TEMPLETON INSTITUTIONAL FUNDS, INC.
TIFI FOREIGN EQUITY SERIES
SEMIANNUAL REPORT
[TEMPLETON GRAPHIC]
[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.
PAGE
June 30, 1999
Dear Shareholder:
During the middle of 1998, investors were clearly worried about the health
of the global economy and the potential for substantial earnings shortfalls. The
Asian crisis appeared to be highly contagious and investor sentiment plummeted
until the Federal Reserve Board (the "Fed") was apparently able to identify and
prescribe corrective measures. Three interest rate reductions and an ample
injection of liquidity seemed to reverse the course of the Asian crisis and
stabilize the global economy. Fortunately, the Templeton Institutional Funds,
Inc. Foreign Equity Series (the "Fund") was well-placed to take advantage of the
revitalized health of the global economy.
[PICTURE OF MR. MOTYL]
GARY MOTYL HAS BEEN A PORTFOLIO MANAGER AND RESEARCH ANALYST WITH TEMPLETON
INVESTMENT COUNSEL, INC. SINCE 1981. HE CURRENTLY MANAGES SEVERAL INSTITUTIONAL
MUTUAL FUNDS, AND IS RESPONSIBLE FOR MANAGING MANY OF OUR SEPARATE ACCOUNT
PORTFOLIOS. MR. MOTYL'S RESEARCH RESPONSIBILITIES INCLUDE THE GLOBAL AUTOMOBILE
INDUSTRY AND U.S.-BASED UTILITIES AS WELL AS COUNTRY COVERAGE OF GERMANY.
PRIOR TO JOINING THE TEMPLETON ORGANIZATION, MR. MOTYL WORKED FROM 1974 TO 1979
AS A SECURITY ANALYST WITH STANDARD & POOR'S CORPORATION. HE THEN WORKED AS A
RESEARCH ANALYST AND PORTFOLIO MANAGER FROM 1979 TO 1981 WITH LANDMARK FIRST
NATIONAL BANK. IN THIS CAPACITY HE HAD RESPONSIBILITY FOR EQUITY RESEARCH AND
MANAGED SEVERAL PENSION AND PROFIT SHARING PLANS.
MR. MOTYL HOLDS A BACHELOR OF SCIENCE IN FINANCE DEGREE FROM LEHIGH UNIVERSITY
IN PENNSYLVANIA AND A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM PACE
UNIVERSITY IN NEW YORK, AND IS A CHARTERED FINANCIAL ANALYST.
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) (10/18/90)
<S> <C> <C> <C> <C>
TIFI Foreign
Equity Series-
Primary Shares 6.75% 14.55% 13.88% 193.28%
MSCI AC World
ex U.S. Free Index(4) 9.53% 8.23% 7.95% 117.44%
MSCI EAFE Index(4) 7.92% 9.12% 8.52% 104.11%
</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 1.00% 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: Morgan Stanley Capital International. The MSCI AC World ex U.S.
Free Index measures the performance of securities located in 46 countries,
including emerging markets in Latin America, Asia and Eastern Europe. It
includes reinvested dividends. The MSCI EAFE tracks the performance of
approximately 1,000 securities in 20 countries. 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 7 of
this report.
continued...
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued.......................................................
GEOGRAPHIC DISTRIBUTION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)
Europe ............................................. 53.1%
Latin America/Caribbean ............................ 12.0%
Asia ............................................... 16.2%
Australia/New Zealand .............................. 5.1%
North America ...................................... 3.6%
FUND ASSET ALLOCATION ON 6/30/99
Short-Term Investments & Other Net Assets ........... 6.8%
Fixed Income ........................................ 3.2%
Equity*.............................................. 90.0%
*Equity includes convertible and preferred securities
The Fund's holdings of emerging market and cyclical stocks rebounded forcefully
in the first half of 1999 as earnings prospects improved and investors' fears
abated. Moreover, the Fund's underweighting of European shares was helpful to
its performance relative to its benchmarks as the euro's weakness, sluggish
European economic growth, and high equity valuations conspired to produce weak
U.S. dollar returns. For the quarter and year-to-date periods ended June 30,
1999, the Fund's Primary Shares reported cumulative total returns of 9.14% and
11.22%, compared to the unmanaged Morgan Stanley Capital International ("MSCI")
All Country World ex U.S. Free Index returns of 4.67% and 7.15%, respectively.
The MSCI Europe, Australasia, Far East ("EAFE") Index reported cumulative total
returns of 2.61% and 4.11% for these periods. 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.
Given the economy's rapid progress, the Fed apparently
determined that a reduction in inflation fighting measures was warranted. The
Fed's 25 basis point rate hike on June 30, and recent statistics that indicate a
slowing in the very rapid growth rate of money supply in the near future,
suggest that the Fed believed the risk of a global economic crisis had
diminished. Presumably, with global economic stabilization in sight, the Fed
could allow the world's various central banks and finance ministries to focus on
more localized problems.
In Europe, policymakers struggled with the need to stimulate
sluggish growth through lower interest rates while simultaneously defending the
value of the beleaguered euro. The weaker currency played a role in encouraging
greater exports and reduced imports, but we believe Europe will also need to
address structural impediments in the labor market to make the euro a long-term
success. Meanwhile, many European companies showed initiative by restructuring
and/or acquiring other companies to gain critical mass and reduce costs, and the
Fund benefited from these trends. Overall, we lightened our positions in
European stocks, as valuations for some stocks were beginning to look rather
full to us. This aided our performance relative to the indices in 1999's first
half as European stocks, particularly the most expensive shares in which we had
little exposure, performed poorly. During the period, we added Marks & Spencer
Plc., a well-known UK retailer which has experienced some operating problems of
late. The stock declined significantly and we believe it holds solid
appreciation potential over the next few years. We liquidated our position in
Saga Petroleum AS, the Norwegian energy company, which was the subject of a
takeover bid. We preferred to take cash rather than stock in the acquiring
company. Also, following strong share price performance, we
2
PAGE
...............................................................................
reduced our position in Nokia Corp., the Finnish telecommunications equipment
maker.
