TEMPLETON INSTITUTIONAL FUNDS, INC.
TIFI
Growth Series
SEMI-ANNUAL REPORT
JUNE 30, 1997
<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, 1997
Dear Shareholders...
For the quarter and one-year period ending June 30, 1997, the Templeton
Institutional Funds, Inc. Growth Series (the "Fund") returned 9.6% and 26.3%,
compared to the unmanaged Morgan Stanley Capital International (MSCI) World
Index returns during the same periods of 15.2% and 22.8%, respectively. The Fund
produced a three-year and since inception (May 3, 1993) average annual total
return of 18.2% and 17.3% versus MSCI World Index returns of 17.6% and 15.6%,
respectively. Although the Fund has a significant weighting in Europe and in the
financial sector, in our view it continues to be well diversified. We continue
our search for bargains in Japan yet the Fund remains significantly light in
Japan and the United States, as a result of our value driven process, compared
to the MSCI World Index. As you know, all of the country and sector weightings
in the Fund are a function of our bottom-up investment style, which Templeton
has employed over the last fifty years.
TOTAL RETURNS
AS OF 6/30/97
<TABLE>
<CAPTION>
ONE-YEAR THREE-YEAR CUMULATIVE
AVERAGE AVERAGE SINCE INCEPTION(1),(3)
ANNUAL(1),(2) ANNUAL(1),(2) (5/03/93)
<S> <C> <C> <C>
TIFI Growth Series 26.3% 18.2% 94.1%
MSCI World Index(4) 22.8% 17.6% 82.7%
</TABLE>
(1) The Investment Manager and Fund Administrator have agreed in advance to
waive a portion of their respective fees in order to limit the total expenses
of the Fund to 1% of average net assets through April 30, 1998. If these fee
waivers are insufficient to so limit the Fund's expenses, the Fund
Administrator has agreed to make certain payments to reduce the Fund's
expenses. After April 30, 1998, these agreements may end at any time upon
notice to the Fund's Board of Directors. These voluntary agreements did not
result in any fee waivers for the Fund for the fiscal year ended December 31,
1996.
(2) Average annual total return figures represent the average annual change
in value of an investment over the specified periods.
(3) The cumulative total return shows the change in value of an investment
over the period(s) indicated.
(4) The index is unmanaged, does not contain cash and does not include sales
charges or management expenses. The index includes reinvested dividends. One
cannot invest directly in an index.
All calculations assume that dividends and capital gains were reinvested when
paid. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, and political
climates of the countries where investments are made. Emerging 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. You may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
continued...
[PHOTO]
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>
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued.......................................................
There were several new stocks added to the portfolio, which we believe
have potential for solid long-term value. Storehouse is a U.K. retailing firm
with exposure to the apparel and specialty merchandising areas. The shares have
been under pressure, along with the retailing sector, and we see a possibility
for good earnings growth over the next few years including the possibility of
corporate restructuring moves. ICICI is an Indian company which provides
financing for a broad range of corporations in that country. The stock is
selling at a low multiple of earnings and could benefit if the Indian economy
continues to grow.
On the sell side, we have taken profits in a number of stocks which
have reached our sell price targets. As has been the case with many U.S. bank
stocks, Banco Bilbao Vizcaya and Banco de Andalucia, two leading Spanish banking
concerns, have seen their share prices rise sharply over the past year or so. We
have taken advantage of the increases and eliminated our positions in both
stocks. Koninklijke Bijenkork Beheer, a Netherlands retailer, was sold due to
concerns about growing retail competition and reduced earnings visibility.
In a period when individuals and institutions alike are increasing
their appetite for financial assets, demand/supply forces have pushed financial
asset prices higher. Share prices around the world, with few exceptions, have
risen sharply in 1997. Through June, the MSCI All Country World Index (a new
index from MSCI that incorporates both developed and emerging stock markets)
rose 16.1% in U.S. dollar terms. The advance was often even greater in local
currency terms, as the dollar strengthened relative to many foreign currencies.
Our returns were aided by our small exposure to strong performing Latin American
markets and our large weighting in European shares. Moreover, we were able
largely to avoid the carnage seen in Thailand, where a distressed banking sector
led to crumbling investor confidence and, eventually, a currency devaluation.
