TEMPLETON INSTITUTIONAL FUNDS, INC.
[GRAPHIC IN BACKGROUND]
TIFI
Emerging Markets Series
ANNUAL REPORT
DECEMBER 31, 1998
[TEMPLETON LOGO]
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Mutual funds, annuities, and other investment products:
- are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of
the U.S. government;
- are not deposits or obligations of, or guaranteed by, any
bank;
- are subject to investment risks, including the possible loss
of principal.
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INVESTING IN DEVELOPING MARKETS INVOLVES SPECIAL CONSIDERATIONS, WHICH INCLUDE
RISKS RELATED TO MARKET AND CURRENCY VOLATILITY, ADVERSE SOCIAL, ECONOMIC AND
POLITICAL DEVELOPMENTS, AND THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY.
THESE SPECIAL RISK CONSIDERATIONS ARE DISCUSSED IN THE FUND'S PROSPECTUS. THE
FUND IS DESIGNED FOR THE AGGRESSIVE PORTION OF A WELL-DIVERSIFIED PORTFOLIO.
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December 31, 1998
Dear Shareholder:
The emerging markets have entered a crucial time in their development
in our view; a time when actions by individual governments may have long-lasting
effects on the asset class as a whole. Flushed by the recent strength and
individual markets' apparent return to good standing with investors, local
governments may find it difficult to push through the reforms necessary for
continued growth. Within this challenging environment, the unmanaged
International Finance Corporation ("IFC") Investable Composite Index reported
cumulative total returns of 18.13% for the quarter and -22.03% for the one year
period ended December 31, 1998, compared to 23.62% and -18.03% cumulative total
returns for the Templeton Institutional Funds, Inc.
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TOTAL RETURNS AS OF 12/31/98
<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) (05/03/93)
<S> <C> <C> <C> <C>
TIFI Emerging
Markets Series -18.03% -4.75% -5.44% 0.52%
IFC Investable
Composite Index(4) -22.03% -10.08% -10.14% -3.49%
</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 1.6% of average net assets
through April 30, 1999. If these fee waivers are insufficient to so limit
the Fund's expenses, the Fund Administrator has agreed to make certain
payments to reduce the Fund's expenses. After April 30, 1999, these
agreements may end at any time upon notice to the Board. These voluntary
agreements did not result in any fee waivers or reimbursements for the Fund
for the fiscal year ended December 31, 1998. Past expense waivers or
reimbursements by the Fund's Investment Manager and Fund Administrator
increased the Fund's total returns. Without these waivers or
reimbursements, 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 periods.
(3) Cumulative total return represents the change in value of an investment
over the indicated periods.
(4) The IFC Investable Composite 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 the Fund invests.
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.
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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 13 of
this report.
continued . . .
[PHOTOGRAPH OF MARK MOBIUS APPEARS HERE]
MARK MOBIUS JOINED TEMPLETON IN 1987 AS MANAGING DIRECTOR OF ITS FAR EAST
DIVISION IN HONG KONG, WITH RESPONSIBILITY FOR THE TEMPLETON GROUP'S RESEARCH
EXPERTISE, PRINCIPALLY IN EMERGING MARKETS COUNTRIES. IN THIS CAPACITY, HE
DIRECTS THE ANALYSTS BASED IN HONG KONG AND SINGAPORE AND MANAGES OUR EMERGING
MARKETS PORTFOLIOS. DR. MOBIUS HAS SPENT OVER TWENTY YEARS WORKING IN ASIA, AND
HAS EXTENSIVE EXPERIENCE IN ECONOMIC RESEARCH AND ANALYSIS.
PRIOR TO JOINING TEMPLETON, FROM 1983 TO 1986 HE WAS PRESIDENT OF INTERNATIONAL
INVESTMENT TRUST COMPANY LTD. IN TAIPEI, TAIWAN - THAT COUNTRY'S FIRST AND
LARGEST INVESTMENT MANAGEMENT FIRM. BEFORE THAT, HE SERVED AS A DIRECTOR AT
VICKERS DA COSTA, AN INTERNATIONAL SECURITIES FIRM. INITIALLY, HE STARTED IN
THAT FIRM'S HONG KONG OFFICE IN 1980, AND THEN MOVED TO TAIWAN IN 1983 TO OPEN
THAT FIRM'S OFFICE THERE AND TO DIRECT OPERATIONS IN INDIA, INDONESIA, THAILAND,
THE PHILIPPINES, AND KOREA. BEFORE JOINING VICKERS, DR. MOBIUS OPERATED HIS OWN
CONSULTING FIRM IN HONG KONG FOR TEN YEARS, AND WAS A RESEARCH SCIENTIST FOR
MONSANTO OVERSEAS ENTERPRISES COMPANY IN HONG KONG AND THE AMERICAN INSTITUTE
FOR RESEARCH IN KOREA AND THAILAND.
DR. MOBIUS HOLDS BACHELORS AND MASTERS DEGREES FROM BOSTON UNIVERSITY, AND
RECEIVED HIS PH.D. IN ECONOMICS AND POLITICAL SCIENCE IN 1964 FROM THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY. HE ALSO STUDIED AT THE UNIVERSITY OF
WISCONSIN, UNIVERSITY OF NEW MEXICO, AND KYOTO UNIVERSITY IN JAPAN.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued................................................................
GEOGRAPHIC DISTRIBUTION ON 12/31/98
(Equity Assets as a Percentage of Total Net Assets)
[PIE CHART]
New Zealand 0.2%
Europe 6.4%
Middle-East/Africa 9.5%
Latin America/Caribbean 34.0%
Asia 49.2%
Emerging Markets Series (the "Fund") for the same time period. For the
three-year and five-year periods ended December 31, 1998, the Fund reported
average annual total returns of -4.75% and -5.44% versus the IFC Investable
Composite Index average annual total returns of -10.08% and -10.14%,
respectively.(1)
POLITICS
The past year saw a number of political changes in emerging markets. In
Asia, South Korea saw the instatement of President Kim Dae-jung, the nation's
first peacefully elected president from the opposition, while the vice president
of the Philippines, Joseph Estrada, defeated two other candidates for the
presidency of his country. Not all changes in power were peaceful, however. The
much publicized rioting in Indonesia early in the year resulted in the stepping
down of Mr. Suharto, the nation's leader of 30 years, to be succeeded by his
newly appointed vice president, BJ Habibie who has also recently faced riots and
violence despite a promising beginning in office. Political intrigue was also
the case in Malaysia where Prime Minister Mahathir Mohamad had his apparent
successor, Financial Minister Anwar Ibraham, kicked out of the ruling party and
then jailed on accusations of sexual misconduct and abuse of power. Further
west, the BJP-led coalition government of India continued to weaken as the BJP
lost four state elections, three of which were lost to the main opposition
party, the Congress Party.
Many countries in Latin America faced elections during the period as
well. Colombia elected Andres Pastrana to the position of president with
virtually immediate success. Mr. Pastrana has been favored by the U.S.
government and has taken steps to liberalize foreign investment opportunities in
Colombia to the relief of many investors. Brazil retained President Cardoso
despite controversy surrounding the privatization of Telebras, the national
telecommunications monopoly. In December, Venezuela elected Hugo Chavez, the
former coup leader, as the new president.
In Eastern Europe, Turkish Prime Minister Yilmaz resigned in November
after he and Economy Minister Gunes Taner were censured by parliament for their
alleged involvement in corrupt dealings surrounding the privatization of Turk
Ticaret Bankasi. The Czech Republic saw the beginning of a new coalition
government at the mid-year, while local elections held late in the year failed
to show any significant change in the political landscape. Shortly after
devaluing its currency and imposing emergency economic measures, Russian
President Boris Yeltsin fired Prime Minister Kirienko and replaced him almost a
month later with Yevgeny Primakov, a compromise candidate between the President
and the State Duma. A new coalition government took power in Slovakia late in
the year, and Presidential elections are expected there in early 1999.
(1) Please remember that the Fund's performance differs from that of an index
because, among other things, an 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 other
operating expenses. Of course, one cannot invest directly in an index.
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Political developments within and outside a country often impact the
movement of stock prices. This is especially the case in emerging markets where
differences between political goals and ability between leaders can be great. As
a result of the political developments mentioned above, and the poor economic
conditions globally throughout 1998, the Fund purchased what we believed to be
quality stocks throughout most of the year. Of particular relevance were the
global implications surrounding the situation in Brazil and the psychological
effects of events in Russia.
STOCK MARKETS
The markets of Asia advanced steadily during the first quarter of 1998
after bottoming early in January. Driving the recovery was the restructuring of
foreign debt and relief buying following agreement on conditions for three
bailout packages from the IMF and World Bank for Thailand, Indonesia, and South
Korea. Currency stability also played a part in the growth as the currencies
seemed to have found a bottom after their rapid descent in 1997. However, the
strength did not last. Spurring the renewed correction was a rapid devaluation
of the Japanese yen based on worries that the nation's financial industry could
collapse due to its exposure to the rest of the region. The descent was finally
halted by a joint intervention by the U.S. and Japan in late June, and July saw
a slight appreciation of Asian markets as these fears subsided.
Latin America faced a tough environment during the same period.
Commodities prices, the driving force of many of the Latin American economies,
continued to sink during the first half of 1998 as reserves swelled on a lack of
demand, particularly from Asia. The currency devaluation in Asia added to the
region's woes as fears of Asian Contagion, a spreading of the Asian crisis, and
the risk of substitution of Latin American export products by cheaper Asian
peers, grew. However, the Latin American markets received at least one benefit
from the Asian crisis, that being the benefit of foresight as their governments
were given an idea of what the future might hold for Latin America if proactive
reforms were not undertaken. In response, privatization efforts were stepped up
during the period, and reforms were introduced to boost government income in
compensation for dwindling tax revenue. Toward the end of the second half of
1998, most major Latin American markets were striking a precarious balance
between the negative factors abroad and more positive domestic events.
The crisis in emerging markets could well have been over as early as
July 1998, if the Russian devaluation and debt-repayment moratorium had not
taken place. The Russian actions resulted in market weakness throughout both
developed and emerging markets, as investors speculated over exposure to such a
subsidized economy.
FUND ASSET ALLOCATION ON 12/31/98
[PIE CHART]
Short-Term Investments &
Other Net Assets 0.7%
Equity* 99.3%
*Equity includes convertible and preferred securities
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TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued................................................................
While the initial reaction to Russia's actions was negative - most
emerging markets sank to new lows there appeared to be some distinct positives
to the Russian developments for emerging markets. First, the speculation over
the breadth of the fallout from the crisis caused most major currencies to
devalue in relation to their emerging markets peers. The U.S. dollar alone
devalued 2% against many Asian currencies, thereby lightening the region's
foreign debt obligations by a similar amount. The devaluation of the U.S. dollar
also heavily favored the Japanese yen. This had the added benefit of making
high-quality Japanese exports more expensive than those of other Asian and Latin
American countries. The yen later rose even higher on a shift by hedge funds
away from the U.S. dollar.
The second benefit of the Russian crisis was that it focused the
international community on the condition of the global economy. What began with
the devaluation of the Thai baht in July 1997 and was considered mainly an
emerging markets problem, had suddenly blossomed into a more global crisis. When
Malaysia announced a crackdown on currency speculation by removing itself and
its currency from the global economy, the U.S. and other G7 nations felt it was
time to take action lest other markets follow suit.
The prime rate cuts undertaken by the developed markets during
September-December, and subsequently made by some developing markets, were the
catalysts for the growth experienced during the last quarter of 1998. Regional
performances were also influenced by such events as the IMF's offering of aid to
Brazil (to help stabilize a swelling current-account deficit and slow the
outflow of foreign investment money), further appreciation of the yen against
the U.S. dollar, and European adjustments prior to the birth of the Euro.
However, the run-up has come almost solely on the back of the rate cuts and the
increased liquidity they entail.
