TEMPLETON INSTITUTIONAL FUNDS INC, N-30D, 1997-09-02

TEMPLETON INSTITUTIONAL FUNDS INC
N-30D, 1997-09-02

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TEMPLETON INSTITUTIONAL FUNDS, INC.

[GLOBE]

TIFI Foreign Equity Series

SEMI-ANNUAL REPORT

JUNE 30, 1997

[LOGO] TEMPLETON

<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>
[PHOTO OF GARY MOTYL APPEARS HERE]

GARY MOTYL HAS BEEN A PORTFOLIO MANAGER AND RESEARCH ANALYST WITH TEMPLETON
INVESTMENT COUNSEL, INC. SINCE 1981. HE CURRENTLY MANAGES SEVERAL INSTITUTIONAL
MUTUAL FUNDS, AND IS RESPONSIBLE FOR MANAGING MANY OF OUR SEPARATE ACCOUNT
PORTFOLIOS. MR. MOTYL'S RESEARCH RESPONSIBILITIES INCLUDE THE GLOBAL AUTOMOBILE
INDUSTRY AND U.S.-BASED UTILITIES AS WELL AS COUNTRY COVERAGE OF GERMANY.

PRIOR TO JOINING THE TEMPLETON ORGANIZATION, MR. MOTYL WORKED FROM 1974 TO 1979
AS A SECURITY ANALYST WITH STANDARD & POOR'S CORPORATION. HE THEN WORKED AS A
RESEARCH ANALYST AND PORTFOLIO MANAGER FROM 1979 TO 1981 WITH LANDMARK FIRST
NATIONAL BANK. IN THIS CAPACITY HE HAD RESPONSIBILITY FOR EQUITY RESEARCH AND
MANAGED SEVERAL PENSION AND PROFIT SHARING PLANS.

MR. MOTYL HOLDS A BACHELOR OF SCIENCE IN FINANCE DEGREE FROM LEHIGH UNIVERSITY
IN PENNSYLVANIA AND A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM PACE
UNIVERSITY IN NEW YORK, AND IS A CHARTERED FINANCIAL ANALYST.

June 30, 1997

Dear Shareholders:

The Templeton Institutional Funds, Inc. Foreign Equity Series (the
"Fund") returned 8.2% for the quarter and 24.3% for the one-year period through
June 30, 1997, compared to the unmanaged Morgan Stanley Capital International
Europe, Australia, Far East ("MSCI EAFE") Index returns during the same periods
of 13.1% and 13.2%, respectively. For the three- and five-year periods ended
June 30, 1997, the Fund had an average annual total return of 16.6% and 13.0%
versus MSCI EAFE Index returns of 9.4% and 13.2%, respectively. The Fund has a
significant weighting in Europe and in the financial sector, yet in our view
continues to be well diversified. Although we continue our search for bargains
in Japan, the Fund remains significantly light in Japanese equities compared to
the MSCI

TOTAL RETURNS AS OF 6/30/97

<TABLE>
<CAPTION>
CUMULATIVE
ONE-YEAR THREE-YEAR FIVE-YEAR SINCE
AVERAGE AVERAGE AVERAGE INCEPTION(1,3)
ANNUAL(1,2) ANNUAL(1,2) ANNUAL(1,2) (10/18/90)
<S> <C> <C> <C> <C>
TIFI Foreign
Equity Series 24.3% 16.6% 13.0% 142.5%

MSCI EAFE Index(4) 13.2% 9.4% 13.2% 77.8%
</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 in
value of an investment over the specified periods.

(3) The cumulative total return represents the change in value of an investment
over the periods 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...

<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued

GEOGRAPHIC DISTRIBUTION ON 6/30/97
(Equity Assets as a Percentage of Total Net Assets)*

[PIE CHART APPEARS HERE]

North America 3.2%

Asia 13.4%

Australia/New Zealand 5.9%

Europe 56.7%

Mid-East/Africa 0.1%

Latin America 6.2%

*Allocations may change subject to market conditions

EAFE 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.

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. Its 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, a leading Spanish banking concern, has seen its
share price rise sharply over the past year or so. We have taken advantage of
the increases and eliminated our position. A similar situation occurred with
regards to Westpac Banking Corp., a large Australian bank. Also sold out of the
fund was Electricidad de Caracas, the big Venezuelan electric utility. We
believed that the company's five year earnings growth prospects were more than
adequately reflected in the current stock price.