In Latin America, we identified many stocks we believed to be
bargain priced. These markets were some of the primary beneficiaries of the
receding atmosphere of economic crisis during the second quarter of 1999, with
Mexican stocks advancing and even Brazilian stocks managing a double-digit U.S.
dollar gain despite the devaluation of the real. In our opinion, if inflation
remains under control, interest rates fall further, fiscal and trade imbalances
are addressed, and privatizations move forward, the potential for further gains
on our holdings may be significant. During the period, we added to our position
in the Chilean telecom company, Compania de Telecomunicaciones de Chile SA.
Southeast Asian stock markets were also major beneficiaries of
the improved health of the global economies and, again, the Fund was well
exposed to this trend. The Korean, Thai, and Singaporean stock markets each rose
more than 50% in U.S. dollar terms, and the Hong Kong equities market, the
Fund's greatest exposure in Asia, advanced over 30% during the first six months
of 1999. Government-led bailouts to end the regional banking crisis, some
progress on debt restructuring, improved current account positions, and sharply
falling interest rates all appear to have signaled to the financial markets that
the "point of maximum pessimism" that Templeton's research analysts are always
searching for had passed. We are hopeful to take advantage of
attractively-priced new issues of equity, as we believe that many Asian
companies still need to sell shares in order to rebuild balance sheets weakened
by the economic crisis in 1997-98.
Japanese stocks also posted a strong advance in the past
quarter. While many challenges remain for the Japanese economy, investors' fears
that the nation was entering into a more rapid downward economic spiral never
fully materialized. Should Japan's policymakers find a way to inject liquidity
into its economy, dispose of excess manufacturing capacity, and remove some of
the structural impediments to free competition, we believe that better economic
growth might also be achieved. While many Japanese stocks are still not
inexpensive enough to meet our strict Templeton long-term value criteria, we
were able to identify several shares that could. For example, Nippon Telegraph &
Telephone Corp. has been added to the Fund. This Japanese telecommunications
giant is beginning a long-term restructuring program that we believe may improve
profitability. For the first time in many years, the Fund has a meaningful
exposure to Japanese stocks. However, our holdings in these shares still
represent an underweighted position relative to the MSCI EAFE Index and the MSCI
AC World ex U.S. Free Index, and this detracted from our returns versus the
indices in the second quarter.
While the current elevated valuations attached to equities in
many parts of the world make the identification of bargains more challenging,
worthwhile opportunities present themselves as nations,
INDUSTRY DIVERSIFICATION ON 6/30/99
(Equity Assets as a Percentage of Total Net Assets)
Finance 23.9%
Services 21.5%
Energy 14.6%
Materials 10.2%
Consumer Goods 8.9%
Capital Equipment 7.7%
Multi-Industry 3.2%
10 LARGEST POSITIONS ON 6/30/99
(Percent of Total Net Assets)
Development Bank of
Singapore Ltd., fgn. 1.8%
Compania de Telecomunicaciones
de Chile SA, ADR 1.8%
Rhone-Poulenc SA, A 1.5%
Banque Nationale de Paris, 144A,
ADR 1.5%
Koninklijke Philips
Electronics NV 1.5%
Societe Elf Aquitaine SA, Br. 1.5%
Zurich Allied AG 1.4%
Telefonos de Mexico SA
(Telmex), ADR 1.4%
Veba AG 1.3%
AXA SA 1.3%
3
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued.......................................................
industries, or individual companies fall temporarily out of favor with
investors. As other investors scramble to pay high prices for those stocks with
the most appealing trend, Templeton's analysts diligently search for those
shares selling at the lowest prices in relation to long-term earnings potential.
At Templeton, we remain committed to implementing our disciplined investment
process and we are confident that, in so doing, we will build upon the strong
relationship we enjoy with you now.
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.
Of course, it should be remembered that investing in
foreign securities involves special risks related to market and currency
volatility, and economic, social, political, and other factors in the countries
where the Fund 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. For example, the Mexican Bolsa Index
has increased 3,760% during the last 15 years, but has suffered 8 declines of
more than 15% during the time.(1) 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 allowing us to serve your investment management needs.
Best regards,
/s/DONALD F. REED
- ------------------
Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.
/s/GARY P. MOTYL
- -----------------
Gary P. Motyl, CFA
Executive Vice President
Templeton Investment Counsel, Inc.
(1) 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, call 1-800-362-6243.
