TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
SEMIANNUAL REPORT
JUNE 30, 1998
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.
- -------------------------------------------------------------------------------
INVESTING IN DEVELOPING MARKETS INVOLVES SPECIAL CONSIDERATIONS, WHICH MAY
INCLUDE RISKS RELATED TO MARKET AND CURRENCY VOLATILITY, ADVERSE SOCIAL,
ECONOMIC, 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 A
WELL-DIVERSIFIED PORTFOLIO.
PAGE
June 30, 1998
(PICTURE OF UMRAN DEMIRORS APPEARS HERE)
Umran Demirors joined Templeton in 1996. He co-directs the fixed income research
process and the global emerging markets fixed income investment process. Dr.
Demirors is a member of the Investment Management Team for the Franklin
Templeton High Income Fund. He serves as a member of the Policy and Allocation
Committee of Templeton Global Bond Managers.
Dr. Demirors has extensive experience in analyzing international financial
markets, and developed and emerging economies. Prior to joining the Templeton
organization, Dr. Demirors was a principal and portfolio manager for Socimer
Advisory, Inc. in New York. Prior to that, Dr. Demirors was the head of research
and strategy at VestcorPartners Group in Miami, where he directed the firm's
overall investment research and strategy in both fixed income and equity markets
in Latin America. Dr. Demirors has also worked as a senior economic and
financial consultant with IMCA Group, as an economist in the International
Finance Department at the Federal Reserve Bank of New York, and as an economic
consultant for Project LINK at the United Nations.
Dr. Demirors has published research on international finance, macroeconomic
stabilization, macroeconometric models, and pricing models for global emerging
fixed income and derivative instruments.
Dr. Demirors holds a Ph.D. and master of arts degree in economics from New York
University, and a bachelor of arts degree in economics form Bursa Academy of
Economics and Business Administration in Turkey.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page ____ of
this report.
PAGE
Dear Shareholder:
The Templeton Institutional Funds, Inc. Emerging Fixed Income Markets Series
(the "Fund") reported a cumulative total return of -0.3% for the year-to-date
period ended June 30, 1998, compared to the unmanaged JP Morgan Emerging Markets
Bond Index plus ("EMBI+") year-to-date cumulative total return of -1.1%. Please
remember that the Fund's performance differs from that of the index because,
among other things, the index does not contain cash (the Fund generally carries
a certain percentage of cash at any given time), is not managed according to any
investment strategy, and includes no management or operating expenses. Of
course, one cannot invest directly in an index nor is an index representative of
the Fund's portfolio.
TOTAL RETURNS AS OF 6/30/98
<TABLE>
<CAPTION>
One-Year Cumulative
Average Since Inception
Annual 1,2 (06/04/97) 1,3
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TIFI Emerging Fixed Income Markets Series 11.9% 12.1%
JP Morgan EMBI+ 4 0.9% 2.9%
</TABLE>
1. The Fund's 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 an annual rate of 1.25% of average net assets through December
31, 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 December 31, 1998, these agreements may end at any time upon
notice to the Board. Past expense waivers by the Fund's Investment Manager and
Fund Administrator increased the Fund's total returns. If they had not taken
this action, the Fund's total returns would have been lower.
2. Average annual total return represents the average annual change in value of
an investment over the indicated period.
3. Cumulative total return represents the change in value of an investment over
the indicated period.
4. The index is unmanaged, does not contain cash, and does not include
management or operating expenses. The index includes reinvested dividends. One
cannot invest directly in an index.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, 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 their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
During the period under review, bond prices fell in most of the emerging market
countries that comprise the JP Morgan EMBI+. Within this index, Nigeria was the
best performer with a total return of 10.2% during the period, benefiting from
political reform and a favorable global interest rate environment. /1/ Other
countries that performed well during the period were the Philippines, with a
total return of 7.6%; Poland, with a total return of 6.5%; and Argentina, with a
total return of 4.1%./2/ The Philippines had more stable fundamentals than those
of its neighboring countries, and enjoyed a smooth presidential transition.