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 ex US Free Index
(a new index from MSCI that incorporates both developed and emerging stock
markets) rose 12.7% 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 performance 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

<PAGE>
FUND ASSET ALLOCATION ON 6/30/97*

[PIE CHART APPEARS HERE]

FUND ASSET ALLOCATION ON 6/30/97*

Short Term & Other 14.5%

Equity** 85.5%

* Allocations may change subject to market conditions
** Equity includes convertible and preferred stocks

methodology tends to position us in many securities that, in our view, offer
significant upside potential. This approach to investing has been long
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 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

<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued

INDUSTRY DIVERSIFICATION ON 6/30/97
(% of Total Net Assets)*

Finance 24.9%

Services 19.2%

Materials 11.6%

Energy 11.2%

Capital Equipment 8.1%

Consumer Goods 7.0%

Multi-Industry 3.5%

10 LARGEST POSITIONS ON 6/30/97
(% of Total Net Assets)*

Telebras Telecomunicacoes
Brasileiras SA, Pfd., ADR 1.9%

Rhone-Poulenc SA, A 1.7%

Telefonica de Espana SA 1.5%

STET (Sta Finanziaria
Telefonica Torino) SpA 1.5%

Philips Electronics NV 1.5%

HSBC Holdings PLC 1.3%

Societe Elf Aquitaine SA 1.3%

Telefonica de Argentina
SA (TEAR) 1.3%

Hitachi Ltd. 1.3%

Zuerich Versicherung, new 1.3%

*Allocations may change subject to market conditions.

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.

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
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 we
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 worthwhile.

<PAGE>
Total Return Index Comparison(1)
$5,000,000 Investment: 10/18/90-06/30/97

[GRAPH]

Period ended June 30, 1997

<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE-YEAR (10/18/90)
<S> <C> <C>
Average Annual Total Return(1,2) 24.3% 14.1%
Cumulative Total Return(1,3) 24.3% 142.5%
</TABLE>

(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 represents the change in value of an investment
over the period(s) indicated.

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.

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.

For more complete portfolio information, call Templeton Fund Information,
toll-free, at 1-800-362-6243.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1997 ---------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993+ 1992+
------------- ---------- ---------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.34 $ 14.04 $ 12.86 $ 13.32 $ 10.05 $ 10.63
---------- ---------- ---------- ---------- -------- ------
Income from investment operations:
Net investment income .30 .45 .31 .20 .23 .27
Net realized and unrealized gain (loss) 1.80 2.54 1.35 (.16) 3.19 (.41)
---------- ---------- ---------- ---------- -------- ------
Total from investment operations 2.10 2.99 1.66 .04 3.42 (.14)
---------- ---------- ---------- ---------- -------- ------
Distributions:
Dividends from net investment income (.01) (.45) (.31) (.19) (.09) (.24)
Amount in excess of net investment income -- (.02) -- -- -- --
Distributions from net realized gains (.01) (.14) (.17) (.31) (.06) (.20)
Amount in excess of net realized gains -- (.08) -- -- -- --
---------- ---------- ---------- ---------- -------- ------
Total distributions (.02) (.69) (.48) (.50) (.15) (.44)
---------- ---------- ---------- ---------- -------- ------
Change in net asset value 2.08 2.30 1.18 (.46) 3.27 (.58)
---------- ---------- ---------- ---------- -------- ------
Net asset value, end of period $ 18.42 $ 16.34 $ 14.04 $ 12.86 $ 13.32 $ 10.05
========== ========== ========== ========== ======== ======
TOTAL RETURN* 12.86% 21.58% 13.00% .24% 34.03% (1.33)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 3,573,278 $2,857,591 $1,817,883 $1,093,227 $407,970 $ 566
Ratio of expenses to average net assets .86%** .87% .88% .95% 1.03% 8.82%
Ratio of expenses, net of fee waiver, to average
net assets .86%** .87% .88% .95% 1.00% 1.00%
Ratio of net investment income to net average
net assets 3.59%** 3.20% 2.70% 2.03% 1.73% 2.38%
Portfolio turnover rate 8.07% 7.39% 20.87% 7.90% 42.79% 8.45%
Average commission rate paid (per share) $ .0029 $ .0021
</TABLE>

* NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
+ BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS: 78.2%
- ---------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & MILITARY TECHNICAL SYSTEMS: 0.0%
Hong Kong Aircraft Engineering Co. Ltd. H.K. 195,600 $ 711,980
- ---------------------------------------------------------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES: 1.2%
Sony Corp. Jpn. 471,700 41,115,810
- ---------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 2.4%
Bertrand Faure Fr. 101,530 5,347,139
Fiat Spa Itl. 11,600,000 41,706,485
Volvo AB, B Swe. 1,513,075 40,489,500
-------------
87,543,124
- ---------------------------------------------------------------------------------------------------------------------------------
BANKING: 13.2%
ABN AMRO NV Neth. 9,076 169,230
Argentaria Corporacion Bancaria de Espana SA, ADR Sp. 1,398,000 39,668,250
Australia & New Zealand Banking Group Ltd. Aus. 3,126,161 23,367,960
Banco di Sardegna SPA, di Risp Itl. 983,450 8,883,110
Banco Totta & Acores SA Port. 444,000 7,419,762
Banque Nationale de Paris, ADR, 144A Fr. 877,000 36,144,333
Barclays PLC U.K. 1,186,568 23,553,915
BPI Socieda de Gestora de Participacoes Socias SA Port. 609,408 11,859,892
Canadian Imperial Bank of Commerce Can. 1,473,600 37,134,784
Cho Hung Bank Co. Ltd., GDR Kor. 600,000 4,305,000
* Commercial Bank of Korea Co. Ltd. Kor. 615,000 3,296,622
Credit Suisse Group, reg. Swtz. 280,400 35,997,946
Daegu Bank Co. Ltd. Kor. 563,468 4,829,898
* Daegu Bank Co. Ltd., rts. Kor. 196,255 311,997
Deutsche Bank AG Ger. 679,900 39,923,023
Foreningssparbanken AB, A Swe. 90,000 2,001,163
Foreningssparbanken AB, A, 144A Swe. 374,320 8,323,061
HSBC Holdings PLC H.K. 1,588,930 47,787,060
Komercni Banka AS Csk. 132,500 6,864,438
* Komercni Banka AS, GDR, 144A Csk. 326,500 6,799,362
* Kookmin Bank, new Kor. 18,747 401,889
* Kookmin Bank, GDR, Reg S Kor. 185,000 4,000,625
Korea Long Term Credit Bank Kor. 151,400 2,397,103
Merita Ltd., A Fin. 7,750,000 25,371,913
National Bank of Canada Can. 1,065,400 13,346,913
* PT Bank Pan Indonesia TBK, rts. Indo. 4,772,000 784,868
* Philippine National Bank Phil. 1,622,875 11,013,597
* PT Bank Pan Indonesia TBK Indo. 9,544,000 6,278,947
PT Lippo Bank, fgn. Indo. 7,252,000 7,454,770
Svenska Handelsbanken, A Swe. 1,289,650 41,012,721
Thai Farmers Bank Public Co. Ltd., fgn. Thai. 2,473,800 10,504,459
-------------
471,208,611
- ---------------------------------------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING: 0.2%
News Corp. Ltd. Aus. 1,225,715 5,876,754
- ---------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 1.9%
Pioneer International Ltd. Aus. 9,989,572 38,618,119
Siam City Cement, fgn. Thai. 585,700 2,385,306
Svedala Industri, A Swe. 1,355,000 28,201,797
Unione Cementi Marchino Emiliane (Unicem), di Risp Itl. 200 511
-------------
69,205,733
- ---------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 2.0%
Adecco SA Swtz. 34,051 13,071,802
Esselte AB, B Swe. 929,400 21,866,822
Hyder PLC U.K. 998,333 13,508,061
Societe Generale de Surveillance Holdings Ltd., br. Swtz. 6,120 13,073,879
* Waste Management International PLC U.K. 1,764,960 8,200,367
-------------
69,720,931
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
CHEMICALS: 3.9%
Akzo Nobel NV Neth. 123,064 16,864,953
Bayer AG Ger. 846,230 32,608,897
Courtaulds PLC U.K. 276,300 1,555,220
European Vinyls Corp. EVC International NV Neth. 142,762 3,614,688
Imperial Chemical Industries PLC U.K. 387,000 5,384,578
Rhone-Poulenc SA, A Fr. 1,489,612 60,834,632
Solvay SA Bel. 29,517 17,387,063
Solvay SA, ADR Bel. 1,615 95,132
-------------
138,345,163
- ---------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & HOUSING: 0.7%
Daito Trust Construction Co. Ltd. Jpn. 1,084,400 12,773,231
Fletcher Challenge Building Ltd. N.Z. 1,403,250 4,222,494
Kyudenko Corp. Jpn. 909,000 7,661,583
-------------
24,657,308
- ---------------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 0.6%
* Newbridge Networks Corp. Can. 475,800 20,397,089
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 4.3%
ABB AG, br. Swtz. 19,679 29,777,877
Alcatel Alsthom SA Fr. 200,654 25,129,978
Hitachi Ltd. Jpn. 4,055,000 45,287,497
Philips Electronics NV Neth. 735,000 52,647,104
-------------
152,842,456
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 0.5%
BICC U.K. 5,991,099 17,609,435
- ---------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 3.8%
Fletcher Challenge Energy Ltd. N.Z. 1,405,000 4,246,847
MOL Magyar Olay-Es Gazipari RT, GDS 144A Hun. 1,339,742 29,809,259
Repsol SA Sp. 715,500 30,251,544
Saga Petroleum AS, A Nor. 1,128,500 21,402,268
Societe Elf Aquitane SA Fr. 442,308 47,717,813
YPF Sociedad Anonima, ADR Arg. 46,000 1,414,500
-------------
134,842,231
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 2.2%
Axa-UAP SA Fr. 580,354 36,094,983
Chile Fund Inc. Chil. 342,600 8,950,425
* India Fund, B Ind. 3,755,265 6,972,840
* Industrial Credit & Inv. Corp. of India (ICICI),
GDR, 144A Ind. 990,000 14,355,000
* Korea International Trust Kor. 72 2,448,000
London Pacific Group Ltd. U.K. 1,212,080 4,208,541
Thai Fund Inc. Thai. 360,043 5,535,661
Thailand International Fund Ltd. (The), IDR Thai. 95 1,579,375
-------------
80,144,825
- ---------------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 1.3%
Albert Fisher Group PLC U.K. 29,283,920 21,091,601
Hillsdown Holdings PLC U.K. 6,885,010 19,376,954
Northern Foods PLC U.K. 822,811 2,726,763
