<PAGE> 1
TEMPLETON INSTITUTIONAL FUNDS, INC.
TIFI
Growth Series
ANNUAL REPORT
[TEMPLETON LOGO] DECEMBER 31, 1996
<PAGE> 2
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> 3
December 31, 1996
Dear Shareholder...
In general, the fourth quarter of 1996 proved to be a very profitable
one for equity investors, capping a good, full year which saw numerous markets
around the world reach all-time peaks. The economic environment remained
positive for many stocks, with moderately strong economic growth, subdued
inflation, and solid corporate earnings results underpinning many financial
markets.
The benefits of diversification were also demonstrated in 1996. In
addition to the well-publicized rise in the U.S. stock market, many foreign
equity markets posted impressive gains. Brazil, Canada, Finland, Hong Kong,
Indonesia, Malaysia, the Netherlands, Norway, Spain, Sweden, and the United
Kingdom recorded rises of 25% or more in U.S. dollar terms for the year. On the
other hand, Chile, India, Japan, Korea, Singapore, South Africa, and Thailand
turned in negative results for 1996.
Within this environment, the Templeton Institutional Funds, Inc. Growth
Series (the "Fund") returned 9.42%, 22.57%, 12.45%,
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/96
<TABLE>
<CAPTION>
SINCE
ONE-YEAR(1),(2) THREE-YEAR(1),(2) INCEPTION(1),(2)
(5/03/93)
<S> <C> <C> <C>
TIFI Growth Series 22.57% 12.45% 15.72%
MSCI World Index 14.00% 13.45% 13.30%
</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 change in
value of an investment over the specified periods.
All total return calculations assume that all dividends and capital gains
distribution were reinvested when paid.
Investment return and principal value will fluctuate with market conditions,
currencies and the economic, social and political climates of the countries
where investments are made. Developing markets involve heightened risks
related to the same factors, in addition to those associated with the
relatively small size and lesser liquidity of these markets. Thus, your
shares, when redeemed, may be worth more or less than their initial cost.
Past performance is not predictive of future results.
continued...
[Photo Gary Motyl]
GARY MOTYL HAS BEEN A PORTFOLIO MANAGER AND RESEARCH ANALYST WITH TEMPLETON
INVESTMENT COUNSEL, INC. SINCE 1981. HE CURRENTLY MANAGES SEVERAL INSTITUTIONAL
MUTUAL FUNDS, AND IS RESPONSIBLE FOR MANAGING MANY OF OUR SEPARATE ACCOUNT
PORTFOLIOS. MR. MOTYL'S RESEARCH RESPONSIBILITIES INCLUDE THE GLOBAL AUTOMOBILE
INDUSTRY AND U.S.-BASED UTILITIES AS WELL AS COUNTRY COVERAGE OF GERMANY.
PRIOR TO JOINING THE TEMPLETON ORGANIZATION, MR. MOTYL WORKED FROM 1974 TO 1979
AS A SECURITY ANALYST WITH STANDARD & POOR'S CORPORATION. HE THEN WORKED AS A
RESEARCH ANALYST AND PORTFOLIO MANAGER FROM 1979 TO 1981 WITH LANDMARK FIRST
NATIONAL BANK. IN THIS CAPACITY HE HAD RESPONSIBILITY FOR EQUITY RESEARCH AND
MANAGED SEVERAL PENSION AND PROFIT SHARING PLANS.
MR. MOTYL HOLDS A BACHELOR OF SCIENCE IN FINANCE DEGREE FROM LEHIGH UNIVERSITY
IN PENNSYLVANIA AND A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM PACE
UNIVERSITY IN NEW YORK, AND IS A CHARTERED FINANCIAL ANALYST.
<PAGE> 4
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued.......................................................
and 15.72% for the quarter, one-year, three-year, and since inception (May 3,
1993) periods ending December 31, 1996, compared to the unmanaged Morgan Stanley
Capital International (MSCI) World Index returns of 4.7%, 14.00%, 13.45%, and
13.30% for the same periods, respectively.
