TEMPLETON INSTITUTIONAL FUNDS, INC.
TIFI
Growth Series
ANNUAL REPORT
DECEMBER 31, 1998
[TEMPLETON LOGO]
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
December 31, 1998
[Dear Logo] Shareholder:
Global stock market volatility in recent months has challenged
the resolve of many investors. With continued turmoil in Asia spreading to
Russia and Latin America, many investors sought refuge in the developed markets,
and in particular large, liquid growth stocks. For value investors like
Templeton, 1998 was a difficult year. We positioned the portfolio for the longer
term with the opportunities created, but found our short-term performance
negatively impacted by the changes. When confronted with such circumstances, we
believe it is important to remind ourselves we have a distinct style, one which
will not always be in favor. At the same time, we wish to reassure you that we
have maintained the same discipline and followed the same patient stock-picking
methodologies in this period that we have relied on in the past.
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 12/31/98
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 Growth Series 2.98% 12.32% 10.46% 97.37%
MSCI AC World
Free Index(4) 21.97% 16.66% 14.78% 118.58%
MSCI World Index(4) 24.80% 18.24% 16.20% 129.19%
</TABLE>
(1)The Fund's Investment Manager and Fund Administrator have agreed in advance
to waive a portion of their respective fees in order to limit the total
expenses of the Fund to an annual rate of 0.90% of average net assets through
April 30, 1999. If these fee waivers are insufficient to so limit the Fund's
expenses, the Fund Administrator has agreed to make certain payments to
reduce the Fund's expenses. After April 30, 1999, these agreements may end at
any time upon notice to the Board. These voluntary agreements did not result
in any fee waivers or reimbursements for the Fund for the fiscal year ended
December 31, 1998.
(2)Average annual total return represents the average annual change in value of
an investment over the indicated periods.
(3)Cumulative total return represents the change in value of an investment over
the indicated periods.
(4)The index is unmanaged, does not contain cash, and does not include
management or operating expenses. The index includes reinvested dividends.
One cannot invest directly in an index.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.
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 6 of
this report.
continued...
[PHOTO GARY MOTYL APPEARS HERE]
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.
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued
GEOGRAPHIC DISTRIBUTION ON 12/31/98
(Equity Assets as a Percentage of Total Net Assets)
[PIE CHART]
Europe 52.0%
Asia 14.7%
Latin America/Caribbean 9.0%
Australia/New Zealand 6.8%
North America 8.5%
FUND ASSET ALLOCATION ON 12/31/98
[PIE CHART]
Equity* 91.0%
Short-Term Investments &
Other Net Assets 9.0%
*Equity includes convertible and preferred securities
For the quarter and one year periods ended December 31, 1998,
Templeton Institutional Funds, Inc. Growth Series (the "Fund") reported
cumulative total returns of 18.07% and 2.98%, respectively, compared to the
unmanaged Morgan Stanley Capital International ("MSCI") World Index, which
reported cumulative total returns of 21.23% and 24.80% for these periods. The
MSCI All Country World Free Index reported cumulative total returns of 21.13%
and 21.97% for the quarter and one year periods ended December 31, 1998. 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.
The Fund's performance, and indeed that of many other value
investors, substantially lagged the benchmark indices in 1998. "Value" investing
is currently out of favor. In some ways this period may resemble that of the
late 1980s, when limited exposure to Japan caused value funds to underperform
benchmark indices and their peers. Like the Japanese market of the late 1980s,
securities markets in the U.S. and other developed countries in 1998 reached all
time highs and stock valuations that were not necessarily representative of
their long-term potential. As such, there were limited value investment
opportunities, and our low weighting in these highly valued markets caused our
funds to underperform. A good example is seen in the performance of our holdings
in the United Kingdom over the last quarter. During the year, industrial stocks
in the United Kingdom substantially underperformed the market. The market is
focused on the near term outlook for these companies, and included in their
pricing poor short-term earnings prospects. The valuations of these companies
are now at levels not seen in decades, presenting in our opinion good long-term
opportunities for the patient value manager. Not surprisingly, we have been
adding these stocks to the Fund's portfolio and they have provided volatile
short-term results, but we believe these stocks have the potential to provide
attractive returns as market expectations adjust over time.
Performance shortfalls may be explained in part by the early
timing of our purchases and our stock selection. As is customary at our
organization, we bought securities as they declined in price and offered what we
believed to be good long-term potential. By the same token, our lower
performance can be explained by what we did not buy. Internet stocks, for
example, soared to move some indices ahead, yet they are not value stocks. By
not participating in Internet or other growth stocks, the performance of our
portfolio came up short.