ECONOMICS
In 1998, most Asian economies fell into recession. However,
current-account levels generally turned positive during the year as trade
balances swelled on dwindling import demand. Also, demand for domestic products
fell and unemployment levels grew, offsetting trade balance gains. Austerity
measures were imposed by many Asian governments as they sought to cut spending
wherever possible. A noticeable exception to this was Malaysia which, along with
the imposition of strict currency controls in September, embarked on a
buy-our-way-out approach to economic stimulus.
In part due to the drop in demand from Asia, commodity prices continued
to fall throughout the year, putting pressure on local governments. Particularly
affected were the Latin American countries that rely heavily on the sale of
commodities such as crude oil, copper, coffee, and cocoa. To avoid a credit
crisis as seen in Asia during 1997/98, many Latin American governments severely
restricted spending in their 1999 budget
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proposals. These cuts were not taken favorably by the opposition, resulting in
significant political disputes. In Brazil, the legislature's repeated refusal to
pass proposed revisions to the national pension scheme and the outright refusal
by the state of Minas Gerais to service its federal debt in protest to budget
cuts contributed to the destabilization of the nation's currency and huge
flights of foreign capital.
European emerging markets spent 1998 focusing on anti-inflationary
measures. Demand for exports dwindled in line with concerns of a slowing global
economy, but the governments of countries such as Poland and the Czech Republic
are proactively seeking to contain spending and the contraction of their
economies by budgeting accordingly for 1999.
As with political controversies during the period, global economic
conditions resulted in stock market weakness and thus opportunities for the Fund
to buy. With a depressed outlook for many commodities, we found a number of
stocks we considered bargains in resource rich regions such as Latin America and
Africa, while the recession in Asia, in our view, created buying opportunities
for the Fund there. Commodity users also benefited from the low prices, keeping
costs to a minimum. The fourth quarter rally allowed us to sell shares of some
companies in these regions at a profit.
CURRENCIES
After significant devaluation in 1997 and early 1998, most Asian
currencies stabilized and then appreciated against the U.S. dollar. The
appreciation added to individual market performance and came on the heels of a
series of prime rate reductions by the U.S. and other G7 nations in support of
the global economy. Currency concerns strongly affected Asia's performance
throughout most of the year as speculators repeatedly attacked the Hong Kong
dollar peg, and investors worried that the Chinese renminbi would also devalue
during the worst of the 1997/98 crisis. However, these worries lessened when
Chinese officials were reported to have said that China would not devalue its
currency for at least two years. Hong Kong, on the other hand, restructured its
peg mechanism and the Hong Kong government intervened in the equity and futures
markets to control speculative attacks against their currency, a situation which
did not fall into the background until after the U.S. prime rate cuts in the
fourth quarter of 1998.
Latin American markets, especially Argentina, watched the currency
developments in Asia closely fearing a spread of the Asian Contagion to Latin
America. This region also focused on the situation in Asia as the sharp
reductions in currency value made Asian products more price competitive in
export markets, thereby creating a real threat of substitution. However, this
substitution effect was not as severe as expected, as illustrated by Mexico's
ascension to the position of the number two trading partner with the U.S.,
surpassing Japan but beneath Canada.
INDUSTRY DIVERSIFICATION ON 12/31/98
(Percent of Total Net Assets)
Finance 23.0%
Services 19.5%
Materials 16.0%
Energy 14.2%
Multi-Industry 10.7%
Consumer Goods 10.1%
Capital Equipment 5.8%
10 LARGEST POSITIONS ON 12/31/98
(Percent of Total Net Assets)
Telefonos de Mexico SA
(Telmex), L, ADR 2.8%
Korea Electric Power Corp. 2.5%
Thai Farmers Bank
Public Co. Ltd. 2.2%
Telecomunicacoes
Brasileiras SA (Telebras) 2.1%
Centrais Eletricas
Brasileiras SA (Electrobras) 2.0%
Cemex SA 1.8%
New World Development Co. Ltd. 1.8%
Overseas Chinese
Banking Corp. Ltd., fgn. 1.6%
Cheung Kong Holdings Ltd. 1.4%
United Overseas Bank Ltd., fgn. 1.4%
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TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued................................................................
Internally, Latin American markets focused on the health of the Brazilian real
as that nation faced a swelling current-account deficit caused by a massive
flight of foreign investment capital.
While the markets of Eastern Europe saw weakness as a result of
currency speculation in Asia, the most significant devaluation in the region
came when the Russian government decided to devalue the ruble by increasing the
currency's trading band by 30%. However, panic selling of rubles on the local
market caused the currency to devalue by nearly 70% against the U.S. dollar. The
selling pressure was so intense that the Russian government temporarily halted
the trading of rubles twice during the weeks following the devaluation.
In Africa, the South African rand faced volatility on rising
current-account worries and fluctuations in commodities prices. These
fluctuations also caused volatility in the Zimbabwean dollar.
Since the devaluation of the Thai baht in 1997, markets have been
extremely sensitive to currency movements. However, rather than the market-wide
correction seen in Asian markets following the devaluation of all but two of the
region's currencies, reactions to more recent currency fluctuations have in
general been more sophisticated and security-specific. As a result, when
selecting stocks for the Fund during the year, we sought to weight the portfolio
to benefit from what we considered to be the most likely currency scenario, such
as a devaluation in Brazil or a strong baht in Thailand.
In the past, investors in general have been willing to put up with
unfair business practices and the abuse of minority shareholder rights to
realize the growth potential of the emerging markets asset class. However, since
the 1997/98 crisis, the love affair has ended, as evidenced by the lower
turnover levels seen today. In our opinion, if emerging markets governments want
to see their markets continue to swell with foreign cash, they will need to
level the playing field and stop discriminating against foreign and minority
investors. Recent accusations of unfair dealings in markets as diverse as
Turkey, Brazil and Russia, by both corporate management and government
officials, strengthen our belief that these practices must stop. They also add
to the impression that local minority investors are less willing to be
manipulated.
In our opinion, another crucial point is being reached in terms of
investor sentiment. While the markets improved dramatically from September
through November, the improvement came on relatively low turnover, pointing to
the possibility that only a handful of players are moving the market. Strategic
investors have continued to move into the markets to acquire assets with
potential at bargain prices. This has lured in private
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equity funds which are looking to recoup losses from 1997. This change in
sentiment appears to indicate that many investors feel a bottom has been
reached. However, what would happen to sentiment if the correction resumed? We
consider it likely that not a lot of these investors would wait out another
correction, but would rather take profits and wait out a slump, thereby
exacerbating the correction and shattering sentiment.
While risk remains, we continue to be optimistic about the future
performance of emerging market investments. Over the long term, competition
between foreign and domestic investors could drive demand and prices higher. In
addition to the portfolio investors that remained in the emerging markets over
the crisis, the increasing activity of strategic investors has the potential to
boost share prices and add stability to the asset class in general. Some
examples of increasing activity by strategic investors include General Electric
Company purchasing the loan books of failed Thai finance companies, Cemex SA
purchasing strategic interests in an Indonesian cement company, Petronas
purchasing South Africa's leading petroleum products distribution company, and
the Japanese government offering loans worth billions of dollars. Add to the mix
the growing number of private equity funds that are bargain hunting for assets
and then delisting their acquisitions, and the competition has the potential to
become more intense over the longer term. Of course there are counterbalances,
such as the pulling out of hedge funds and the ever-present threat of government
intervention, but we believe their effects are relatively short term and only
serve to mask the actual growth being achieved by individual companies. It is
this individual growth on which we currently intend to capitalize well into the
future.
This discussion reflects our views, opinions, and portfolio holdings as
of December 31, 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 past performance is
not predictive of future results, these insights may help you understand our
investment and management philosophy. 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 invests. Emerging market securities involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. Investing in any emerging market
means accepting a certain amount of volatility and, in some cases, severe market
corrections. While short-term volatility can be disconcerting, declines of 50%
are not unusual in emerging markets. In fact,
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TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued................................................................
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Total Return Index Comparison
$5,000,000 Investment: 05/03/93-12/31/98
[LINE CHART]
12/98
TIFI Emerging Markets Series(1) $ 5,026000
MSCI World Index(4) $ 11,458,093
IFC Investable Composite Index(4) $ 4,815,337
TIFI-Emerging Mk MSCI World IFC Investable Composite
5/3/93 $5,000,000.00 $5,000,000.00 $5,000,000.00
5/31/93 $5,010,000.00 $5,116,064.50 $5,105,123.25
6/30/93 $5,030,000.00 $5,074,112.77 $5,250,108.75
7/31/93 $5,040,000.00 $5,179,654.32 $5,413,912.14
8/31/93 $5,415,000.00 $5,417,918.42 $5,852,439.03
9/30/93 $5,590,000.00 $5,318,770.51 $6,087,707.08
10/31/9 $5,840,000.00 $5,466,100.45 $6,597,248.16
11/30/9 $6,040,000.00 $5,157,812.39 $7,018,812.32
12/31/9 $6,646,548.00 $5,411,060.97 $8,220,432.98
1/31/94 $6,726,991.00 $5,768,732.10 $8,274,687.84
2/28/94 $6,596,272.00 $5,694,892.33 $8,059,545.96
3/31/94 $6,256,978.00 $5,450,581.45 $7,246,337.77
4/30/94 $5,912,185.00 $5,620,094.54 $7,105,758.82
5/31/94 $5,917,255.00 $5,635,268.79 $7,276,297.03
6/30/94 $5,775,282.00 $5,620,617.09 $7,015,805.60
7/31/94 $5,993,312.00 $5,728,532.94 $7,521,645.18
8/31/94 $6,485,149.00 $5,902,107.49 $8,485,920.09
9/30/94 $6,556,136.00 $5,748,062.48 $8,696,370.91
10/31/9 $6,373,599.00 $5,912,457.07 $8,410,260.31
11/30/9 $6,130,216.00 $5,657,038.92 $8,093,193.49
12/31/9 $5,889,310.00 $5,713,043.61 $7,230,459.07
1/31/95 $5,458,513.00 $5,628,490.56 $6,264,469.74
2/28/95 $5,342,933.00 $5,711,792.22 $6,183,658.08
3/31/95 $5,516,645.00 $5,988,242.97 $6,167,580.56
4/30/95 $5,706,148.00 $6,197,831.47 $6,427,235.71
5/31/95 $5,895,651.00 $6,251,752.61 $6,666,971.60
6/30/95 $5,937,763.00 $6,251,127.43 $6,706,306.73
7/31/95 $6,211,489.00 $6,564,934.03 $6,920,237.92
8/31/95 $6,043,042.00 $6,419,848.99 $6,734,775.54
9/30/95 $5,995,666.00 $6,607,950.56 $6,683,591.25
10/31/9 $5,779,843.00 $6,504,866.53 $6,431,619.86
11/30/9 $5,742,996.00 $6,731,886.37 $6,399,461.76
12/31/9 $5,817,153.00 $6,929,803.83 $6,622,163.03
1/31/96 $6,374,518.00 $7,056,619.24 $7,177,100.29
2/29/96 $6,271,467.00 $7,101,075.95 $7,017,768.66
3/31/96 $6,347,420.00 $7,220,374.02 $7,120,228.08
4/30/96 $6,515,599.00 $7,391,496.89 $7,407,173.27
5/31/96 $6,624,102.00 $7,398,888.38 $7,341,990.15
6/30/96 $6,634,952.00 $7,437,362.60 $7,429,359.83
7/31/96 $6,331,144.00 $7,175,567.44 $6,941,250.89
8/31/96 $6,461,348.00 $7,259,521.58 $7,156,429.67
9/30/96 $6,580,701.00 $7,544,820.78 $7,261,629.19
10/31/9 $6,564,425.00 $7,599,143.48 $7,105,504.16
11/30/9 $6,776,006.00 $8,026,215.35 $7,210,665.62
12/31/9 $6,914,453.00 $7,899,401.15 $7,242,392.55
1/31/97 $7,425,401.00 $7,995,773.84 $7,753,705.46
2/28/97 $7,708,421.00 $8,089,324.39 $8,133,637.03
3/31/97 $7,552,470.00 $7,930,773.64 $7,929,482.74
4/30/97 $7,624,876.00 $8,191,696.09 $7,794,681.53
5/31/97 $7,986,904.00 $8,698,762.08 $8,059,700.71
6/30/97 $8,276,527.00 $9,133,700.18 $8,407,879.78
7/31/97 $8,655,265.00 $9,555,677.13 $8,489,436.21
8/31/97 $7,886,650.00 $8,918,313.46 $7,405,335.21
9/30/97 $8,254,248.00 $9,404,361.55 $7,646,749.13
10/31/9 $6,717,020.00 $8,910,632.57 $6,391,917.60
11/30/9 $6,221,320.00 $9,070,132.89 $6,094,054.24
12/31/9 $6,131,707.00 $9,181,695.52 $6,174,495.76
1/31/98 $5,635,021.00 $9,438,783.00 $5,769,448.83
2/28/98 $6,190,836.00 $10,078,732.49 $6,358,509.56
3/31/98 $6,433,870.00 $10,506,070.74 $6,607,763.14
4/30/98 $6,445,741.00 $10,610,080.84 $6,625,604.10
5/31/98 $5,537,639.00 $10,478,515.84 $5,798,728.70
6/30/98 $5,003,462.00 $10,728,952.37 $5,204,359.01
7/31/98 $5,039,073.00 $10,712,858.94 $5,412,533.37
8/31/98 $3,869,819.00 $9,285,906.13 $3,890,528.99
9/30/98 $4,065,684.00 $9,452,123.85 $4,075,329.12
10/31/9 $4,677,020.00 $10,308,486.27 $4,547,252.23
11/30/9 $5,181,521.00 $10,922,872.05 $4,889,660.32
12/31/9 $5,026,000.00 $11,458,092.78 $4,815,337.48
Periods ended December 31, 1998
SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (05/03/93)
Average Annual
Total Return(1,2) -18.03% -5.44% 0.09%
Cumulative Total
Return(1,3) -18.03% -24.38% 0.52%
(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 1.6% of average net assets
through April 30, 1999. If these fee waivers are insufficient to so limit
the Fund's expenses, the Fund Administrator has agreed to make certain
payments to reduce the Fund's expenses. After April 30, 1999, these
agreements may end at any time upon notice to the Board. These voluntary
agreements did not result in any fee waivers or reimbursements for the Fund
for the fiscal year ended December 31, 1998. Past expense waivers or
reimbursements by the Fund's Investment Manager and Fund Administrator
increased the Fund's total returns. Without these waivers or
reimbursements, 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 periods.