Tate & Lyle PLC U.K. 114,000 847,658
Vetropack AG Swtz. 11,600 2,033,276
-------------
46,076,252
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 3.4%
* Asia Pacific Resources International, A Indo. 59,000 287,625
* Asia Pulp & Paper Co. Ltd., ADR Indo. 185,100 2,799,637
Assidomaen AB Swe. 200,000 5,688,062
Carter Holt Harvey Ltd. N.Z. 747,700 1,935,007
Cartiere Burgo SPA Itl. 2,218,760 12,330,216
Enso OY, R Fin. 54,000 499,157
Fletcher Challenge Ltd. Forestry Division N.Z. 4,174,398 6,067,892
Fletcher Challenge Paper Ltd. N.Z. 2,732,500 6,626,110
Metsa Serla OY, B Fin. 1,350,500 11,001,136
PT Barito Pacific Timber, fgn. Indo. 3,852,000 3,286,554
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 1,405,998 1,633,201
Sappi Ltd. S.AF. 207,345 1,873,737
Stora Kopparbergs Bergslags AB, B Swe. 1,196,500 19,489,238
Svenska Cellulosa AB, B Swe. 600,000 12,565,445
+ Unipapel SA Sp. 309,693 6,515,428
UPM-Kymmene Corp. Fin. 1,305,000 30,660,055
-------------
123,258,500
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE: 1.8%
Astra AB, A Swe. 1,446,667 26,930,386
Medeva PLC U.K. 1,739,171 7,428,889
Nycomed ASA, A Nor. 790,000 11,641,107
Nycomed ASA, B Nor. 1,404,680 20,027,978
-------------
66,028,360
- ---------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS: 1.3%
BTR PLC U.K. 10,264,000 35,125,514
BTR PLC, A U.K. 1,375,780 4,570,629
Lucas Varity PLC U.K. 2,300,000 7,966,827
-------------
47,662,970
- ---------------------------------------------------------------------------------------------------------------------------------
INSURANCE: 6.0%
Ace Ltd. Bmu. 336,500 24,858,937
Aegon NV Neth. 444,689 31,036,932
GIO Australia Holdings Ltd. Aus. 7,735,003 23,945,208
INA-Istituto Nazionale Delle Assicurazioni SpA Itl. 12,104,000 18,333,351
Ing Groep NV Neth. 849,352 39,159,588
London Insurance Group Inc. Can. 1,039,200 20,017,177
Skandia Foersaekrings AB, free Swe. 300,000 11,052,938
Zuerich Versicherung, new Swtz. 112,875 44,902,687
-------------
213,306,818
- ---------------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.6%
Kuoni Reisen Holding AG, B Swtz. 6,395 21,893,187
- ---------------------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 0.8%
Hitachi Koki Co. Ltd. Jpn. 612,000 4,373,336
Hitachi Koki Co. Ltd., ADR Jpn. 50 3,573
VA Technologie AG Aust. 107,550 19,681,909
VA Technologie AG, 144A Aust. 28,000 5,124,067
-------------
29,182,885
- ---------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 1.5%
Dairy Farm International Holdings Ltd. H.K. 5,531,430 4,148,572
House of Fraser PLC U.K. 1,750,000 4,604,573
Kwik Save Group PLC U.K. 2,665,910 13,518,453
Storehouse PLC U.K. 9,558,000 30,003,547
-------------
52,275,145
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
METALS & MINING: 2.3%
Boehler Uddeholm AG Aust. 20,450 1,585,840
Boehler Uddeholm AG, 144A Aust. 60,000 4,652,832
Elkem AS Nor. 820,100 16,056,916
Pechiney SA, A Fr. 416,085 16,390,777
RGC Ltd. Aus. 3,880,170 14,209,106
* Union Miniere NPV Bel. 248,670 23,284,743
Vale do Rio Doce, ADR Braz. 335,000 7,409,177
-------------
83,589,391
- ---------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES: 0.0%
Golden Hope Plantations BHD, fgn. Mal. 1,008,000 1,733,249
- ---------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 3.5%
Alfa SA de CV, A Mex. 450,000 3,071,015
Cie Generale d'Industrie et de Participation CGIP Fr. 25,000 7,104,327
Hicom Holdings Bhd Mal. 4,684,050 9,075,182
Hutchison Whampoa Ltd. H.K. 3,149,500 27,237,425
Jardine Matheson Holdings Ltd. H.K. 3,142,341 22,310,621
Jardine Strategic Holdings Ltd. H.K. 4,815,130 18,201,191
* Jardine Strategic Holdings Ltd., wts. H.K. 345,687 136,546
Marine Wendel Fr. 29,105 2,971,566
PT Bimantara Citra, fgn. Indo. 4,280,000 7,479,441
Swire Pacific Ltd., A H.K. 3,195,000 28,765,021
-------------
126,352,335
- ---------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 2.0%
Bail Investissement Fr. 92,800 12,490,820
Hang Lung Development Co. Ltd. H.K. 4,684,050 8,585,379
New World Development Co. Ltd. H.K. 3,269,718 19,498,537
Taylor Woodrow PLC U.K. 11,078,810 32,655,821
-------------
73,230,557
- ---------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 6.6%
British Telecommunications PLC U.K. 965,000 7,167,313
Compania De Telecomunicaciones De Chile S.A.,Spons.
ADR Chil. 315,010 10,395,330
Hong Kong Telecommunications Ltd. H.K. 255,500 610,116
Jasmine International Public Co. Ltd., fgn. Thai. 3,141,000 2,788,767
Koninklijke PTT Nederland Neth. 200,000 7,845,535
Nokia AB, A Fin. 580,000 43,784,122
* SPT Telecom AS Csk. 138,000 14,468,977
STET (Sta Finanziaria Telefonica Torino) SpA Itl. 36,950 215,277
STET (Sta Finanziaria Telefonica Torino) SpA, di
Risp Itl. 15,254,000 52,833,379
Tele Danmark AS, B Den. 85,000 4,416,482
Telecom Argentina Stet France SA, ADR Arg. 557,700 29,279,250
Telefonica de Argentina SA, B, ADR Arg. 122,200 4,231,175
Telefonica de Espana SA Sp. 1,872,944 54,148,257
* Videsh Sanchar Nigam Ltd., GDR, 144A Ind. 127,600 2,657,270
-------------
234,841,250
- ---------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL: 0.2%
Courtaulds Textiles PLC U.K. 1,500,000 7,656,246
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 1.7%
Brambles Industries Ltd. Aus. 569,000 11,252,230
Cathay Pacific Airways Ltd. H.K. 8,911,050 18,460,929
Qantas Airways Ltd., ADR, 144A Aus. 827,500 18,809,075
Unitor AS Nor. 818,735 11,729,408
-------------
60,251,642
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

