TEMPLETON INSTITUTIONAL FUNDS INC, N-30D, 1999-08-31

TEMPLETON INSTITUTIONAL FUNDS INC
N-30D, 1999-08-31

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TEMPLETON INSTITUTIONAL FUNDS, INC.

[TEMPLETON GRAPHIC]

TIFI EMERGING MARKETS SERIES

SEMIANNUAL REPORT

[LOGO] TEMPLETON JUNE 30, 1999

PAGE

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 OR ENDORSED BY, ANY
BANK;

- ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

Investing in developing markets involves special considerations, which may
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.

PAGE

June 30, 1999

[PHOTO OF J. MARK MOBIUS]

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.

Dear Shareholder:

This is the semiannual report for the Templeton Institutional Funds,
Inc. Emerging Markets Series (the "Fund") for the six-month period ending June
30, 1999. The unmanaged International Finance Corporation ("IFC") Investable
Composite Index reported cumulative total returns of 23.90% and 37.29% for the
quarter and six month periods ended June 30, 1999 compared to 27.53% and 38.35%
cumulative total returns for the Fund

TOTAL RETURNS AS OF 6/30/99

<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 38.98% 1.54% 3.80% 39.20%
IFC Investable
Composite Index(4) 26.96% -3.82% -1.19% 32.51%
MSCI Emerging
Markets Free Index(5) 28.71% -4.01% -0.83% 40.57%
</TABLE>

(1) The Fund's manager and administrator have agreed in advance to reduce their
respective fees in order to limit the total expenses of the Fund to an annual
rate of 1.60% of average net assets. If these fee reductions are insufficient to
so limit the Fund's expenses, the administrator has agreed to assume as its own
expense certain expenses otherwise payable by the Fund. These voluntary
agreements did not result in any fee reductions for the Fund for the period
ended June 30, 1999. After May 1, 2000, the manager and administrator may end
this arrangement at any time. Past fee reductions by the Fund's manager and
administrator increased the Fund's total returns. Without these reductions, 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) Source: International Finance Corporation. The IFC Investable Composite
Index tracks the performance of approximately 2,000 securities in emerging
market countries. It includes reinvested dividends.

(5) Source: Morgan Stanley Capital International. The MSCI Emerging Markets Free
Index measures the performance of securities located in 25 emerging market
countries such as Brazil, China, Korea and Poland. It includes reinvested
dividends.

Indices are unmanaged, do not contain cash, and do not include management or
other operating expenses. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.

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.

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 10 OF
THIS REPORT.

continued...

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued ..............................................................

for the same time periods. For the one-year, three-year, and five-year periods
ended June 30, 1999, the Fund reported average annual total returns of 38.98%,
1.54%, and 3.80% versus the IFC Investable Composite Index average annual total
returns of 26.96%, -3.82%, and -1.19%, respectively. For the one-year,
three-year, and five-year periods ended June 30, 1999 the MSCI Emerging Markets
Free Index returned 28.71%, -4.01% and -0.83%, respectively. 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, nor is an index representative
of the Fund's portfolio.

Varying stock performance resulted in slight changes to the composition
of the Fund's portfolio during the first half of 1999. We sold portfolio
holdings in Zimbabwe, Croatia and Jordan as we believed better bargains could be
found elsewhere. Austrian companies were added to the portfolio as we considered
them to be good vehicles for participation in Eastern European economic
development. As of June 30, 1999, holdings in Brazil comprised the greatest
portion of the Fund's portfolio at 11.6%, followed by holdings in South Africa
11.0%, Mexico 10.3% and Singapore 9.3%. One-half of the Fund's top ten positions
from the start of the period were no longer in the top ten by the end of the
period: Hong Kong's Cheung Kong Holdings Ltd. and New World Development Co.
Ltd., Brazil's Telecomunicacoes Brasilieras SA (Telebras), and the Singaporean
banks, Overseas Chinese Banking Corp. Ltd., fgn. and United Overseas Bank Ltd.,
fgn. were replaced by South Africa's Anglo American Plc. and Sasol Ltd., Samsung
Electronics Co. Ltd. (South Korea), City Developments Ltd. (Singapore) and
Bangkok Bank Public Co. Ltd. (Thailand). The Fund's exposure to the
telecommunications sector increased significantly during the period due in large
part to the outperformance of holdings from the sector and the addition of China
Telecommunications, Ltd. (Hong Kong) to the portfolio.

In accordance with the Fund's investment philosophy, during the
reporting period holdings were added or removed from the portfolio where we
found value (e.g., China Telecommunications, Ltd.) or wanted to adjust exposure
(e.g., Austria) rather than in response to specific emerging market conditions
around the world. We present the following information about various emerging
markets and possible future directions of emerging markets for your information.

GEOGRAPHIC DISTRIBUTION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)

[PIE CHART]

Asia 47.5%
Australia/New Zealand 0.2%
Europe 6.1%
Middle-East/Africa 11.7%
Latin America/Caribbean 32.8%

PAGE

...............................................................................

The year began with attention focused on events in Brazil. Prior to the
new year, the Brazilian government had failed in its third attempt to pass
economic reform and as a result, foreign investment dollars were fleeing the
country at a rate of around one billion dollars per day. This outflow of funds
put the nation's current account and pegged currency on very shaky ground.
Concern over a collapse of the Brazilian economy, the eighth largest in the
world, severely dampened investor sentiment towards Latin America as well as the
rest of the emerging markets. By mid-January, the Brazilian government had had
enough and announced the float of the currency. The real plummeted in response,
falling 39% against the U.S. dollar in a few days.(1) However, while the
currency fell, the stock markets throughout Latin America began a rally that
continued until May. With the breaking of the real's peg to the U.S. dollar,
investors were finally able to take advantage of some of the bargains that
existed in the region. The Brazilian government took the market rally as a
positive sign and used the momentum to drive key reform bills through Congress.
Within months, the Brazilian economic situation had dramatically improved.
Interest rates fell, the currency stabilized, and key reforms stood ready for
enactment.

The strength coming from Latin America spread across the seas to affect
other emerging markets. The recovery in Asian markets since September 1998 had
been capped by the turmoil in Brazil. However, as the Brazilian picture
improved, so did investor sentiment towards Asia. The Asian rally had resumed by
March 1999, and strong growth was recorded throughout the region. Adding to the
strength in Asia was the slow emergence of positive economic figures, such as
slowed or reversed unemployment growth and shrinking trade surpluses, which
indicated an increase in domestic spending. As in most emerging markets, Asian
economies continued to face difficulties, but the positive indicators encouraged
equity investors, and sent stock markets ever higher.

The laggard in regard to the renewed recovery trend was Eastern Europe.
With the onset of NATO's war against Yugoslavia, concerns about the impact of
the war on trade and regional relations kept investors on the sidelines. Another
question was the state of political power in Russia. During the early portion of
the year, Russia continued to renegotiate a rescue package with the IMF while
almost constantly reshuffling its government. President Yeltsin faced and
ultimately defeated an impeachment attempt and in apparent retaliation, he fired
his prime

(1) Source: Datastream.

FUND ASSET ALLOCATION ON 6/30/99

[PIE CHART]

Short-Term Investments & Other Net Assets 1.7%
Equity* 98.3%

*Equity includes convertible and preferred securities

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
letter continued ..............................................................