Total Return Index Comparison
$5,000,000 Investment: 10/18/90-6/30/99
[GRAPHIC OF LINE CHART]
<TABLE>
<CAPTION>
MSCI AC
TIFI-FOREIGN WORLD FREE
EQUITY SERIES MS EAFE EX US CPI
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
5,000,000 5,000,000 5,000,000 5,000,000
4,970,000 5,030,340 5,278,000 5,012,580
4,875,000 4,753,060 4,984,540 5,502,360
12/31/90 4,860,000 4,813,660 5,075,760 5,023,610
5,005,000 4,947,060 5,234,630 5,053,750
5,614,720 5,504,930 5,796,830 5,061,330
5,452,700 5,175,740 5,478,010 5,068,920
5,503,330 5,228,010 5,537,720 5,076,530
5,579,280 5,283,950 5,616,350 5,091,760
5,295,750 4,897,160 5,225,450 5,106,520
5,604,590 5,139,080 5,476,270 5,114,180
5,614,720 5,035,790 5,382,080 5,129,010
5,756,480 5,321,320 5,656,030 5,151,580
5,736,220 5,397,950 5,755,010 5,159,310
5,685,600 5,147,480 5,498,910 5,174,270
12/31/91 5,899,360 5,415,150 5,784,310 5,177,890
6,060,450 5,300,890 5,703,910 5,185,660
6,154,880 5,112,710 5,528,800 5,204,330
6,108,300 4,776,800 5,194,300 5,230,870
6,304,440 4,800,690 5,211,440 5,238,190
6,657,490 5,123,290 5,527,780 5,245,530
6,584,640 4,881,990 5,260,790 5,264,410
6,360,480 4,758,470 5,148,730 5,275,460
6,181,160 5,058,730 5,423,160 5,290,240
6,024,240 4,960,590 5,311,990 5,305,050
5,811,300 4,701,650 5,078,790 5,323,620
5,822,500 4,747,260 5,106,720 5,331,070
12/31/92 5,820,810 4,773,370 5,149,110 5,327,340
5,843,980 4,774,320 5,148,590 5,353,440
5,971,400 4,919,940 5,306,140 5,372,180
6,119,130 5,350,430 5,742,840 5,390,980
6,316,140 5,859,790 6,249,930 5,406,080
6,484,190 5,985,190 6,389,300 5,413,640
6,362,500 5,893,020 6,312,630 5,421,220
6,466,810 6,100,450 6,522,210 5,421,220
6,924,580 6,431,100 6,872,450 5,436,400
6,872,430 6,287,690 6,730,880 5,447,820
7,278,050 6,482,600 6,974,540 5,470,160
7,110,010 5,917,320 6,443,080 5,473,980
12/31/93 7,801,440 6,345,730 6,945,640 5,473,980
8,357,850 6,883,850 7,516,570 5,488,760
8,129,430 6,865,950 7,459,440 5,507,430
7,768,920 6,571,410 7,117,800 5,526,150
7,881,600 6,852,000 7,359,090 5,533,890
7,911,250 6,814,320 7,361,300 5,537,760
7,656,240 6,912,440 7,413,570 5,556,590
7,988,350 6,980,190 7,534,410 5,571,590
8,261,150 7,147,010 7,787,560 5,593,880
8,065,440 6,923,310 7,594,430 5,608,980
8,237,430 7,155,240 7,798,720 5,612,910
7,881,600 6,813,220 7,422,820 5,620,210
12/31/94 7,819,890 6,857,510 7,405,750 5,620,210
7,594,900 6,595,550 7,069,530 5,642,690
7,713,480 6,578,400 7,030,650 5,665,260
7,749,980 6,990,870 7,427,880 5,683,950
8,090,640 7,255,820 7,717,570 5,702,710
8,297,460 7,170,930 7,683,610 5,714,120
8,346,130 7,046,870 7,577,580 5,725,540
8,759,790 7,487,300 8,007,980 5,725,540
8,534,710 7,203,530 7,730,110 5,740,430
8,692,870 7,346,160 7,862,290 5,751,910
8,504,290 7,150,750 7,652,370 5,770,890
8,638,120 7,351,690 7,832,200 5,766,850
12/31/95 8,834,440 7,649,430 8,141,570 5,762,820
9,117,590 7,682,330 8,253,110 5,796,820
9,262,240 7,709,980 8,253,110 5,815,370
9,331,740 7,875,750 8,406,620 5,845,610
9,672,910 8,106,510 8,661,340 5,868,400
9,786,640 7,958,970 8,531,420 5,879,550
9,755,050 8,005,930 8,574,930 5,883,080
9,502,330 7,773,760 8,290,240 5,894,260
9,780,320 7,792,410 8,339,150 5,905,460
9,862,540 8,001,250 8,545,960 5,924,360
9,957,440 7,921,240 8,460,500 5,943,310
10,469,900 8,238,090 8,787,080 5,954,610
12/31/96 10,741,200 8,134,290 8,685,150 5,954,610
10,938,400 7,851,210 8,525,340 5,973,660
11,089,500 7,981,540 8,681,360 5,992,180
11,201,300 8,012,670 8,663,130 6,007,160
11,148,700 8,056,740 8,735,900 6,014,370
11,609,400 8,582,850 9,275,770 6,010,760
12,122,700 9,058,340 9,787,800 6,017,970
12,563,700 9,206,890 9,985,510 6,025,190
11,852,900 8,520,980 9,199,650 6,036,640
12,807,200 8,999,860 9,697,350 6,051,730
11,859,500 8,310,470 8,872,110 6,066,860
11,780,500 8,227,360 8,761,210 6,063,220
12/31/97 11,968,800 8,301,410 8,861,960 6,055,950
12,113,600 8,683,270 9,126,930 6,067,450
12,885,800 9,242,480 9,735,700 6,078,980
13,833,200 9,528,990 10,072,600 6,090,530
14,013,100 9,606,180 10,145,100 6,101,490
13,860,900 9,561,990 9,961,450 6,112,480
13,729,400 9,636,570 9,923,600 6,119,810
13,971,600 9,736,790 10,017,900 6,127,160
11,722,600 8,532,350 8,605,350 6,134,510
11,549,600 8,272,970 8,423,780 6,141,870
12,442,300 9,137,500 9,305,750 6,156,610
13,113,500 9,608,080 9,805,470 6,156,610
12/31/98 13,184,500 9,989,520 10,143,800 6,152,920
13,185,600 9,989,520 10,143,800 6,152,920
13,045,300 9,962,280 10,133,300 6,167,930
12,747,600 9,727,160 9,918,220 6,175,440
13,437,400 10,135,500 10,407,200 6,194,210
14,539,100 10,548,600 10,939,400 6,239,260
14,002,700 10,007,600 10,443,300 6,239,260
14,663,800 10,399,900 10,948,800 6,239,260
</TABLE>
Periods ended June 30, 1999
SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (10/18/90)
Average Annual
Total Return (1),(2) 6.75% 13.88% 13.17%
Cumulative Total
Return(1),(3) 6.75% 91.53% 193.28%
(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 1.00% 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 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: Morgan Stanley Capital International. The MSCI AC World ex
U.S. Free Index measures the performance of securities located in 46
countries, including emerging markets in Latin America, Asia and
Eastern Europe. It includes reinvested dividends. The MSCI EAFE tracks
the performance of approximately 1,000 securities in 20 countries. 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) Source: U.S. Bureau of Labor Statistics (7/15/99).