Please remember that the Fund's performance differs from that of the
index because, among other things, the index does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), is not
managed according to any investment strategy, and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index.
We continued to search for securities that we considered to be
undervalued on the basis of future earnings and/or asset values. The Fund
benefited from its exposure to the financial sector, selected emerging markets,
and well-positioned European companies. A significant number of Japanese
equities were noticeably absent, reflecting the continued high valuations of
stocks in that country.
Financial companies worldwide performed well during the year. Good
economic growth and favorable interest rate trends provided a healthy backdrop
for this sector in general. Many firms benefited from cost reduction programs,
and banks were further aided by a drop in loan loss provisions.
The "pure" emerging markets, meanwhile, were a mixed bag, with some
helping and others detracting from the performance of the Fund. Nonetheless, we
believe that the long-term outlook for these markets is generally quite bright.
Though many investors do not consider it an emerging market, Hong Kong posted a
very respectable performance in 1996, despite investor concerns about the
handover to China in July 1997. We believe that the companies in the Fund's
portfolio are poised to benefit from the changes in Hong Kong and China over the
next several years; however, we recognize that there will likely be a great deal
of market volatility.
The countdown toward European monetary and economic union continues,
but progress has been slower than hoped for. Europe desperately needs a
sustained economic expansion to reach its common goals. The recent interest rate
reduction by the German central bank illustrates how concerned and serious they
are to help Germany and the other European economies recover. The economic data
from Europe has been mixed of late, with only a few signs pointing to
accelerating growth. Order inflow from export related areas has been quite good,
for instance. In our view, a pickup in the European economy would be positive
for equities in general, as it would unlikely be strong enough to rekindle
inflation. Many companies posted respectable earnings numbers as cost reduction
programs have offset the effects of lackluster revenue growth. They continued to
restructure, invest in new plant and equipment, and implement programs to
enhance shareholder value. Moreover, the efforts of many European companies to
compete more effectively in the global marketplace were
GEOGRAPHIC DISTRIBUTION ON 12/31/96
(% of Equity Assets)
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Europe 51.2%
Australia/New Zealand 5.8%
Mid-East/Africa 0.1%
Latin America 5.5%
North America 23.4%
Asia 14.0%
</TABLE>
FUND ASSET ALLOCATION ON 12/31/96
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Short-term & Other 8.4%
Equity* 91.6%
</TABLE>
*Equity includes convertible and preferred stocks
2
<PAGE> 5
acknowledged by investors, particularly in the latter part of the year, helping
boost the Fund's returns.
Despite redoubled efforts, we continued to struggle to find value among
Japanese stocks during the year. Our lack of success and substantial
underweighting in the market were rewarded, however, as we were able to avoid
much of this market's poor performance. According to the MSCI index, Japan's
market closed down 15% in U.S. dollars for the 12 months ending December 1996.
Average stock market valuations in Japan support our underweighted stance. Price
to earnings ratios, recently at 95-100x, have been excessive. After adjusting
for differences in accounting and the possibility of earnings doubling from
currently depressed levels, stock prices are still among the highest worldwide.
Even assuming a better economy and a strong rebound in corporate earnings over
the next several years, Japanese equity valuations remain well in excess of
other global markets.
In the United States, healthy corporate profits growth, strong export
demand, improving real estate prices, and large flows of cash into equity mutual
funds supported an extended market rally. The current outlook suggests continued
economic growth, as factory orders and output remained strong and inventories
have been generally low. However, stock prices have recognized this, and in our
opinion, have reached a point where the overall market is fairly valued. As a
result, the Fund is underweighted in the U.S. market, compared with broad global
indices.
We have always maintained that our ability to serve you is enhanced by
our strong work ethic. There is nothing glamorous about hard work, but there is
a certain amount of pride that is built upon its success. Finding cheap
securities in over three dozen countries and industries worldwide takes an
enormous amount of work. During the last 12 months, our team of analysts wrote
over 2,000 research reports on companies in 38 countries and 32 industries,
working diligently to find cheap investments for our clients. The typical
analyst spent 3 to 4 months traveling to examine factories, speak with company
management, and analyze industry trends globally.