INDUSTRY DIVERSIFICATION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)

Finance 18.5%
Services 25.9%
Materials 16.4%
Energy 13.7%
Multi-Industry 8.0%
Consumer Goods 10.0%
Capital Equipment 5.8%

10 LARGEST POSITIONS ON 6/30/99
(Percent of Total Net Assets)

Korea Electric Power Corp. 3.9%
Telefonos de Mexico SA
(Telmex), ADR 3.1%
Cemex SA 2.8%
Thai Farmers Bank
Republic Co. Ltd. 2.5%
Anglo American Plc. 2.2%
Samsung Electronics Co. Ltd. 2.2%
Centrais Eletricas
Brasileiras SA (Eletrobras) 1.7%
Sasol Ltd. 1.6%
Bangkok Bank Public Co. Ltd. 1.5%
Telesp Participacoes SA 1.5%

minister. While the political wrangling continued at home, Russian diplomats
were busy trying to broker a peace agreement between NATO and Yugoslavia. The
nation's diminished status on the world political map, however, meant that its
brokerage attempts were difficult, and on more than one occasion the diplomats
'threatened' to stop their search for peace as they felt no one was listening.

Towards the end of the six-month period, two events occurred that
continue to affect the outlook for emerging markets investors. First, the U.S.
reported a slight increase in inflation, which resulted in a quarter percentage
point increase in short-term interest rates in the U.S. We believe this interest
rate increase by the U.S. Federal Reserve has already been discounted by
emerging markets, as reflected by their continued advance despite Mr.
Greenspan's reference to the preemptive increase of interest rates in his
address to Congress. As a result, we are treating the rate increase as a cause
of short-term volatility, and are not expecting a wholesale reversal of the
recovery trend.

The second event came near the end of the war in Kosovo. Acting on
incorrect information, NATO warplanes bombed the Chinese embassy in Belgrade.
The bombing was immediately labeled a mistake by NATO and the U.S. However, an
apology did little to quench the wave of anti-U.S. sentiment that ripped through
mainland China and Hong Kong. As of the writing of this report, the state of
Sino-U.S. relations remains poor.

In our opinion, these two events may cause emerging markets to be in
for a bit of short-term volatility. This volatility could be enhanced by
developments in countries such as Pakistan, India and Korea, where political
struggles are currently playing out. Also, the formation of a new government in
countries such as Indonesia, Mexico and South Africa could add to the
uncertainty. While all these issues remain in the markets, we expect their
impact to be short-lived and the overall long-term recovery and growth trend to
be preserved.

This discussion reflects our views, opinions, and portfolio holdings as
of June 30, 1999, 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 better 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

PAGE

...............................................................................

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, the consequences of severe market
corrections. In fact, the Mexican Bolsa Index has increased 3,760% in the last
15 years, but has suffered 8 declines of more than 15% during that time.(2)
While short-term volatility can be disconcerting, declines in excess of 50% are
not unusual in emerging markets. These special risks and other considerations
are discussed in the Fund's prospectus.

Thank you for your continued support.

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: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 1999. Market return is measured in U.S. dollars and does
not include reinvested dividends.

For the most current portfolio information, please call 1-800-362-6243.

Total Return Index Comparison
$5,000,000 Investment: 05/03/93-6/30/99

TIFI-Emerging MSCI Emerging Markets IFC Investable
Markets Series/1/ Free Index/4/,/5/ Composite/4/ MSCI World Index/4/,/5/
<S> <C> <C> <C> <C>
5/3/93 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00
5/31/93 $5,010,000.00 $5,125,830.00 $5,105,123.25 $5,116,064.50
6/30/93 $5,030,000.00 $5,277,824.44 $5,250,108.75 $5,074,112.77
7/31/93 $5,040,000.00 $5,417,231.79 $5,413,912.14 $5,179,654.32
8/31/93 $5,415,000.00 $5,874,653.52 $5,852,439.03 $5,417,918.42
9/30/93 $5,590,000.00 $6,089,520.09 $6,087,707.08 $5,318,770.51
10/31/93 $5,840,000.00 $6,635,888.89 $6,597,248.16 $5,466,100.45
11/30/93 $6,040,000.00 $6,929,542.36 $7,018,812.32 $5,157,812.39
12/31/93 $6,646,548.00 $8,074,967.51 $8,220,432.98 $5,411,060.97
1/31/94 $6,726,991.00 $8,221,882.10 $8,274,687.84 $5,768,732.10
2/28/94 $6,596,272.00 $8,075,618.19 $8,059,545.96 $5,694,892.33
3/31/94 $6,256,978.00 $7,344,862.12 $7,246,337.77 $5,450,581.45
4/30/94 $5,912,185.00 $7,197,947.54 $7,105,758.82 $5,620,094.54
5/31/94 $5,917,255.00 $7,444,294.28 $7,276,297.03 $5,635,268.79
6/30/94 $5,775,282.00 $7,239,099.08 $7,015,805.60 $5,620,617.09
7/31/94 $5,993,312.00 $7,689,213.66 $7,521,645.18 $5,728,532.94
8/31/94 $6,485,149.00 $8,643,545.50 $8,485,920.09 $5,902,107.49
9/30/94 $6,556,136.00 $8,741,775.68 $8,696,370.91 $5,748,062.48
10/31/94 $6,373,599.00 $8,584,088.82 $8,410,260.31 $5,912,457.07
11/30/94 $6,130,216.00 $8,137,765.04 $8,093,193.49 $5,657,038.92
12/31/94 $5,889,310.00 $7,484,168.97 $7,230,459.07 $5,713,043.61
1/31/95 $5,458,513.00 $6,687,913.41 $6,264,469.74 $5,628,490.56
2/28/95 $5,342,933.00 $6,516,387.50 $6,183,658.08 $5,711,792.22
3/31/95 $5,516,645.00 $6,557,789.56 $6,167,580.56 $5,988,242.97
4/30/95 $5,706,148.00 $6,851,981.44 $6,427,235.71 $6,197,831.47
5/31/95 $5,895,651.00 $7,216,502.26 $6,666,971.60 $6,251,752.61
6/30/95 $5,937,763.00 $7,237,848.24 $6,706,306.73 $6,251,127.43
7/31/95 $6,211,489.00 $7,400,314.85 $6,920,237.92 $6,564,934.03
8/31/95 $6,043,042.00 $7,225,999.25 $6,734,775.54 $6,419,848.99
9/30/95 $5,995,666.00 $7,191,703.86 $6,683,591.25 $6,607,950.56
10/31/95 $5,779,843.00 $6,916,405.08 $6,431,619.86 $6,504,866.53
11/30/95 $5,742,996.00 $6,793,063.30 $6,399,461.76 $6,731,886.37
12/31/95 $5,817,153.00 $7,094,348.84 $6,622,163.03 $6,929,803.83
1/31/96 $6,374,518.00 $7,598,627.93 $7,177,100.29 $7,056,619.24
2/29/96 $6,271,467.00 $7,477,813.09 $7,017,768.66 $7,101,075.95
3/31/96 $6,347,420.00 $7,536,056.28 $7,120,228.08 $7,220,374.02
4/30/96 $6,515,599.00 $7,837,367.02 $7,407,173.27 $7,391,496.89
5/31/96 $6,624,102.00 $7,802,371.30 $7,341,990.15 $7,398,888.38
6/30/96 $6,634,952.00 $7,851,093.13 $7,429,359.83 $7,437,362.60
7/31/96 $6,331,144.00 $7,314,521.00 $6,941,250.89 $7,175,567.44
8/31/96 $6,461,348.00 $7,501,748.68 $7,156,429.67 $7,259,521.58
9/30/96 $6,580,701.00 $7,566,735.05 $7,261,629.19 $7,544,820.78
10/31/96 $6,564,425.00 $7,364,931.28 $7,105,504.16 $7,599,143.48
11/30/96 $6,776,006.00 $7,488,335.64 $7,210,665.62 $8,026,215.35
12/31/96 $6,914,453.00 $7,522,205.68 $7,242,392.55 $7,899,401.15
1/31/97 $7,425,401.00 $8,035,292.85 $7,753,705.46 $7,995,773.84
2/28/97 $7,708,421.00 $8,379,407.00 $8,133,637.03 $8,089,324.39
3/31/97 $7,552,470.00 $8,159,298.25 $7,929,482.74 $7,930,773.64
4/30/97 $7,624,876.00 $8,173,711.65 $7,794,681.53 $8,191,696.09
5/31/97 $7,986,904.00 $8,407,646.54 $8,059,700.71 $8,698,762.08
6/30/97 $8,276,527.00 $8,857,598.48 $8,407,879.78 $9,133,700.18
7/31/97 $8,655,265.00 $8,989,824.00 $8,489,436.21 $9,555,677.13
8/31/97 $7,886,650.00 $7,845,875.01 $7,405,335.21 $8,918,313.46
9/30/97 $8,254,248.00 $8,063,268.98 $7,646,749.13 $9,404,361.55
10/31/97 $6,717,020.00 $6,740,187.90 $6,391,917.60 $8,910,632.57
11/30/97 $6,221,320.00 $6,494,254.28 $6,094,054.24 $9,070,132.89
12/31/97 $6,131,707.00 $6,650,752.82 $6,174,495.76 $9,181,695.52
1/31/98 $5,635,021.00 $6,129,132.48 $5,769,448.83 $9,438,783.00
2/28/98 $6,190,836.00 $6,768,865.04 $6,358,509.56 $10,078,732.49
3/31/98 $6,433,870.00 $7,062,606.37 $6,607,763.14 $10,506,070.74
4/30/98 $6,445,741.00 $6,985,670.99 $6,625,604.10 $10,610,080.84
5/31/98 $5,537,639.00 $6,028,349.40 $5,798,728.70 $10,478,515.84
6/30/98 $5,003,462.00 $5,395,998.82 $5,204,359.01 $10,728,952.37
7/31/98 $5,039,073.00 $5,567,086.41 $5,412,533.37 $10,712,858.94
8/31/98 $3,869,819.00 $3,957,420.32 $3,890,528.99 $9,285,906.13
9/30/98 $4,065,684.00 $4,208,458.65 $4,075,329.12 $9,452,123.85
10/31/98 $4,677,020.00 $4,651,617.05 $4,547,252.23 $10,308,486.27
11/30/98 $5,181,521.00 $5,038,484.59 $4,889,660.32 $10,922,872.05
12/31/98 $5,026,075.37 $4,965,464.91 $4,815,337.48 $11,458,092.78
1/31/99 $4,784,098.34 $4,885,351.50 $4,698,605.71 $11,710,577.47
2/28/99 $4,784,098.34 $4,932,871.71 $4,782,186.57 $11,400,682.10
3/31/99 $5,453,032.70 $5,582,976.35 $5,340,128.54 $11,877,040.11
4/30/99 $6,517,835.27 $6,273,707.54 $6,068,245.45 $12,346,905.43
5/31/99 $6,342,699.86 $6,237,210.12 $5,957,742.04 $11,897,396.09
6/30/99 $6,959,900.00 $6,945,082.20 $6,608,923.24 $12,456,573.71
</TABLE>