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.
4
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Highlights
<TABLE>
<CAPTION>
PRIMARY SHARES
-----------------------------------------------------------------------------------
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...... $17.76 $17.36 $16.34 $14.04 $12.86 $13.32
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .24 .42 .42 .45 .31 .20
Net realized and unrealized gains
(losses)............................... 1.75 1.29 1.43 2.54 1.35 (.16)
-----------------------------------------------------------------------------------
Total from investment operations.......... 1.99 1.71 1.85 2.99 1.66 .04
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.01) (.40) (.43) (.45) (.31) (.19)
In excess of net investment income....... -- -- -- (.02) -- --
Net realized gains....................... (.04) (.91) (.40) (.14) (.17) (.31)
In excess of net realized gains.......... -- -- -- (.08) -- --
-----------------------------------------------------------------------------------
Total distributions....................... (.05) (1.31) (.83) (.69) (.48) (.50)
-----------------------------------------------------------------------------------
Net asset value, end of period............ $19.70 $17.76 $17.36 $16.34 $14.04 $12.86
===================================================================================
Total Return*............................. 11.22% 10.16% 11.43% 21.58% 13.00% 0.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $4,702,821 $4,551,663 $3,706,006 $2,857,591 $1,817,883 $1,093,227
Ratios to average net assets:
Expenses................................. .84%** .83% .84% .87% .88% .95%
Net investment income.................... 2.66%** 2.33% 2.49% 3.20% 2.70% 2.03%
Portfolio turnover rate................... 7.24% 15.40% 15.25% 7.39% 20.87% 7.90%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
5
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Highlights (continued)
<TABLE>
<CAPTION>
SERVICE
SHARES
-------------
PERIOD ENDED
JUNE 30, 1999
(UNAUDITED)+
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $19.53
------
Income from investment operations:
Net investment income...................................... .14
Net realized and unrealized gains.......................... .03
-------------
Total from investment operations............................ .17
-------------
Net asset value, end of period.............................. $19.70
=============
Total Return*............................................... .87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $20
Ratios to average net assets:
Expenses................................................... .90%**
Net investment income...................................... 4.40%**
Portfolio turnover rate..................................... 7.24%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period May 3, 1999 (effective date) to June 30, 1999. Based on average
weighted shares outstanding
See Notes to Financial Statements.
6
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 85.0%
AEROSPACE & MILITARY TECHNOLOGY
Rolls-Royce Plc. ........................................... United Kingdom 10,110 $ 42,828
--------------
APPLIANCES & HOUSEHOLD DURABLES 1.2%
Sony Corp. ................................................. Japan 504,800 54,425,314
--------------
AUTOMOBILES 2.7%
Autoliv Inc. ............................................... Sweden 750,000 22,687,500
Fiat SpA.................................................... Italy 9,264,120 29,444,176
Volkswagen AG............................................... Germany 304,000 19,615,634
Volvo AB, B................................................. Sweden 1,895,125 54,945,697
--------------
126,693,007
--------------
BANKING 14.1%
Argentaria Caja Postal Y Banco Hipotecaria SA, ADR.......... Spain 868,000 39,928,000
Australia & New Zealand Banking Group Ltd. ................. Australia 3,384,161 24,883,932
Banca Nazionale Del Lavoro SpA.............................. Italy 9,540,450 30,086,311
Banco Bradesco SA, ADR...................................... Brazil 2,078,900 10,676,235
Banco Pinto & Sotto Mayor SA................................ Portugal 356,800 6,336,079
*Bank Handlowy W Warszawie SA, GDR, 144A.................... Poland 1,160,000 18,502,000
Banque Nationale de Paris, 144A, ADR........................ France 833,500 69,451,170
BPI-SGPS SA................................................. Portugal 681,408 14,299,941
Canadian Imperial Bank of Commerce.......................... Canada 1,555,200 37,299,296
Credit Suisse Group......................................... Switzerland 296,100 51,235,623
Deutsche Bank AG, Br. ...................................... Germany 713,900 43,509,838
Development Bank of Singapore Ltd., fgn. ................... Singapore 7,099,300 86,734,473
Foreningssparbanken AB, A................................... Sweden 1,553,180 21,922,089
HSBC Holdings Plc. ......................................... Hong Kong 1,188,457 43,348,348
Kookmin Bank................................................ South Korea 202,968 4,120,733
Kookmin Bank, GDR, Reg S.................................... South Korea 339,683 6,912,549
Merita AS................................................... Finland 9,113,000 51,781,613
National Bank of Canada..................................... Canada 1,154,200 15,221,086
*Philippine National Bank................................... Philippines 2,058,512 5,572,319
Svenska Handelsbanken, A.................................... Sweden 4,063,350 48,748,730
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 8,000,000 24,732,203
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 275,000 6,617,188
--------------
661,919,756
--------------
BROADCASTING & PUBLISHING .4%
Television Broadcasts Ltd. ................................. Hong Kong 4,579,000 21,481,998
--------------
BUILDING MATERIALS & COMPONENTS 1.4%
Okumura Corp. .............................................. Japan 1,800,000 6,692,003
Pioneer International Ltd. ................................. Australia 12,477,632 31,796,984
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 815,746 3,362,533
Svedala Industri, A......................................... Sweden 1,355,000 24,384,263
--------------
66,235,783
--------------
BUSINESS & PUBLIC SERVICES .6%
