 208,000 25,401,810
STET (Sta Finanziaria
Telefonica Torino) SPA,
di Risp Itl. 15,254,000 40,132,933
Stet Spa Sta Finanziaria
Telefonica Torino, ADR Itl. 3,695 126,554
Telefonica de Espana SA Sp. 1,967,785 36,279,619
Telefonica de Espana SA,
ADR Sp. 1,720 94,815
--------------
147,746,068
- ---------------------------------------------------------------------------------------
Transportation: 2.3%
Brambles Industries Ltd. Aus. 569,000 7,906,567
Cathay Pacific Airways
Ltd. H.K. 8,868,550 16,268,890
Cathay Pacific Airways
Ltd., ADR H.K. 8,500 77,964
Qantas Airways Ltd.,
ADR, 144A Aus. 827,500 14,119,219
Singapore Airlines Ltd.,
fgn. Sing. 417,200 4,405,585
Unitor AS Nor. 815,000 13,185,569
Unitor AS, ADR Nor. 3,735 60,427
--------------
56,024,221
- ---------------------------------------------------------------------------------------
Utilities Electrical & Gas: 8.7%
British Gas PLC U.K. 6,116,150 17,096,953
*CEZ Csk. 454,663 18,095,300
Electricidad de Caracas Venz. 9,491,747 7,890,737
Endesa-Empresa Nacional
de Electricidad SA, ADR Sp. 800 50,100
Endesa-Empresa Nacional
de Electricidad SA Sp. 378,400 23,619,515
Evn Energie-Versorgung
Niederoesterreich AG,
ADR Aust. 3,732 103,207
Evn Energie-Versorgung
Niederoesterreich AG Aust. 123,390 17,061,447
Hongkong Electric
Holdings Ltd. H.K. 1,900,000 5,792,720
Iberdrola SA Sp. 3,237,642 33,260,413
National Power PLC U.K. 3,057,736 24,645,375
</TABLE>
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- --------------------------------------------------------------------------------------------
Utilities Electrical & Gas (cont.)
National Power PLC, ADR U.K. 2,920 $ 91,980
Shandong Huaneng Power Chn. 1,032,965 8,521,961
Thames Water Group PLC U.K. 3,208,209 28,249,697
VEBA AG Ger. 544,500 28,973,624
--------------
213,453,029
- --------------------------------------------------------------------------------------------
Wholesale & International Trade: 1.3%
Brierley Investments
Ltd. N.Z. 32,693,199 31,040,196
--------------
TOTAL COMMON STOCKS (cost $1,734,770,263) 1,968,930,809
- --------------------------------------------------------------------------------------------
PREFERRED STOCKS: 3.4%
- --------------------------------------------------------------------------------------------
ABN Amro NV, conv., pfd. Neth. 571,188 28,132,390
Concessioni e
Costruzioni Autostrade
SPA, B, pfd. Itl. 8,865,000 15,365,807
News Corp. Ltd. Aus. 1,595,957 7,776,896
Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
ADR Braz. 445,000 30,983,125
--------------
TOTAL PREFERRED STOCKS (cost $62,982,133) 82,258,218
- --------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.7%
- --------------------------------------------------------------------------------------------
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 18,675,000 26,892,000
Cia de Inversiones en
Telecomunicaciones SA,
7.00%, 3/3/98 U.S. 408,790 23,709,820
Nacional Financiera SA,
11.25%, conv., pfd.,
5/15/98 U.S. 177,000 6,062,250
PIV Investment Finance
(Cayman) Ltd., 4.50%,
conv., 12/1/00 U.S. 12,200,000 10,248,000
--------------
TOTAL BONDS (cost $63,190,594) 66,912,070
- --------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 11.7% (cost $288,500,963)
- --------------------------------------------------------------------------------------------
U.S. Treasury Bills,
4.83% to 5.095%, with
maturities to 9/12/96 U.S. 293,929,000 288,577,353
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 97.7% (cost $2,149,443,953) 2,406,678,450
OTHER ASSETS, LESS LIABILITIES: 2.3% 56,073,531
--------------
TOTAL NET ASSETS: 100.0% $2,462,751,981
==============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 6.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$2,149,443,953) $2,406,678,450
Receivables:
Investment securities sold 3,898,637
Capital shares sold 51,935,301
Dividends and interest 14,514,568
--------------
Total assets 2,477,026,956
==============
Liabilities:
Payables:
Investment securities purchased 11,653,950
Capital shares redeemed 57,117
Accrued expenses 2,563,908
--------------
Total liabilities 14,274,975
--------------
Net assets, at value $2,462,751,981
==============
Net assets consist of:
Undistributed net investment income $ 48,543,340
Unrealized appreciation on investments 257,234,497
Accumulated net realized gain 14,088,345
Net capital paid in on shares of capital stock 2,142,885,799
--------------
Net assets, at value $2,462,751,981
==============
Shares outstanding 159,475,465
==============
Net asset value per share ($2,462,751,981 / 159,475,465) $ 15.44
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $6,059,601 foreign taxes withheld)
Dividends $ 50,613,754
Interest 7,857,357
------------
Total income $ 58,471,111
Expenses:
Management fees (Note 4) 7,463,667
Administrative fees (Note 4) 975,146
Transfer agent fees (Note 4) 6,500
Custodian fees 570,000
Reports to shareholders 26,000
Audit fees 22,000
Registration and filing fees 191,100
Directors' fees and expenses 32,500
Other 19,461
------------
Total expenses 9,306,374
------------
Net investment income 49,164,737