Periods ended June 30, 1999

SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (05/03/93)
- --------------------------------------------------------------
Average Annual
Total Return(1),(2) 38.98% 3.80% 5.51%
Cumulative Total
Return(1),(3) 38.98% 20.51% 39.20%

(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) Source: Morgan Stanley Capital International. The MSCI World Index tracks
the performance of approximately 1500 securities in 22 countries and is designed
to measure world stock market performance. It includes reinvested dividends. The
IFC Investable Composite Index tracks the performance of approximately 2,000
securities in emerging market countries. It includes reinvested dividends. The
MSCI Emerging Markets Free Index measures the performance of securities located
in 25 emerging market countries such as Brazil, China, Korea and Poland. It
includes reinvested dividends. Indices are unmanaged, do not contain cash and do
not include management or other operating expenses. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.

(5) We are replacing the MSCI World Index with the MSCI Emerging Markets Free
Index as a benchmark for the Fund because we believe its composition provides a
more appropriate comparison to the Fund's current and past portfolio. The MSCI
Emerging Markets Free Index measures the performance of securities located in 25
emerging market countries such as Brazil, China, Korea and Poland. The MSCI
World Index, which may be excluded from next year's report, tracks the
performance of approximately 1,500 securities in 22 countries, but excludes
emerging markets.

PAGE

...............................................................................

The following are Dr. Mobius's thoughts regarding a recent visit to Eastern
Europe with the emerging markets research team.

COUNTRY FOCUS

BUDAPEST, Hungary -- I am in Budapest, Hungary writing this note. This trip has
taken me to Russia and Poland thus far. We are doing our normal round of company
visits to firms in Eastern Europe even while the Kosovo crisis is, hopefully,
winding down. The objective of this trip is the same as all others: getting the
best value for our clients, which includes me since I invest in our emerging
markets funds. In this quest for value we must take note of every change, every
nuance, every opportunity. It means 12-hour workdays and 24-hour consciousness
of what is happening to companies around the world. I find it is quite amazing
how Eastern Europe has changed since 1993 when we first made an investment in
this region.

At that time, we didn't quite comprehend the degree of resistance to
change that can occur in places which have lived under a completely different
regime than that found in the West. Now we clearly see the differences and
carefully evaluate firms' management and their willingness to focus on
shareholder value rather than following old Communist traditions. Under those
traditions, the wily company manager was concerned with ensuring that his staff
was fed, clothed, and housed. Orders came from the government and were followed,
but the name of the game was to work around the bureaucracy to make the best of
a basically inefficient, unsound situation where the state allocated resources
rather than let the market allocate them. Company management that is unable to
adjust to the new market environment is struggling, but many are surviving, much
to the chagrin of shareholders such as us.

Today, we visited one petrochemical company which has world class
facilities for manufacturing plastics. There is no problem with the process,
workers, or products except that the market does not want the products that are
being made. Result: losses and unhappy shareholders. We are, along with other
shareholders, looking to fix this problem through efforts to install an
independent board of directors answerable to shareholders and replace the
management with management that understands the importance of listening to the
market. Their response to market demands should bring full value to
shareholders; we need only put the people in place to do what's right.

PAGE

...............................................................................

We explain to the management of this and other companies in which we
invest that we have millions of shareholders -- men, women, children, retired
people, people saving for their future, etc. -- who depend on the performance
of the companies in which we invest. When we explain it to them in this way,
they begin to understand their role in what I call the "chain of
responsibility." We as portfolio managers are responsible for investing the
money entrusted to us with an eye to enhancing the returns to our investors. At
the same time, the management of the companies in which we invest have the
responsibility for trying to make that money work so that it yields returns
commensurate with the risks we take. Many company managers are excellent and
take their responsibilities seriously, and the list of companies with such

[GLOBE AND MAP OF HUNGARY]

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
country focus continued .......................................................

managers in Eastern Europe is growing. We no longer hear what one Russian
manager asked when we entered his office: "Is the destruction of the Russian
economy by you capitalists on schedule?" Now, instead we are more often welcomed
with the words: "We are happy to see you here. Our purpose is to create
shareholder value and we are happy to answer any questions you may have." That's
gratifying to hear but more importantly, it impacts the future of our
investments in this part of the world. Shareholder value, value for our
shareholders and ourselves, is being built brick-by-brick, company-by-company.

* 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.