SHORT TERM OBLIGATIONS: 15.7% (cost $559,837,103)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.68% to 5.125% with maturities
to 9/25/97 563,284,000 559,834,326
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 101.2% (cost $2,837,783,247) 3,617,791,347
OTHER ASSETS, LESS LIABILITIES: (1.2%) (44,512,924)
-------------
TOTAL NET ASSETS: 100.0% $3,573,278,423
=============
</TABLE>

* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
+ THE INVESTMENT COMPANY ACT OF 1940 DEFINES "AFFILIATED COMPANIES" AS
INVESTMENTS IN PORTFOLIO COMPANIES IN WHICH THE FUND OWNS 5% OR MORE OF THE
OUTSTANDING VOTING SECURITIES. INVESTMENTS IN AFFILIATED COMPANIES AT JUNE
30, 1997 WERE $6,515,428.

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $2,837,783,247) $3,617,791,347
Receivables:
Investment securities sold 159,341
Capital shares sold 15,765,733
Dividends and interest 15,788,805
-------------
Total assets 3,649,505,226
-------------
Liabilities:
Payables:
Investment securities purchased 38,840,918
Capital shares redeemed 33,952,096
Accrued expenses 3,433,789
-------------
Total liabilities 76,226,803
-------------
Net assets, at value $3,573,278,423
=============
Net assets consist of:
Undistributed net investment income $ 51,477,613
Net unrealized appreciation 780,008,100
Accumulated net realized gain 32,205,788
Net capital paid in on shares of capital stock 2,709,586,922
-------------
Net assets, at value $3,573,278,423
=============
Shares outstanding 194,000,996
=============
Net asset value per share ($3,573,278,423 / 194,000,996 shares outstanding) $ 18.42
=============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1997 (unaudited)