Looking back on the world markets, 1998 was another turbulent
year in Asia. Progress is being made in the search for new capital,
restructuring, and the opening of economies. In our view, the region appears to
have passed the 'point of maximum pessimism.' Templeton's analysts are trained
to search for bargains that often present
2
PAGE
themselves where gloom appears to be deep-seated. Many bargains have been found
throughout the region in companies where we believe the problems are temporary
and are not a reflection of their future value. Hong Kong in particular is an
area where we have found good value as it is trading at roughly 18 times
earnings, an extremely low figure when compared to Japan. Japan remains a highly
valued market, trading at 185 times earnings. In the fourth quarter, the MSCI
Japan Index was up 26.9%, and as such, finding bargains there has been
difficult. Our analysts have made a great effort to identify long-term values in
Japanese stocks throughout the year, and have laid the groundwork for adding
Japanese stocks to the Fund's portfolio in the future as we see bargains arise.
Generally speaking, throughout Asia our purchases of stocks have been limited to
companies that, in our opinion, are cheap, large, well diversified, have solid
balance sheets, and have strong earnings potential.
Throughout 1998, stocks in Latin America declined
significantly. The devaluation of the real has improved Brazil's export
potential and has made stocks there cheaper. Given this climate, we have been
able to identify many opportunities throughout Latin America, and are proceeding
with a cautious accumulation of stocks in Brazil, Argentina, and Chile. Our
analysts are carefully researching new opportunities in Latin America under
these conditions and we believe we are well positioned to find companies that
are trading at a fraction of what we consider to be their future earnings
potential.
In Europe, markets recovered from the sharp decline in late
August and early September, and with the help of low interest rates, the markets
there remained buoyant throughout the last quarter of 1998. On a country to
country basis, it has become more difficult to find value in Europe. One of the
opportunities, however, has been the stock market in the United Kingdom, which
has recently been trading at 18 times earnings as compared with the World Index
at 26 times earnings. Another area where we are searching for value is in
Scandinavia, which is relatively inexpensive with multiples of 15 to 20 times
earnings, depending on the country.
Sharp declines in the U.S. market brought new opportunities to
the surface, however the sharp recovery and re-emergence of record highs have
once again made the U.S. securities market an expensive market. Until we believe
the U.S. market can offer more than speculative fever and merger-related hype,
we will continue to focus on bargains in other areas. At Templeton, we stand by
the principles of discipline, value, and patience. It is important to know that
we are not willing to buy the "flavor of the year" in order to conform to the
general trend but rather we look where others are not. As was the case in 1998
with our underexposure to the U.S. market, this may adversely impact performance
from time to time.
In a volatile year like 1998, at times bargain stocks were in
abundance, and we were able to take advantage of some of these opportunities
around the globe. We reduced our holdings in expensive stocks, such as certain
banks and telecommunications, and purchased
INDUSTRY DIVERSIFICATION ON 12/31/98
(Percent of Total Net Assets)
Finance 23.1%
Services 21.7%
Energy 15.3%
Capital Equipment 10.0%
Materials 8.8%
Consumer Goods 8.2%
Multi-Industry 3.9%
10 LARGEST POSITIONS ON 12/31/98
(Percent of Total Net Assets)
Merita AS 2.8%
ING Groep NV 2.7%
Telefonos de Mexico SA
(Telmex), L, ADR 2.7%
Repsol SA 2.6%
Nokia Corp., A 2.6%