(3) Cumulative total return represents the change in value of an investment
over the indicated periods.
(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 the Fund
invests. 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.
- --------------------------------------------------------------------------------
the Hong Kong equity market has increased 1,049% in the last 15 years, but has
suffered five declines of more than 50% during that time.(2) These special risks
and other considerations are discussed in the Fund's prospectus.
Best regards,
/s/ Donald F. Reed
Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.
/s/ J. Mark Mobius
J. Mark Mobius, Ph. D.
Managing Director
Templeton Asset Management Ltd.
(2) Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market returns are measured in Hong Kong dollars.
For the most current portfolio information, please call 1-800-362-6243.
8
PAGE
................................................................................
The following are Dr. Mobius's thoughts regarding a recent visit to Venezuela
with the emerging markets research team.
Country_________________________________________________________________________
FOCUS
CARACAS, Venezuela -- We arrived in Caracas at midnight. After the Immigration
Official looked at our passports, a military man gave our luggage a thorough
examination. This kind of close baggage inspection is unusual these days.
Normally we go through the "green channel" or "no goods to declare" channel at
airports, but here it is a bit different. Interestingly in Brazil, the country
from which we just arrived, customs is a lottery. You push a button as you are
leaving the baggage claim area. If the light flashes green, you do not have to
have your bags examined. If it is red, you go through inspection. It is kind of
fun, and during the last two visits I won green. As the military officer
inspected our baggage in Caracas, I was thinking about the upcoming elections
and talk about the former coup leader and military man Chavez, the frontrunner
in the elections. Sentiment towards Chavez by the business community was not
good, and the stock market had taken a dive. This, of course, piqued our
interest, and we decided to hasten our trip to Caracas to see for ourselves what
was happening, while getting out of the country at the time of the election,
just in case there was some violence.
We checked into the CCT Hotel, which is in a shopping mall in the heart
of the city. The next morning we started our company visits, and the general
impression we received from almost all executives was negative regarding Chavez.
Some executives were out of town, mostly in Miami, with plans to stay there
until after the elections. Others said that they had their bags packed and a
plane ticket ready for Miami... just in case. Chavez had been talking tough and
had taken a populist stance criticizing the current situation and promising
dramatic reforms with more power to the people, and what seemed to be a big
government-spending program. It all sounded like a leftist, socialist, populist
approach, which is what the business community in Venezuela considered a step
backward. Venezuela had finally embarked on an extensive privatization program
combined with a government austerity program and here was a populist apparently
getting ready to reverse everything. One of the noises he was making threatened
to reverse the policy of inviting foreign investment into the treasured oil
industry, the source of the largest part of Venezuela's export wealth, making
9
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
country focus continued .......................................................
it a key member of OPEC. The national oil company was a "hot button" and he
promised a complete overhaul.
All the polls indicated that Chavez was ahead, even in front of the
former Miss Universe who had started her campaign with a very high rating, which
gradually eroded as Chavez's campaign gathered steam. My personal feelings were
mixed. The current political parties in Venezuela, Accion Democratica (AD,
`Democratic Action') and Comite Organizador del Partido Electoral Independiente
(COPEI, `Independent Electoral Party'), were noted for their ineffectiveness in
lifting the country out of poverty despite its wealth of resources. The country
had been lagging behind other
[MAP OF VENEZUELA]
10
PAGE
................................................................................
Latin American countries in privatization programs and in general reform. So why
not try a new face? When the present president of Argentina, Carlos Menem, was
being elected, everyone was frightened of him, but look at what happened. As
soon as he was elected, the candidate of the Peronist Party immediately did an
about face from the populist rhetoric and began what appears to be Latin
America's most successful and dramatic economic reform program. So virtually
anything seemed possible if Chavez was elected.
As we boarded the plane to leave Caracas for our next destination,
Mexico City, we reflected on what we had seen. The hotel van, which drove us to
the airport, had passed groups of celebrants throughout the town. Again, it was
late and initial vote tallies were being announced... Chavez, in all likelihood,
had won. Now only time would tell what kind of President he would be.*
* This letter reflects our opinions as of the close of the period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition.
11
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $10.37 $12.45 $10.75 $11.21 $13.22
--------------------------------------------------------------
Income from investment operations:
Net investment income...................................... .18 .18 .15 .19 .17
Net realized and unrealized gains (losses)................. (2.05) (1.60) 1.86 (.34) (1.65)
--------------------------------------------------------------
Total from investment operations............................ (1.87) (1.42) 2.01 (.15) (1.48)
--------------------------------------------------------------
Less distributions from:
Net investment income...................................... (.19) (.18) (.15) (.17) (.17)
Net realized gains......................................... -- (.48) (.16) (.14) (.36)
--------------------------------------------------------------
Total distributions......................................... (.19) (.66) (.31) (.31) (.53)
--------------------------------------------------------------
Net asset value, end of year................................ $8.31 $10.37 $12.45 $10.75 $11.21
==============================================================
Total Return................................................ (18.03)% (11.32)% 18.86% (1.23)% (11.39)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $1,733,607 $1,923,881 $1,565,537 $798,515 $582,878
Ratios to average net assets:
Expenses................................................... 1.51% 1.57% 1.56% 1.52% 1.60%
Expenses, excluding waiver and payments by affiliate....... 1.51% 1.57% 1.56% 1.52% 1.66%
Net investment income...................................... 2.03% 1.42% 1.56% 2.00% 1.59%
Portfolio turnover rate..................................... 38.11% 24.72% 7.92% 13.47% 12.51%
</TABLE>
See Notes to Financial Statements.
12
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 99.3%
ARGENTINA 5.1%
Aluar Aluminio Argentino SA, B........................ Misc Materials & Commodities 18,500 $ 46,292
Astra Cia Argentina de Petroleo SA.................... Energy Sources 1,195,000 1,411,370
*Atanor Cia Nacional Para la Industria Quimica SA,
D................................................... Chemicals 1,873,877 1,069,072
Banco de Galicia y Buenos Aires SA, B................. Banking 672,530 2,961,798
Banco Frances SA...................................... Banking 542,000 3,851,667
*Buenos Aires Embotelladora SA, B, ADR................ Beverages & Tobacco 375,300 3,753
*Capex SA, A.......................................... Utilities Electrical & Gas 104,385 598,665
Central Costanera SA, B............................... Utilities Electrical & Gas 160,711 394,097
+*Garovaglio Y Zorraquin SA........................... Chemicals 1,169,372 1,474,736
Juan Minetti SA....................................... Building Materials & Components 255,000 701,882
Molinos Rio de la Plata SA, B......................... Food & Household Products 3,530,107 8,303,224
Nobleza Piccardo Sdad Industrial Comercial y
Financial........................................... Beverages & Tobacco 264,520 900,178
Perez Companc SA, B................................... Energy Sources 3,332,860 14,110,697
Quilmes Industrial SA, ADR............................ Beverages & Tobacco 938,800 8,742,575
Siderca SA, A......................................... Metals & Mining 2,850,349 3,252,325
*Sociedad Comercial del Plata Cadelplata Come......... Multi-Industry 5,475,830 3,863,938
Telecom Argentina Stet-France SA, ADR................. Telecommunications 186,500 5,128,750
Telefonica de Argentina SA, B, ADR.................... Telecommunications 266,690 7,450,652
Transportadora de Gas del Sur SA, B................... Utilities Electrical & Gas 1,345,394 2,666,280
Transportadora de Gas del Sur SA, B, ADR.............. Utilities Electrical & Gas 769,300 7,789,163
YPF Sociedad Anonima, ADR............................. Energy Sources 479,045 13,383,320
*Zanella Hermanos SA.................................. Automobiles 625,452 59,471
--------------
88,163,905
--------------
BRAZIL 11.1%
Aracruz Celulose SA, ADR.............................. Forest Products & Paper 1,130,300 9,042,400
Banco Bradesco SA..................................... Banking 1,434,191,809 7,501,835
Banco Bradesco SA BBD, pfd. .......................... Banking 1,207,640,350 6,696,619
*Banco Bradesco SA BBD, rts. ......................... Banking 60,689,493 15,471
*Banco Bradesco SA BBD, rts., pfd. ................... Banking 50,055,656 28,503
Banco do Brasil SA.................................... Banking 829,568,792 4,600,133
Banco do Brazil SA, pfd. ............................. Banking 237,480,390 1,592,047
Brasmotor SA, pfd. ................................... Multi-Industry 32,620,000 3,239,727
Centrais Eletricas Brasileiras SA (Electrobras)....... Utilities Electrical & Gas 654,805,000 11,272,455
Centrais Eletricas Brasileiras SA (Electrobras), B,
pfd. ............................................... Utilities Electrical & Gas 1,212,521,060 23,282,010
*Centrais Geradoras Do Sul Do Brasil SA, (Gerasul), B,
pfd. ............................................... Utilities Electrical & Gas 1,846,586,060 2,292,472
Cia Cervejaria Brahma................................. Beverages & Tobacco 2,000,000 877,302
Cia Cervejaria Brahma, pfd. .......................... Beverages & Tobacco 5,432,000 2,373,760
Cia Energetica de Minas Gerais Cemig, br., pfd. ...... Utilities Electrical & Gas 726,680,000 13,832,932
Cia Energetica de Minas Gerais Cemig, ADR, pfd. ...... Utilities Electrical & Gas 32,450 617,712
*Cia Mesbla SA, pfd. ................................. Merchandising 32,834,000 8,152