Esselte AB, A............................................... Sweden 63,000 629,852
Esselte AB, B............................................... Sweden 929,400 9,619,760
Hyder Plc. ................................................. United Kingdom 1,083,333 12,789,893
Lex Service Plc. ........................................... United Kingdom 11,400 104,850
TNT Post Group NV........................................... Netherlands 200,000 4,774,673
--------------
27,919,028
--------------
</TABLE>
7
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS 2.5%
Akzo Nobel NV............................................... Netherlands 522,256 $ 21,973,853
BASF AG..................................................... Germany 660,000 28,994,534
Bayer AG, Br. .............................................. Germany 899,230 37,417,686
Imperial Chemical Industries Plc. .......................... United Kingdom 2,887,000 28,714,369
Yule Catto & Company Plc. .................................. United Kingdom 42,500 233,796
--------------
117,334,238
--------------
CONSTRUCTION & HOUSING .5%
Daito Trust Construction Co. Ltd. .......................... Japan 1,151,300 12,840,838
Fairview Holdings Plc. ..................................... United Kingdom 1,816,252 3,850,539
Fletcher Challenge Building Ltd............................. New Zealand 1,403,250 2,044,849
Kyudenko Corp. ............................................. Japan 909,000 5,196,861
--------------
23,933,087
--------------
DATA PROCESSING & REPRODUCTION .3%
*Newbridge Networks Corp. .................................. Canada 478,800 13,740,758
--------------
ELECTRICAL & ELECTRONICS 4.9%
*ABB Ltd. .................................................. Sweden 29,603 2,768,100
*ABB Ltd., new.............................................. Switzerland 416,257 39,226,547
Alcatel SA.................................................. France 251,087 35,344,308
General Electric Co. Plc. .................................. United Kingdom 3,625,000 36,854,529
Hitachi Ltd. ............................................... Japan 4,242,000 39,777,512
Koninklijke Philips Electronics NV.......................... Netherlands 703,248 69,367,507
*Meto AG.................................................... Sweden 992,400 4,914,143
--------------
228,252,646
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .2%
BICC Plc. .................................................. United Kingdom 6,281,099 8,959,986
--------------
ENERGY EQUIPMENT & SERVICES .3%
TransCanada PipeLines Ltd. ................................. Canada 863,900 12,094,600
--------------
ENERGY SOURCES 4.9%
Fletcher Challenge Energy Ltd. ............................. New Zealand 1,405,000 3,811,886
MOL Magyar Olay-Es Gazipari RT, GDS 144A.................... Hungary 1,339,742 32,086,821
Norsk Hydro ASA............................................. Norway 306,300 11,555,554
Perez Companc SA, B......................................... Argentina 3,466,500 19,934,368
*Ranger Oil Ltd. ........................................... Canada 32,600 160,963
*Renaissance Energy Ltd. ................................... Canada 1,210,200 16,373,051
Repsol SA................................................... Spain 2,289,300 46,744,498
Shell Transport & Trading Co. Plc. ......................... United Kingdom 34,750 260,316
Shell Transport & Trading Co. Plc., N.Y. shs. .............. United Kingdom 670,000 31,071,250
Societe Elf Aquitane SA, Br. ............................... France 467,659 68,627,282
--------------
230,625,989
--------------
FINANCIAL SERVICES 3.4%
AXA SA...................................................... France 498,707 60,840,505
Housing Development Finance Corp. Ltd. ..................... India 237,383 12,164,433
ICICI Ltd. ................................................. India 12,867,916 21,811,913
ICICI Ltd., GDR, 144A....................................... India 1,676,500 17,267,950
ING Groep NV................................................ Netherlands 890,890 48,233,191
--------------
160,317,992
--------------
FOOD & HOUSEHOLD PRODUCTS 1.3%
Northern Foods Plc. ........................................ United Kingdom 2,771,811 5,701,607
Panamerican Beverages Inc., A............................... Mexico 1,444,100 34,387,631
Tate & Lyle Plc. ........................................... United Kingdom 3,049,575 19,119,329
--------------
59,208,567
--------------
</TABLE>
8
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER 3.5%
Aracruz Celulose SA, ADR.................................... Brazil 1,500,000 $ 33,000,000
*Asia Pacific Resources International Hldgs. Ltd., A........ Indonesia 103,250 122,609
*Asia Pulp & Paper Co. Ltd., ADR............................ Indonesia 185,100 1,781,588
*Asia Pulp & Paper Co. Ltd., wts., 7/27/00.................. Indonesia 37,020 97,178
Assidoman AB................................................ Sweden 260,000 3,914,373
Carter Holt Harvey Ltd. .................................... New Zealand 3,149,000 3,771,158
Cartiere Burgo SpA.......................................... Italy 1,217,760 7,822,447
Fletcher Challenge Ltd. Forestry Division................... New Zealand 20,122,398 11,302,621
Fletcher Challenge Paper Ltd. .............................. New Zealand 2,732,500 2,041,610
Jefferson Smurfit Group Plc. ............................... United Kingdom 4,300,000 10,031,210
Metsa Serla OY, B........................................... Finland 1,418,000 12,049,417
*PT Inti Indorayon Utama, ADR............................... Indonesia 29,388 9,404
*PT Tjiwi Kimia............................................. Indonesia 2,530,782 974,085
*PT Tjiwi Kimia TBK, wts., 7/15/02.......................... Indonesia 351,495 90,618
Stora Enso OYJ, R........................................... Finland 54,000 579,148
Stora Enso OYJ, R, fgn. .................................... Finland 1,814,636 19,636,146
Svenska Cellulosa AB, B..................................... Sweden 600,000 15,525,759
+Unipapel SA, Br. .......................................... Spain 619,386 7,032,525
UPM-Kymmene Corp. .......................................... Finland 1,305,000 37,412,602
--------------
167,194,498
--------------
HEALTH & PERSONAL CARE 3.6%
Astrazeneca Plc. ........................................... United Kingdom 778,543 30,310,249
Internatio-Muller NV........................................ Netherlands 423,200 9,317,645