The work ethic at Templeton is perhaps best exemplified by the research
process. In order to purchase a security, an analyst must prepare a written
research report showing historical information, future estimates, and
justification for assumptions. Written research reports are sent to all analysts
in each of our global research offices. They must be discussed at one of three
conference calls during the week before being approved for our bargain list by
the Director of Research. Once approved, the idea is placed on our "bargain
list" for all Portfolio Managers to consider for their assigned portfolios. This
general "bargain list" is composed of ideas from all analysts within the global
team. It is important to consider that every Portfolio Manager is also an
analyst with specific research responsibilities for our group worldwide.
Looking ahead, we remain positive on global stock markets. The Fund is,
in our opinion, well-structured with broad diversification across many countries
and industries, and in stocks which offer attractive valuations. We believe the
overall economic environment is healthy, and while the
INDUSTRY DIVERSIFICATION ON 12/31/96
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 13.8%
Utilities, Electrical, & Gas 7.5%
Telecommunications 5.8%
Merchandising 5.6%
Insurance 5.0%
Chemicals 4.2%
Financial Services 4.1%
Business & Public Services 4.1%
Multi-industry 3.8%
Automobiles 3.4%
</TABLE>
10 LARGEST POSITIONS ON 12/31/96
(% of Total Portfolio)
<TABLE>
<S> <C>
Rhone-Poulenc SA 1.5%
Iberdrola SA 1.4%
Telefonica de Espana SA 1.3%
Bayer AG 1.3%
Societe Elf Aquitaine SA 1.3%
Fiat SPA 1.3%
Banque Nationale de Paris 1.3%
Sony Corp. 1.2%
HSBC Holdings PLC 1.2%
Banco Bilbao Vizcaya SA 1.2%
</TABLE>
3
<PAGE> 6
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued......................................................
excellent returns of the past year may be difficult to match, the long-term
prospects for equity investors remain bright.
This discussion reflects the strategies we employed for the Fund during
the past fiscal year, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions, and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.
Of course, it should be remembered that investing in foreign securities
involves special risks related to market and currency volatility, and economic,
social, political, and other factors in the countries where the Fund is
invested. Developing markets involve heightened risks related to the same
factors, in addition to those associated with the relatively small size and
lesser liquidity of these markets. These special risks and other considerations
are discussed in the Fund's prospectus.
As always we appreciate your continued confidence in our organization.
Please feel free to contact us with any questions or comments you might have.
Sincerely,
/s/ Donald F. Reed
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
/s/ Gary P. Motyl
Gary P. Motyl, C.F.A.
Executive Vice President & Director
Templeton Investment Counsel, Inc.
[LINE GRAPH]
Total Return Index Comparison(1)
$5,000,000 Investment: 05/03/93 - 12/31/96
TIFI Growth Series
- NOTE: First period return inception date is 05/03/93
Monthly US Dollar US Dollar US Dollar
TIFI - Growth MSCI World ICPI Index
Acct 539 Acct -1 Acct -152
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCEPT 5000000 5000000 5000000
May-93 5100000 5116244 5012570
Jun-93 5040000 5073903 5019477
Jul-93 5115000 5179369 5019291
Aug-93 5445000 5417629 5033416
Sep-93 5455000 5318322 5043684
Oct-93 5725000 5465743 5064841
Nov-93 5595000 5157429 5068202
Dec-93 6002000 5410701 5067953
Jan-94 6393500 5768669 5082141
Feb-94 6175000 5694766 5099813
Mar-94 5898500 5450347 5117299
Apr-94 5996000 5619708 5124144
May-94 6058000 5635104 5127256
Jun-94 5883000 5620478 5144742
Jul-94 6124500 5728253 5158494
Aug-94 6387000 5901848 5179652
Sep-94 6202000 5747883 5193404
Oct-94 6258500 5912241 5197138
Nov-94 5950000 5657044 5203983
Dec-94 5923500 5712856 5203983