The lofty state of share prices is causing a degree of angst among many
long time investment professionals. Clearly, they state, conditions cannot get
any better. Therefore, they assume some event will soon occur that will shatter
current investor complacency and lead to falling share prices. At Templeton, we
have a great heritage of consistent outperformance over long periods of time
from which we can take comfort. This has included some periods when shares
appeared expensive. Accordingly, we focus not on short-term trends and worries,
but on implementing our disciplined approach to identifying those stocks that
are selling at the lowest prices in relation to what our team of thirty-four
investment analysts believe can be earned five years into the future. We have
found that such a methodology tends to position us in many securities that, in
our view, offer significant upside potential. This approach to investing has
long been implemented by Templeton with impressive results.
Knowing that past results do not guarantee future results, we approach
the future with an optimism that is shaded by the reality of generally high
share prices around the world. Still, there are many reasons to
Geographic Distribution on 6/30/97
(Equity Assets As a % of Total Net Assets)*
[PIE CHART]
<TABLE>
<S> <C>
Europe......................... 43.3%
North America.................. 22.4%
Asia........................... 13.9%
Australia/New Zealand.......... 5.4%
Latin America.................. 5.1%
Mid-East/Africa................ 0.1%
</TABLE>
Fund Asset Allocation on 6/30/97
(% of Total Net Assets)*
[PIE CHART]
<TABLE>
<S> <C>
Equity.......................... 89.7%
Short-term & Other.............. 9.2%
Fixed Income.................... 1.1%
</TABLE>
*Allocations may change subject to market conditions.
**Equity includes preferred stocks.
2
<PAGE>
remain optimistic about the long-term return potential for the world's stock
markets. Perhaps the most bullish argument is that the trend to free and open
capital, labor, and trade markets continues to gain adherents throughout the
world. Additionally, in Europe, many companies are now beginning to make
difficult restructuring decisions that may lead to enhanced shareholder value.
Many European and Latin American governments are increasingly privatizing
formerly poorly run state owned entities, leading to more sensible allocations
of resources and capital. In Japan, the government has begun tackling corporate
corruption and has made some progress in freeing its capital markets.
Furthermore, the Yen's recent strength may again bring pressure to bear on the
corporate sector to restructure and focus on those businesses where a true
comparative advantage can be maintained in the absence of restrictive trade
practices. While many rightly fear the political consequences of China
re-assuming control of Hong Kong, we are of the belief that Hong Kong
businessmen may help in pushing this huge economic entity towards a more rapid
development of capitalism. We believe this could have favorable consequences for
the world's economies.
More often than not, we see countries around the world implementing
sensible economic policies that could enhance economic growth and corporate
earnings power. Indeed, with no major warfare on the horizon and general
agreement that capitalism is the economic system of choice, in our opinion
investors have never been faced with fewer structural risks. Moreover, we see a
more important trend in the millions of individuals worldwide who are becoming
shareholders via mutual funds, pension funds, and privatizations. As these
individuals' net worth becomes increasingly tied to the implementation of
sensible economic policies in their nations, this population is more likely to
vote for politicians who will support sound economic endeavors. This may be
particularly important during this period when politicians from the more liberal
parties are at the helm of many of the world's largest economies. As a result,
while we know bear markets will occur from time to time, we tend to regard them
as temporary phenomenons. We remain optimistic about the long term opportunities
for attaining attractive investment returns both via rising equity markets in
general as well as via any extra value our analytical team can extricate by
diligently implementing the Templeton investment philosophy.
Higher than historically normal valuations might also become a more
regular feature of the global investment landscape should worldwide inflation
remain low. Additionally, the demand for equity investment may continue to
outstrip the supply. We have noted in the past that demand for equities from
just the five most populous emerging markets could be $1 trillion if each
individual in these nations could save $400 over the next ten years. In a recent
study of the developed world's pension market, Goldman Sachs has estimated that
an additional $2 trillion in demand for investments just from pension plans is
likely over the next five years. These impressive figures, when coupled with low
levels of inflation, lend credence to the notion that valuation levels might be
maintained at high or even higher levels over an extended period of time.