Exceptions to this positive performance were Russia, Venezuela, and Ecuador,
which fell 17.5%, 5.3%, and 4.2%, respectively during the period. /2/ All three
countries suffered from the recent decline in oil prices. Russia's poor
performance also reflected investors' concerns about the country's financing
needs and the risk of devaluation of the ruble.
The overall performance of emerging market debt was relatively good during the
first quarter of 1998. However, as market concerns about the Japanese economy
surfaced during the second quarter, emerging market debt instruments began to
sell off while U.S. Treasury bonds rallied. We believe a prolonged recession in
Japan could hurt the rest of the economies in Asia which could reduce regional
demand for commodities. This, in turn, could suppress exports of emerging market
countries worldwide. During the second quarter, market volatility was heightened
by continued uncertainty regarding the implementation of an economic stimulus
package by the Japanese government and G3 (United States, United Kingdom, and
Canada) support for the Japanese yen.
The Fund had no exposure to Southeast Asia as of December 31, 1997. The Fund
purchased bonds issued by the Republic of Korea during the period at what we
believe to be an attractive yield, only after Korea had received International
Monetary Fund (IMF) funding and had implemented economic reform measures. The
current allocation to Southeast Asia is limited to South Korea and represents
4.1% of the Fund's total net assets at the end of the reporting period. The
Fund's exposure to oil-dependent countries was reduced during the period and
exposure to Russia was kept relatively low at 3.7%. Venezuela's allocation was
reduced from 25.0% to 6.9% of the Fund's total net assets as of June 30, 1998.
Allocations to countries with improving fundamentals such as Mexico and Brazil
were kept high. Mexico's allocation was increased from 12.1% of the Fund's total
net assets as of December 31, 1997 to 17.2% at the end of the period, and Brazil
was added to the Fund with an allocation of 15.5% of the Fund's total net
assets, in anticipation of the government's implementation of its economic
stabilization package. During the reporting period, the Fund had no exchange
rate exposure since all of its assets were invested in U.S. dollar-denominated
debt. Given recent market volatility, the focus has been on more liquid
sovereign bonds and short-duration U.S. Treasury bonds. At the close of the
period, Sovereign Eurobonds and Brady Bonds represented 60.2% and 15.9% of the
Fund's total net assets, respectively. The Fund's holding of U.S. Treasury
securities was 13.4% of total net assets as of June 30, 1998. There were no
holdings of corporate bonds. At the close of the period, the Fund's short-term
investments and other net assets were equivalent to 12.4% of total net assets.
Looking forward, we intend to continue to focus on bonds from countries that we
believe are experiencing strong economic growth, such as Mexico, and on those
countries that we believe show strong repayment capacities, notwithstanding
temporary problems. We are aware that the current volatility could affect
countries that face problems of currency overvaluation, but we believe that
these countries may possess long-term potential. Therefore, we will attempt to
position ourselves to take advantage of sovereign bonds with deep discounts
during a period when the market's pricing of sovereign risk spreads overshoots
their fair-value ranges.
Of course, investments in foreign securities involve special risks, such as
market and currency volatility and adverse economic, social and political
developments in the countries where the Fund is invested. Emerging markets
involve heightened risks related to the same factors, in addition to risks
associated with their relatively small size and lesser liquidity. While
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. For example, the Hong Kong equity market
has increased 785% in the last 15 years, but has suffered six quarterly declines
of more than 20% during that time./3/ In addition, the Fund may also invest in
lower-rated "junk bonds," which entail greater credit risks than higher-rated
bonds. These special risks and other considerations are discussed in the Fund's
prospectus.
This discussion reflects our views, opinions, and portfolio holdings as of June
30, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and the Fund's portfolio composition. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.
We appreciate your support, welcome your comments and look forward to serving
you in the future.
Best regards,
/s/DONALD F. REED
Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.