Jan-95 5815000 5628176 5224518
Feb-95 5958500 5711317 5245364
Mar-95 6051000 5987683 5262788
Apr-95 6302000 6197460 5280212
May-95 6503500 6251702 5290666
Jun-95 6580000 6250963 5301120
Jul-95 6885000 6565050 5300996
Aug-95 6749000 6419939 5315370
Sep-95 6869000 6608161 5325389
Oct-95 6661500 6505389 5342937
Nov-95 6765500 6732487 5342564
Dec-95 6965000 6930716 5339079
Jan-96 7188000 7056967 5370380
Feb-96 7243000 7101232 5387803
Mar-96 7374000 7220939 5415619
Apr-96 7623000 7391840 5436465
May-96 7694500 7399538 5446920
Jun-96 7688500 7438414 5450404
Jul-96 7409500 7177059 5460797
Aug-96 7647000 7260970 5471251
Sep-96 7801000 7546574 5488675
Oct-96 7938000 7600457 5506098
Nov-96 8359500 8027679 5516553
Dec-96 8536000 7900693 5516553
</TABLE>
Periods ended December 31, 1996
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE-YEAR (05/03/93)
<S> <C> <C>
Average Annual Total Return(1),(2) 22.57% 15.72%
Cumulative Total Return(1),(3) 22.57% 70.72%
TIR Growth Series $8,536,000
MSCI World Index $7,900,693
CPI Index $5,516,553
</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.
3 The cumulative total return represents the change in value of an investment
over the period(s) indicated.
All total return calculations assume that all dividends and capital gains
distribution were reinvested when paid.
Investment return and principal value will fluctuate with market conditions,
currencies and the economic, social and political climates of the countries
where investments are made. Developing markets involve heightened risks
related to the same factors, in addition to those associated with the
relatively small size and lesser liquidity of these markets. Thus, your
shares when redeemed, may be worth more or less than their initial cost.
Past performance is not predictive of future results.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 1-800-362-6243.
4
<PAGE> 7
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 3, 1993
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
1996 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 .30 .27 .20 .06
Net realized and unrealized gain (loss) 2.32 1.62 (.36) 1.94
-------- -------- -------- --------
Total from investment operations 2.62 1.89 (.16) 2.00
-------- -------- -------- --------
Distributions:
Dividends from net investment income (.29) (.27) (.20) (.05)
Distributions from net realized gains (.74) (.70) (.50) (.15)
Amount in excess of net realized gains (.04) -- -- --
-------- -------- -------- --------
Total distributions (1.07) (.97) (.70) (.20)
-------- -------- -------- --------
Change in net asset value 1.55 .92 (.86) 1.80
-------- -------- -------- --------
Net asset value, end of period $ 13.41 $ 11.86 $ 10.94 $ 11.80
======== ======== ======== ========
TOTAL RETURN* 22.57% 17.59% (1.32)% 20.04%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000) $268,158 $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 2.34% 2.28% 1.69% 1.19%**
Portfolio turnover rate 15.61% 30.20% 17.23% 17.32%
Average commission rate paid (per share) $ .0242
</TABLE>
* NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 8
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 84.8%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLIANCES & HOUSEHOLD DURABLES: 1.2%
Sony Corp. Jpn. 51,000 $ 3,342,457
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 3.4%
Fiat Spa Itl. 1,155,000 3,482,523
Ford Motor Co. U.S. 46,000 1,466,250
Regie Nationale des Usines Renault SA Fr. 65,382 1,405,997
Volvo AB, B Swe. 122,000 2,692,288
------------
9,047,058
- ---------------------------------------------------------------------------------------------------------------------
BANKING: 13.8%
Argentaria Corporacion Bancaria de Espana SA, ADR Sp. 116,750 2,626,875
Australia & New Zealand Banking Group Ltd. Aus. 480,150 3,026,460
Banco Bilbao Vizcaya Sp. 58,000 3,131,754
Banco de Andalucia Sp. 10,950 1,602,542
Banco di Sardegna SPA, di Risp Itl. 80,000 675,462
Banque Nationale de Paris, ADR, 144A Fr. 87,500 3,388,621
