TEMPELTON INSTITUTIONAL FUNDS,INC.
EMERGING FIXED INCOME MARKETS SERIES
FOR THE SIX MONTHS ENDED
June 30, 1997
--------------------------------------------------
Principal Underwriter:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be preceded or accompanied by the
prospectus of the Templeton Institutional Funds,
Inc. Like any investment in securities, the value
of The Fund's portfolio will be subject to the risk
of loss from market, currency, economic, political
and other factors, as well as investment decisions
by the investment manager which will not always be
profitable or wise. The Fund and its investors are
not protected from such losses by the investment
manager. Therefore, investors who cannot accept
this risk should not invest in shares of the Fund.
--------------------------------------------------
<PAGE>
June 30, 1997
Dear Shareholder....
It's a pleasure to bring you the Templeton Institutional Funds, Inc. (TIFI)
Emerging Fixed Income Markets Series semi-annual report for the period ended
June 30, 1997.
The Fund's objective is high total return, consisting of current income and
capital appreciation, by investing primarily in a portfolio of debt obligations
of companies, governments and government-related entities in emerging market
countries. In selecting investments for the Fund, which is a non-diversified
portfolio, the Investment Manager draws on its experience in global investing
is seeking to identify those markets and issuers around the world which are
anticipated to provide the opportunity for high current income and capital
appreciation.
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.
If you have any questions regarding the Fund, we welcome the opportunity to
answer them. We appreciat your support and look forward to serving your
investment needs in the years ahead.
Sincerely,
/s/NEIL S. DEVLIN
Neil S. Devlin, CFA
Chief Investment Officer & Executive Vice President
Templeton Global Bond Managers
/s/ RONALD A. JOHNSON
Ronald A. Johnson, Ph.D.
Vice President
Templeton Global Bond Managers
/s/UMRAN DEMIORORS
Umran Demirors, Ph.D.
Vice President
Templeton Global Bond Managers
<PAGE>
<TABLE>
<CAPTION>
5 Largest Positions on 6/30/97* % of Total Net Assets
<S> <C>
United Mexican States, A, 6.25%, 12/31/19 23.2%
Republic of Venezuela, A, 6.75%, 3/31/20 9.8%
Republic of Venezuela, 9.125%, 6/18/07 7.5%
Republic of Argentina , 8.75%, 5/9/02 5.0%
Government of Brazil, 10.125%, 5/15/27 4.8%
</TABLE>
* The Fund is actively managed and therefore the information presented in this
report is subject to change at any time.
ZT453 SA 6/97
<PAGE>
(boxed info)
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.
Investing in developing markets involves special considerations, which may
include risks related to market and currency volatility, adverse social and
political developments, and the relatively small size and lesser liquidity of
these markets. These special risk considerations are discussed in the Fund's
prospectus. The Fund is designed for the aggressive portion of well-
diversified portfolio.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
Financial Highlights
- -------------------------------------------------------------------------------
Per share operating performance
(For a share outstanding throughout the period)
June 4, 1997
(commencement of
operations) to
June 30, 1997
(unaudited)
------------------
Net asset value, beginning of period $10.00
------------------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized loss (0.03)
------------------
Total from investment operations 0.01
------------------
Change in net asset value 0.01
------------------
Net asset value, end of period $10.01
==================
Total Return * 0.10%
Ratios/supplemental data
Net assets, end of period (000) $2,002
Ratio of expenses to average net assets 7.96%**
Ratio of expenses, net of fee waiver,
to average net assets 1.25%**
Ratio of net investment income to average
net assets 6.00%**
Portfolio turnover rate 95.77%
* Not annualized in periods of less than one year.