INDUSTRY DIVERSIFICATION ON 6/30/97
(% of Total Net Assets)*
<TABLE>
<S> <C>
Finance 27.6%
Services 22.8%
Materials 10.0%
Energy 9.6%
Capital Equipment 9.1%
Consumer Goods 7.6%
Multi-Industry 3.5%
Short-term Obligations
& Other Net Assets 9.2%
</TABLE>
10 LARGEST POSITIONS ON 6/30/97
(% of Total Net Assets)*
<TABLE>
<S> <C>
Telecomunicacoes Brasileiras
SA (Telebras) 1.9%
Rhone-Poulenc SA 1.6%
HSBC Holdings PLC 1.5%
Telefonica De Espana SA 1.5%
Catellus Development Corp. 1.5%
Sony Corp. 1.5%
Societe Elf Aquitaine SA 1.4%
Fiat SpA 1.4%
Nokia AB (OY) 1.3%
Dayton Hudson Corp. 1.3%
</TABLE>
*Allocations may change subject to market conditions.
3
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued......................................................
While share prices are high in many countries, there are still bargains
to be found. Through June 30, 1997, Thailand's share prices fell over 70% from
their peak levels several years ago, as measured by the International Finance
Corporation Investable (IFCI) Thailand Index. South Korea has experienced some
difficulties as well in its financial system, causing turmoil in its market for
a time. In Brazil, while state-owned company stocks have skyrocketed, many
privately-held company share prices have not, although these too, in time, may
benefit from the reforms sponsored by the Cardosa government. We believe more
bargains than usual can now be found in the emerging markets as it is often a
developing market that stumbles on its path to embracing full fledged
capitalism.
In France and the U.K., recent changes in political leadership have
negatively impacted some shares, providing opportunities for longer term
oriented investors like Templeton to acquire positions at bargain prices. We
have focused more closely on Japanese companies for evidence of value after the
long period of underperformance suffered by this market. Unfortunately, the
great majority of Japanese share prices are still far from qualifying as
Templeton bargains. Based on current or forecasted earnings, Japan is still the
world's highest priced market. Industries and companies regularly fall out of
favor with investors focused more on short-term earnings momentum than on
long-term valuation, thereby providing our analysts the opportunity to find
stocks they consider bargains. The current bull market has certainly made our
task of identifying long-term bargains more difficult, but it has also made our
work more rewarding as investors are more willing to quickly respond to improved
company fundamentals once they emerge.
The Templeton approach leaves to other investors the arduous task of
competing for small returns in the area of short-term prognostication. We
instead focus on those situations that others often ignore, where the
opportunity for sizable long-term investment returns might be realized. Such
opportunities often present themselves when the prospect for short-term trading
profits seem the least. By focusing on the long-term potential rather than the
short-term problems, we believe we greatly enhance the possibility of acquiring
shares at attractive levels 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 so worthwhile.
This discussion reflects the strategies we employed for the Fund during
the six months under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our 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.
Total Return Index Comparison(1)
$5,000,000 Investment: 05/03/93 - 06/30/97
[LINE GRAPH]
Period ended June 30, 1997
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE-YEAR (05/03/93)
<S> <C> <C>
Average Annual Total Return(1),(2) 26.3% 17.3%
Cumulative Total Return(1),(3) 26.3% 94.1%
</TABLE>
(1) The Investment Manager and Fund Administrator have agreed in advance to
waive a portion of their respective fees in order to limit the total
expenses of the Fund to 1% of average net assets through April 30, 1998. If
these fee reductions are insufficient to so limit the Fund's expenses, the
Fund Administrator has agreed to make certain payments to reduce the Fund's
expenses. After April 30, 1998, these agreements may end at any time upon
notice to the Board. These voluntary agreements did not result in any fee
waivers for the Fund for the fiscal year ended December 31, 1996.
(2) Average annual total return figures represent the average annual change
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 calculations assume that dividends and capital gains were reinvested
when paid. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social and political
climates of the countries where investments are made. Emerging 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. You may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
4
<PAGE>
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.
Emerging 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.
The current market environment continues to present a serious challenge
for bargain hunters like Templeton, but our staff's careful and disciplined
implementation of our investment process has seen our firm through both bull and
bear markets in the past with a degree of success. Therefore, 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.
Best regards,
/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
Templeton Investment Counsel, Inc.