<TABLE>
<S> <C> <C>
Investment income:
(net of $6,657,633 foreign taxes withheld)
Dividends $ 14,320,495
Interest 56,159,296
------------
Total income $ 70,479,791
Expenses:
Management fees (Note 4) 11,099,924
Administrative fees (Note 4) 1,362,125
Transfer agent fees 4,200
Custodian fees 937,700
Reports to shareholders 22,700
Audit fees 27,000
Registration and filing fees 67,800
Directors' fees and expenses 32,500
Other 24,972
------------
Total expenses 13,578,921
------------
Net investment income 56,900,870
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 49,162,638
Foreign currency transactions (2,525,186)
------------
46,637,452
Net unrealized appreciation on investments 294,197,694
------------
Net realized and unrealized gain 340,835,146
------------
Net increase in net assets resulting from operations $397,736,016
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------- ------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 56,900,870 $ 75,619,375
Net realized gain on investments and foreign currency transactions 46,637,452 19,801,000
Net unrealized appreciation 294,197,694 367,862,740
-------------- --------------
Net increase in net assets resulting from operations 397,736,016 463,283,115
Distributions to shareholders:
From net investment income (2,754,226) (76,624,372)
Amount in excess of net investment income -- (2,669,031)
From net realized gain (919,340) (21,922,688)
Amount in excess of net realized gain -- (13,512,324)
Capital share transactions (Note 3) 321,625,240 691,152,726
-------------- --------------
Net increase in net assets 715,687,690 1,039,707,426
Net assets:
Beginning of period 2,857,590,733 1,817,883,307
-------------- --------------
End of period $3,573,278,423 $2,857,590,733
============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Foreign Equity 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 long-term
capital growth through a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United States. The
following summarizes the Fund's significant accounting policies.

A. 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 differences 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. 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.

E. ACCOUNTING ESTIMATES:

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

2. MERGER OF TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY (SOUTH AFRICA
FREE) SERIES

On January 29, 1996, the Fund acquired all of the net assets of the Company's
Foreign Equity (South Africa Free) Series pursuant to a plan of reorganization
approved by Foreign Equity (South Africa Free) Series shareholders. The merger
was accomplished by a tax free exchange of 1,243,044 shares of the Fund (valued
at $17,800,619) for the net assets of the Foreign Equity (South Africa Free)
Series which aggregated $17,800,619 including $1,537,866 of unrealized
appreciation. The merger was accounted for as a pooling-of-interest without
restatement for financial reporting purposes. The combined net assets of the
Fund immediately after the merger were $1,911,308,133.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------

3. CAPITAL STOCK

At June 30, 1997, there were 700 million shares authorized ($0.01 par value) of
which 355 million shares have been classified as Fund shares. Transactions in
the Fund's shares were 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 29,948,164 $ 507,403,059 57,725,609 $ 882,382,585
Shares issued on reinvestment of
distributions 300,722 4,967,116 6,311,870 97,071,255
Shares issued on merger 1,243,044 17,800,619
Shares redeemed (11,088,733) (190,744,935) (19,936,059) (306,101,733)
---------- ------------ ---------- ------------
Net increase 19,160,153 $ 321,625,240 45,344,464 $ 691,152,726
========== ============ ========== ============
</TABLE>

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Fund are also officers or directors 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, 0.135% of the next $500
million, 0.10% of the next $500 million and 0.075% 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.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997, aggregated $389,750,251 and $220,214,988,
respectively.

6. INCOME TAXES

At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $2,840,518,746, was as follows:

<TABLE>
<S> <C>
Unrealized appreciation $ 879,967,635
Unrealized depreciation (102,695,034)
------------
Net unrealized appreciation $ 777,272,601
============
</TABLE>

<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
[LOGO] Fund Information: 1-800-362-6243