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 --------------------------------------------------------------
(UNAUDITED)+ 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period.......... $8.31 $10.37 $12.45 $10.75 $11.21 $13.22
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income........................ .08 .18 .18 .15 .19 .17
Net realized and unrealized gains (losses)... 3.11 (2.05) (1.60) 1.86 (.34) (1.65)
-------------------------------------------------------------------------------
Total from investment operations.............. 3.19 (1.87) (1.42) 2.01 (.15) (1.48)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income........................ (.01) (.19) (.18) (.15) (.17) (.17)
Net realized gains........................... -- -- (.48) (.16) (.14) (.36)
-------------------------------------------------------------------------------
Total distributions........................... (.01) (.19) (.66) (.31) (.31) (.53)
-------------------------------------------------------------------------------
Net asset value, end of period................ $11.49 $8.31 $10.37 $12.45 $10.75 $11.21
===============================================================================
Total Return*................................. 38.35% (18.03)% (11.32)% 18.86% (1.23)% (11.39)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)............. $2,329,424 $1,733,607 $1,923,881 $1,565,537 $798,515 $582,878
Ratios to average net assets:
Expenses..................................... 1.39%** 1.51% 1.57% 1.56% 1.52% 1.60%
Expenses, excluding waiver and payments by
affiliate.................................. 1.39%** 1.51% 1.57% 1.56% 1.52% 1.66%
Net investment income........................ 1.66%** 2.03% 1.42% 1.56% 2.00% 1.59%
Portfolio turnover rate....................... 22.28% 38.11% 24.72% 7.92% 13.47% 12.51%
</TABLE>

*Total return is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
See Notes to Financial Statements.
9