5
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MAY 3, 1993
JUNE 30, YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
1997 --------------------------------- OPERATIONS) TO
(UNAUDITED) 1996 1995 1994 DECEMBER 31, 1993
---------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.41 $ 11.86 $ 10.94 $ 11.80 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .21 .30 .27 .20 .06
Net realized and unrealized gain (loss) 1.62 2.32 1.62 (.36) 1.94
-------- -------- -------- -------- --------
Total from investment operations 1.83 2.62 1.89 (.16) 2.00
-------- -------- -------- -------- --------
Distributions:
Dividends from net investment income (.02) (.29) (.27) (.20) (.05)
Distributions from net realized gain (.07) (.74) (.70) (.50) (.15)
Amount in excess of realized gain -- (.04) -- -- --
-------- -------- -------- -------- --------
Total distributions (.09) (1.07) (.97) (.70) (.20)
-------- -------- -------- -------- --------
Change in net asset value 1.74 1.55 .92 (.86) 1.80
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.15 $ 13.41 $ 11.86 $ 10.94 $ 11.80
======== ======== ======== ======== ========
TOTAL RETURN* 13.71% 22.57% 17.59% (1.32)% 20.04%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000) $ 305,792 $268,158 $226,963 $194,059 $ 184,013
Ratio of expenses to average net assets .88%** .87% .88% .95% 1.00%**
Ratio of net investment income to average
net assets 3.03%** 2.34% 2.28% 1.69% 1.19%**
Portfolio turnover rate 9.36% 15.61% 30.20% 17.23% 17.32%
Average commission rate paid (per share) $ .0180 $ .0242
</TABLE>
* NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 84.4%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLIANCES & HOUSEHOLD DURABLES: 1.4%
Sony Corp. Jpn. 51,000 $ 4,445,424
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 3.0%
Fiat Spa Itl. 1,155,000 4,152,672
Ford Motor Co. U.S. 46,000 1,736,500
Volvo AB, B Swe. 122,000 3,264,689
------------
9,153,861
- ---------------------------------------------------------------------------------------------------------------------
BANKING: 13.8%
Argentaria Corporacion Bancaria de Espana SA, ADR Sp. 116,750 3,312,781
Australia & New Zealand Banking Group Ltd. Aus. 430,150 3,215,358
Banque Nationale de Paris, ADR, 144A Fr. 87,500 3,606,190
Barclays PLC U.K. 82,533 1,638,318
BPI Socieda de Gestora de Participacoes Socias SA Port. 120,047 2,336,275
Canadian Imperial Bank of Commerce Can. 136,000 3,427,206
Credit Suisse Group, reg. Swtz. 26,175 3,360,365
Daegu Bank Co. Ltd. Kor. 62,342 534,379
* Daegu Bank Co. Ltd., rts. Kor. 21,713 34,518
Deutsche Bank AG Ger. 50,500 2,965,308
HSBC Holdings PLC H.K. 151,069 4,543,399
Komercni Banka AS Csk. 9,000 466,264
* Komercni Banka AS, GDR, 144A Csk. 27,000 562,275
Merita Ltd., A Fin. 605,000 1,980,646
National Bank of Canada Can. 148,000 1,854,086
National Westminster Bank PLC U.K. 97,277 1,308,118
* PT Bank Pan Indonesia TBK, rts. Indo. 984,200 161,875
* Philippine National Bank Phil. 214,530 1,455,902
PT Bank Pan Indonesia TBK Indo. 1,968,400 1,295,000
Svenska Handelsbanken, A Swe. 108,000 3,434,555
Thai Farmers Bank Public Co. Ltd., fgn. Thai. 200,000 849,257
------------
42,342,075
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING: 0.1%
News Corp. Ltd. Aus. 91,707 439,694
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 1.6%
Owens Corning U.S. 42,900 1,850,063
Pioneer International Ltd. Aus. 800,000 3,092,674
------------
4,942,737
- ---------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 3.2%
Esselte AB, A Swe. 105,000 2,402,560
Hyder PLC U.K. 142,833 1,932,619
Societe Generale de Surveillance Holdings Ltd., br. Swtz. 520 1,110,852
Waste Management Inc. U.S. 61,000 1,959,625
Wheelabrator Technologies Inc. U.S. 145,000 2,238,437
------------
9,644,093
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS: 3.9%
Akzo Nobel NV Neth. 12,500 1,713,027
Bayer AG Ger. 88,500 3,410,287
European Vinyls Corp. EVC International NV Neth. 17,735 449,045
Rhone-Poulenc SA, A Fr. 119,663 4,886,947
Solvay SA Bel. 2,700 1,590,442
------------
12,049,748
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION & HOUSING: 0.9%