*Cia Mesbla SA, rts. ................................. Merchandising 65,199,387 3,238
Cia Vale do Rio Doce, A, pfd. ........................ Metals & Mining 718,081 9,211,881
*Cia Vale do Rio Doce, A, ADR, pfd. .................. Metals & Mining 123,600 1,585,599
*Companhia Energetica do Ceara, pfd. ................. Utilities Electrical & Gas 375,613,000 932,621
Companhia Paranaense De Energia-Copel, ADR............ Utilities Electrical & Gas 281,200 2,003,550
Companhia Siderurgica Nacional Sid Nacional CSN....... Metals & Mining 372,215,000 8,317,654
Copene-Petroquimica do Nordeste SA, A, pfd. .......... Chemicals 20,189,700 2,305,962
Duratex SA, pfd. ..................................... Forest Products & Paper 215,471,900 5,885,018
Investimentos Itau SA, pfd. .......................... Multi-Industry 34,893,704 19,349,292
*Mannesmann SA........................................ Machinery & Engineering 18,076,720 1,122,081
*Mannesmann SA, pfd. ................................. Machinery & Engineering 1,623,650 77,941
Petroleo Brasileiro SA, pfd. ......................... Energy Sources 100,204,666 11,361,920
Souza Cruz SA......................................... Beverages & Tobacco 415,000 2,679,081
*Telecomunicacoes Brasileiras SA (Telebras), unit..... Telecommunications 372,407,531 16,643,912
*Telecomunicacoes Brasileiras SA (Telebras), unit,
pfd. ............................................... Telecommunications 252,878,968 18,543,411
*Telecomunicacoes Brasileiras SA (Telebras), ADR...... Telecommunications 22,360 1,625,293
Unibanco Uniao de Bancos Brasileiros SA, unit......... Banking 95,872,584 3,332,629
--------------
192,254,613
--------------
</TABLE>
13
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CHILE 3.8%
Antofagasta Holdings Plc. ............................ Metals & Mining 177,518 $ 524,240
Cia Cervecerias Unidas SA, ADR........................ Beverages & Tobacco 74,500 1,434,125
Compania de Telecomunicaciones de Chile SA, ADR....... Telecommunications 1,097,910 22,713,013
Empresa Nacional de Electricidad SA, ADR.............. Electrical & Electronics 1,534,500 17,454,938
Enersis SA, ADR....................................... Utilities Electrical & Gas 734,150 18,950,247
Madeco Manufacturera de Cobre SA, ADR................. Industrial Components 95,400 798,975
Masisa SA, ADR........................................ Forest Products & Paper 60,000 382,500
Quinenco SA, ADR...................................... Multi-Industry 303,800 2,430,400
Sociedad Quimica y Minera de Chile SA, ADR............ Chemicals 27,000 909,563
--------------
65,598,001
--------------
CHINA 1.1%
Beijing Datang Power Generation Co. Ltd., H........... Multi-Industry 15,000 4,502
China First Pencil Co. Ltd., B........................ Recreation & Other Consumer Goods 835,882 106,993
China Resources Enterprises Ltd. ..................... Multi-Industry 1,502,000 2,345,890
*China Southern Glass Co. Ltd., B..................... Building Materials & Components 5,540,521 507,763
China Vanke Co. Ltd., B............................... Real Estate 3,532,663 971,257
Chiwan Wharf Holdings Ltd., B......................... Transportation 4,651,700 480,346
Guangshen Railway Co. Ltd., H......................... Transportation 25,938,000 3,013,224
Guangshen Railway Co. Ltd., H, ADR.................... Transportation 475,200 2,851,200
*Luoyang Glass Co. Ltd., H............................ Misc Materials & Commodities 1,444,000 46,224
Shandong Huaneng Power Development Co. Ltd., ADR...... Utilities Electrical & Gas 356,900 1,628,356
*Shanghai Chlor-Alkali Chemical Co. Ltd., B........... Chemicals 2,783,733 189,294
*Shanghai Dazhong Taxi Shareholding Co. Ltd., B....... Transportation 1,649,900 696,258
*Shanghai Erfangji Textile Machinery Co. Ltd., B...... Machinery & Engineering 736,340 41,235
*Shanghai Jin Jiang Tower Co. Ltd., B................. Leisure & Tourism 4,037,640 355,312
Shanghai Jinqiao Export Processing Zone Development,
B................................................... Real Estate 1,296,170 202,203
*Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co
Ltd, B.............................................. Real Estate 4,006,440 1,290,074
*Shanghai New Asia Group Co. Ltd., B.................. Food & Household Products 2,866,747 366,944
Shanghai Petrochemical Co. Ltd., H.................... Chemicals 25,992,000 2,348,498
*Shanghai Refrigerator Compressor Co. Ltd., B......... Industrial Components 779,240 73,249
*Shanghai Steel Tube Co. Ltd., B...................... Machinery & Engineering 582,540 39,030
*Shanghai Tyre & Rubber Co. Ltd., B................... Industrial Components 3,657,610 365,761
*Shanghai Vacuum Electron Devices Co. Ltd., B......... Appliances & Household Durables 982,921 114,019
Shanghai Yaohua Pilkington Glass, B................... Building Materials & Components 4,760,200 404,617
*Shenzhen Properties & Resources Development Ltd.,
B................................................... Real Estate 1,392,516 120,428
Yanzhou Coal Mining Company Ltd. ..................... Energy Sources 5,430,000 911,162
--------------
19,473,839
--------------
COLOMBIA 1.9%
Banco Ganadero SA, B.................................. Financial Services 288,000 61,415
Banco Ganadero SA, C, ADR, pfd. ...................... Banking 83,200 754,000
Bancolombia SA........................................ Banking 711,481 666,654
Bavaria SA............................................ Beverages & Tobacco 293,338 1,478,537
Cementos Argos SA..................................... Building Materials & Components 2,605,880 7,426,127
Cia Colombiana de Tabacos SA.......................... Beverages & Tobacco 2,047,040 3,968,414
Compania Nacional de Chocolates SA.................... Food & Household Products 2,457,116 10,638,241
Compania Suramericana de Inversiones SA............... Insurance 3,282,445 7,107,899
Promigas SA........................................... Utilities Electrical & Gas 122,266 474,052
Valores Bavaria SA.................................... Financial Services 99,286 102,654
--------------
32,677,993
--------------
CROATIA
Pliva D D, GDR, Reg S................................. Health & Personal Care 48,800 810,080
--------------
CZECH REPUBLIC 1.9%
*CEZ AS............................................... Utilities Electrical & Gas 583,330 12,891,882
*Komercni Banka AS.................................... Banking 26,122 320,969
*Komercni Banka AS, GDR............................... Banking 69,500 288,425
*SPT Telecom AS....................................... Telecommunications 737,730 11,251,052
</TABLE>
14
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CZECH REPUBLIC (CONT.)
Tabak AS.............................................. Beverages & Tobacco 18,994 $ 5,306,505
Unipetrol............................................. Chemicals 1,255,736 2,257,992
--------------
32,316,825
--------------
ECUADOR .1%
La Cemento Nacional SA, GDR, Reg S.................... Multi-Industry 5,000 540,000
La Cemento Nacional CA, GDR, 144A..................... Multi-Industry 3,946 426,168
--------------
966,168
--------------
EGYPT .2%
Commercial International Bank Ltd. ................... Banking 256,542 2,027,509
Eastern Tobacco Co. .................................. Beverages & Tobacco 82,560 1,900,091
--------------
3,927,600
--------------
GHANA .4%
Ashanti Goldfields Co. Ltd., GDR, Reg S............... Metals & Mining 725,957 6,805,847
--------------
HONG KONG 7.6%
CDL Hotel International Ltd. ......................... Leisure & Tourism 2,934,855 753,863
Cheung Kong Holdings Ltd. ............................ Multi-Industry 3,445,000 24,790,571
China Overseas Land & Investment Ltd. ................ Real Estate 2,750,000 369,163
Citic Pacific Ltd. ................................... Multi-Industry 1,814,000 3,910,265
Cross Harbour Tunnel Co. Ltd. ........................ Transportation 154,010 137,167
Dairy Farm International Holdings Ltd. ............... Merchandising 5,867,577 6,747,714
Dickson Concepts (International) Ltd. ................ Merchandising 50,000 38,723
Goldlion Holdings Ltd. ............................... Textiles & Apparel 614,000 46,760
Great Wall Electronic International Ltd. ............. Electrical & Electronics 689,108 21,348
Hang Lung Development Co. Ltd. ....................... Real Estate 6,448,000 6,908,051
Hong Kong & Shanghai Hotels Ltd. ..................... Leisure & Tourism 1,228,000 871,793
Hong Kong Electric Holdings Ltd. ..................... Utilities Electrical & Gas 1,548,900 4,698,332
HSBC Holdings Plc. ................................... Banking 969,563 24,153,817
Hutchison Whampoa Ltd. ............................... Multi-Industry 923,000 6,522,863
IMC Holdings Ltd. .................................... Transportation 98,000 9,487
Jardine International Motor Holdings Ltd. ............ Automobiles 80,000 31,753
Jardine Matheson Holdings Ltd. ....................... Multi-Industry 1,540,895 3,975,509
Jardine Strategic Holdings Ltd. ...................... Multi-Industry 322,750 467,988
Lai Sun Garment International Ltd. ................... Multi-Industry 730,000 132,860
New World Development Co. Ltd. ....................... Real Estate 12,057,367 30,348,660
Ng Fung Hong Ltd. .................................... Food & Household Products 335,000 300,526
*Semi-Tech Co. Ltd. .................................. Appliances & Household Durables 9,268,596 382,839
Sun Hung Kai Properties Ltd. ......................... Real Estate 1,731,769 12,629,636
Wheelock and Company Ltd. ............................ Multi-Industry 3,936,544 3,150,353
Yue Yuen Industrial (Holdings) Ltd. .................. Recreation & Other Consumer Goods 581,400 1,118,185
--------------
132,518,226
--------------
HUNGARY 2.0%
Borsodchem RT......................................... Chemicals 136,112 3,540,385
Borsodchem RT, GDR, Reg S............................. Chemicals 150,910 3,927,433
*Danubius Hotel and SpA RT............................ Leisure & Tourism 34,600 724,801
Egis RT............................................... Multi-Industry 65,691 1,495,092
**Fotex First Hung-Amer Photo Co., cvt., 12.00%,
5/11/00............................................. Multi-Industry 16,000 16,000
Fotex First Hungarian American Photo Service Co. ..... Multi-Industry 1,892,831 993,474
Gedeon Richter Ltd. .................................. Health & Personal Care 149,620 6,376,198
Graboplast Textil Es Muborgyarto RT................... Textiles & Apparel 45,172 345,145
*Ibusz RT............................................. Leisure & Tourism 42,802 165,009
Inter-Europa Bank RT.................................. Banking 3,520 170,036
*Matav RT............................................. Telecommunications 1,450 8,291
Mol Magyar Olay-Es Gazipari RT........................ Energy Sources 163,700 4,489,879
OTP Bank.............................................. Banking 7,700 385,903
Pannonplast Plastic Industries Plc. .................. Industrial Components 19,722 558,330
</TABLE>
15
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
HUNGARY (CONT.)