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 98.3%
ARGENTINA 4.0%
*Atanor Cia Nacional Para la Industria Quimica SA, D... Chemicals 1,057,785 $ 518,366
Banco de Galicia y Buenos Aires SA de CV, B............ Banking 646,530 3,317,031
Banco Frances SA....................................... Banking 670,000 4,355,436
*Banco Frances SA, new................................. Banking 82,569 528,494
*Buenos Aires Embotelladora SA, ADR, B................. Beverages & Tobacco 375,300 23,644
*Capex SA, A........................................... Utilities Electrical & Gas 37,524 218,787
*Molinos Rio de la Plata SA, B......................... Food & Household Products 3,483,107 5,852,205
Nobleza Piccardo Sdad Industrial Comercial y
Financial............................................ Beverages & Tobacco 263,520 869,703
Perez Companc SA, B.................................... Energy Sources 4,192,860 24,111,356
Quilmes Industrial SA, ADR............................. Beverages & Tobacco 986,500 12,207,938
*Sociedad Comercial del Plata Cadelplata Come.......... Multi-Industry 3,709,330 1,424,525
Telecom Argentina Stet-France SA, ADR.................. Telecommunications 599,900 16,047,325
Telefonica de Argentina SA, ADR........................ Telecommunications 583,990 18,322,686
Transportadora de Gas del Sur SA, ADR.................. Utilities Electrical & Gas 480,000 4,500,000
Transportadora de Gas del Sur SA, B.................... Utilities Electrical & Gas 461,294 867,319
--------------
93,164,815
--------------
AUSTRIA 1.1%
Austria Tabak AG....................................... Beverages & Tobacco 138,452 8,066,967
Bank Austria AG........................................ Banking 145,180 7,635,537
OMV AG................................................. Energy Sources 111,800 9,971,725
--------------
25,674,229
--------------
BRAZIL 11.6%
Aracruz Celulose SA, ADR............................... Forest Products & Paper 1,130,300 24,866,600
Banco Bradesco SA...................................... Banking 622,176,809 2,485,155
Banco Bradesco SA, pfd. ............................... Banking 440,871,006 2,264,102
Banco do Brasil SA..................................... Banking 796,757,792 3,182,482
Brasmotor SA, pfd. .................................... Multi-Industry 26,347,000 2,103,250
Centrais Eletricas Brasileiras SA (Electrobras)........ Utilities Electrical & Gas 278,623,000 5,310,133
Centrais Eletricas Brasileiras SA (Electrobras), B,
pfd. ................................................ Utilities Electrical & Gas 1,701,879,060 34,668,806
Centrais Geradoras Do Sul Do Brasil SA, B, pfd. ....... Utilities Electrical & Gas 1,846,586,060 1,496,235
Cia Cervejaria Brahma.................................. Beverages & Tobacco 1,136,000 449,856
Cia Cervejaria Brahma, pfd. ........................... Beverages & Tobacco 6,935,000 3,953,247
Cia Energetica de Minas Gerais Cemig, Br., pfd. ....... Utilities Electrical & Gas 833,316,000 17,598,303
*Cia Mesbla SA, pfd. .................................. Merchandising 32,834,000 141,266
Cia Vale do Rio Doce, A, pfd. ......................... Metals & Mining 1,035,781 20,567,862
Copene-Petroquimica do Nordeste SA, A, pfd. ........... Chemicals 18,877,700 2,962,264
Duratex SA, pfd. ...................................... Forest Products & Paper 201,023,900 5,391,226
Embratel Participacoes SA, pfd. ....................... Telecommunications 336,387,968 4,721,908
Investimentos Itau SA.................................. Multi-Industry 1,405,804 751,770
*Investimentos Itau SA, pfd. .......................... Multi-Industry 34,551,704 18,532,726
*Mannesmann SA......................................... Machinery & Engineering 17,562,720 1,299,792
*Mannesmann SA, pfd. .................................. Machinery & Engineering 1,615,650 122,153
Petroleo Brasileiro SA, pfd. .......................... Energy Sources 40,702,666 6,387,009
Tele Celular Sul Participacoes SA, pfd. ............... Telecommunications 336,387,968 719,803
Tele Centro Oeste Celular Participacoes SA, pfd. ...... Telecommunications 127,487,968 162,225
Tele Centro Sul Participacoes SA, pfd. ................ Telecommunications 1,546,698,968 17,201,241
Tele Leste Celular Participacoes SA, pfd. ............. Telecommunications 336,387,968 201,545
Tele Nordeste Celular Participacoes SA, pfd. .......... Telecommunications 336,387,968 464,513
Tele Norte Celular Participacoes SA, pfd. ............. Telecommunications 336,387,968 191,947
Tele Norte Leste Participacoes SA, pfd. ............... Telecommunications 1,649,237,968 30,302,686
Tele Sudeste Celular Participacoes SA, pfd. ........... Telecommunications 3,286,840,968 18,848,915
Telemig Celular Participacoes SA, pfd. ................ Telecommunications 336,387,968 428,043
Telesp Celular Participacoes SA, pfd. ................. Telecommunications 336,387,968 3,570,223
Telesp Participacoes SA, ADR........................... Telecommunications 1,159,500 26,523,562
Telesp Participacoes SA, pfd. ......................... Telecommunications 336,387,968 7,965,821
Unibanco Uniao de Bamncos Brasileiros SA............... Banking 95,872,584 4,376,495
--------------
270,213,164
--------------
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CHILE 2.6%
Cia Cervecerias Unidas SA, ADR......................... Beverages & Tobacco 74,500 $ 2,132,563
Compania de Telecomunicaciones de Chile SA, ADR........ Telecommunications 1,202,610 29,764,598
Empresa Nacional de Electricidad SA, ADR............... Electrical & Electronics 1,023,768 12,413,187
Enersis SA, ADR........................................ Utilities Electrical & Gas 525,049 12,010,496
Madeco Manufacturera de Cobre SA, ADR.................. Industrial Components 86,300 873,788
Quinenco SA, ADR....................................... Multi-Industry 303,800 2,848,125
--------------
60,042,757
--------------
CHINA .9%
*China Telecommunications Ltd. ........................ Telecommunications 2,806,000 7,793,591
China Vanke Co. Ltd., B................................ Real Estate 3,532,663 2,372,152
Guangshen Railway Co. Ltd., ADR, H..................... Transportation 415,200 3,165,900
Guangshen Railway Co. Ltd., H.......................... Transportation 7,440,000 1,141,097
Shandong Huaneng Power Development Co. Ltd., ADR....... Utilities Electrical & Gas 356,900 1,851,419
*Shanghai Dazhong Taxi Shareholding Co. Ltd., B........ Transportation 235,000 159,800
*Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co Ltd,
B.................................................... Real Estate 1,361,440 884,936
*Shanghai New Asia Group Co. Ltd., B................... Food & Household Products 2,154,000 581,580
Shanghai Petrochemical Co. Ltd., H..................... Chemicals 10,530,200 2,483,650
Yanzhou Coal Mining Company Ltd., H.................... Energy Sources 1,046,000 374,108
--------------
20,808,233
--------------
COLOMBIA 1.0%
Banco Ganadero SA, C, ADR, pfd. ....................... Banking 83,200 639,600
Bavaria SA............................................. Beverages & Tobacco 260,638 968,052
Cementos Argos SA...................................... Building Materials & Components 2,605,880 6,766,145
Cia Colombiana de Tabacos SA........................... Beverages & Tobacco 2,012,224 2,870,096
Compania Nacional de Chocolates SA..................... Food & Household Products 2,308,605 6,598,837
Compania Suramericana de Inversiones SA................ Insurance 3,272,345 4,667,444
Promigas SA............................................ Utilities Electrical & Gas 21,104 77,782
--------------
22,587,956
--------------
CZECH REPUBLIC 1.4%
*CEZ AS................................................ Utilities Electrical & Gas 6,755,780 13,904,333
*SPT Telecom AS........................................ Telecommunications 746,123 12,113,432
Tabak AS............................................... Beverages & Tobacco 18,994 4,523,922
Unipetrol.............................................. Chemicals 584,728 1,110,495
--------------
31,652,182
--------------
ECUADOR
La Cemento Nacional SA, GDR, 144A...................... Multi-Industry 3,946 284,112
La Cemento Nacional SA, GDR, Reg S..................... Multi-Industry 5,000 360,000
--------------
644,112
--------------
EGYPT .3%
Commercial International Bank Ltd. .................... Banking 462,642 4,154,818
Eastern Tobacco Co. ................................... Beverages & Tobacco 141,560 3,448,060
--------------
7,602,878
--------------
GHANA
Ashanti Goldfields Co. Ltd., GDR....................... Metals & Mining 100,257 695,533
--------------
HONG KONG 5.0%
CDL Hotel International Ltd. .......................... Leisure & Tourism 2,934,855 1,229,342
Cheung Kong Holdings Ltd. ............................. Multi-Industry 3,036,000 26,999,362
Dairy Farm International Holdings Ltd. ................ Merchandising 6,855,577 8,226,692
Hang Lung Development Co. Ltd. ........................ Real Estate 6,798,000 8,411,143
Hong Kong Electric Holdings Ltd. ...................... Utilities Electrical & Gas 1,038,683 3,346,769
Hong Kong Land Holdings Ltd. .......................... Real Estate 34,000 55,080
HSBC Holdings Plc. .................................... Banking 605,139 22,072,129
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
HONG KONG (CONT.)
Jardine Matheson Holdings Ltd. ........................ Multi-Industry 1,457,695 $ 7,288,475
New World Development Co. Ltd. ........................ Real Estate 10,601,484 31,768,175
Sun Hung Kai Properties Ltd. .......................... Real Estate 639,769 5,833,810
--------------
115,230,977
--------------
HUNGARY 1.5%
Borsodchem RT.......................................... Chemicals 136,112 3,320,079
Borsodchem RT, GDR, Reg S.............................. Chemicals 124,910 3,069,663
Egis RT................................................ Multi-Industry 65,691 1,572,478
Fotex First Hungarian American Photo Service Co. ...... Multi-Industry 1,892,831 719,946
**Fotex First Hung-Amer Photo Co., 12.00%, cvt.,
5/11/00.............................................. Multi-Industry 16,000 16,000
Gedeon Richter Ltd. ................................... Health & Personal Care 149,620 6,510,462
Matav RT............................................... Telecommunications 325,100 1,758,024
Mol Magyar Olay-Es Gazipari RT......................... Energy Sources 378,290 9,117,871
Tiszai Vegyi Kombinat RT............................... Chemicals 762,235 7,972,774
--------------
34,057,297
--------------
INDIA .8%
*Great Eastern Shipping Co. Ltd. ...................... Transportation 290 163
Gujarat Ambuja Cements Ltd. ........................... Building Materials & Components 243,821 1,799,365