Daito Trust Construction Co. Ltd. Jpn. 85,100 $ 1,002,399
Kaufman & Broad Home Corp. U.S. 55,200 969,450
Kyudenko Corp. Jpn. 89,000 750,144
------------
2,721,993
- ---------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 1.3%
* 3com Corp. U.S. 32,000 1,440,000
* Bay Networks Inc U.S. 100,000 2,656,250
------------
4,096,250
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 3.5%
Alcatel Alsthom SA Fr. 25,916 3,245,729
Asea AB, A Swe. 274,250 3,846,697
Hitachi Ltd. Jpn. 312,000 3,484,513
------------
10,576,939
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 0.5%
BICC U.K. 483,861 1,422,196
- ---------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 3.0%
Repsol SA Sp. 69,000 2,917,340
Saga Petroleum AS, A Nor. 110,000 2,086,176
Societe Elf Aquitane SA Fr. 39,128 4,221,272
------------
9,224,788
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 5.1%
Axa-UAP SA Fr. 24,000 1,492,674
* Capital Portugal Fund Port. 6,000 903,460
Chile Fund Inc. Chil. 16,500 431,062
Federal National Mortgage Assn. U.S. 65,600 2,861,800
* India Fund, B Ind. 761,728 1,414,389
* Industrial Credit & Inv. Corp. of India (ICICI),
GDR, 144A Ind. 90,100 1,306,450
* Korea International Trust Kor. 20 680,000
* Korea International Trust, IDR Kor. 2 75,000
Morgan Stanley Dean Witter Discover & Co. U.S. 71,684 3,086,892
Thai Fund Inc. Thai. 50,653 778,790
Thailand International Fund Ltd. (The), IDR Thai. 42 698,250
* Turkish Growth Fund Tur. 110,000 1,850,200
------------
15,578,967
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 1.4%
Albert Fisher Group PLC U.K. 2,289,593 1,649,068
Hillsdown Holdings PLC U.K. 639,539 1,799,898
IBP Inc. U.S. 40,200 934,650
------------
4,383,616
- ---------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 2.5%
Carter Holt Harvey Ltd. N.Z. 415,000 1,073,998
Fletcher Challenge Ltd. Forestry Division N.Z. 630,000 915,766
Georgia-Pacific Corp. U.S. 18,000 1,536,750
International Paper Co. U.S. 28,000 1,359,750
Metsa Serla OY, B Fin. 112,500 916,422
PT Barito Pacific Timber, fgn. Indo. 465,000 396,741
Sappi Ltd. S.AF. 19,910 179,923
Stora Kopparbergs Bergslags AB, B Swe. 76,000 1,237,929
------------
7,617,279
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH & PERSONAL CARE: 1.7%
Astra AB, A Swe. 144,000 $ 2,680,628
Nycomed ASA, A Nor. 85,000 1,252,524
Nycomed ASA, B Nor. 86,000 1,226,191
------------
5,159,343
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS: 2.0%
BTR PLC U.K. 680,000 2,327,100
Exide Corp. U.S. 46,600 1,022,287
Goodyear Tire & Rubber Co. U.S. 43,000 2,722,437
------------
6,071,824
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE: 5.8%
Aegon NV Neth. 44,424 3,100,559
American International Group Inc. U.S. 15,750 2,352,656
Capital RE Corp. U.S. 55,400 2,963,900
Ing Groep NV Neth. 62,655 2,888,725
London Insurance Group Inc. Can. 133,000 2,561,860
Presidential Life Corp. U.S. 180,000 3,487,500
Zuerich Versicherung, new Swtz. 650 258,576
------------
17,613,776
- ---------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.7%
Kuoni Reisen Holding AG, B Swtz. 630 2,156,796
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 1.0%
Hitachi Koki Co. Ltd. Jpn. 115,000 821,787
VA Technologie AG Aust. 11,500 2,104,528
------------
2,926,315
- ---------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 6.0%
Dairy Farm International Holdings Ltd. H.K. 1,139,186 854,390
Dayton-Hudson Corp. U.S. 73,500 3,909,281
Home Depot Inc. U.S. 27,000 1,861,313
* K Mart Corp. U.S. 150,000 1,837,500
Kwik Save Group PLC U.K. 191,000 968,534
Limited Inc. U.S. 53,500 1,083,375
Storehouse PLC U.K. 732,000 2,297,823
* Waban Inc. U.S. 76,000 2,446,250
Wessel & Vett AS, C Den. 39,000 3,095,378
------------
18,353,844
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING: 2.0%
Elkem AS Nor. 87,000 1,703,392
RGC Ltd. Aus. 637,345 2,333,945
* Union Miniere NPV Bel. 21,000 1,966,380
------------
6,003,717
- ---------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 3.5%
Hicom Holdings BHD Mal. 440,000 833,280
Hutchison Whampoa Ltd. H.K. 307,000 2,654,989
Jardine Matheson Holdings Ltd. H.K. 241,531 1,714,870