Pick Szeged RT........................................ Food & Household Products 10,161 $ 431,841
Pick Szeged RT, GDR................................... Food & Household Products 54,550 470,494
Tiszai Vegyi Kombinat RT.............................. Chemicals 312,435 4,208,465
Tiszai Vegyi Kombinat RT, GDR, 144A................... Chemicals 272,000 3,685,600
Tiszai Vegyi Kombinat RT, GDR, Reg S.................. Chemicals 177,800 2,409,190
Zwack Unicum Ltd. .................................... Beverages & Tobacco 944 24,335
--------------
34,425,901
--------------
INDIA 2.7%
Andhra Valley Power Supply Co. Ltd. .................. Utilities Electrical & Gas 17,300 30,125
Arvind Mills Ltd. .................................... Textiles & Apparel 744,650 677,253
Bajaj Auto Ltd. ...................................... Automobiles 173,000 2,121,982
*Bank of Baroda....................................... Banking 297,900 347,698
*Bharat Petroleum Corp. Ltd. ......................... Energy Sources 113,100 620,641
Bombay Dyeing & Manufacturing Co. Ltd. ............... Chemicals 47,000 64,092
Cummins India Ltd. ................................... Machinery & Engineering 87,000 629,526
Grasim Industries Ltd. ............................... Multi-Industry 157,900 669,927
Grasim Industries Ltd., GDR........................... Multi-Industry 129,950 591,273
Great Eastern Shipping Co. Ltd. ...................... Transportation 1,525,200 827,270
Gujarat Ambuja Cements Ltd. .......................... Building Materials & Components 318,200 1,947,556
Gujarat Ambuja Cements Ltd., GDR, Reg S............... Building Materials & Components 129,400 854,040
Gujarat Industries Power Ltd. ........................ Energy Equipment & Services 89,000 51,834
Gujarat Narmada Valley Fertilizers Co. Ltd. .......... Chemicals 959,800 420,091
Gujarat Narmada Valley Fertilizers Co. Ltd., GDR...... Chemicals 329,000 707,350
Hindalco Industries Inc. ............................. Metals & Mining 45,425 547,820
Hindalco Industries Inc., GDR, Reg S.................. Metals & Mining 115,600 1,355,410
Hindustan Organic Chemicals Ltd. ..................... Chemicals 51,800 9,630
Hindustan Petroleum Corporation Ltd. ................. Energy Sources 405,900 2,245,542
ICICI Ltd. ........................................... Financial Services 1,476,000 1,634,163
ICICI Ltd., GDR, Reg S................................ Financial Services 50,500 335,825
India Cements Ltd. ................................... Building Materials & Components 771,600 587,376
India Cements Ltd., GDR............................... Building Materials & Components 265,658 199,244
Indian Aluminium Co. Ltd. ............................ Metals & Mining 146,600 313,579
Indian Petrochemicals Corp. Ltd. ..................... Chemicals 2,268,800 3,059,146
*Indian Rayon & Industries Ltd. ...................... Multi-Industry 169,950 449,907
Indian Rayon & Industries Ltd., GDR................... Multi-Industry 83,499 210,835
Indo Gulf Corporation Ltd. ........................... Chemicals 1,261,700 829,827
Indo Gulf Corporation Ltd., GDR....................... Chemicals 28,700 17,938
Industrial Development Bank of India.................. Banking 1,219,500 1,045,993
Larsen and Toubro Ltd. ............................... Multi-Industry 1,078,450 4,073,094
Larsen and Toubro Ltd., GDR, Reg S.................... Multi-Industry 250,500 1,922,588
Madras Cements Ltd. .................................. Building Materials & Components 2,535 242,233
Mahanagar Telephone Nigam Ltd. ....................... Telecommunications 525,300 2,264,552
National Aluminium Co. Ltd. .......................... Metals & Mining 2,208,900 979,799
Oriental Bank of Commerce............................. Banking 1,857,600 1,632,647
Reliance Industries Ltd. ............................. Chemicals 271,000 763,969
Reliance Industries Ltd., GDR......................... Chemicals 462,800 2,591,680
Satyam Computers Services Ltd. ....................... Data Processing & Reproduction 29,200 499,879
*Shipping Corporation of India Ltd. .................. Transportation 618,100 305,441
State Bank of India................................... Banking 74,400 275,042
Steel Authority of India Ltd., GDR, Reg S............. Metals & Mining 21,000 41,475
Steel Authority of India Ltd., GDR, 144A.............. Metals & Mining 62,000 122,463
Sterlite Industries Ltd. ............................. Metals & Mining 101 345
Tata Chemicals Ltd. .................................. Chemicals 274,850 655,171
Tata Engineering & Locomotive Co. Telco............... Machinery & Engineering 853,250 3,272,753
Tata Engineering & Locomotive Co. Telco, GDR.......... Machinery & Engineering 285,000 1,140,000
*Tata Hydro-Electric Power Company.................... Utilities Electrical & Gas 60,000 112,386
Tata Iron & Steel Co., Ltd. .......................... Metals & Mining 30,900 85,364
Thermax Ltd. ......................................... Energy Equipment & Services 5,300 17,835
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
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LONG TERM SECURITIES (CONT.)
INDIA (CONT.)
Videsh Sanchar Nigam Ltd., GDR........................ Telecommunications 131,700 $ 1,613,325
Wockhardt............................................. Health & Personal Care 24,900 153,691
--------------
46,168,625
--------------
INDONESIA 3.7%
*Asia Pulp & Paper Co. Ltd., ADR...................... Forest Products & Paper 1,217,200 9,965,825
*PT Barito Pacific Timber TBK......................... Forest Products & Paper 28,660,500 1,261,783
*PT BBL Dharmala Finance TBK, fgn. ................... Financial Services 2,596,000 457,157
*PT BDNI Capital Corporation, fgn. ................... Financial Services 1,460,000 32,138
*PT Charoen Pokphand Indonesia........................ Food & Household Products 10,212,000 192,679
*PT Ciputra Development............................... Real Estate 8,120,500 127,681
*PT Dharmala Intiland TBK............................. Real Estate 4,795,600 60,322
PT Gudang Garamm...................................... Beverages & Tobacco 4,690,000 6,872,767
*PT Indah Kiat Pulp & Paper Corp. .................... Forest Products & Paper 17,026,000 4,658,057
*PT Indah Kiat Pulp & Paper Corp. TBK, wts. .......... Forest Products & Paper 519,200 70,533
*PT Indocement Tunggal Prakarsa....................... Building Materials & Components 8,432,500 3,367,697
*PT Indofoods Sukses Makmurr.......................... Food & Household Products 8,652,870 4,408,066
PT Indosat............................................ Telecommunications 2,776,000 3,640,226
*PT Inter-Pacific Bank, fgn. ......................... Banking 736,875 18,538
*PT Jakarta International Hotel & Development......... Real Estate 2,828,000 80,038
*PT Kalbe Farma....................................... Health & Personal Care 1,760,000 88,553
PT Lippo Life Insurance............................... Insurance 5,684,500 232,385
*PT Metrodata Electronic.............................. Electrical & Electronics 95,100 9,570
*PT Modern Photo Film Co. ............................ Multi-Industry 167,000 10,766
*PT Pakuwon Jati...................................... Real Estate 6,345,500 59,863
*PT Semen Cibinong, loc. ............................. Building Materials & Components 14,799,500 558,472
PT Semen Gresik (Persero) TBK......................... Building Materials & Components 6,863,500 7,165,667
*PT Sinar Mas Agro Resources & Technology Corp. ...... Food & Household Products 4,428,600 946,996
*PT Sinar Mas Multi Artha, fgn. ...................... Financial Services 375,700 79,157
*PT Sumalindo Lestari Jaya............................ Forest Products & Paper 2,470,500 124,302
*PT Summarecon Agung.................................. Real Estate 1,803,902 34,036
PT Telekomunikasi Indonesia (Persero), B.............. Telecommunications 27,479,000 9,332,491
*PT Tempo Scan Pacific................................ Health & Personal Care 7,092,000 379,132
PT Timah.............................................. Metals & Mining 8,447,000 5,711,022
*PT Tjiwi Kimia....................................... Forest Products & Paper 9,950,014 2,597,016
*PT Tjiwi Kimia TBK, wts. ............................ Forest Products & Paper 621,945 72,756
*PT Ultra Jaya Milk................................... Food & Household Products 3,254,300 255,841
*PT Unggul Indah Corp. ............................... Chemicals 5,874,000 701,925
*PT United Tractors................................... Machinery & Engineering 3,057,000 192,264
--------------
63,765,721
--------------
ISRAEL .3%
*Clal Industries Ltd. ................................ Multi-Industry 381,991 1,863,998
Koor Industries Ltd. ................................. Multi-Industry 31,477 2,746,605
--------------
4,610,603
--------------
JORDAN
Jordan Cement Factories Ltd. ......................... Building Materials & Components 158,750 691,187
--------------
KAZAKHSTAN
*Kazkommertsbank, ADR, 144A........................... Banking 46,646 163,261
--------------
MALAYSIA 3.2%
AMMB Holdings Bhd. ................................... Financial Services 3,617,600 3,404,621
Boustead Holdings Bhd. ............................... Food & Household Products 1,465,000 917,116
Cement Industries of Malaysia Bhd. ................... Building Materials & Components 146,000 68,702
Cosway Corporation Bhd. .............................. Appliances & Household Durables 2,466,000 782,240
Federal Flour Mills Bhd. ............................. Food & Household Products 1,070,500 836,565
Genting Bhd. ......................................... Leisure & Tourism 4,346,800 7,533,449
Golden Hope Plantations Bhd. ......................... Misc Materials & Commodities 200,000 172,260
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
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LONG TERM SECURITIES (CONT.)
MALAYSIA (CONT.)
Hong Leong Industries Bhd. ........................... Multi-Industry 2,361,000 $ 1,185,398
*Hong Leong Industries Bhd., wts. .................... Multi-Industry 221,250 23,239
Hong Leong Properties Bhd. ........................... Real Estate 3,826,000 634,954
Island & Peninsula Bhd. .............................. Real Estate 1,792,000 1,144,410
Kian Joo Can Factory Bhd. ............................ Industrial Components 934,000 1,098,766
*Leader Universal Holdings Bhd. ...................... Industrial Components 10,027,000 2,211,722
Malayawata Steel Bhd. ................................ Metals & Mining 1,696,500 349,261
Malaysian Airlines System Bhd. ....................... Transportation 3,207,000 1,401,305
Malaysian International Shipping Corp., fgn. ......... Transportation 2,012,333 2,113,684
*MBF Capital Bhd. .................................... Financial Services 3,598,000 646,245
Oriental Holdings Bhd. ............................... Automobiles 1,190,760 1,463,357
Perlis Plantations Bhd. .............................. Multi-Industry 2,699,250 2,211,454
Perusahaan Otomobil Nasional Bhd. .................... Automobiles 1,803,000 2,177,879
Public Bank Bhd. ..................................... Banking 10,237,800 4,301,371
Public Bank Bhd., fgn. ............................... Banking 5,009,800 1,946,984
Public Finance Bhd., fgn. ............................ Financial Services 1,850,000 652,907
Renong Bhd. .......................................... Multi-Industry 16,709,000 3,229,301
Resorts World Bhd. ................................... Leisure & Tourism 9,785,000 9,003,372
Shangri La Hotels (Malaysia) Bhd. .................... Leisure & Tourism 2,948,000 786,505
Tanjong Plc. ......................................... Recreation & Other Consumer Goods 2,533,000 2,873,421
Technology Resources Industries Bhd. ................. Multi-Industry 4,083,000 1,698,302
YTL Corp. Berhad...................................... Construction & Housing 354,000 367,367
--------------
55,236,157
--------------
MEXICO 8.3%
Alfa SA de CV, A...................................... Multi-Industry 1,459,274 4,109,280
*Altos Hornos de Mexico SA............................ Metals & Mining 2,723,700 2,445,547
Cemex SA.............................................. Building Materials & Components 1,446,936 3,123,568
Cemex SA, B........................................... Building Materials & Components 10,862,875 27,294,484
*Cifra SA de CV, C.................................... Merchandising 8,866,602 10,937,568
*Cifra SA de CV, V.................................... Merchandising 2,355,500 2,858,038
Coca Cola Femsa SA de CV, L, ADR...................... Beverages & Tobacco 636,400 8,432,300
Cydea SA de CV, A..................................... Multi-Industry 146,231 133,072
DESC SA de CV DESC, A................................. Multi-Industry 405,000 427,523
DESC SA de CV DESC, B................................. Multi-Industry 2,317,720 1,987,287
DESC SA de CV DESC, C................................. Multi-Industry 439,035 414,620
*Grupo Financiero Banamex Accival SA de CV, B......... Banking 5,112,000 6,719,515
*Grupo Financiero Banamex Accival SA de CV, L......... Banking 7,671,018 8,842,225
*Grupo Financiero Bancomer SA de CV, B................ Banking 10,243,934 2,195,869
Grupo Financiero Bancomer SA de CV, L................. Banking 21,986,553 3,112,353
Grupo Financiero Serfin SA de CV, B................... Banking 14,998,314 1,334,531
*Grupo Industrial Maseca SA de CV, B.................. Food & Household Products 870,000 703,741
Hylsamex SA de CV, partn. cert., B.................... Metals & Mining 39,000 48,504
Nacional de Drogas SA, B.............................. Health & Personal Care 494,500 325,000
Panamerican Beverages Inc., A......................... Food & Household Products 256,200 5,588,363
Telefonos de Mexico SA (Telmex), L, ADR............... Telecommunications 1,013,400 49,339,913
Vitro SA de CV........................................ Food & Household Products 3,048,192 4,469,038
--------------
144,842,339
--------------
NEW ZEALAND .2%
Brierley Investments Ltd. ............................ Multi-Industry 17,719,000 4,024,833
--------------
PAKISTAN .6%
*Bank of Punjab....................................... Banking 562,359 114,733
*DG Khan Cement Co. .................................. Building Materials & Components 954,400 69,062
Engro Chemical Pakistan Ltd. ......................... Chemicals 761,087 1,376,076
Fauji Fertilizer Co. Ltd. ............................ Chemicals 357,500 329,116
Khadim Ali Sham Bukhari & Co. Ltd. ................... Financial Services 217,120 65,463
National Development Leasing Corp. ................... Financial Services 192,871 13,956
*Pakistan Electron Ltd. .............................. Appliances & Household Durables 107,000 7,528
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
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LONG TERM SECURITIES (CONT.)