AXA-UAP 2.5%
Korea Electric Power Corp. 2.3%
Societe Elf Aquitaine SA, br. 2.2%
Banco Itau SA, pfd. 2.1%
Astra AB, A 2.1%
3
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC. GROWTH SERIES
letter continued
Total Return Index Comparison
$5,000,000 Investment: 05/03/93-12/31/98
[LINE GRAPH]
<TABLE>
<CAPTION>
TIFI MSCI World MSCI All Country CPI
Growth Series World Free
<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 $5,100,000.00 $5,116,064.50 $5,106,091.14 $5,006,322.58
6/30/93 $5,040,000.00 $5,074,112.77 $5,072,960.82 $5,013,331.43
7/31/93 $5,115,000.00 $5,179,654.32 $5,178,161.75 $5,013,331.43
8/31/93 $5,445,000.00 $5,417,918.42 $5,423,704.59 $5,027,368.76
9/30/93 $5,455,000.00 $5,318,770.51 $5,332,760.61 $5,037,926.23
10/31/93 $5,725,000.00 $5,466,100.45 $5,490,687.80 $5,058,581.73
11/30/93 $5,595,000.00 $5,157,812.39 $5,205,263.08 $5,062,122.74
12/31/93 $6,002,076.00 $5,411,060.97 $5,486,794.06 $5,062,122.74
1/31/94 $6,393,737.00 $5,768,732.10 $5,850,664.90 $5,075,790.47
2/28/94 $6,175,017.00 $5,694,892.33 $5,766,095.42 $5,093,048.16
3/31/94 $5,898,010.00 $5,450,581.45 $5,507,017.76 $5,110,364.52
4/30/94 $5,995,711.00 $5,620,094.54 $5,656,780.29 $5,117,519.03
5/31/94 $6,057,416.00 $5,635,268.79 $5,690,131.02 $5,121,101.30
6/30/94 $5,882,584.00 $5,620,617.09 $5,662,495.93 $5,138,513.04
7/31/94 $6,124,263.00 $5,728,532.94 $5,787,826.62 $5,152,387.03
8/31/94 $6,386,512.00 $5,902,107.49 $5,993,989.70 $5,172,996.57
9/30/94 $6,201,395.00 $5,748,062.48 $5,853,240.03 $5,186,963.66
10/31/94 $6,257,959.00 $5,912,457.07 $6,003,253.66 $5,190,594.54
11/30/94 $5,949,431.00 $5,657,038.92 $5,742,542.97 $5,197,342.31
12/31/94 $5,922,780.00 $5,713,043.61 $5,762,578.31 $5,197,342.31
1/31/95 $5,814,503.00 $5,628,490.56 $5,645,318.36 $5,218,131.68
2/28/95 $5,957,971.00 $5,711,792.22 $5,705,612.73 $5,239,004.21
3/31/95 $6,050,638.00 $5,988,242.97 $5,966,951.12 $5,256,292.92
4/30/95 $6,301,385.00 $6,197,831.47 $6,183,980.05 $5,273,638.69
5/31/95 $6,503,073.00 $6,251,752.61 $6,252,250.82 $5,284,185.97
6/30/95 $6,579,387.00 $6,251,127.43 $6,253,632.76 $5,294,754.34
7/31/95 $6,884,645.00 $6,564,934.03 $6,556,203.89 $5,294,754.34
8/31/95 $6,748,369.00 $6,419,848.99 $6,412,659.21 $5,308,520.70
9/30/95 $6,868,292.00 $6,607,950.56 $6,589,083.14 $5,319,137.74
10/31/95 $6,661,153.00 $6,504,866.53 $6,478,951.42 $5,336,690.89
11/30/95 $6,764,722.00 $6,731,886.37 $6,682,759.35 $5,332,955.21
12/31/95 $6,964,376.00 $6,929,803.83 $6,883,992.20 $5,329,222.14
1/31/96 $7,187,517.00 $7,056,619.24 $7,037,020.81 $5,360,664.55
2/29/96 $7,242,851.00 $7,101,075.95 $7,066,320.08 $5,377,818.68
3/31/96 $7,373,459.00 $7,220,374.02 $7,175,100.99 $5,405,783.34
4/30/96 $7,622,803.00 $7,391,496.89 $7,350,300.60 $5,426,865.89
5/31/96 $7,694,045.00 $7,398,888.38 $7,357,899.86 $5,437,176.94
6/30/96 $7,688,108.00 $7,437,362.60 $7,398,253.30 $5,440,439.24
7/31/96 $7,409,080.00 $7,175,567.44 $7,121,935.34 $5,450,776.08
8/31/96 $7,646,550.00 $7,259,521.58 $7,209,770.45 $5,461,132.55
9/30/96 $7,800,906.00 $7,544,820.78 $7,476,008.03 $5,478,608.18
10/31/96 $7,937,452.00 $7,599,143.48 $7,505,904.36 $5,496,139.72
11/30/96 $8,358,962.00 $8,026,215.35 $7,907,176.40 $5,506,582.39
12/31/96 $8,536,004.00 $7,899,401.15 $7,792,648.29 $5,506,582.39
1/31/97 $8,746,062.00 $7,995,773.84 $7,923,380.25 $5,524,203.45
2/28/97 $8,847,496.00 $8,089,324.39 $8,031,407.85 $5,541,328.48
3/31/97 $8,853,903.00 $7,930,773.64 $7,870,748.37 $5,555,181.80
4/30/97 $8,821,870.00 $8,191,696.09 $8,123,545.00 $5,561,848.02
5/31/97 $9,238,298.00 $8,698,762.08 $8,608,255.74 $5,558,510.91
6/30/97 $9,705,979.00 $9,133,700.18 $9,048,750.86 $5,565,181.13
7/31/97 $10,116,001.00 $9,555,677.13 $9,457,904.90 $5,571,859.34
8/31/97 $9,558,628.00 $8,918,313.46 $8,794,321.17 $5,582,445.88
9/30/97 $10,314,605.00 $9,404,361.55 $9,263,330.22 $5,596,401.99
10/31/97 $9,552,221.00 $8,910,632.57 $8,711,761.81 $5,610,393.00