*Hindalco Industries Inc. ............................. Metals & Mining 146,825 2,128,156
Hindustan Petroleum Corporation Ltd. .................. Energy Sources 502,647 2,880,631
*India Cements Ltd. ................................... Building Materials & Components 200 193
Indian Aluminium Co Ltd. .............................. Metals & Mining 146,600 207,080
Larsen and Toubro Ltd. ................................ Multi-Industry 1,260,749 8,330,125
Mahanagar Telephone Nigam Ltd. ........................ Telecommunications 642,300 2,755,174
*National Aluminum Co. Ltd. ........................... Metals & Mining 800 798
**National Aluminum Co. Ltd., 14.50%, 3/08/05.......... Metals & Mining 11,044,500INR 269,059
Reliance Industries Ltd. .............................. Chemicals 226,000 920,965
*Sterlite Industries Ltd. ............................. Metals & Mining 101 561
--------------
19,292,270
--------------
INDONESIA 5.3%
*Asia Pulp & Paper Co. Ltd., ADR....................... Forest Products & Paper 1,147,200 11,041,800
*Asia Pulp & Paper Co. Ltd., wts., 7/27/00............. Forest Products & Paper 243,440 639,030
*PT Barito Pacific Timber TBK.......................... Forest Products & Paper 28,660,500 3,122,059
PT Gudang Garamm....................................... Beverages & Tobacco 4,690,000 12,738,272
*PT Indah Kiat Pulp & Paper Corp. ..................... Forest Products & Paper 36,394,500 16,915,381
*PT Indocement Tunggal Prakarsa........................ Building Materials & Components 8,642,500 4,424,809
*PT Indofoods Sukses Makmurr........................... Food & Household Products 7,521,870 10,269,510
PT Indosat............................................. Telecommunications 2,776,000 5,322,179
*PT Semen Cibinong..................................... Building Materials & Components 8,590,000 1,185,258
PT Semen Gresik (Persero).............................. Building Materials & Components 5,234,462 11,404,057
*PT Sinar Mas Agro Resources & Technology Corp. ....... Food & Household Products 4,428,600 3,955,830
PT Tambang Timah....................................... Metals & Mining 8,447,000 7,361,220
PT Telekomunikasi Indonesia (Persero), B............... Telecommunications 55,086,400 32,003,718
PT Tempo Scan Pacific.................................. Health & Personal Care 21,500 8,978
*PT Tjiwi Kimia........................................ Forest Products & Paper 6,720,014 2,586,498
*PT Unggul Indah Corp. ................................ Chemicals 2,549,400 749,824
--------------
123,728,423
--------------
ISRAEL .4%
*Bank Hapoalim BM...................................... Banking 604,000 1,549,533
*Formula Systems (1985) Ltd. .......................... Data Processing & Reproduction 107,404 3,260,204
Koor Industries Ltd. .................................. Multi-Industry 34,327 3,957,850
--------------
8,767,587
--------------
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
MALAYSIA 4.1%
Boustead Holdings Bhd. ................................ Food & Household Products 1,465,000 $ 1,333,921
Federal Flour Mills Bhd. .............................. Food & Household Products 1,048,500 993,316
Genting Bhd. .......................................... Leisure & Tourism 4,680,800 17,860,947
Golden Hope Plantations Bhd. .......................... Misc Materials & Commodities 852,000 730,926
Hong Leong Industries Bhd. ............................ Multi-Industry 2,361,000 2,783,495
Island & Peninsula Bhd. ............................... Real Estate 1,776,000 1,738,611
Kian Joo Can Factory Bhd. ............................. Industrial Components 644,000 1,169,368
*Leader Universal Holdings Bhd. ....................... Industrial Components 10,027,000 4,195,508
Malayawata Steel Bhd. ................................. Metals & Mining 1,696,500 678,600
Malaysian Airlines System Bhd. ........................ Transportation 3,207,000 4,388,526
Malaysian International Shipping Corp., fgn. .......... Transportation 2,012,333 3,680,451
Oriental Holdings Bhd. ................................ Automobiles 1,313,760 3,595,554
Perlis Plantations Bhd. ............................... Multi-Industry 2,936,250 3,430,776
Perusahaan Otomobil Nasional Bhd. ..................... Automobiles 1,803,000 4,175,368
Public Bank Bhd. ...................................... Banking 4,103,800 3,121,048
Public Bank Bhd., fgn. ................................ Banking 4,176,800 4,374,648
Resorts World Bhd. .................................... Leisure & Tourism 10,439,000 24,586,592
Shangri La Hotels (Malaysia) Bhd. ..................... Leisure & Tourism 2,582,000 944,468
Tanjong Plc. .......................................... Recreation & Other Consumer Goods 3,086,000 7,674,395
Technology Resources Industries Bhd. .................. Multi-Industry 4,083,000 3,330,868
YTL Corp. Berhad....................................... Construction & Housing 308,000 648,421
--------------
95,435,807
--------------
MEXICO 10.3%
Cemex SA............................................... Building Materials & Components 1,446,936 7,176,741
Cemex SA, B............................................ Building Materials & Components 11,694,375 58,315,784
*Cifra SA de CV, V..................................... Merchandising 11,073,001 22,228,769
*Coca Cola Femsa SA de CV, L, ADR...................... Beverages & Tobacco 468,900 9,084,937
DESC SA de CV DESC, A.................................. Multi-Industry 97,000 102,023
DESC SA de CV DESC, B.................................. Multi-Industry 5,721,220 6,292,426
DESC SA de CV DESC, C.................................. Multi-Industry 153,036 171,583
Fomento Economico Mexicano SA de CV Femsa.............. Beverages & Tobacco 260,600 10,391,425
*Grupo Financiero Banamex Accival SA de CV............. Banking 11,617,859 29,773,477
*Grupo Financiero Bancomer SA de CV.................... Banking 15,568,875 5,668,966
Grupo Industrial Maseca SA de CV, B.................... Food & Household Products 174,680 104,454
Panamerican Beverages Inc., A.......................... Food & Household Products 465,400 11,082,338
Telefonos de Mexico SA (Telmex), ADR................... Telecommunications 898,500 72,610,031
Vitro SA de CV, A...................................... Food & Household Products 4,382,692 7,562,659
--------------
240,565,613
--------------
NEW ZEALAND .2%
Brierley Investments Ltd. ............................. Multi-Industry 17,719,000 4,976,324
--------------
PAKISTAN .3%
*Bank of Punjab........................................ Banking 164,244 42,175
Engro Chemical Pakistan Ltd. .......................... Chemicals 837,304 1,176,445
Pakistan Telecommunications Corp., A................... Telecommunications 14,335,600 5,514,761
--------------
6,733,381
--------------
PERU .8%
Telefonica Del Peru SA, ADR............................ Telecommunications 1,265,430 19,139,629
--------------
PHILIPPINES 2.3%
*A Soriano Corp. ...................................... Multi-Industry 35,746,500 1,033,407
Ayala Corp. ........................................... Multi-Industry 5,486,952 1,802,547
*Belle Corp. .......................................... Real Estate 30,217,000 3,216,264
*Keppel Philippine Holdings Inc., B.................... Machinery & Engineering 459,625 9,120
Petron Corp. .......................................... Energy Sources 23,581,000 2,509,936
Philippine Commercial International Bank Inc. ......... Banking 280,950 1,919,763
Philippine Long Distance Telephone Co., ADR............ Telecommunications 1,017,910 30,664,539
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
PHILIPPINES (CONT.)
RFM Corp. ............................................. Food & Household Products 26,692,027 $ 3,402,269
San Miguel Corp., B.................................... Food & Household Products 4,145,640 9,043,052
*Southeast Asia Cement Holdings Inc. .................. Building Materials & Components 11,281,106 163,065
--------------
53,763,962
--------------
POLAND .7%
Bank Rozwoju Eksportu SA............................... Banking 17,490 550,533
Bank Slaski SA W Katowicach............................ Banking 43,728 2,139,869
Elektrim SA............................................ Multi-Industry 130,826 1,850,604
*Impexmetal SA......................................... Metals & Mining 129,000 591,819
Mostostal Export SA.................................... Construction & Housing 644,115 812,634
*Prokom Software SA.................................... Data Processing & Reproduction 69,074 2,297,479
+*Rolimpex SA.......................................... Wholesale & International Trade 1,070,685 1,623,697
Telekomunikacja Polska SA.............................. Telecommunications 559,864 3,924,114
Warta SA............................................... Insurance 143,383 2,813,939
Wielkopolski Bank Kredytowy SA......................... Banking 79,198 464,268
--------------
17,068,956
--------------
RUSSIA 1.3%
Aeroflot - Russia International Airlines............... Transportation 4,738,500 634,959
GAZ Auto Works......................................... Automobiles 20,970 738,983
*GUM Trade House....................................... Merchandising 540,000 421,200
Irkutskenergo.......................................... Utilities Electrical & Gas 11,381,800 1,158,667
Irkutskenergo, ADR..................................... Utilities Electrical & Gas 92,000 468,280
*Krasnoyarsk Aluminum Plant............................ Metals & Mining 23,086 142,078
Lukoil Holdings........................................ Energy Sources 43,000 425,700
Lukoil Holdings, ADR................................... Energy Sources 64,800 2,566,080
Mosenergo.............................................. Utilities Electrical & Gas 37,378,700 1,674,566
Mosenergo, ADR......................................... Utilities Electrical & Gas 191,060 859,770
*Norilsk Nickel........................................ Metals & Mining 146,000 478,880
*Novorosissk Sea Shipping.............................. Transportation 1,010,000 170,084
*Red October........................................... Food & Household Products 67,000 462,300
*Rostelecom............................................ Telecommunications 3,338,000 5,274,040
*Rostelecom, ADR....................................... Telecommunications 274,500 2,693,531
*Rostelecom, pfd. ..................................... Telecommunications 2,195,200 1,130,528
*Saint Petersburg City Telephone Network, A, pfd. ..... Telecommunications 285,000 39,900
*Tyumen Aviatrans...................................... Transportation 1,930,000 27,020
Unified Energy Systems................................. Utilities Electrical & Gas 63,010,000 5,513,375
Unified Energy Systems, ADR............................ Utilities Electrical & Gas 182,000 1,606,150