PAKISTAN (CONT.)
*Pakistan International Airlines Corp., A............. Transportation 404,300 $ 32,913
Pakistan Telecommunications Corp., PTC, A............. Telecommunications 17,371,600 6,634,380
Pakistan Telecom Corp., PTC, GDR...................... Telecommunications 27,000 931,500
*Union Bank Ltd. ..................................... Banking 510,878 112,958
--------------
9,687,685
--------------
PERU .9%
Telefonica Del Peru SA, B, ADR........................ Telecommunications 1,218,430 15,458,831
--------------
PHILIPPINES 2.2%
*A Soriano Corp. ..................................... Multi-Industry 43,486,500 927,861
Ayala Corp. .......................................... Multi-Industry 4,572,460 1,616,229
Bank of Philippine Islands............................ Banking 774,000 1,641,517
*Belle Corp. ......................................... Real Estate 37,726,000 2,075,415
*Digital Telecommunications Philippines Inc. ......... Telecommunications 37,155,000 907,384
*Filinvest Development Corp. ......................... Real Estate 7,951,000 261,627
*Keppel Philippine Holdings Inc., B................... Machinery & Engineering 1,043,625 18,780
Manila Electric Co., B................................ Utilities Electrical & Gas 580 1,864
*Petron Corporation................................... Energy Sources 28,699,000 3,135,495
*Philex Mining Corp., B............................... Metals & Mining 19,030,915 151,660
Philippine Commercial International Bank Inc. ........ Banking 427,950 1,782,208
Philippine Long Distance Telephone Co., ADR........... Telecommunications 739,110 19,170,666
*Philippine National Bank............................. Banking 348,263 537,167
RFM Corp. ............................................ Food & Household Products 26,692,027 4,117,022
San Miguel Corp., B................................... Food & Household Products 1,294,400 2,495,630
*Southeast Asia Cement Holdings Inc. ................. Building Materials & Components 13,088,880 161,508
--------------
39,002,033
--------------
POLAND 1.6%
Bank Handlowy W Warszawie SA, GDR, Reg S.............. Banking 86,300 1,117,585
Bank Przemyslowo-Handlowy SA.......................... Banking 74,201 4,397,096
Bank Rozwoju Eksportu SA.............................. Banking 11,639 268,592
Bank Slaski SA W Katowicach........................... Banking 25,100 1,301,481
Big Bank Gdanski SA, G................................ Banking 10,818,714 9,709,102
Big Bank Gdanski SA, GDR, Reg S....................... Banking 58,766 796,279
Farm Food SA.......................................... Food & Household Products 53,452 178,173
Gorazdze SA........................................... Building Materials & Components 42,550 715,228
Huta Olawa SA......................................... Metals & Mining 20,221 30,533
*Impexmetal SA........................................ Metals & Mining 183,151 699,209
Mostostal Export SA................................... Construction & Housing 721,615 760,677
*Orbis SA............................................. Leisure & Tourism 21,426 168,478
Polifarb Cieszyn Wroclaw SA........................... Chemicals 356,584 848,284
*Raciborska Fabryka Kotlow SA......................... Energy Equipment & Services 17,632 34,661
+*Rolimpex SA......................................... Wholesale & International Trade 1,145,299 1,859,887
Warta SA.............................................. Insurance 143,383 2,941,190
Wielkopolski Bank Kredytowy SA........................ Banking 248,622 1,565,398
Zaklady Piwowarskie W Zywcu SA........................ Beverages & Tobacco 1,520 181,880
*Zaklady Plyt Wiorowych Grajewo AS.................... Forest Products & Paper 6,829 61,480
--------------
27,635,213
--------------
RUSSIA .7%
Aeroflot - Russia International Airlines.............. Transportation 13,500 324,000
*Chelyabenergo........................................ Utilities Electrical & Gas 1,860,000 74,400
GUM Trade House....................................... Merchandising 540,000 261,900
Irkutskenergo......................................... Utilities Electrical & Gas 11,381,800 509,336
Irkutskenergo, ADR.................................... Utilities Electrical & Gas 92,000 205,850
*JSC Chernogorneft.................................... Energy Sources 3,000 6,375
*JSC Gorkovsky Augomobile Plant....................... Automobiles 20,970 382,703
*Kamaz, B............................................. Automobiles 794,380 178,656
Krasnoyarsk Aluminum Plant............................ Metals & Mining 23,086 80,801
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
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LONG TERM SECURITIES (CONT.)
RUSSIA (CONT.)
Lukoil-Holdings....................................... Energy Sources 43,000 $ 174,150
Lukoil-Holdings, ADR.................................. Energy Sources 25,810 418,122
Mosenergo............................................. Utilities Electrical & Gas 37,378,700 747,574
Mosenergo, ADR........................................ Utilities Electrical & Gas 37,000 69,375
Norilsk Nickel........................................ Metals & Mining 146,000 77,745
*Novorosissk Sea Shipping............................. Transportation 1,010,000 75,750
*Noyabrskneftegaz..................................... Energy Sources 54,959 83,812
Primorsk Sea Shipping................................. Transportation 67,800 40,511
*Purneftegaz.......................................... Energy Sources 586,000 998,251
Red October........................................... Food & Household Products 67,000 438,850
Rostelecom............................................ Telecommunications 2,511,000 1,833,030
Rostelecom, pfd. ..................................... Telecommunications 2,195,200 636,608
Rostelecom, ADR....................................... Telecommunications 183,700 769,244
Saint Petersburg City Telephone Network, A, pfd. ..... Telecommunications 285,000 47,025
St. Petersburg International Telephone................ Telecommunications 143,970 64,930
St. Petersburg MMT, pfd. ............................. Telecommunications 152,100 48,809
*Tyumen Aviatrans..................................... Transportation 1,930,000 12,545
Unified Energy Systems................................ Utilities Electrical & Gas 63,010,000 1,921,805
Unified Energy Systems, pfd. ......................... Utilities Electrical & Gas 4,930,000 67,788
Unified Energy Systems, ADR........................... Utilities Electrical & Gas 182,000 558,558
*Uralmash Zavody...................................... Machinery & Engineering 27,684 15,877
*Vimpel Communications, ADR........................... Telecommunications 74,650 965,784
--------------
12,090,164
--------------
SINGAPORE 10.0%
Acer Computer International Ltd. ..................... Electrical & Electronics 889,000 444,500
Acma Ltd. ............................................ Electrical & Electronics 666,600 292,900
*Acma Ltd., wts. ..................................... Electrical & Electronics 79,150 7,435
Asia Pacific Breweries Ltd. .......................... Beverages & Tobacco 93,000 192,764
British American Tobacco Co. (Singapore) Ltd. ........ Beverages & Tobacco 44,000 93,333
Chemical Industries (Far East) Ltd. .................. Chemicals 606,900 617,935
*Chemical Industries (Far East) Ltd., wts. ........... Chemicals 184,800 26,320
City Developments Ltd. ............................... Real Estate 5,253,500 22,765,167
Cycle & Carriage Ltd. ................................ Automobiles 1,686,000 5,773,273
Delgro Corp. ......................................... Transportation 1,260,200 1,634,441
First Capital Corp. Ltd. ............................. Real Estate 1,441,000 960,667
Fraser and Neave Ltd. ................................ Beverages & Tobacco 4,510,000 13,174,667
G P Batteries International Ltd. ..................... Electrical & Electronics 24,000 51,200
Hai Sun Hup Group Ltd. ............................... Transportation 3,030,000 762,091
*Hai Sun Hup Group Ltd., wts. ........................ Transportation 870,400 63,302
Hind Hotels International Ltd. ....................... Leisure & Tourism 414,000 283,527
Hong Leong Finance Ltd., fgn. ........................ Financial Services 478,000 915,442
Hour Glass Ltd. ...................................... Merchandising 258,000 43,000
*Inchcape Marketing Services Ltd. .................... Broadcasting & Publishing 1,458,000 795,273
Inchcape Motors Ltd. ................................. Wholesale & International Trade 623,000 721,170
Isetan (Singapore) Ltd. .............................. Merchandising 68,000 61,818
Jaya Holdings Ltd. ................................... Transportation 701,000 218,797
*Jaya Holdings Ltd., wts. ............................ Transportation 75,240 1,824
Jurong Shipyard Ltd. ................................. Machinery & Engineering 1,876,000 8,243,030
Keppel Corp., Ltd. ................................... Transportation 8,756,000 23,455,467
MCL Land Ltd. ........................................ Real Estate 3,173,000 2,288,406
Metro Holdings Ltd. .................................. Wholesale & International Trade 861,000 808,818
Natsteel Ltd. ........................................ Metals & Mining 9,716,000 10,658,158
*Neptune Orient Lines Ltd. ........................... Transportation 5,417,000 1,740,006
*Osprey Maritime Ltd. ................................ Transportation 1,003,000 310,018
Osprey Maritime Ltd., cvt., 2.50%, pfd. .............. Transportation 179,280 54,327
Overseas Chinese Banking Corp. Ltd., fgn. ............ Banking 4,064,000 27,585,939
Overseas Union Enterprise Ltd. ....................... Leisure & Tourism 1,353,000 2,689,600
Prima Ltd. ........................................... Food & Household Products 98,000 135,715
Republic Hotels & Resorts Ltd. ....................... Leisure & Tourism 657,000 310,582
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
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SHARES/
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LONG TERM SECURITIES (CONT.)
SINGAPORE (CONT.)