Medeva Plc. ................................................ United Kingdom 1,739,171 2,851,010
Nycomed Amersham Plc. ...................................... United Kingdom 7,558,120 53,763,699
Ono Pharmaceutical Co Ltd. ................................. Japan 7,000 238,847
Rhone-Poulenc SA, A......................................... France 1,567,712 71,635,886
--------------
168,117,336
--------------
INDUSTRIAL COMPONENTS
Granges AB.................................................. Sweden 11,355 192,322
SKF AB, A................................................... Sweden 11,000 194,072
--------------
386,394
--------------
INSURANCE 3.8%
Ace Ltd. ................................................... Bermuda 1,009,500 28,518,375
Istituto Nazionale Delle Assicurazioni SpA.................. Italy 6,104,000 14,137,964
Muenchener Rueckversicherungs-Gesellschaft.................. Germany 44,499 8,384,003
*Muenchener Rueckversicherungs-Gesellschaft, 144A........... Germany 44,499 8,305,991
*Muenchener Rueckversicherungs-Gesellschaft, wts., 6/3/02... Germany 19 607
Skandia Foersaekrings AB.................................... Sweden 1,500,000 28,052,223
XL Capital Ltd., A.......................................... Bermuda 500,400 28,272,600
Zurich Allied AG............................................ Switzerland 114,155 64,912,531
--------------
180,584,294
--------------
LEISURE & TOURISM
Toei Co. Ltd. .............................................. Japan 49,000 200,388
--------------
MACHINERY & ENGINEERING 1.5%
Invensys Plc. .............................................. United Kingdom 5,561,189 26,341,182
Makita Corp. ............................................... Japan 740,000 8,369,630
New Holland NV.............................................. Netherlands 1,382,100 23,668,463
Tata Engineering & Locomotive Co., GDR, 144A................ India 200,000 1,160,000
VA Technologie AG, Br. ..................................... Austria 116,610 10,564,286
VA Technologie AG, Br., 144A................................ Austria 28,000 2,536,661
--------------
72,640,222
--------------
</TABLE>
9
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 2.1%
Best Denki Co. Ltd. ........................................ Japan 1,125,000 $ 8,931,965
House of Fraser Plc. ....................................... United Kingdom 1,750,000 2,399,830
Marks & Spencer Plc. ....................................... United Kingdom 3,275,000 18,893,635
Matsuzakaya Co. Ltd. ....................................... Japan 1,600,000 6,873,761
Safeway Plc. ............................................... United Kingdom 4,650,000 18,598,681
Somerfield Plc. ............................................ United Kingdom 3,110,228 14,584,862
Storehouse.................................................. United Kingdom 13,238,000 28,482,504
--------------
98,765,238
--------------
METALS & MINING 2.4%
Boehler-Uddeholm AG......................................... Austria 22,450 1,111,040
Boehler-Uddeholm AG, 144A................................... Austria 60,750 3,006,489
Grupo Mexico SA de CV, B.................................... Mexico 3,400,000 14,558,462
Iluka Resources Ltd. ....................................... Australia 4,870,699 10,529,324
Industrias Penoles SA....................................... Mexico 33,900 98,822
Pechiney SA, A.............................................. France 568,000 24,413,984
Pohang Iron & Steel Co. Ltd. ............................... South Korea 205,600 25,632,274
WMC Ltd. ................................................... Australia 8,137,578 34,956,898
--------------
114,307,293
--------------
MISC MATERIALS & COMMODITIES .2%
Golden Hope Plantations Bhd. ............................... Malaysia 1,960,000 1,681,474
Unitor ASA.................................................. Norway 818,735 7,071,957
--------------
8,753,431
--------------
MULTI-INDUSTRY 3.2%
Alfa SA de CV, A............................................ Mexico 900,400 3,764,085
Brierley Investments Ltd. .................................. New Zealand 33,843,199 9,504,753
Cheung Kong Holdings Ltd. .................................. Hong Kong 21,000 186,754
DESC SA de CV DESC, B....................................... Mexico 143,000 157,277
Hutchison Whampoa Ltd. ..................................... Hong Kong 5,525,500 50,028,854
Jardine Matheson Holdings Ltd. ............................. Hong Kong 9,786,341 48,931,705
Jardine Strategic Holdings Ltd. ............................ Hong Kong 5,115,130 13,299,338
La Cemento Nacional SA, GDR, 144A........................... Ecuador 200 14,400
La Cemento Nacional SA, GDR, Reg S.......................... Ecuador 400 28,800
Swire Pacific Ltd., A....................................... Hong Kong 4,993,000 24,711,291
Swire Pacific Ltd., B....................................... Hong Kong 154,500 115,494
--------------
150,742,751
--------------
REAL ESTATE .9%
Inversiones y Representacion SA............................. Argentina 3,030,000 9,333,333
Inversiones y Representacion SA, GDR........................ Argentina 25,000 771,875
Taylor Woodrow Plc. ........................................ United Kingdom 11,078,810 31,957,098
Unione Immobiliare SpA...................................... Italy 6,104,000 2,687,850
--------------
44,750,156
--------------
TELECOMMUNICATIONS 12.7%
British Telecommunications Plc. ............................ United Kingdom 2,930,000 49,139,687
*Cable & Wireless Optus Ltd., 144A.......................... Australia 13,200,000 30,055,600
Compania de Telecomunicaciones de Chile SA, ADR............. Chile 3,415,550 84,534,863
Hong Kong Telecommunications Ltd. .......................... Hong Kong 14,505,500 37,671,282
Koninklijke KPN NV.......................................... Netherlands 406,400 19,068,990
Nippon Telegraph & Telephone Corp. ......................... Japan 2,300 26,792,796
Nokia Corp., A.............................................. Finland 587,800 51,524,183
Nortel Networks Corp. ...................................... Canada 4,080 354,195
Philippine Long Distance Telephone Co., ADR................. Philippines 709,905 21,385,888
PT Indosat, ADR............................................. Indonesia 158,300 3,086,850
*Rostelecom, ADR............................................ Russia 690,000 6,770,625