Unified Energy Systems, pfd. .......................... Utilities Electrical & Gas 4,930,000 201,144
*Vimpel Communications, ADR............................ Telecommunications 175,950 4,079,841
--------------
30,767,076
--------------
SINGAPORE 9.3%
Acer Computer International Ltd. ...................... Electrical & Electronics 696,000 828,240
Acma Ltd. ............................................. Electrical & Electronics 292,600 295,608
Asia Pacific Breweries Ltd. ........................... Beverages & Tobacco 80,000 244,347
City Developments Ltd. ................................ Real Estate 5,253,500 33,634,743
Cycle & Carriage Ltd. ................................. Automobiles 1,288,000 7,414,038
Delgro Corp. .......................................... Transportation 1,006,200 2,423,154
First Capital Corp. Ltd. .............................. Real Estate 1,167,000 1,816,476
Fraser and Neave Ltd. ................................. Beverages & Tobacco 4,639,000 20,572,364
Hai Sun Hup Group Ltd. ................................ Transportation 3,030,000 1,797,533
Hong Leong Finance Ltd., fgn. ......................... Financial Services 70,000 160,352
Inchcape Motors Ltd. .................................. Wholesale & International Trade 560,000 901,263
Isetan (Singapore) Ltd. ............................... Merchandising 26,000 43,524
Jurong Shipyard Ltd. .................................. Machinery & Engineering 1,876,000 9,200,940
Keppel Corp., Ltd. .................................... Transportation 8,815,000 30,030,543
MCL Land Ltd. ......................................... Real Estate 3,173,000 4,007,019
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SINGAPORE (CONT.)
Metro Holdings Ltd. ................................... Wholesale & International Trade 861,000 $ 1,355,348
Natsteel Ltd. ......................................... Metals & Mining 9,735,000 17,039,824
*Neptune Orient Lines Ltd. ............................ Transportation 5,132,000 6,269,932
Overseas Chinese Banking Corp. Ltd., fgn. ............. Banking 2,604,000 21,719,119
Overseas Union Enterprise Ltd. ........................ Leisure & Tourism 1,200,000 3,806,167
Sembcorp Industries Ltd. .............................. Multi-Industry 9,462,070 15,005,926
United Industrial Corporation Ltd. .................... Real Estate 17,341,000 11,713,451
United Overseas Bank Ltd., fgn. ....................... Banking 3,534,000 24,701,674
United Overseas Land Ltd. ............................. Real Estate 1,402,000 1,581,110
WBL Corp. Ltd. ........................................ Multi-Industry 246,000 338,115
--------------
216,900,810
--------------
SLOVAK REPUBLIC .1%
Nafta Gbely AS......................................... Utilities Electrical & Gas 80,331 1,060,668
*Slovnaft AS........................................... Chemicals 106,971 1,412,416
*Vychodoslovenske Zeleziarne AS........................ Metals & Mining 48,977 200,693
--------------
2,673,777
--------------
SOUTH AFRICA 11.0%
AECI Ltd. ............................................. Chemicals 717,100 1,604,251
Anglo American Plc. ................................... Metals & Mining 1,087,928 50,840,284
Barlow Ltd. ........................................... Multi-Industry 2,822,600 16,277,484
CG Smith Ltd. ......................................... Multi-Industry 7,871,600 22,631,910
Comparex Holdings Ltd. ................................ Data Processing & Reproduction 20,000 125,943
De Beers/Centenary Linked Units........................ Misc Materials & Commodities 1,096,400 26,272,175
Edgars Consolidated Stores Ltd. ....................... Textiles & Apparel 298,330 2,318,614
Firstrand Ltd. ........................................ Insurance 3,182,000 3,638,379
Iscor Ltd. ............................................ Metals & Mining 31,218,652 9,777,654
Kersaf Investments Ltd. ............................... Leisure & Tourism 269,800 1,207,159
*Liberty International Plc. ........................... Insurance 411,855 2,726,590
Liberty Life Association of Africa Ltd. ............... Insurance 930,355 11,917,548
Palabora Mining Co. Ltd. .............................. Metals & Mining 303,200 2,160,510
Rembrandt Group Ltd. .................................. Multi-Industry 2,259,470 18,833,597
Sappi Ltd. ............................................ Forest Products & Paper 2,654,760 19,444,924
Sasol Ltd. ............................................ Energy Sources 5,295,000 37,774,422
South African Breweries Plc. .......................... Beverages & Tobacco 2,789,678 24,223,900
Tongaat-Hulett Group Ltd. ............................. Multi-Industry 725,847 4,438,438
--------------
256,213,782
--------------
SOUTH KOREA 8.8%
Asia Cement Manufacturing Co. Ltd. .................... Building Materials & Components 90,000 2,215,983
*Cho Hung Bank Co. Ltd. ............................... Banking 155,400 871,314
*Cho Hung Bank Co. Ltd., GDR, Reg S.................... Banking 53,280 298,634
*Daewoo Electronics Co. ............................... Electrical & Electronics 607,120 2,989,705
Hana Bank.............................................. Banking 286,562 4,208,686
Hana Bank, GDR, Reg S.................................. Banking 594,949 8,567,266
*Hotel Shilla Co. ..................................... Leisure & Tourism 104,452 1,164,087
Korea Electric Power Corp. ............................ Utilities Electrical & Gas 2,162,320 89,855,371
LG Electronics Inc. ................................... Electrical & Electronics 403,139 11,145,095
Saehan Precision Co. Ltd. ............................. Electrical & Electronics 38,864 792,389
Samsung Display Devices Ltd. .......................... Electrical & Electronics 314,604 17,123,155
Samsung Electronics Co. Ltd. .......................... Electrical & Electronics 462,599 50,756,003
*Samsung Heavy Industries Co. Ltd. .................... Machinery & Engineering 2,045,401 11,132,636
Ssangyong Oil Refining Co. Ltd. ....................... Chemicals 67,010 1,736,760
Tong Yang Merchant Bank................................ Financial Services 230,578 1,428,289
--------------
204,285,373
--------------
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND 8.5%
Advanced Info Service Public Co. Ltd., fgn. ........... Telecommunications 1,183,700 $ 16,050,169
American Standard Sanitaryware Public Co. Ltd.,
fgn. ................................................ Building Materials & Components 180,200 904,054
Ayudhya Insurance Public Co. Ltd., fgn. ............... Insurance 119,600 385,963
*Bangkok Bank Public Co. Ltd. ......................... Banking 11,476,600 25,054,001
*Bangkok Bank Public Co. Ltd., fgn. ................... Banking 2,672,600 10,001,866
*Bangkok Insurance Public Co. Ltd. .................... Insurance 63,760 240,343
BEC World Public Co Ltd., fgn. ........................ Telecommunications 507,000 3,162,305
*Chareon Pokphand Feedmill Public Co. Ltd., fgn. ...... Food & Household Products 3,203,420 5,212,344
Dusit Thani Public Company Ltd., fgn. ................. Leisure & Tourism 95,000 108,203
*Hana Microelectronics Co. Ltd., fgn. ................. Electrical & Electronics 814,800 2,452,686
Hua Thai Manufacturing Public Co. Ltd., fgn. .......... Textiles & Apparel 123,100 173,258
Industrial Finance Corp. of Thailand, fgn. ............ Financial Services 9,679,300 6,168,503
Italian-Thai Development Public Co. Ltd., fgn. ........ Construction & Housing 481,900 1,163,094
*Jasmine International Public Co. Ltd., fgn. .......... Telecommunications 1,356,400 947,181
*Land and House Public Co. Ltd., fgn. ................. Real Estate 185,400 336,862
Saha Pathanapibul Public Co. Ltd., fgn. ............... Food & Household Products 593,100 884,624
*Saha Union Public Co. Ltd. ........................... Multi-Industry 2,151,896 948,293
Saha Union Public Co. Ltd., fgn. ...................... Multi-Industry 2,468,504 1,104,551
*Serm Suk Public Co. Ltd. ............................. Food & Household Products 410,000 1,901,288
Serm Suk Public Co. Ltd., fgn. ........................ Food & Household Products 8,200 43,363
*Shin Corporations Public Company Ltd., fgn. .......... Electrical & Electronics 106,200 495,360
*Siam Cement Public Co. Ltd. .......................... Building Materials & Components 807,000 15,144,244
Siam Cement Public Co. Ltd., fgn. ..................... Building Materials & Components 494,000 15,004,203
*Siam Commercial Bank, 5.25%, cvt., 144A, fgn.,
pfd. ................................................ Banking 1,342,000 1,910,644
Siam Makro Public Company Ltd., fgn. .................. Merchandising 2,357,300 4,487,660
*Telecomasia Corp. Public Co. Ltd., fgn. .............. Telecommunications 1,664,400 1,681,326
*Thai Airways International Public Co. Ltd., fgn. ..... Transportation 1,598,200 3,137,890
*Thai Farmers Bank Public Co. Ltd. .................... Banking 15,100,382 30,303,139
*Thai Farmers Bank Public Co. Ltd., fgn. .............. Banking 8,760,818 27,084,292
*Thai Telephone & Telecommunication Public Co. Ltd.,
fgn. ................................................ Telecommunications 6,429,500 2,441,031
Thai Wacoal Public Co. Ltd., fgn. ..................... Textiles & Apparel 143,550 291,966
*Total Access Communication Public Co. Ltd. ........... Telecommunications 4,707,000 15,062,400
*United Communications Industries, fgn. ............... Telecommunications 2,790,000 3,170,197
--------------
197,457,303
--------------
TURKEY 2.2%
Akbank................................................. Banking 1,750,520,224 25,717,330
Akcansa Cimento Sanayi Ve Ticaret AS................... Building Materials & Components 3,220,800 32,817
*Arcelik AS, Br. ...................................... Appliances & Household Durables 210,754,854 7,490,931
*Erciyas Biracilik..................................... Food & Household Products 109,497,000 2,516,755
*Eregli Demir ve Celik Fabrikalari AS.................. Metals & Mining 242,105,000 3,384,720
*Finansbank, Br. ...................................... Banking 383,761,833 1,318,552
Haci Omer Sabanci Holding AS, ADR, 144A................ Multi-Industry 696,200 3,794,290
Hurriyet Gazete........................................ Broadcasting & Publishing 109,886,000 781,143
Koc Holding AS......................................... Multi-Industry 15,671,182 984,044
*Tofas Turk Otomobil Fabrikasi AS...................... Automobiles 203,610,256 808,130
*Tofas Turk Otomobil Fabrikasi AS, rts. ............... Automobiles 162,887,575 451,586
*Turkiye Garanti Bankasi AS............................ Banking 477,586,010 3,564,750
Turkiye Is Bankasi AS, C............................... Banking 11,980,800 212,919
--------------
51,057,967
--------------
</TABLE>