Barclays PLC U.K. 82,533 1,414,573
BPI Socieda de Gestora de Participacoes Socias SA Port. 86,991 1,082,829
*BPI Socieda de Gestora de Participacoes Socias, new Port. 33,056 390,148
Canadian Imperial Bank of Commerce Can. 68,000 3,001,424
Daegu Bank Co. Ltd. Kor. 59,374 708,968
Deutsche Bank AG Ger. 50,500 2,360,058
HSBC Holdings PLC H.K. 151,069 3,232,519
Komercni Banka AS Csk. 9,000 749,945
Komercni Banka AS, GDR, 144A Csk. 27,000 740,340
*Merita Ltd., A Fin. 605,000 1,880,761
National Bank of Canada Can. 148,000 1,496,696
National Westminster Bank PLC U.K. 97,277 1,142,347
PT Panin Bank, fgn. Indo. 984,200 1,125,038
Svenska Handelsbanken, A Swe. 108,000 3,103,881
------------
36,881,241
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING: 0.2%
News Corp. Ltd. Aus. 91,707 484,011
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 1.6%
Owens Corning U.S. 42,900 1,828,613
Pioneer International Ltd. Aus. 800,000 2,384,548
------------
4,213,161
- ---------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 4.1%
Esselte AB, A Swe. 105,000 2,386,416
Hyder PLC U.K. 142,833 1,819,240
*Mid American Waste System Inc. U.S. 445,000 180,781
*Novacare Inc. U.S. 82,500 907,500
Societe Generale de Surveillance Holdings Ltd., br. Swtz. 520 1,278,147
Wheelabrator Technologies Inc. U.S. 145,000 2,356,250
WMX Technologies Inc. U.S. 61,000 1,990,125
------------
10,918,459
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS: 4.2%
Akzo Nobel NV Neth. 12,500 1,708,658
Bayer AG Ger. 88,500 3,606,727
European Vinyls Corp. EVC International NV Neth. 22,785 723,208
Rhone-Poulenc SA, A Fr. 119,663 4,082,620
Solvay SA Bel. 1,800 1,102,041
------------
11,223,254
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION & HOUSING: 1.0%
Daito Trust Construction Co. Ltd. Jpn. 105,000 $ 1,169,588
Kaufman & Broad Home Corp. U.S. 55,200 710,700
Kyudenko Corp. Jpn. 89,000 922,200
------------
2,802,488
- ---------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 0.6%
*Bay Networks Inc. U.S. 80,000 1,670,000
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 2.9%
Alcatel Alsthom SA Fr. 25,916 2,083,277
Asea AB, A Swe. 27,425 3,096,438
Hitachi Ltd. Jpn. 282,000 2,629,825
------------
7,809,540
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 0.9%
BICC U.K. 483,861 2,296,048
- ---------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES: 1.3%
Koninklijke Pakhoed NV Neth. 45,000 1,407,472
World Fuel Services Corp. U.S. 96,000 2,136,000
------------
3,543,472
- ---------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 3.2%
Hafslund ASA, B Nor. 86,000 589,244
Repsol SA Sp. 69,000 2,646,794
Saga Petroleum AS, A Nor. 110,000 1,826,760
Societe Elf Aquitane SA Fr. 39,128 3,564,157
------------
8,626,955
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 4.1%
*Capital Portugal Fund Port. 6,000 692,680
Chile Fund Inc. Chil. 16,500 344,438
Dean Witter Discover & Co. U.S. 35,842 2,374,533
Federal National Mortgage Assn. U.S. 65,600 2,443,600
*India Fund, B Ind. 761,728 1,122,222
Korea International Trust Kor. 20 625,000
*Korea International Trust, IDR Kor. 2 71,000
Thai Fund Inc. Thai. 50,653 835,775
Thailand International Fund Ltd. Thai. 42 966,000
*Turkish Growth Fund Tur. 110,000 1,540,550
------------
11,015,798
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 1.7%
Albert Fisher Group PLC U.K. 2,289,593 1,647,359
Hillsdown Holdings PLC U.K. 639,539 2,191,178
Vitro SA Mex. 337,960 613,926
------------
4,452,463
- ---------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 2.5%
Carter Holt Harvey Ltd. N.Z. 415,000 941,762
Fletcher Challenge Ltd. Forestry Division N.Z. 630,000 1,055,545
Georgia-Pacific Corp. U.S. 18,000 1,296,000
International Paper Co. U.S. 28,000 1,130,500
Metsa Serla OY, B Fin. 112,500 843,750
PT Barito Pacific Timber, fgn. Indo. 465,000 285,457
Sappi Ltd. S.AF. 19,911 178,746
Stora Kopparbergs Bergslags AB, B Swe. 76,000 1,036,386
------------
6,768,146
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH & PERSONAL CARE: 2.2%