Robinson & Co., Ltd. ................................. Merchandising 239,200 $ 536,388
*Sembcorp Industries Ltd. ............................ Multi-Industry 10,487,070 11,948,904
Singapore Petroleum Company, fgn. .................... Chemicals 87,000 35,855
Tibs Holdings Ltd. ................................... Transportation 83,000 51,309
Times Publishing Ltd. ................................ Broadcasting & Publishing 278,000 434,691
United Industrial Corporation Ltd. ................... Real Estate 17,341,000 6,936,400
United Overseas Bank Ltd., fgn. ...................... Banking 3,808,000 24,463,515
United Overseas Land Ltd. ............................ Real Estate 1,402,000 951,661
WBL Corp. Ltd. ....................................... Multi-Industry 446,000 286,521
--------------
173,826,156
--------------
SLOVAK REPUBLIC .2%
Nafta Gbely AS........................................ Utilities Electrical & Gas 80,331 698,056
Slovakofarma AS....................................... Health & Personal Care 148 7,154
Slovnaft AS........................................... Chemicals 106,971 1,917,199
Vychodoslovenske Zeleziarne AS........................ Metals & Mining 68,977 335,285
--------------
2,957,694
--------------
SOUTH AFRICA 8.6%
Aeci Ltd. ............................................ Chemicals 717,100 914,241
*Allied Electronics Ltd., pfd. ....................... Electrical & Electronics 29,255 24,368
Amalgamated Banks of South Africa Ltd. ............... Banking 438,600 2,080,139
Anglo American Gold Investment Co. Ltd. .............. Metals & Mining 5,100 190,727
Anglo American Industrial Corp. Ltd. ................. Multi-Industry 593,507 9,029,600
Anglo-American Corp. of South Africa Ltd. ............ Metals & Mining 704,500 19,855,697
Anglogold Ltd. ....................................... Metals & Mining 10,500 409,094
Anglovaal Industried Ltd. ............................ Multi-Industry 543,370 688,132
Barlow Ltd. .......................................... Multi-Industry 2,477,100 9,516,376
CG Smith Ltd. ........................................ Multi-Industry 6,855,200 15,556,826
De Beers/Centenary Linked Units....................... Misc Materials & Commodities 1,008,400 12,856,232
Edgars Stores Ltd. ................................... Textiles & Apparel 323,613 976,436
Iscor Ltd. ........................................... Metals & Mining 31,218,652 5,625,221
Liberty Life Association of Africa Ltd. .............. Insurance 460,700 6,343,411
Malbak Ltd. .......................................... Multi-Industry 1,860,025 837,885
McCarthy Retail Ltd. ................................. Multi-Industry 512,728 81,057
**McCarthy Retail Ltd., zero coupon, cvt., 9/30/03.... Multi-Industry 66,833ZAR 38,610
Nedcor Ltd. .......................................... Financial Services 35,800 609,776
Palabora Mining Co. Ltd. ............................. Metals & Mining 303,200 1,675,097
Polifin Ltd. ......................................... Chemicals 67,900 57,711
Power Technologies Ltd. .............................. Utilities Electrical & Gas 29,255 17,903
Rembrandt Group Ltd. ................................. Multi-Industry 2,259,470 13,827,023
Reunert Ltd. ......................................... Electrical & Electronics 683,700 953,013
Sappi Ltd. ........................................... Forest Products & Paper 2,049,260 7,924,978
Sasol Ltd. ........................................... Energy Sources 4,781,000 18,082,912
South African Breweries Ltd. ......................... Beverages & Tobacco 1,020,089 17,184,279
Tiger Oats Ltd. ...................................... Food & Household Products 29,100 286,907
Tongaat-Hulett Group Ltd. ............................ Multi-Industry 526,747 3,447,326
Toyota South Africa Limited........................... Automobiles 73,500 168,671
Voltex Holdings Ltd. ................................. Electrical & Electronics 62,179 21,139
--------------
149,280,787
--------------
SOUTH KOREA 6.9%
Asia Cement Manufacturing Co. Ltd. ................... Building Materials & Components 90,000 1,017,879
BYC Co. Ltd. ......................................... Textiles & Apparel 7,180 274,661
Cheil Jedang Corp. ................................... Food & Household Products 17,150 780,129
Cho Hung Bank Co. Ltd., GDR, 144A..................... Banking 700,000 665,000
*Cho Hung Bank Co. Ltd., GDR, Reg S................... Banking 240,000 228,000
*Daegu Bank Co. Ltd. ................................. Banking 69,813 249,643
Daewoo Electric Components Co. Ltd. .................. Electronic Components & Instruments 290,000 1,205,821
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
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LONG TERM SECURITIES (CONT.)
SOUTH KOREA (CONT.)
*Daewoo Electronics Co. .............................. Electrical & Electronics 758,900 $ 3,565,726
Dongkuk Steel Mill Co. Ltd. .......................... Metals & Mining 76,900 543,576
Hae In Co. Ltd. ...................................... Merchandising 1,000 5,821
Hana Bank............................................. Banking 165,723 1,832,945
Hana Bank, GDR, Reg S................................. Banking 520,889 6,550,179
Hankook Cosmetics Co. Ltd. ........................... Health & Personal Care 14,940 168,968
*Hotel Shilla Co. .................................... Leisure & Tourism 311,557 1,839,547
Korea Electric Power Corp. ........................... Utilities Electrical & Gas 1,758,320 43,574,167
Kyung Dong Boiler Co. Ltd. ........................... Energy Equipment & Services 27,573 275,157
LG Electronics Inc. .................................. Electrical & Electronics 122,339 1,485,363
LG Industrial Systems Ltd. ........................... Electrical & Electronics 268,000 1,548,940
Moon Bae Steel Co. Ltd. .............................. Metals & Mining 9,000 82,328
Saehan Precision Co. Ltd. ............................ Electrical & Electronics 48,218 761,864
Samsung Display Devices Ltd. ......................... Electrical & Electronics 287,114 14,158,720
Samsung Electronics Co. Ltd. ......................... Electrical & Electronics 339,022 22,751,830
*Samsung Heavy Industries Co. Ltd. ................... Machinery & Engineering 1,519,763 8,644,639
Seah Steel Corp. ..................................... Metals & Mining 16,483 141,185
Shin Poong Paper Manufacturing Co. Ltd. .............. Forest Products & Paper 32,692 270,508
Shin Young Wocoal Inc. ............................... Textiles & Apparel 8,210 301,773
Sindo Ricoh Co. ...................................... Appliances & Household Durables 10,100 362,004
Ssangyong Oil Refining Co. Ltd. ...................... Chemicals 218,660 4,182,270
*Tong Yang Merchant Bank.............................. Financial Services 274,596 1,561,943
--------------
119,030,586
--------------
SRI LANKA
Aitken Spence & Co. Ltd. ............................. Multi-Industry 46,533 72,421
Associated Motorways Ltd. ............................ Automobiles 4,432 2,898
*Ceylon Holiday Resorts Inc. ......................... Leisure & Tourism 90,300 30,351
Lanka Walltile Ltd. .................................. Building Materials & Components 8,000 789
National Development Bank of Sri Lanka................ Banking 280,000 523,747
United Motor Lanka Ltd. .............................. Automobiles 74,400 35,335
--------------
665,541
--------------
THAILAND 7.7%
Advanced Info Service Public Co. Ltd., fgn. .......... Telecommunications 1,021,700 6,073,681
*American Standard Sanitaryware Public Co. Ltd.,
fgn. ............................................... Building Materials & Components 180,200 1,351,438
Ayudhya Insurance Public Co. Ltd., fgn. .............. Insurance 176,800 620,394
*Bangkok Bank Public Co. Ltd. ........................ Banking 11,476,600 16,424,472
*Bangkok Bank Public Co. Ltd., fgn. .................. Banking 2,130,600 4,397,826
*Bangkok Expressway Public Co. Ltd., fgn. ............ Transportation 3,536,000 3,552,057
Bangkok Insurance Public Co. Ltd. .................... Insurance 85,000 315,811
Bangkok Insurance Public Co. Ltd., fgn. .............. Insurance 4,900 23,634
BEC World Public Co Ltd., fgn. ....................... Telecommunications 507,000 2,790,698
*Charoen Pokphand Feedmill Public Co. Ltd. ........... Food & Household Products 2,359,700 2,873,723
*Chareon Pokphand Feedmill Public Co. Ltd., fgn. ..... Food & Household Products 552,500 676,655
*Dusit Thani Public Company Ltd., fgn. ............... Leisure & Tourism 135,000 142,598
*Hana Microelectronics Co. Ltd., fgn. ................ Electrical & Electronics 814,800 1,973,370
*Hua Thai Manufacturing Public Co. Ltd., fgn. ........ Textiles & Apparel 125,100 208,299
Industrial Finance Corp. of Thailand, fgn. ........... Financial Services 13,779,300 5,688,441
*Italian-Thai Development Public Co. Ltd., fgn. ...... Construction & Housing 725,100 1,456,785
*Jasmine International Public Co. Ltd., fgn. ......... Telecommunications 2,693,000 674,454
*Karat Sanitaryware Public Co. Ltd., fgn. ............ Building Materials & Components 78,216 8,611
*National Petrochemical Public Company Ltd., fgn. .... Chemicals 343,200 158,211
*Regional Container Lines Public Co. Ltd. ............ Transportation 108,997 56,996
Regional Container Lines Public Co. Ltd., fgn. ....... Transportation 486,903 241,207
Saha Pathanapibul Public Co. Ltd., fgn. .............. Food & Household Products 593,100 603,955
*Saha Union Public Co. Ltd. .......................... Multi-Industry 3,996,100 1,622,196
Saha Union Public Co. Ltd., fgn. ..................... Multi-Industry 674,300 283,007
*Sanyo Universal Electric Public Co Ltd., fgn. ....... Appliances & Household Durables 175,900 32,677
*Serm Suk Public Co. Ltd. ............................ Food & Household Products 410,000 2,093,161
</TABLE>
22
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND (CONT.)
*Serm Suk Public Co. Ltd., fgn. ...................... Food & Household Products 8,200 $ 45,587
*SG Asia Credit Public Co. Ltd. ...................... Financial Services 40,000 13,210
*SG Asia Credit Public Co. Ltd., fgn. ................ Financial Services 171,130 56,517
*Shinawatra Computer & Comm. Public Co. Ltd. ......... Electrical & Electronics 25,500 84,216
*Shinawatra Computer & Comm. Public Co. Ltd., fgn. ... Electrical & Electronics 101,200 348,149
*Siam Cement Public Co. Ltd. ......................... Building Materials & Components 807,000 12,437,595
*Siam Cement Public Co. Ltd., fgn. ................... Building Materials & Components 489,400 11,098,544
*Siam Commercial Bank Ltd., fgn. ..................... Banking 148,512 88,899
Siam Makro Public Company Ltd., fgn. ................. Merchandising 2,357,300 4,606,256
*Thai Airways International Public Co. Ltd., fgn. .... Transportation 1,913,700 2,475,407
*Thai Asahi Glass Public Co. Ltd. .................... Building Materials & Components 94,910 16,717
*Thai Asahi Glass Public Co. Ltd., fgn. .............. Building Materials & Components 32,000 5,636
*Thai Engine Manufacturing Public Company Ltd. ....... Machinery & Engineering 405,000 101,431
*Thai Farmers Bank Public Co. Ltd. ................... Banking 15,126,382 22,272,229
*Thai Farmers Bank Public Co. Ltd., fgn. ............. Banking 8,734,818 15,385,396
*Thai Petrochemical Industry Public Co. Ltd., fgn. ... Chemicals 1,628,960 268,990
*Thai Plastic and Chemical Co. Ltd., fgn. ............ Chemicals 2,200 3,875
Thai Rayon Public Co. Ltd. ........................... Textiles & Apparel 32,608 32,083
Thai Rayon Public Co. Ltd., fgn. ..................... Textiles & Apparel 39,152 38,522
*Thai Telephone & Telecommunication Public Co. Ltd.,
fgn. ............................................... Telecommunications 6,429,500 955,533
Thai Wacoal Public Co. Ltd., fgn. .................... Textiles & Apparel 236,550 279,941
*Total Access Communication Public Co. Ltd. .......... Telecommunications 4,489,800 7,722,456
*United Communications Industries, fgn. .............. Telecommunications 3,017,000 1,619,141
*United Motor Works (Siam) Public Co. Ltd. ........... Machinery & Engineering 2,100 1,560
--------------
134,302,247
--------------
TURKEY 3.5%
Akbank................................................ Banking 1,156,533,112 23,468,015
Alarko Sanayii ve Ticaret SA.......................... Appliances & Household Durables 7,073,998 319,608
*Alcatel Teletas...................................... Telecommunications 27,080,000 1,137,635
*Anadolu Anonim Turk Sigorta Sirketi, br. ............ Insurance 21,308,000 246,589
Arcelik AS, Br. ...................................... Appliances & Household Durables 194,824,854 5,621,136
Beko Elektronik AS.................................... Appliances & Household Durables 83,109,199 1,093,542
Borusan AS............................................ Industrial Components 4,688,000 127,828
Erciyas Biracilik..................................... Food & Household Products 29,847,000 1,987,276
*Eregli Demir ve Celik Fabrikalari AS................. Metals & Mining 46,002,000 1,896,088
Finansbank, Br. ...................................... Banking 188,279,058 1,372,993
Haci Omer Sabanci Holding AS, ADR, 144A............... Multi-Industry 1,404,500 5,266,875
Izocam Ticaret ve Sanayii AS, br. .................... Building Materials & Components 24,204,776 230,229
Kartonsan Karton San VE TIC AS........................ Forest Products & Paper 24,055,250 838,959
Koc Holding AS........................................ Multi-Industry 14,636,591 1,276,177
*Netas Northern Electric Telekomunic Asyon AS......... Electrical & Electronics 29,770,600 547,462
Petkim Petrokimya Holding AS.......................... Chemicals 2,403,000 1,085,693
Tat Konserve Sanayii AS............................... Food & Household Products 13,990,210 499,017
*Tofas Turk Otomobil Fabrikasi AS..................... Automobiles 239,454,775 2,163,748
Turk Demir Dokum, br. ................................ Appliances & Household Durables 25,494,646 282,915
*Turkiye Garanti Bankasi AS........................... Banking 392,990,431 9,718,850
*Turkiye Is Bankasi AS, C............................. Banking 27,883,000 724,923
Vakif Finansal Kiralama AS............................ Financial Services 29,968,612 100,719
--------------
60,006,277
--------------
VENEZUELA 2.8%
Ceramica Carabobo CA, A............................... Building Materials & Components 332,420 27,971
Ceramica Carabobo CA, A, ADR.......................... Building Materials & Components 31,585 26,577
Ceramica Carabobo CA, B............................... Building Materials & Components 1,243,290 94,705
Compania Anonima Nacional Telefonos de Venezuela,
ADR................................................. Telecommunications 968,800 17,256,750
Corporacion Industrial Carabobo Saca SIC, B........... Building Materials & Components 6,751,015 53,816
Electricidad de Caracas SAICA SACA.................... Utilities Electrical & Gas 50,405,556 21,760,364
*International Briquettes Holdings.................... Metals & Mining 40 178
*Manufacturera de Aparatos Domesticos Madoda SA, A.... Appliances & Household Durables 180,613 63,670
</TABLE>
23
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
VENEZUELA (CONT.)