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
VENEZUELA 2.5%
Compania Anonima Nacional Telefonos de Venezuela,
ADR.................................................. Telecommunications 1,037,100 $ 28,260,975
Electricidad de Caracas Saica Saca, ADR................ Utilities Electrical & Gas 1,338,763 26,201,587
Mavesa SA, ADR......................................... Food & Household Products 1,226,012 3,984,539
--------------
58,447,101
--------------
TOTAL LONG TERM SECURITIES (COST $2,092,616,388)....... 2,289,649,274
--------------

<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $21,601,007) .9%
U.S. Treasury Bills, 4.40% to 4.85%, with maturities to
12/09/99............................................. $ 22,003,000 21,609,089
--------------
TOTAL INVESTMENTS (COST $2,114,217,395) 99.2%.......... 2,311,258,363
OTHER ASSETS, LESS LIABILITIES .8%..................... 18,165,803
--------------
TOTAL NET ASSETS 100.0%................................ $2,329,424,166
==============
</TABLE>

CURRENCY ABBREVIATION:

INR -- Indian Rupee

*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+The Investment Company Act of 1940 defines "affiliated persons" to include any
person, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. As of June 30, 1999, the Fund had investments in
"affiliated persons" valued at $1,623,697.
See Notes to Financial Statements.
17

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$2,114,217,395)........................................... $2,311,258,363
Cash....................................................... 6,966,477
Receivables:
Investment securities sold................................ 40,437,348
Capital shares sold....................................... 11,473,321
Dividends and interest.................................... 8,903,176
--------------
Total assets.......................................... 2,379,038,685
--------------
Liabilities:
Payables:
Investment securities purchased........................... 42,211,963
Capital shares redeemed................................... 199,586
To affiliates............................................. 2,478,155
Deferred tax liability (Note 1e)........................... 4,133,822
Accrued expenses........................................... 590,993
--------------
Total liabilities..................................... 49,614,519
--------------
Net assets, at value........................................ $2,329,424,166
==============
Net assets consist of:
Undistributed net investment income........................ $ 15,388,609
Net unrealized appreciation................................ 192,907,146
Accumulated net realized loss.............................. (315,477,205)
Capital shares............................................. 2,436,605,616
--------------
Net assets, at value........................................ $2,329,424,166
==============
Net asset value per share ($2,329,424,166 / 202,664,551
shares outstanding)....................................... $11.49
==============
</TABLE>

See Notes to Financial Statements.
18

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $3,265,214)
Dividends.................................................. $ 28,545,965
Interest................................................... 608,400
-------------
Total investment income............................... $ 29,154,365
Expenses:
Management fees (Note 3)................................... 11,948,915
Administrative fees (Note 3)............................... 800,710
Transfer agent fees (Note 3)............................... 6,320
Custodian fees............................................. 486,000
Reports to shareholders.................................... 3,700
Registration and filing fees............................... 29,100
Professional fees.......................................... 9,600
Directors' fees and expenses............................... 22,800
Other...................................................... 19,302
-------------
Total expenses........................................ 13,326,447
-------------
Net investment income........................... 15,827,918
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (174,669,193)
Foreign currency transactions............................. (961,064)
-------------
Net realized loss..................................... (175,630,257)
Net unrealized appreciation (depreciation) on:
Investments............................................... 798,931,100
Deferred taxes (Note 1e).................................. (4,133,822)
-------------
Net unrealized appreciation........................... 794,797,278
-------------
Net realized and unrealized gain............................ 619,167,021
-------------
Net increase in net assets resulting from operations........ $ 634,994,939
=============
</TABLE>

See Notes to Financial Statements.
19

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 15,827,918 $ 37,666,792
Net realized loss from investments and foreign currency
transactions............................................. (175,630,257) (90,517,102)
Net unrealized appreciation (depreciation) on investments
and deferred taxes....................................... 794,797,278 (334,534,122)
-----------------------------------
Net increase (decrease) in net assets resulting from
operations............................................. 634,994,939 (387,384,432)
Distributions to shareholders from net investment income... (1,045,025) (40,080,848)
Capital share transactions (Note 2)........................ (38,132,626) 237,190,928
-----------------------------------
Net increase (decrease) in net assets................... 595,817,288 (190,274,352)
Net assets:
Beginning of period........................................ 1,733,606,878 1,923,881,230
-----------------------------------
End of period.............................................. $2,329,424,166 $1,733,606,878
===================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 15,388,609 $ 605,716
===================================
</TABLE>

See Notes to Financial Statements.
20

PAGE

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Emerging Market 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 at least 65% of its total assets in equity
securities of developing market issuers. 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 June 30, 1999, the Fund has investments with a value of approximately $95
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.

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. DEFERRED TAXES:

Deferred taxes are recorded for estimated tax liabilities inherent in the Fund's
portfolio securities which may arise from subsequent sales of those securities
and asset repatriations from countries that impose such taxes.

f. ACCOUNTING ESTIMATES:

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

2. CAPITAL STOCK

At June 30, 1999, there were 1.14 billion 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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 14,084,248 $ 138,073,877 72,904,287 $ 672,866,243
Shares issued on reinvestment of distributions.............. 120,919 955,865 4,292,592 36,277,062
Shares redeemed............................................. (20,090,902) (177,162,368) (54,174,577) (471,952,377)
-----------------------------------------------------------------
Net increase (decrease)..................................... (5,885,735) $ (38,132,626) 23,022,302 $ 237,190,928
=================================================================
</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, 2000. For the
period ended June 30, 1999, no reimbursement was necessary under the agreement.

PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (unaudited) (continued)

4. INCOME TAXES

At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $2,127,676,610 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 476,967,659
Unrealized depreciation..................................... (293,385,906)
-------------
Net unrealized appreciation................................. $ 183,581,753
=============
</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 had 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 six
months ended June 30, 1999 aggregated $421,460,907 and $478,355,562,
respectively.

PAGE

This page intentionally left blank.

PAGE

This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc. Emerging Markets Series, 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 manager, which will not always be
profitable or wise. The Fund and its investors are not protected from such
losses by the manager. Therefore, investors who cannot accept this risk should
not invest in shares of the Fund.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.

Principal Underwriter:

FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030

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

[RECYCLED LOGO]

ZT456 S 6/99