Jardine Strategic Holdings Ltd. H.K. 515,353 1,948,034
PT Bimantara Citra, fgn. Indo. 852,500 1,489,772
Swire Pacific Ltd., A H.K. 220,000 1,980,690
------------
10,621,635
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REAL ESTATE: 2.5%
Beacon Properties Corp U.S. 60,000 $ 2,002,500
* Catellus Development Corp. U.S. 246,900 4,475,062
Summit Properties Inc., REIT U.S. 60,000 1,237,500
------------
7,715,062
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 6.2%
Compania De Telecomunicaciones De Chile
S.A.,Spons. ADR Chil. 70,125 2,314,125
Cpt-Telefonica del Peru SA, B Per. 115,000 302,187
Jasmine International Public Co. Ltd., fgn. Thai. 828,000 735,148
Lucent Technologies Inc. U.S. 41,700 3,005,006
Nokia AB, A Fin. 52,000 3,925,473
SPT Telecom AS Csk. 13,000 1,363,020
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp Itl. 795,000 2,753,542
Telefonica de Espana SA Sp. 155,500 4,495,623
* Videsh Sanchar Nigam Ltd., GDR, 144A Ind. 7,700 160,352
------------
19,054,476
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 0.6%
Brambles Industries Ltd. Aus. 100,000 1,977,545
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL & GAS: 6.6%
BG PLC U.K. 610,000 2,245,000
* Centrica PLC U.K. 610,000 744,101
* CEZ Csk. 43,315 1,195,477
Endesa-Empresa Nacional de Electricidad SA Sp. 21,000 1,762,945
Evn Energie-Versorgung Niederoesterreich AG Aust. 15,400 1,984,099
Hong Kong Electric Holdings Ltd. H.K. 672,000 2,706,285
Iberdrola SA Sp. 269,000 3,395,589
Illinova CP Holdings Co. U.S. 70,000 1,540,000
Public Service Co. of New Mexico U.S. 125,000 2,234,375
Thames Water Group PLC U.K. 201,689 2,329,286
------------
20,137,157
- ---------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL TRADE: 0.6%
Brierley Investments Ltd. N.Z. 1,915,889 1,873,972
------------
TOTAL COMMON STOCKS (cost $180,983,840) 258,305,122
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 5.3%
- ---------------------------------------------------------------------------------------------------------------------
Cia de Inversiones en Telecomunicaciones
SA, conv., pfd. 7.0%, 3/3/98 Arg. 50,935 3,463,580
Hyder PLC, pfd. U.K. 121,900 214,673
Nacional Financiera SA, 11.25%, conv., pfd.,
05/15/98 U.S. 30,900 1,483,200
Nacional Financiera SA, 11.25%, conv., pfd.,
PRIDE EURO TRANCHE U.S. 39,275 1,885,200
News Corp. Ltd., pfd. Aus. 395,853 1,560,194
* Philippine Long Distance Telephone Co., GDR, conv.,
pfd., 144A Phil. 50,500 1,887,438
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR Braz. 38,000 5,766,500
------------
TOTAL PREFERRED STOCKS (cost $9,496,795) 16,260,785
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS: 1.1%
- ---------------------------------------------------------------------------------------------------------------------
Softee SA, 4.25%, conv., 7/30/98, 144A Itl. 1,700,000,000 $ 2,040,720
U.S. Treasury Note, 5.125%, 4/30/98 U.S. 1,181,000 1,175,465
------------
TOTAL BONDS (cost $2,224,611) 3,216,185
- ---------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 9.6% (cost $29,312,380)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.68% to 5.12% with
maturities to 9/18/97 U.S. 29,460,000 29,313,443
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.4% (cost $222,017,626) 307,095,535
OTHER ASSETS, LESS LIABILITIES: (0.4%) (1,303,059)
------------
TOTAL NET ASSETS: 100.0% $305,792,476
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $222,017,626) $307,095,535
Receivables:
Capital shares sold 211,745
Dividends and interest 1,165,209
Securities sold 7,680
Unamortized organization costs 1,215
------------
Total assets 308,481,384
------------
Liabilities:
Payables:
Investment securities purchased 2,166,283
Capital shares redeemed 177,348
Accrued expenses 345,277
------------
Total liabilities 2,688,908
------------
Net assets, at value $305,792,476
============
Net assets consist of:
Undistributed net investment income $ 4,025,284
Net unrealized appreciation 85,077,909
Accumulated net realized gain 1,865,896
Net capital paid in on shares of capital stock 214,823,387
------------
Net assets, at value $305,792,476
============
Shares outstanding 20,178,323
============