/s/UMRAN DEMIRORS
Umran Demirors, Ph.D.
Vice President
Templeton Global Bond Managers
1 Source: Bloomberg. Market returns are measured in U.S. dollars and include
reinvested dividends.
2 Source: Bloomberg. Market returns are measured in U.S. dollars and include
reinvested dividends.
3 Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1998. Market returns are measured in Hong Kong dollars.
PAGE
INSERT THE FOLLOWING CHARTS ON PAGES 2 AND 3 AS INDICATED
Page 2, left side callout
GEOGRAPHIC DISTRIBUTION ON 6/30/98
(FIXED INCOME ASSETS AS A PERCENTAGE OF TOTAL NET ASSETS)
[This chart shows in pie format the geographic distribution of Templeton
Institutional Funds, Inc. - Emerging Fixed Income Markets Series, based on total
net assets as of June 30, 1998.]
[PIE CHART APPEARS HERE]
Asia 8.4%
Europe 6.9%
Latin America 58.9%
North America 13.4%
FUND ASSET ALLOCATION ON 6/30/98
[This chart shows in pie format the portfolio breakdown of Templeton
Institutional Funds, Inc. - Emerging Fixed Income Markets Series, based on total
net assets as of June 30, 1998.]
[PIE CHART APPEARS HERE]
Short-Term Investments and Other Net Assets 12.4%
Fixed Income 87.6%
Page 3, right side callout
Insert shaded box-
[This chart shows the 10 largest positions of Templeton Institutional Funds,
Inc. - Emerging Fixed Income Markets Series, based on total net assets as of
June 30, 1998.]
10 LARGEST POSITIONS ON 6/30/98
(Percent of Total Net Assets)
United Mexican States, 8.625%, 3/12/08 17.2%
U.S. Treasury Note, 5.50%, 5/31/00 13.4%
Republic of Argentina, 9.75%, 9/19/27 10.3%
Republic of Brazil, 8.00%, 4/15/14 7.7%
Republic of Venezuela, 9.25%, 9/15/27 6.9%
Republic of Ecuador, FRN, 6.625%, 2/28/25 4.7%
Republic of Turkey, 144A, 10.00%, 9/19/07 4.3%
Republic of Argentina, 8.75%, 5/09/02 4.2%
Republic of Korea, 8.875%, 4/15/08 4.1%
Republic of Brazil, 9.375%, 4/07/08 4.0%
PAGE
INSERT GRAPH:
TOTAL RETURN INDEX COMPARISON /1/
$5,000,000 INVESTMENT: 06/04/97-06/30/98
TIFI Emerging Fixed Income Markets Series
JP Morgan EMBI+4
Date TIFI JP Morgan EMBI+
6/4/1997 $5,000,000 $5,000,000
6/30/1997 $5,005,000 $5,089,025
7/31/1997 $5,250,000 $5,300,164
8/29/1997 $5,165,000 $5,278,724
9/30/1997 $5,360,000 $5,440,021
10/31/1997 $5,260,000 $4,813,331
11/28/1997 $5,460,000 $5,041,868
12/31/1997 $5,620,979 $5,215,641
1/30/1998 $5,647,823 $5,205,069
2/27/1998 $5,739,089 $5,354,053
3/31/1998 $5,823,984 $5,487,337
4/30/1998 $5,834,931 $5,500,649
5/29/1998 $5,703,563 $5,312,912
6/30/1998 $5,605,261 $5,159,528
Periods ended 6/30/98
<TABLE>
<CAPTION>
Since
Inception
One-Year (06/04/97)
- -------------------------------------------------------------------------------
<S> <C> <C>
Average Annual Total Return /1,2/ 11.9% 11.3%
Cumulative Total Return /1,3/ 11.9% 12.1%
</TABLE>
1. The Fund's 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 an annual rate of 1.25% of average net assets through December
31, 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 December 31, 1998, these agreements may end at any time upon
notice to the Board. Past expense waivers by the Fund's Investment Manager and
Fund Administrator increased the Fund's total returns. If they had not taken
this action, the Fund's total returns would have been lower.