11/30/97 $9,494,562.00 $9,070,132.89 $8,845,037.31 $5,607,026.76
12/31/97 $9,583,405.00 $9,181,695.52 $8,961,166.82 $5,600,298.33
1/31/98 $9,513,042.00 $9,438,783.00 $9,158,443.05 $5,610,938.89
2/28/98 $10,061,871.00 $10,078,732.49 $9,784,971.06 $5,621,599.68
3/31/98 $10,686,558.00 $10,506,070.74 $10,202,479.04 $5,632,280.72
4/30/98 $10,826,801.00 $10,610,080.84 $10,298,101.67 $5,642,418.82
5/31/98 $10,448,144.00 $10,478,515.84 $10,102,710.44 $5,652,575.18
6/30/98 $10,223,754.00 $10,728,952.37 $10,284,724.00 $5,659,358.27
7/31/98 $10,265,827.00 $10,712,858.94 $10,288,084.02 $5,666,149.50
8/31/98 $8,442,661.00 $9,285,906.13 $8,846,701.84 $5,672,948.88
9/30/98 $8,358,515.00 $9,452,123.85 $9,022,686.36 $5,679,756.42
10/31/98 $9,129,854.00 $10,308,486.27 $9,846,710.10 $5,693,387.83
11/30/98 $9,760,950.00 $10,922,872.05 $10,444,504.67 $5,693,387.83
12/31/98 $9,868,500.00 $11,458,092.78 $10,929,560.42 $5,689,971.80
</TABLE>
Periods ended December 31, 1998
SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (05/03/93)
Average Annual
Total Return(1),(2) 2.98% 10.46% 12.76%
Cumulative Total
Return(1),(3) 2.98% 64.42% 97.37%
(1) The Fund's Investment Manager and Fund Administrator have agreed in advance
to waive a portion of their respective fees in order to limit the total
expenses of the Fund to an annual rate of 0.90% of average net assets
through April 30, 1999. If these fee waivers are insufficient to so limit
the Fund's expenses, the Fund Administrator has agreed to make certain
payments to reduce the Fund's expenses. After April 30, 1999, these
agreements may end at any time upon notice to the Board. These voluntary
agreements did not result in any fee waivers or reimbursements for the Fund
for the fiscal year ended December 31, 1998.
(2) Average annual total return represents the average annual change in value of
an investment over the indicated periods.
(3) Cumulative total return represents the change in value of an investment over
the indicated periods.
(4) Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.
(5) Source: U.S. Bureau of Labor Statistics (1/13/99).
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.
companies we consider world class that met our valuation criteria without paying
lofty premiums. Examples of purchases would include utility and
telecommunication firms in Latin America.
This discussion reflects our views, opinions, and portfolio
holdings as of December 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.
There are, of course, special risks involved in global
investing related to market, currency, economic, social, political and other
factors. Emerging market securities involve heightened risks related to the same
factors, in addition to those associated with their relatively small size and
lesser liquidity. Investing in any emerging market means accepting a certain
amount of volatility and, in some cases, severe market corrections. While
short-term volatility can be disconcerting, declines in excess of 50% are not
unusual in emerging markets. For example, the Hong Kong equity market has
increased 1049% in the last 15 years, but has suffered five declines of more
than 50% during that time.(1) These special risks and other considerations are
discussed in the Fund's prospectus.
We believe that going forward, we are well positioned for the
long term, regardless of what short-term market movements lie ahead. We also
believe that no one style, whether value or growth, can outperform the market
all the time. We will therefore continue to follow our value style and
disciplined approach that has worked for us throughout the years, and that we
believe will achieve the Fund's goal of long-term growth of capital. 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: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market returns are measured in Hong Kong dollars.
For the most current portfolio information, please call 1-800-362-6243.