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 19,039,111
Foreign currency transactions (419,803)
------------
18,619,308
Net unrealized appreciation on investments 139,286,831
------------
Net realized and unrealized gain 157,906,139
------------
Net increase in net assets resulting from
operations $207,070,876
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity 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 $ 49,164,737 $ 38,249,666
Net realized gain on investments and for-
eign currency transactions 18,619,308 24,407,376
Net unrealized appreciation 139,286,831 116,272,586
-------------- --------------
Net increase in net assets resulting from
operations 207,070,876 178,929,628
Distributions to shareholders:
From net investment income (1,378,309) (37,739,736)
From net realized gain (6,900,736) (20,589,597)
Capital share transactions (Note 3) 446,076,843 604,056,205
-------------- --------------
Net increase in net assets 644,868,674 724,656,500
Net assets:
Beginning of period 1,817,883,307 1,093,226,807
-------------- --------------
End of period $2,462,751,981 $1,817,883,307
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity Series (the Fund) is a separate series of Templeton Institu-
tional Funds, Inc. (the Company) which is registered under the Investment Com-
pany Act of 1940 as an open-end, diversified management investment company. The
Fund seeks long-term capital growth through a flexible policy of investing in
stocks and debt obligations of companies and governments outside the United
States. The following summarizes the Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and ma-
turities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities trans-
actions, the differences between the amounts of dividends, interest, and for-
eign withholding taxes recorded on the Fund's books, and the U.S. dollar equiv-
alent of the amounts actually received or paid. Net unrealized foreign exchange
gains and losses arise from changes in the value of assets and liabilities
other than investments in securities at the end of the fiscal period, resulting
from changes in the exchange rate.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders
are determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles. These difference are primarily due to
differing treatments for passive foreign investment companies held by the Fund.
Distributions are recorded on the ex-dividend date.
e. Accounting Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
2. MERGER OF TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY (SOUTH AFRICA
FREE) SERIES
On January 29, 1996, the Fund acquired all of the net assets of the Company's
Foreign Equity (South Africa Free) Series pursuant to a plan of reorganization
approved by Foreign Equity (South Africa Free) Series shareholders. The merger
was accomplished by a tax free exchange of shares of the Fund (valued at
$17,800,619) for the net assets of the Foreign Equity (South Africa Free) Se-
ries which aggregated, $17,800,619 including $1,537,866 of unrealized apprecia-
tion. The combined net assets of the Fund immediately after the merger were
$1,911,308,133.
3. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At June 30, 1996, there were 700 million shares of the Company's ($.01 par val-
ue) capital stock authorized of which 320 million have been classified 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 34,224,297 $512,372,332 54,841,050 $ 746,123,192
Shares issued in
reinvestment of
distributions 582,463 6,990,560 3,679,491 50,240,082
Shares issued on merger 1,243,044 17,800,619
Shares redeemed (6,070,718) (91,086,668) (14,047,591) (192,307,069)
----------- ------------ ----------- -------------
Net increase 29,979,086 $446,076,843 44,472,950 $ 604,056,205
=========== ============ =========== =============
</TABLE>
16
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
4. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Company's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
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 FTD did not receive any commissions from the sale of the Fund's
shares and FTIS received fees of $6,500.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1996 were $495,028,210 and $84,784,607, respectively. The
cost of securities for federal income tax purposes is $2,154,236,158. 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 $333,375,800
Unrealized depreciation (80,933,508)
------------
Net unrealized appreciation $252,442,292
============
</TABLE>
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. Investments in "affiliated companies" as of June 30,
1996 amounted to $31,527,729. For the six months dividend income from affili-
ated companies was $946,475.
17
<PAGE>
This report must be preceded or accompanied by the prospectus of the Templeton
Institutional Funds, Inc.
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
the securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Institutional Services: 1-800-321-8563
[LOGO OF RECYCLE SYMBOL APPEARS HERE] Fund Information: 1-800-362-6243