ZT454 S 6/97

<PAGE>

* NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
+ BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
CHEMICALS: 3.9%
Akzo Nobel NV Neth. 123,064 16,864,953
Bayer AG Ger. 846,230 32,608,897
Courtaulds PLC U.K. 276,300 1,555,220
European Vinyls Corp. EVC International NV Neth. 142,762 3,614,688
Imperial Chemical Industries PLC U.K. 387,000 5,384,578
Rhone-Poulenc SA, A Fr. 1,489,612 60,834,632
Solvay SA Bel. 29,517 17,387,063
Solvay SA, ADR Bel. 1,615 95,132
-------------
138,345,163
- ---------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & HOUSING: 0.7%
Daito Trust Construction Co. Ltd. Jpn. 1,084,400 12,773,231
Fletcher Challenge Building Ltd. N.Z. 1,403,250 4,222,494
Kyudenko Corp. Jpn. 909,000 7,661,583
-------------
24,657,308
- ---------------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 0.6%
* Newbridge Networks Corp. Can. 475,800 20,397,089
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 4.3%
ABB AG, br. Swtz. 19,679 29,777,877
Alcatel Alsthom SA Fr. 200,654 25,129,978
Hitachi Ltd. Jpn. 4,055,000 45,287,497
Philips Electronics NV Neth. 735,000 52,647,104
-------------
152,842,456
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 0.5%
BICC U.K. 5,991,099 17,609,435
- ---------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 3.8%
Fletcher Challenge Energy Ltd. N.Z. 1,405,000 4,246,847
MOL Magyar Olay-Es Gazipari RT, GDS 144A Hun. 1,339,742 29,809,259
Repsol SA Sp. 715,500 30,251,544
Saga Petroleum AS, A Nor. 1,128,500 21,402,268
Societe Elf Aquitane SA Fr. 442,308 47,717,813
YPF Sociedad Anonima, ADR Arg. 46,000 1,414,500
-------------
134,842,231
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 2.2%
Axa-UAP SA Fr. 580,354 36,094,983
Chile Fund Inc. Chil. 342,600 8,950,425
* India Fund, B Ind. 3,755,265 6,972,840
* Industrial Credit & Inv. Corp. of India (ICICI),
GDR, 144A Ind. 990,000 14,355,000
* Korea International Trust Kor. 72 2,448,000
London Pacific Group Ltd. U.K. 1,212,080 4,208,541
Thai Fund Inc. Thai. 360,043 5,535,661
Thailand International Fund Ltd. (The), IDR Thai. 95 1,579,375
-------------
80,144,825
- ---------------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 1.3%
Albert Fisher Group PLC U.K. 29,283,920 21,091,601
Hillsdown Holdings PLC U.K. 6,885,010 19,376,954
Northern Foods PLC U.K. 822,811 2,726,763
Tate & Lyle PLC U.K. 114,000 847,658
Vetropack AG Swtz. 11,600 2,033,276
-------------
46,076,252
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 3.4%
* Asia Pacific Resources International, A Indo. 59,000 287,625
* Asia Pulp & Paper Co. Ltd., ADR Indo. 185,100 2,799,637
Assidomaen AB Swe. 200,000 5,688,062
Carter Holt Harvey Ltd. N.Z. 747,700 1,935,007
Cartiere Burgo SPA Itl. 2,218,760 12,330,216
Enso OY, R Fin. 54,000 499,157
Fletcher Challenge Ltd. Forestry Division N.Z. 4,174,398 6,067,892
Fletcher Challenge Paper Ltd. N.Z. 2,732,500 6,626,110
Metsa Serla OY, B Fin. 1,350,500 11,001,136
PT Barito Pacific Timber, fgn. Indo. 3,852,000 3,286,554
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 1,405,998 1,633,201
Sappi Ltd. S.AF. 207,345 1,873,737
Stora Kopparbergs Bergslags AB, B Swe. 1,196,500 19,489,238
Svenska Cellulosa AB, B Swe. 600,000 12,565,445
+ Unipapel SA Sp. 309,693 6,515,428
UPM-Kymmene Corp. Fin. 1,305,000 30,660,055
-------------
123,258,500
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE: 1.8%
Astra AB, A Swe. 1,446,667 26,930,386
Medeva PLC U.K. 1,739,171 7,428,889
Nycomed ASA, A Nor. 790,000 11,641,107
Nycomed ASA, B Nor. 1,404,680 20,027,978
-------------
66,028,360
- ---------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS: 1.3%
BTR PLC U.K. 10,264,000 35,125,514
BTR PLC, A U.K. 1,375,780 4,570,629
Lucas Varity PLC U.K. 2,300,000 7,966,827
-------------
47,662,970
- ---------------------------------------------------------------------------------------------------------------------------------
INSURANCE: 6.0%
Ace Ltd. Bmu. 336,500 24,858,937
Aegon NV Neth. 444,689 31,036,932
GIO Australia Holdings Ltd. Aus. 7,735,003 23,945,208
INA-Istituto Nazionale Delle Assicurazioni SpA Itl. 12,104,000 18,333,351
Ing Groep NV Neth. 849,352 39,159,588
London Insurance Group Inc. Can. 1,039,200 20,017,177
Skandia Foersaekrings AB, free Swe. 300,000 11,052,938
Zuerich Versicherung, new Swtz. 112,875 44,902,687
-------------
213,306,818
- ---------------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.6%
Kuoni Reisen Holding AG, B Swtz. 6,395 21,893,187