Net asset value per share ($305,792,476 / 20,178,323 shares outstanding) $ 15.15
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $468,038 foreign taxes withheld)
Dividends $ 4,587,399
Interest 956,023
-----------
Total income $ 5,543,422
Expenses:
Management fees (Note 3) 994,705
Administrative fees (Note 3) 122,062
Transfer agent's fees 250
Custodian fees 81,750
Reports to shareholders 3,900
Audit fees 9,500
Registration and filing fees 21,600
Directors' fees and expenses 3,150
Amortization of organization costs 706
Other 5,547
-----------
Total expenses 1,243,170
-----------
Net investment income 4,300,252
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 4,074,690
Foreign currency transactions (60,478)
-----------
4,014,212
Net unrealized appreciation on investments 29,182,442
-----------
Net realized and unrealized gain 33,196,654
-----------
Net increase in net assets resulting from operations $37,496,906
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,300,252 $ 5,530,209
Net realized gain on investment and foreign currency transactions 4,014,212 13,242,428
Net unrealized appreciation 29,182,442 30,278,191
------------ ------------
Net increase in net assets resulting from operations 37,496,906 49,050,828
Distributions to shareholders:
From net investment income (408,980) (5,396,197)
From net realized gain (1,430,488) (13,667,361)
Amount in excess of net realized gains -- (717,828)
Capital share transactions (Note 2) 1,977,247 11,925,340
------------ ------------
Net increase in net assets 37,634,685 41,194,782
Net assets:
Beginning of period 268,157,791 226,963,009
------------ ------------
End of period $305,792,476 $ 268,157,791
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Growth Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks to achieve
long-term capital growth by investing in stocks and debt obligations of
companies and governments of any nation. The following summarizes the Fund's
significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the recorded amounts of
dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute substantially all of its taxable income.
D. UNAMORTIZED ORGANIZATION COSTS
Organization costs are amortized on a straight line basis over five years.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
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.
15
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. CAPITAL STOCK
At June 30, 1997, there were 700 million shares of the Company's ($0.01 par
value) of which 50 million shares have been classified as Fund shares.
Transactions in the Fund's shares are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 1,734,770 $ 24,181,702 2,056,255 $ 26,562,455
Shares issued on reinvestment of
distributions 131,573 1,830,180 1,531,208 19,697,616
Shares redeemed (1,681,075) (24,034,635) (2,735,648) (34,334,731)
---------- ------------ ---------- ------------
Net increase 185,268 $ 1,977,247 851,815 $ 11,925,340
========== ============ ========== ============
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund 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 an investment management fee to TICI of 0.70% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FTSI based on the Company's aggregate average net assets
as follows: 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. TICI and FTSI agreed in advance to limit total expenses of the Fund to
an annual rate of 1.00% of average net assets through May 1, 1998. For the six
months ended June 30, 1997, no reimbursement was necessary under the agreement.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997, aggregated $23,930,076 and $24,951,739,
respectively.
5. INCOME TAXES
At June 30, 1997, the net unrealized appreciation, and based on the cost of
investments for income tax purposes of $224,194,615, was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 93,830,707
Unrealized depreciation (10,929,788)
------------
Net unrealized appreciation $ 82,900,919
============
</TABLE>
16
<PAGE>
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
Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
<PAGE>