2. Average annual total return represents the average annual change in value of
an investment over the indicated period.
3. Cumulative total return represents the change in value of an investment over
the indicated period.
4. Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, 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 their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
FOR THE MOST CURRENT PORTFOLIO INFORMATION, PLEASE CALL 1-800-362-6243.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six months Year Ended
Ended December 31,
June 30, 1998 --------------
(unaudited) 1997+
------------------ --------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period $10.47 $10.00
----------------------------------
Income from investment operations:
Net investment income .39 .44
Net realized and unrealized gains (lossed) (.41) .79
----------------------------------
Total from investment operations (.02) 1.23
----------------------------------
Less distributions from:
Net investment income (.02) (.44)
Net realized gains (.19) (.32)
----------------------------------
Total distributions (.21) (.76)
----------------------------------
Net asset value, end of period $10.24 $10.47
==================================
Total Return * (.28)% 12.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $2,243 $2,249
Ratio to average net assets:
Expenses 1.25%** 1.25%**
Expenses, excluding waiver and payments by affiliate 3.76%** 6.40%**
Net investment income 7.52%** 7.26%**
Portfolio turnover rate 238.97% 172.62%
* Total return is not annualized.
** Annualized.
+ For the period June 4, 1997 (commencemnt of operations) to December 31, 1997.
</TABLE>
See Notes to Financial Statements.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 87.6%
ARGENTINA 14.6%
Republic of Argentina:
8.75%, 5/09/02 $ 100,000 $ 95,300
9.75%, 9/19/27 250,000 231,875
----------
327,175
----------
BRAZIL 15.5%
Republic of Brazil:
9.375%, 4/07/08 100,000 89,188
8.00%, 4/15/14 232,042 172,259
10.125%, 5/15/27 100,000 86,425
----------
347,872
----------
BULGARIA 3.2%
Republic of Bulgaria, FRN, 6.563%, 7/28/11 100,000 271,375
----------
ECUADOR 4.7%
Republic ofEcuador, FRN, 6.625%, 2/28/25 150,000 104,438
----------
MEXICO 17.2%
United Mexican States 8.625%, 3/12/08 400,000 388,500
----------
RUSSIA 3.7%
Minfin of Russia, Reg S, 10.00%, 6/26/07 75,000 55,219
Russia Federation, 6.625%, 12/15/15 49,940 27,136
----------
82,355
SOUTH KOREA 4.1%
Korea Republic of, 8.875%, 4/15/08 100,000 91,938
----------
TURKEY 4.3%
Republic of Turkey, 144A, 10.00%, 9/19/07 100,000 97,000
----------
UNITED STATES 13.4%
U.S. Treasury Note, 5.50%, 5/31/00 300,000 300,094
----------
VENEZUELA 6.9%
Republic of Venezuela 9.25%, 9/15/27 200,000 154,125
----------
TOTAL LONG TERM INVESTMENTS (COST $2,090,002) 1,964,872
----------
SHORT TERM INVESTMENTS 23.2%
Fannie Mae, 5.44%, with maturities to 8/26/98 214,000 212,502
Federal Home Loan Bank, 5.44%,8/19/98 100,000 99,259
Federal Home Loan Mortgage Corp., 5.50%, 8/04/98 104,000 103,765
Nationsbank Corp., 5.875%, 7/01/98, Time Deposit 104,000 104,000
----------
TOTAL SHORT TERM INVESTMENTS (COST $519,158) 519,226
----------
TOTAL INVESTMENTS (COST $2,609,160) 110.8% 2,484,098
OTHER ASSETS, LESS LIABILITIES (10.8%) (241,311)
-----------
TOTAL NET ASSETS 100.0% $2,242,787
==========
</TABLE>
* Securities traded in U.S. dollars.