Astra AB, A Swe. 54,000 $ 2,668,387
Bristol Myers Squibb Co. U.S. 17,500 1,903,125
*Nycomed ASA, B Nor. 86,000 1,321,417
------------
5,892,929
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS: 0.8%
Goodyear Tire & Rubber Co. U.S. 43,000 2,209,125
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE: 5.0%
Aegon NV Neth. 44,424 2,832,947
American International Group Inc. U.S. 15,750 1,704,937
Capital RE Corp. U.S. 55,400 2,583,025
Ing Groep NV Neth. 62,655 2,257,249
London Insurance Group Inc. Can. 133,000 1,767,442
Presidential Life Corp. U.S. 180,000 2,171,250
Zuerich Versicherung, new Swtz. 650 180,650
------------
13,497,500
- ---------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.6%
Kuoni Reisen Holding AG, B Swtz. 630 1,529,697
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 1.0%
Hitachi Koki Co. Ltd. Jpn. 115,000 823,202
VA Technologie AG, br., 144A Aust. 11,500 1,804,557
------------
2,627,759
- ---------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 5.6%
Dairy Farm International Holdings Ltd. H.K. 1,139,186 917,045
Dayton-Hudson Corp. U.S. 73,500 2,884,875
Home Depot Inc. U.S. 27,000 1,353,375
*K Mart Corp. U.S. 150,000 1,556,250
Koninklijke Bijenkorf Beheer NV (KBB) Neth. 15,588 1,124,070
Kwik Save Group PLC U.K. 191,000 1,050,313
Limited Inc. U.S. 53,500 983,063
*Waban Inc. U.S. 76,000 1,976,000
*Wessel & Vett AS, C Den. 39,000 3,105,960
------------
14,950,951
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING: 1.5%
Elkem AS Nor. 87,000 1,432,267
RGC Ltd. Aus. 297,459 1,321,672
*Union Miniere NPV Bel. 21,000 1,423,056
------------
4,176,995
- ---------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 3.8%
BTR PLC U.K. 240,000 1,167,643
Hutchison Whampoa Ltd. H.K. 307,000 2,411,306
Jardine Matheson Holdings Ltd. H.K. 241,531 1,594,105
Jardine Strategic Holdings Ltd. H.K. 515,353 1,865,578
PT Bimantara Citra, fgn. Indo. 852,500 1,136,907
Swire Pacific Ltd., A H.K. 220,000 2,097,744
------------
10,273,283
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 2.9%
American Health Properties Inc. U.S. 59,900 1,430,113
Beacon Properties Corp. U.S. 60,000 2,197,500
*Catellus Development Corp. U.S. 246,900 2,808,488
Summit Properties Inc., REIT U.S. 60,000 1,327,500
------------
7,763,601
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS: 5.8%
Compania de Telecomunicaciones de Chile SA, ADR Chil. 16,500 $ 1,668,563
Cpt-Telefonica del Peru SA, B Per. 115,000 214,015
Lucent Technologies Inc. U.S. 41,700 1,928,625
Nokia AB, A Fin. 52,000 3,018,261
*SPT Telecom AS Csk. 20,000 2,490,255
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp Itl. 795,000 2,686,009
Telefonica de Espana SA Sp. 155,500 3,611,265
------------
15,616,993
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 0.7%
Brambles Industries Ltd. Aus. 100,000 1,951,355
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL & GAS: 7.5%
British Gas PLC U.K. 610,000 2,345,993
*CEZ Csk. 43,315 1,559,364
Electricidad de Caracas Venz. 2,447,874 2,482,543
Endesa-Empresa Nacional de Electricidad SA Sp. 21,000 1,494,626
Evn Energie-Versorgung Niederoesterreich AG Aust. 15,400 2,317,714
Hongkong Electric Holdings Ltd. H.K. 672,000 2,232,905
Iberdrola SA Sp. 269,000 3,812,517
Thames Water Group PLC U.K. 201,689 2,116,259
*Veba AG, wts. Ger. 5,100 1,634,254
------------
19,996,175
- ---------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL TRADE: 0.7%
Brierley Investments Ltd. N.Z. 1,915,889 1,774,310
------------
TOTAL COMMON STOCKS (cost $174,847,423) 227,355,224
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 4.0%
- ---------------------------------------------------------------------------------------------------------------------
Cia de Inversiones en Telecomunicaciones
SA, conv., pfd., 7.0%, 3/3/98 Arg. 50,935 2,674,088
Hyder PLC, pfd. U.K. 121,900 214,568
Nacional Financiera SA, 11.25%, conv., pfd.,
5/15/98, PRIDE EURO TRANCHE Mex. 39,275 1,335,350
Nacional Financiera SA, 11.25%, conv., pfd.,