- ---------------------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 0.8%
Hitachi Koki Co. Ltd. Jpn. 612,000 4,373,336
Hitachi Koki Co. Ltd., ADR Jpn. 50 3,573
VA Technologie AG Aust. 107,550 19,681,909
VA Technologie AG, 144A Aust. 28,000 5,124,067
-------------
29,182,885
- ---------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 1.5%
Dairy Farm International Holdings Ltd. H.K. 5,531,430 4,148,572
House of Fraser PLC U.K. 1,750,000 4,604,573
Kwik Save Group PLC U.K. 2,665,910 13,518,453
Storehouse PLC U.K. 9,558,000 30,003,547
-------------
52,275,145
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------------
METALS & MINING: 2.3%
Boehler Uddeholm AG Aust. 20,450 1,585,840
Boehler Uddeholm AG, 144A Aust. 60,000 4,652,832
Elkem AS Nor. 820,100 16,056,916
Pechiney SA, A Fr. 416,085 16,390,777
RGC Ltd. Aus. 3,880,170 14,209,106
* Union Miniere NPV Bel. 248,670 23,284,743
Vale do Rio Doce, ADR Braz. 335,000 7,409,177
-------------
83,589,391
- ---------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES: 0.0%
Golden Hope Plantations BHD, fgn. Mal. 1,008,000 1,733,249
- ---------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 3.5%
Alfa SA de CV, A Mex. 450,000 3,071,015
Cie Generale d'Industrie et de Participation CGIP Fr. 25,000 7,104,327
Hicom Holdings Bhd Mal. 4,684,050 9,075,182
Hutchison Whampoa Ltd. H.K. 3,149,500 27,237,425
Jardine Matheson Holdings Ltd. H.K. 3,142,341 22,310,621
Jardine Strategic Holdings Ltd. H.K. 4,815,130 18,201,191
* Jardine Strategic Holdings Ltd., wts. H.K. 345,687 136,546
Marine Wendel Fr. 29,105 2,971,566
PT Bimantara Citra, fgn. Indo. 4,280,000 7,479,441
Swire Pacific Ltd., A H.K. 3,195,000 28,765,021
-------------
126,352,335
- ---------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 2.0%
Bail Investissement Fr. 92,800 12,490,820
Hang Lung Development Co. Ltd. H.K. 4,684,050 8,585,379
New World Development Co. Ltd. H.K. 3,269,718 19,498,537
Taylor Woodrow PLC U.K. 11,078,810 32,655,821
-------------
73,230,557
- ---------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 6.6%
British Telecommunications PLC U.K. 965,000 7,167,313
Compania De Telecomunicaciones De Chile S.A.,Spons.
ADR Chil. 315,010 10,395,330
Hong Kong Telecommunications Ltd. H.K. 255,500 610,116
Jasmine International Public Co. Ltd., fgn. Thai. 3,141,000 2,788,767
Koninklijke PTT Nederland Neth. 200,000 7,845,535
Nokia AB, A Fin. 580,000 43,784,122
* SPT Telecom AS Csk. 138,000 14,468,977
STET (Sta Finanziaria Telefonica Torino) SpA Itl. 36,950 215,277
STET (Sta Finanziaria Telefonica Torino) SpA, di
Risp Itl. 15,254,000 52,833,379
Tele Danmark AS, B Den. 85,000 4,416,482
Telecom Argentina Stet France SA, ADR Arg. 557,700 29,279,250
Telefonica de Argentina SA, B, ADR Arg. 122,200 4,231,175
Telefonica de Espana SA Sp. 1,872,944 54,148,257
* Videsh Sanchar Nigam Ltd., GDR, 144A Ind. 127,600 2,657,270
-------------
234,841,250
- ---------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL: 0.2%
Courtaulds Textiles PLC U.K. 1,500,000 7,656,246
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 1.7%
Brambles Industries Ltd. Aus. 569,000 11,252,230
Cathay Pacific Airways Ltd. H.K. 8,911,050 18,460,929
Qantas Airways Ltd., ADR, 144A Aus. 827,500 18,809,075
Unitor AS Nor. 818,735 11,729,408
-------------
60,251,642
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Investment Portfolio, June 30, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

C. INCOME TAXES:

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

E. ACCOUNTING ESTIMATES:

2. MERGER OF TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY (SOUTH AFRICA
FREE) SERIES

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------

3. CAPITAL STOCK

At June 30, 1997, there were 700 million shares authorized ($0.01 par value) of
which 355 million shares have been classified as Fund shares. Transactions in
the Fund's shares were as follows:

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997, aggregated $389,750,251 and $220,214,988,
respectively.

6. INCOME TAXES

At June 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $2,840,518,746, was as follows:

<TABLE>
<S> <C>
Unrealized appreciation $ 879,967,635
Unrealized depreciation (102,695,034)
------------
Net unrealized appreciation $ 777,272,601
============
</TABLE>

Principal Underwriter:

FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628

Institutional Services: 1-800-321-8563
[LOGO] Fund Information: 1-800-362-6243

ZT454 S 6/97

<PAGE>