See Notes to Financial Statements.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
Assets:
Investments in securities, at value (cost $2,609,160) $2,484,098
Cash 962
Receivables:
Interest 47,572
From affiliates 19,566
------------
Total assets 2,552,198
------------
Liabilities:
Payables for investment securities purchased 301,257
Accrued liabilities 8,154
------------
Total liabilities $ 309,411
------------
Net assets, at value $ 2,242,787
===========
Net assets consist of:
Undistributed net investment income $ 83,085
Net unrealized depreciation (125,062)
Accumulated net realized gain 89,741
Capital shares 2,195,023
------------
Net assets, at value $ 2,242,787
============
Net asset value per share
($2,242,787/218,947 shares outstanding) $ 10.24
============
See Notes to Financial Statements.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
FINANCIAL STATEMENTS CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Interest income $ 99,555
----------
Expenses:
Management fees (Note 3) 7,943
Administrative fees (Note 3) 952
Transfer agent fees 50
Custodian fees 300
Reports to shareholders 5,100
Registration and filing fees 17,134
Professional fees (Notes 3) 11,100
Directors' fees and expenses 30
Other 35
-------
Total expenses 42,644
Expenses waived/paid affilite (Note 3) (28,453)
Net expenses 14,191
----------
Net investment income 85,364
----------
Realized and unrealized gain (loss):
Net realized gain from investments 89,993
Net unrealized depreciation on investments (181,875)
-----------
Net realized and unrealized loss (91,882)
------------
Net decrease in net assets resulting from operations $ (6,518)
============
</TABLE>
See Notes to Financial Statements.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-----------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 85,364 $ 87,942
Net realized gain on investments 89,993 104,550
Net unrealized appreciaiton (depreciation)
on investments (181,875) 56,813
-------------------------------------------
Net increase(decrease) in net assets
resulting from operations (6,518) 249,305
Distributin to shareholders from:
Net investment income (3,221) (87,000)
Net realized gains (40,802) (64,000)
Capital share transactions (Note 2) 44,023 2,151,000
------------------------------------------
Net increase (decrease) in net assets (6,518) 2,249,305
Net assets:
Beginning of period 2,249,305 -
------------------------------------------
End of period $2,242,787 $ 2,249,305
==========================================
Undistributed net investment
income included in net assets:
End of period $ 83,085 $ 942
==========================================
</TABLE>
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. When the fund purchases or sells foreign securities it will customarily
enter into a foreign exchange contract to minimize foreign exchange risk from
the trade date to the settlement date of such transactions.
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 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.
PAGE
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. CAPITAL STOCK
At June 30, 1998, 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold - - 200,000 $2,000,000
Shares issued on reivestment of distribution 4,201 $44,023 14,746 151,000
-------------------------------------------------------
Net increase 4,201 $44,023 214,000 $2,151,000
=======================================================
</TABLE>
*Effective date was June 4, 1997
Templeton Global Investors, Inc., a subsidairy of Frankin Resources, is the
record owner of 100% of the outstanding Fund shares as of June 30, 1998.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Company are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT Services)
Franklin Templeton Distributors, Inc. (Distributors), and Franklin Templeton
Investor Services, Inc. (Investor Services), 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 FT Services based on the Company's aggregate average net
assets as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion.
TICI and FT Services 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, 1999, as noted
in the Statement of Operations.
4. INCOME TAXES
The cost of securities for federal income tax purposes is the same as that shown
in the Statement of Investments. At June 30, 1998, the net unrealized
depreciation based on the cost of investments for income tax purposes was as
follows:
Unrealized appreciation $ 739
Unrealized depreciation (125,801)
====================
Net unrealized depreciation $ (125,062)
====================
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING FIXED INCOME MARKETS SERIES
NOTES TO FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchased and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $4,567,302 and $4,121,273 respectively.
PAGE
(BACK COVER)
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. 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.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
INSTITUTIONAL SERVICES: 1-800-321-8563
FUND INFORMATION: 1-800-362-6243
ZT453 S 6/98