Mavesa SA, ADR........................................ Food & Household Products 1,308,112 $ 4,905,420
Siderurgica Venezolana Sivensa Saica Services, A,
ADR................................................. Metals & Mining 432,271 2,023,500
Vencemos de Cementos SA............................... Building Materials & Components 1,761,451 1,154,528
Venezolana de Cementos-Vencemos, #2................... Building Materials & Components 1,380,019 916,745
--------------
48,284,224
--------------
ZIMBABWE
Delta Corp. .......................................... Multi-Industry 506,739 110,294
Meikles Africa Ltd. .................................. Multi-Industry 115,000 64,400
*TA Holdings.......................................... Multi-Industry 25,000 437
Zimbabwe Sun Ltd. .................................... Multi-Industry 2,790,724 157,477
--------------
332,608
--------------
TOTAL INVESTMENTS (COST $2,323,891,902) 99.3%......... 1,722,001,770
OTHER ASSETS, LESS LIABILITIES .7%.................... 11,605,108
--------------
TOTAL NET ASSETS 100.0%............................... $1,733,606,878
===============
</TABLE>
CURRENCY ABBREVIATION:
ZAR -- South African C Rand
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise 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 December
31, 1998 were $3,334,623.
See Notes to Financial Statements.
24
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value ($2,323,891,902)....... $1,722,001,770
Receivables:
Investment securities sold................................ 245,427
Capital shares sold....................................... 8,129,073
Dividends................................................. 9,208,451
--------------
Total assets........................................... 1,739,584,721
--------------
Liabilities:
Payables:
Investment securities purchased........................... 226,930
Capital shares redeemed................................... 732,352
To affiliates............................................. 1,961,549
Custodian fees............................................ 913,268
Funds advanced by custodian................................ 1,961,128
Accrued expenses........................................... 182,616
--------------
Total liabilities...................................... 5,977,843
--------------
Net assets, at value........................................ $1,733,606,878
==============
Net assets consist of:
Undistributed net investment income........................ 605,716
Net unrealized depreciation................................ (601,890,132)
Accumulated net realized loss.............................. (139,846,948)
Capital shares............................................. 2,474,738,242
--------------
Net assets, at value........................................ $1,733,606,878
==============
Net asset value per share ($1,733,606,878 / 208,550,286
shares outstanding)....................................... $8.31
==============
</TABLE>
See Notes to Financial Statements.
25
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $3,929,630)
Dividends.................................................. $ 46,804,096
Interest................................................... 18,885,864
------------
Total investment income............................... $ 65,689,960
Expenses:
Management fees (Note 3)................................... 23,147,831
Administrative fees (Note 3)............................... 1,557,264
Transfer agent fees (Note 3)............................... 10,100
Custodian fees............................................. 2,962,820
Reports to shareholders.................................... 19,700
Registration and filing fees............................... 200,000
Professional fees.......................................... 72,500
Directors' fees and expenses............................... 48,000
Amortization of organization costs......................... 710
Other...................................................... 4,243
------------
Total expenses........................................ 28,023,168
-------------
Net investment income........................... 37,666,792
-------------
Realized and unrealized losses:
Net realized loss from:
Investments............................................... (89,397,418)
Foreign currency transactions............................. (1,119,684)
------------
Net realized loss..................................... (90,517,102)
Net unrealized depreciation on investments............ (334,534,122)
-------------
Net realized and unrealized loss............................ (425,051,224)
-------------
Net decrease in net assets resulting from operations........ $(387,384,432)
==============
</TABLE>
See Notes to Financial Statements.
26
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 37,666,792 $ 29,218,762
Net realized gain (loss) from investments and foreign
currency transactions................................... (90,517,102) 31,325,228
Net unrealized depreciation on investments................ (334,534,122) (373,187,334)
-----------------------------------
Net decrease in net assets resulting from operations.... (387,384,432) (312,643,344)
Distributions to shareholders from:
Net investment income..................................... (40,080,848) (29,706,898)
Net realized gains........................................ -- (80,352,717)
Capital share transactions (Note 2)........................ 237,190,928 781,047,570
-----------------------------------
Net increase (decrease) in net assets................... (190,274,352) 358,344,611
Net assets:
Beginning of year.......................................... 1,923,881,230 1,565,536,619
-----------------------------------
End of year................................................ $1,733,606,878 $1,923,881,230
===================================
Undistributed net investment income included in net assets:
End of year................................................ $ 605,716 $ 1,568,894
===================================
</TABLE>
See Notes to Financial Statements.
27
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Emerging Markets Series (the Fund) is a separate, diversified series of
Templeton Institutional Funds, Inc. (the Company), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks to achieve long-term capital growth by investing primarily in equity
securities of issuers in countries with emerging markets. 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. 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 and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
Certain countries in which the Fund invests have imposed restrictions on the
repatriation of their currencies. Other countries have previously instituted
currency exchange controls in the past during periods of serious imbalance in
their balance of payments or upon the occurrence of other destabilizing events.
Exchange control regulations may restrict the Fund's ability to convert
investment income, capital, or the proceeds of securities into U.S. dollars. As
of December 31, 1998, the Fund has investments with a value of approximately $55
million in countries with restrictions on the repatriation of their currencies
or formal exchange controls currently in place.
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 to
distribute 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.
Common expenses incurred by the Company are allocated among the funds comprising
the Company based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
28
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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 December 31, 1998, there were 940 million shares authorized ($0.01 par
value), of which 325 million have been classified as Fund shares. Transactions
in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 72,904,287 $ 672,866,243 74,259,980 $1,000,379,973
Shares issued on reinvestment of distributions.............. 4,292,592 36,277,062 10,166,940 103,837,009
Shares redeemed............................................. (54,174,577) (471,952,377) (24,610,709) (323,169,412)
------------------------------------------------------------------
Net increase................................................ 23,022,302 $ 237,190,928 59,816,211 $ 781,047,570
==================================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Company are also officers or directors of Templeton
Asset Management Ltd. (TAML), 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 TAML of 1.25% 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 daily
net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
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
</TABLE>
TAML and FT Services agreed in advance to limit total expenses of the Fund to an
annual rate of 1.60% of average daily net assets through April 30, 1999. For the
year ended December 31, 1998, no fee waiver or reimbursement was necessary under
the agreement.
Legal fees of $39,500 were paid to a law firm in which a partner is an officer
of the Fund.
29
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (continued)
4. INCOME TAXES
At December 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $2,374,637,866 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 138,122,683
Unrealized depreciation..................................... (790,758,779)
-------------
Net unrealized depreciation................................. $(652,636,096)
=============
</TABLE>
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of passive foreign investment
companies, wash sales, and losses realized subsequent to October 31 on the sales
of securities and foreign currencies.
At December 31, 1998 the Fund had tax basis capital losses of $85,000,000 which
may be carried over to offset future capital gains. Such losses expire December
31, 2006.
At December 31, 1998 the Fund has deferred capital and currency losses occurring
subsequent to October 31, 1998 of $4,400,000. For tax purposes, such losses will
be reflected in the year ending December 31, 1999.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $1,069,149,258 and $576,377,347,
respectively.
30
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc. - Emerging Markets Series
We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Emerging Markets Series of Templeton
Institutional Funds, Inc. as of December 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Emerging Markets Series of Templeton Institutional Funds, Inc. as of December
31, 1998, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
January 28, 1999
31
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Tax Designation
At December 31, 1998, more than 50% of the Templeton Emerging Markets Series
Fund's total assets were invested in securities of foreign issuers. In most
instances, foreign taxes were withheld from dividends paid to the Fund on these
investments. As in prior years, the Fund intends to make an election under
Section 853 of the Internal Revenue Code. This election will allow shareholders
to treat their proportionate share of foreign taxes paid by the Fund as having
been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV, which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to shareholders in December 1998.
<TABLE>
<CAPTION>
FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina................................................... $0.0000 $0.0056
Austria..................................................... 0.0000 0.0002
Brazil...................................................... 0.0076 0.0337
Chile....................................................... 0.0006 0.0014
China....................................................... 0.0000 0.0026
Colombia.................................................... 0.0000 0.0057
Czech Republic.............................................. 0.0002 0.0014
Ecuador..................................................... 0.0000 0.0002
Egypt....................................................... 0.0000 0.0004
Ghana....................................................... 0.0000 0.0001
Greece...................................................... 0.0000 0.0069
Hong Kong................................................... 0.0000 0.0162
Hungary..................................................... 0.0002 0.0011
India....................................................... 0.0000 0.0063
Indonesia................................................... 0.0002 0.0007
Israel...................................................... 0.0001 0.0003
Jordan...................................................... 0.0000 0.0001
Malaysia.................................................... 0.0021 0.0051
Mexico...................................................... 0.0000 0.0101
Pakistan.................................................... 0.0006 0.0026
Peru........................................................ 0.0000 0.0013
Philippines................................................. 0.0002 0.0005
Poland...................................................... 0.0003 0.0013
Portugal.................................................... 0.0011 0.0042
Russia...................................................... 0.0002 0.0013
Singapore................................................... 0.0031 0.0075
Slovak Republic............................................. 0.0001 0.0005
South Africa................................................ 0.0000 0.0151
South Korea................................................. 0.0004 0.0013
Sri Lanka................................................... 0.0000 0.0001
Thailand.................................................... 0.0001 0.0007
Turkey...................................................... 0.0000 0.0108
United Kingdom.............................................. 0.0000 0.0001
Venezuela................................................... 0.0000 0.0016
Zimbabwe.................................................... 0.0000 0.0001
--------------------------------------
TOTAL....................................................... $0.0171 $0.1471
======================================
</TABLE>
32
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. 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 Funds.
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
ZT456 A 12/98 Institutional Services: 1-800-321-8563
[recycle symbol] Fund Information: 1-800-362-6243