SK Telecom Co. Ltd., ADR.................................... South Korea 383,057 6,511,969
</TABLE>
10
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Telecom Argentina Stet-France SA, ADR....................... Argentina 1,115,400 $ 29,836,950
*Telecom Italia SpA, di Risp................................ Italy 7,307,900 39,753,710
Telefonica de Argentina SA, ADR............................. Argentina 1,526,166 47,883,458
*Telefonica SA.............................................. Spain 1,170,795 56,396,653
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 790,006 63,842,360
Videsh Sanchar Nigam Ltd. .................................. India 1,000,000 21,078,728
Videsh Sanchar Nigam Ltd., GDR, 144A........................ India 127,600 1,634,875
--------------
597,323,662
--------------
TEXTILES & APPAREL .1%
Courtaulds Textiles Plc. ................................... United Kingdom 1,500,000 3,901,201
--------------
TRANSPORTATION 2.6%
Autostrade Concessioni e Costruzioni SpA, A................. Italy 4,865,000 34,873,275
British Airways Plc. ....................................... United Kingdom 4,184,700 28,923,914
Canadian National Railway Co................................ Canada 240,000 16,218,654
Kvaerner ASA, A............................................. Norway 454,600 9,354,741
Mayne Nickless Ltd., A...................................... Australia 9,050,000 30,969,354
Peninsular & Oriental Steam Navigation Co................... United Kingdom 21,680 326,181
Stolt Nielsen SA, ADR....................................... Norway 2,000 34,250
--------------
120,700,369
--------------
UTILITIES ELECTRICAL & GAS 9.7%
BG Plc. .................................................... United Kingdom 4,983,308 30,418,115
British Energy Ltd. ........................................ United Kingdom 2,704,500 23,126,497
Centrais Eletricas Brasileiras SA (Eletrobras), ADR......... Brazil 3,348,700 31,910,579
*Centrais Geradoras Do Sul Do Brasil SA, ADR................ Brazil 117,000 467,333
Centrica Plc. .............................................. United Kingdom 5,833,935 13,724,580
*CEZ AS..................................................... Czech Republic 5,287,293 10,881,983
Endesa SA................................................... Spain 1,567,200 33,422,395
Evn AG...................................................... Austria 158,336 23,153,599
Gener SA, ADR............................................... Chile 840,000 14,910,000
Guangdong Electric Power Development Co Ltd., B............. China 2,455,129 1,689,734
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 8,511,800 27,426,101
Iberdrola SA, Br. .......................................... Spain 3,010,329 45,851,871
Korea Electric Power Corp. ................................. South Korea 639,410 26,570,731
National Power Plc. ........................................ United Kingdom 4,069,416 29,554,292
Nova Chemicals Corp. ....................................... Canada 37,960 884,943
Shandong Huaneng Power Development Co. Ltd., ADR............ China 5,682,965 29,480,381
Thames Water Group Plc. .................................... United Kingdom 3,152,655 50,041,354
Veba AG..................................................... Germany 1,068,400 63,022,048
--------------
456,536,536
--------------
TOTAL COMMON STOCKS (COST $3,002,731,490)................... 3,998,089,346
--------------
PREFERRED STOCKS 5.0%
ABN Amro Holdings NV, cvt. pfd. ............................ Netherlands 457,188 36,492,061
Banco Bradesco SA, pfd. .................................... Brazil 3,586,486,932 18,418,478
Banco Itau SA, pfd. ........................................ Brazil 54,025,000 28,052,924
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 335,000 6,652,211
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 1,129,800 15,675,975
Lojas Americanas SA, pfd. .................................. Brazil 396,729,153 1,584,653
News Corp. Ltd., pfd. ...................................... Australia 5,534,958 42,167,968
Tele Celular Sul Participacoes SA, ADR, pfd. ............... Brazil 112,980 2,450,254
Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ...... Brazil 376,596 1,482,847
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 225,960 12,540,780
Tele Leste Celular Participacoes SA, ADR, pfd. ............. Brazil 22,596 672,231
Tele Nordeste Celular Participacoes SA, ADR, pfd. .......... Brazil 56,490 1,525,230
Tele Norte Celular Participacoes SA, ADR, pfd. ............. Brazil 22,596 611,504
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 1,129,800 20,971,913
</TABLE>
11
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 225,960 $ 6,552,840
*Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..... Brazil 1,129,800 70,613
Telemig Celular Participacoes SA, ADR, pfd. ................ Brazil 56,490 1,391,066
Telesp Celular Participacoes SA, ADR, pfd. ................. Brazil 451,920 12,088,860
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 1,129,800 25,844,175
Usinas Siderurgicas de Minas Gerais, ADR, Reg S, pfd. ...... Brazil 26,900 91,483
--------------
TOTAL PREFERRED STOCKS (COST $220,298,164).................. 235,338,066
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS 3.2%
Government of Australia, 10.00%, 10/15/07................... Australia 64,912,000AUD 53,295,467
Government of New Zealand, 7.00%, 7/15/09................... New Zealand 90,000,000NZD 49,391,980
RGC Ltd, zero coupon, 12/31/00.............................. Australia 7,429,095AUD 1,966,930
United Kingdom, 7.25%, 12/07/07............................. United Kingdom 27,000,000GBP 48,052,867
--------------
TOTAL BONDS (COST $151,173,627)............................. 152,707,244
--------------
SHORT TERM INVESTMENTS (COST $300,249,455) 6.4%
U.S. Treasury Bills, 4.30% to 4.85%, with maturities to
12/09/99.................................................. United States 304,282,000 300,221,752
--------------
TOTAL INVESTMENTS (COST $3,674,452,736) 99.6%............... 4,686,356,408
OTHER ASSETS, LESS LIABILITIES .4%.......................... 16,485,046
--------------
TOTAL NET ASSETS 100.0%..................................... $4,702,841,454
==============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD -- Australian Dollar
GBP -- British Pound
NZD -- New Zealand Dollar
</TABLE>
*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 $7,032,525.