05/15/98, PRIDE 4 Mex. 30,900 1,050,600
News Corp. Ltd., pfd. Aus. 195,853 871,772
Philippine Long Distance Telephone
Co., 5.75%, conv., pfd. Phil. 50,500 1,628,625
Telebras-Telecomunicacoes Brasileiras SA,
pfd., ADR Braz. 38,000 2,907,000
------------
TOTAL PREFERRED STOCKS (cost $8,695,796) 10,682,003
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL IN
LOCAL CURRENCY**
- ---------------------------------------------------------------------------------------------------------------------
BONDS: 2.8%
- ---------------------------------------------------------------------------------------------------------------------
Credit Suisse Group, 4.875%, conv., 11/19/02 Swtz. 1,745,000 2,739,650
PIV Investment Finance (Cayman) Ltd., 4.5%,
conv., 12/1/00 U.S. 1,850,000 1,646,500
Softe SA, 4.25%, conv., 7/30/98, 144A Itl. 1,700,000,000 1,917,545
U.S. Treasury Note, 5.125%, 4/30/98 U.S. 1,181,000 1,169,191
------------
TOTAL BONDS (cost $6,077,577) 7,472,886
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS: 8.2% (cost $21,989,065)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.82% to 5.01% with
maturities to 3/27/97 U.S. 22,114,000 $ 21,995,215
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $211,609,861) 267,505,328
OTHER ASSETS, LESS LIABILITIES: 0.2% 652,463
------------
TOTAL NET ASSETS: 100.0% $268,157,791
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 13
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $211,609,861) $267,505,328
Cash 110
Receivables:
Capital shares sold 70,469
Dividends and interest 822,747
Unamortized organization costs 1,921
------------
Total assets 268,400,575
------------
Liabilities:
Capital shares redeemed 1,549
Accrued expenses 241,235
------------
Total liabilities 242,784
------------
Net assets, at value $268,157,791
============
Net assets consist of:
Undistributed net investment income $ 134,012
Net unrealized appreciation 55,895,467
Distribution in excess of net realized gain (717,828)
Net capital paid in on shares of capital stock 212,846,140
------------
Net assets, at value $268,157,791
============
Shares outstanding 19,993,055
============
Net asset value per share ($268,157,791 / 19,993,055) $ 13.41
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 14
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1996
<TABLE>
<S> <C> <C>
Investment income: (net of $706,735 foreign taxes withheld)
Dividends $ 6,813,640
Interest 784,361
-----------
Total income $ 7,598,001
Expenses:
Management fees (Note 3) 1,656,913
Administrative fees (Note 3) 211,998
Custodian fees 111,100
Reports to shareholders 16,000
Audit fees 18,000
Legal fees 1,300
Registration and filing fees 36,200
Directors' fees and expenses 8,500
Amortization of organization costs 1,427
Other 6,354
-----------
Total expenses 2,067,792
-----------
Net investment income 5,530,209
Realized and unrealized gain:
Net realized gain (loss) on:
Investments 13,379,607
Foreign currency transactions (137,179)
-----------
13,242,428
-----------
Net unrealized appreciation on:
Investments 30,216,770
Foreign currency translations of other assets and liabilities 61,421
-----------
30,278,191
-----------
Net realized and unrealized gain 43,520,619
-----------
Net increase in net assets resulting from operations $49,050,828
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 15
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the year ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,530,209 $ 4,785,046
Net realized gain on investment and foreign currency transactions 13,242,428 13,038,929
Net unrealized appreciation 30,278,191 15,928,251
------------ ------------
Net increase in net assets resulting from operations 49,050,828 33,752,226
Distributions to shareholders:
From net investment income (5,396,197) (4,785,045)
From net realized gain (13,667,361) (12,351,357)
Amount in excess of net realized gain (717,828) --
Capital share transactions (Note 2) 11,925,340 16,288,306
------------ ------------
Net increase in net assets 41,194,782 32,904,130