** Annualized.
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKET SERIES
- ------------------------------------------------------------------------------
Investment Portfolio, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Country Issue Amount Value
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
BOND-GOVERNMENT & GOVERNMENT AGENCIES: 59.0%
- -----------------------------------------------------------------------------------------------
Argentina
Republic of Argentina, 8.75%, 5/9/02 100,000 $ 100,050
- -----------------------------------------------------------------------------------------------
Brazil
Government of Brazil, 10.125%, 5/15/27 100,000 96,375
- -----------------------------------------------------------------------------------------------
Mexico
United Mexican States, A, 6.25%, 12/31/19 600,000 464,250
- -----------------------------------------------------------------------------------------------
Peru
Republic of Peru, 3.25%, 3/7/17, FRN 150,000 90,000
- -----------------------------------------------------------------------------------------------
Russia
Russia Federation, 12/29/49 125,000 83,438
- -----------------------------------------------------------------------------------------------
Venezuela
Republic of Venezuela, 9.125%, 6/18/07, 144A 150,000 150,563
Republic of Venezuela, A, 6.75%, 3/31/20 250,000 196,874
- -----------------------------------------------------------------------------------------------
347,437
--------------------
Total Long Term Investments (Cost $1,189,457) 1,181,550
- -----------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 7.8% (cost $156,763)
- -----------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.45%, 7/11/97 157,000 156,739
- -----------------------------------------------------------------------------------------------
Total Investments: 66.8% (cost $1,346,220) 1,338,289
Other Assets, less liabilities: 33.2% 663,635
====================
Total Net Assets: 100.0% $ 2,001,924
====================
</TABLE>
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
Financial Statements
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
Assets:
Investments in securities, at value
(identified cost $1,346,220) $1,338,289
Cash 281
Receivables:
Investment securities sold 807,023
Dividends and interest 17,685
From affiliates 9,609
------------------
Total assets 2,172,887
------------------
Liabilities:
Payables for investment securities purchased 159,563
Accrued expenses 11,400
------------------
Total liabilities 170,963
------------------
Net assets, at value $2,001,924
==================
Net assets consist of:
Undistributed net investment income 8,593
Net unrealized depreciation ($7,931)
Undistributed net realized gain 1,262
Net capital paid in on shares of
capital stock 2,000,000
------------------
Net assets, at value $2,001,924
==================
Shares outstanding 200,000
==================
Net asset value per share
($2,001,924 / 200,000 shares outstanding) $10.01
==================
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
Financial Statements (cont.)
- -------------------------------------------------------------------------------
Statement of Operations
for the period June 4, 1997 through June 30, 1997(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends $1,030
Interest 9,354
--------
Total income $10,384
Expenses:
Management fees (Note 3) 1,002
Administrative fees (Note 3) 123
Custodian fees 125
Reports to shareholders 50
Audit fees 2,000
Registration and filing fees 7,850
Directors' fees and expenses 50
Legal fees (Note 3) 100
Transfer agent 50
Other 50
-------
Total expenses 11,400
Less expenses waived (Note 3) (9,609)
---------
Total expenses less fees waived 1,791
----------
Net investment income 8,593
Realized and unrealized gain (loss):
Net realized gain on investment 1,262
Net unrealized depreciation on investments (7,931)
---------
Net realized and unrealized loss (6,669)
-----------
Net increase in net assets resulting from operations $1,924
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
Financial Statements (cont.)
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
Period from
June 4, 1997
(commencement
of operations to
June 30, 1997
(unaudited)
------------------------
Increase (decrease) in net assets:
Operations:
Net investment income $8,593
Net realized gain on investments 1,262
Net unrealized depreciation (7,931)
-------------------------
Net increase in net assets
resulting from operations 1,924
Capital share transactions (Note 2) 2,000,000
-------------------------
Net increase in net assets 2,001,924
Net assets:
Beginning of period -
-------------------------
End of period $2,001,924
=========================
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Emerging Fixed Income Markets Series (the Fund) is a separate, non-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 high total return, by investing primarily in a portfolio of debt
obligations of companies, governments and government related entities in
emerging market countries. 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 rate of exchange 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. UNAMORTIZED ORGANIZATION COSTS
Organization costs are amortized on a straight line basis over five years.
<PAGE>
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.
2. CAPITAL STOCK
At June 30, 1997, there were 700 million shares authorized ($0.01 par value) of
which 70 million shares have been classified as Fund shares. Transactions in the
Fund's shares were as follows:
FOR THE PERIOD
JUNE 4, 1997 THROUGH
JUNE 30, 1997
SHARES AMOUNT
------------------ ----------------
Shares sold 200,000 $2,000,000
=================== ==============
Net increase 200,000 $2,000,000
=================== ==============
Templeton Global Investors, Inc., a subsidairy of Frankin Resources, is the
record owner of 100% of the outstanding Fund shares as of June 30, 1997.
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, 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 has agreed in advance to limit total expenses of the Fund to an
annual rate of 1.25% of average net assets through May 1, 1998.
During the period ended June 30, 1997, legal fees of $100 were paid to a law
firm in which an officer of the Company is a partner.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997, aggregated $2,319,166 and $1,131,586, respectively.
5. INCOME TAXES
The cost of securities for federal income tax purposes is the same as that
shown in the investment portfolio. At June 30, 1997, the net unrealized
appreciation and depreciation based on the cost of investments for income tax
purposes was as follows:
Unrealized appreciation $ 2,863
Unrealized depreciation (10,794)
====================
Net unrealized depreciation ($ 7,931)
====================