See Notes to Financial Statements.
12
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$3,674,452,736)........................................... $4,686,356,408
Cash....................................................... 1,825,523
Receivables:
Fund shares sold.......................................... 22,026,467
Dividends and interest.................................... 26,091,771
--------------
Total assets.......................................... 4,736,300,169
--------------
Liabilities:
Payables:
Investment securities purchased........................... 27,017,455
Fund shares redeemed...................................... 2,580,178
To affiliates............................................. 3,053,134
Deferred tax liability (Note 1e)........................... 202,025
Accrued expenses........................................... 605,923
--------------
Total liabilities..................................... 33,458,715
--------------
Net assets, at value........................................ $4,702,841,454
==============
Net assets consist of:
Undistributed net investment income........................ $ 62,677,901
Net unrealized appreciation................................ 1,011,674,288
Accumulated net realized gain.............................. 124,437,385
Beneficial shares.......................................... 3,504,051,880
--------------
Net assets, at value........................................ $4,702,841,454
==============
PRIMARY SHARES:
Net asset value per share ($4,702,821,281 / 238,757,458
shares outstanding)...................................... $19.70
==============
SERVICE SHARES:
Net asset value per share ($20,173 / 1,024 shares
outstanding)............................................. $19.70
==============
</TABLE>
See Notes to Financial Statements.
13
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY 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 $7,396,543)
Dividends.................................................. $ 68,293,763
Interest................................................... 11,065,567
------------
Total investment income............................... $ 79,359,330
Expenses:
Management fees (Note 3)................................... 15,880,182
Administrative fees (Note 3)............................... 1,900,265
Transfer agent fees (Note 3)............................... 36,200
Custodian fees............................................. 943,900
Reports to shareholders.................................... 20,900
Registration and filing fees............................... 147,000
Professional fees.......................................... 64,000
Directors' fees and expenses............................... 75,300
Other...................................................... 50,724
------------
Total expenses........................................ 19,118,471
------------
Net investment income........................... 60,240,859
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 126,389,275
Foreign currency transactions............................. (1,275,662)
------------
Net realized gain..................................... 125,113,613
Net unrealized appreciation (depreciation) on:
Investments............................................... 295,074,790
Translation of assets and liabilities denominated in
foreign currencies...................................... (97,390)
Deferred taxes (Note 1e).................................. (202,025)
------------
Net unrealized appreciation........................... 294,775,375
------------
Net realized and unrealized gain............................ 419,888,988
------------
Net increase in net assets resulting from operations........ $480,129,847
============
</TABLE>
See Notes to Financial Statements.
14
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY 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..................................... $ 60,240,859 $ 100,751,153
Net realized gain from investments and foreign currency
transactions............................................ 125,113,613 210,476,058
Net unrealized appreciation on investments, translation of
assets and liabilities denominated in foreign currencies
and deferred taxes....................................... 294,775,375 69,995,443
-------------------------------------
Net increase in net assets resulting from operations.... 480,129,847 381,222,654
Distributions to shareholders from:
Net investment income - Primary Shares.................... (2,547,430) (95,131,004)
Net realized gains - Primary Shares....................... (8,916,833) (213,861,645)
Capital share transactions (Note 2):
Primary Shares............................................ (317,507,417) 773,427,138
Service Shares............................................ 20,000 --
-------------------------------------
Net increase in net assets.............................. 151,178,167 845,657,143
Net assets:
Beginning of period........................................ 4,551,663,287 3,706,006,144
-------------------------------------
End of period.............................................. $4,702,841,454 $4,551,663,287
=====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 62,677,901 $ 4,984,472
=====================================
</TABLE>
See Notes to Financial Statements.
15
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Foreign Equity Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks long-term
capital growth. Under normal market conditions, the Fund invests primarily in
the equity securities of companies located outside the United States including
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.
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.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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.
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.
16
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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
The Fund offers two classes of shares: Primary shares and Service shares. The
shares differ by their initial sales load, distribution fees, voting rights on
matters affecting a single class and the exchange privilege of each class.
At June 30, 1999, there were 1.14 billion shares authorized ($0.01 par value),
of which 455 million and 100 million were designated as Primary shares and
Service shares, respectively. 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>
PRIMARY SHARES:
Shares sold............................................... 47,828,989 $ 882,026,767 94,164,555 $ 1,756,499,486
Shares issued on reinvestment of distributions............ 615,734 10,479,889 16,340,500 278,597,990
Shares redeemed........................................... (65,997,942) (1,210,014,073) (67,623,948) (1,261,670,338)
---------------------------------------------------------------------
Net increase (decrease)................................... (17,553,219) $ (317,507,417) 42,881,107 $ 773,427,138
=====================================================================
PERIOD ENDED
------------------------------
JUNE 30, 1999*
------------------------------
SHARES AMOUNT
------------------------------
SERVICE SHARES:
Shares sold............................................... 1,024 $ 20,000
------------------------------
Net increase.............................................. 1,024 $ 20,000
==============================
</TABLE>
*Effective date of Service Shares is May 3, 1999.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Company are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
The Fund pays an investment management fee to TICI of 0.70% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Company's aggregate average 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>
TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 1.00% of average daily net assets through April 30, 2000.
For the six months ended June 30, 1999, no reimbursement was necessary under the
agreement.
17
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund reimburses Distributors up to .35% per year of the average daily net
assets of Service shares, for costs incurred in marketing the Fund's Service
shares.
4. INCOME TAXES
At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,674,502,522 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,310,835,584
Unrealized depreciation..................................... (298,981,698)
--------------
Net unrealized appreciation................................. $1,011,853,886
==============
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies and wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $307,853,142 and $478,087,643
respectively.
18
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This report must be preceded or accompanied
by the current prospectus of the Templeton
Institutional Funds, Inc. Foreign Equity 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 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
[RECYCLE LOGO]
Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