Net assets:
Beginning of year 226,963,009 194,058,879
------------ ------------
End of year $268,157,791 $226,963,009
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 16
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 investment
company registered under the Investment Company Act of 1940. The Fund seeks to
achieve long-term capital growth by investing in stocks and debt obligations 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 exchange
on which the securities are traded. Over-the-counter securities and listed
securities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by
management and approved by the Board of Directors.
B. FOREIGN CURRENCY TRANSACTIONS:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
enters into foreign exchange contracts to minimize foreign exchange risk between
the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange 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
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
securities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders,
are determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles. These differences 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 reporting
period. Actual results could differ from those estimates.
14
<PAGE> 17
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1996, there were 700 million shares of the Company's ($0.01 par
value) capital stock authorized of which 120 million shares have been classified
as Fund shares. Transactions in the Fund's shares are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 2,056,255 $ 26,562,455 1,479,630 $ 17,359,602
Shares issued on reinvestment of
distributions 1,531,208 19,697,616 1,442,985 16,551,516
Shares redeemed (2,735,648) (34,334,731) (1,521,712) (17,622,812)
---------- ------------ ---------- ------------
Net increase 851,815 $ 11,925,340 1,400,903 $ 16,288,306
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FTSI),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
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 FTSI
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. FTSI has voluntarily agreed
to limit the total expenses of the Fund to an annual rate of 1.00% of the Fund's
average net assets through year ended December 31, 1996. For the year ended
December 31, 1996, no reimbursement was necessary under the agreement. For the
year ended December 31, 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 Funds, which firm received fees for the year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1996, aggregated $35,456,311 and $51,486,459, respectively.
The cost of securities for federal tax purposes aggregated $213,827,836.
Realized gains and losses are reported on an identified cost basis.
At December 31, 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 $ 66,915,352
Unrealized depreciation (13,237,860)
------------
Net unrealized appreciation $ 53,677,492
============
</TABLE>
15
<PAGE> 18
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Growth Series
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Growth Series of Templeton Institutional Funds,
Inc. as of December 31, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the three years
in the period then ended and the period May 3, 1993 (commencement of operations)
to December 31, 1993. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth Series of Templeton Institutional Funds, Inc. as of December 31, 1996,
the results of its operations, the changes in its net assets and the financial
highlights for the period indicated, in conformity with generally accepted
accounting principles.
[McGLADREY & PULLEN, LLP SIGNATURE]
New York, New York
January 31, 1997
16
<PAGE> 19
This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc., which contains more complete information
including risk factors, charges, and expenses.
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
[RECYCLE LOGO] Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