4
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $13.62 $13.41 $11.86 $10.94 $11.80
-------------------------------------------------------
Income from investment operations:
Net investment income...................................... .19 .73 .30 .27 .20
Net realized and unrealized gains (losses)................. .46 .89 2.32 1.62 (.36)
-------------------------------------------------------
Total from investment operations............................ .65 1.62 2.62 1.89 (.16)
-------------------------------------------------------
Less distributions from:
Net investment income...................................... (.19) (.87) (.29) (.27) (.20)
Net realized gains......................................... (7.47) (.54) (.74) (.70) (.50)
In excess of net realized gains............................ -- -- (.04) -- --
-------------------------------------------------------
Total distributions......................................... (7.66) (1.41) (1.07) (.97) (.70)
-------------------------------------------------------
Net asset value, end of year................................ $6.61 $13.62 $13.41 $11.86 $10.94
-------------------------------------------------------
-------------------------------------------------------
Total Return................................................ 2.98% 12.27% 22.57% 17.59% (1.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $55,779 $120,370 $268,158 $226,963 $194,059
Ratios to average net assets:
Expenses................................................... .89% .86% .87% .88% .95%
Net investment income...................................... 2.27% 2.15% 2.34% 2.28% 1.69%
Portfolio turnover rate..................................... 13.00% 16.73% 15.61% 30.20% 17.23%
</TABLE>
See Notes to Financial Statements.
5
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 85.6%
AUTOMOBILES 3.5%
*Circuit City Stores Inc., Carmax Group..................... United States 69,000 $ 375,188
Fiat SpA.................................................... Italy 128,500 446,220
Volvo AB, B................................................. Sweden 49,000 1,124,380
-----------
1,945,788
-----------
BANKING 11.3%
*Banca Nazionale del Lavoro SpA............................. Italy 65,200 194,895
Banque Nationale de Paris, ADR, 144A........................ France 10,000 823,816
Deutsche Bank AG, br........................................ Germany 15,200 896,888
Development Bank of Singapore Ltd., fgn..................... Singapore 125,000 1,128,788
HSBC Holdings Plc. ......................................... Hong Kong 31,069 773,993
*Komercni Banka AS, GDR, 144A............................... Czech Republic 27,000 112,050
Merita AS................................................... Finland 242,000 1,538,953
PT Bank Pan Indonesia TBK................................... Indonesia 2,952,600 148,558
*Thai Farmers Bank Public Co. Ltd., fgn..................... Thailand 400,000 704,555
-----------
6,322,496
-----------
BUILDING MATERIALS & COMPONENTS 1.2%
Pioneer International Ltd. ................................. Australia 320,000 677,139
-----------
BUSINESS & PUBLIC SERVICES 1.2%
Esselte AB, A............................................... Sweden 42,000 673,592
-----------
CHEMICALS 4.0%
Akzo Nobel NV............................................... Netherlands 20,000 911,174
Beijing Yanhua Petrochemical Company Ltd., ADR.............. China 34,000 136,000
Imperial Chemical Industries Plc............................ United Kingdom 52,000 449,014
Rhone-Poulenc SA, A......................................... France 13,963 718,872
-----------
2,215,060
-----------
CONSTRUCTION & HOUSING .2%
*Fairview Holdings Plc...................................... United Kingdom 64,884 94,997
-----------
DATA PROCESSING & REPRODUCTION 1.0%
*3Com Corp.................................................. United States 12,500 560,156
-----------
ELECTRICAL & ELECTRONICS 4.3%
ABB AB, A................................................... Sweden 70,250 749,664
Alcatel SA.................................................. France 5,416 663,160
General Electric Co. Plc. .................................. United Kingdom 112,084 1,006,994
-----------
2,419,818
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .4%
BICC Plc. .................................................. United Kingdom 193,861 227,389
-----------
ENERGY SOURCES 5.5%
Repsol SA................................................... Spain 27,600 1,474,509
Saga Petroleum AS, A........................................ Norway 44,000 401,365
Societe Elf Aquitaine SA, br................................ France 10,628 1,229,044
-----------
3,104,918
-----------
FINANCIAL SERVICES 6.5%
AXA-UAP..................................................... France 9,600 1,392,002
Housing Development Finance Corp. Ltd. ..................... India 5,895 302,197
Industrial Credit & Inv. Corp. of India (ICICI) Ltd., GDR,
144A...................................................... India 60,100 399,665
ING Groep NV................................................ Netherlands 25,055 1,528,639
-----------
3,622,503
-----------
</TABLE>
6
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 2.6%
Albert Fisher Group Plc. ................................... United Kingdom 914,593 $ 83,691
Archer-Daniels Midland Co. ................................. United States 32,025 550,430
Hillsdown Holdings Plc. .................................... United Kingdom 129,769 164,088
IBP Inc. ................................................... United States 17,800 518,425
*Terranova Foods Plc........................................ United Kingdom 64,884 119,826
-----------
1,436,460
-----------
FOREST PRODUCTS & PAPER 1.9%
Carter Holt Harvey Ltd. .................................... New Zealand 166,000 149,072
Fletcher Challenge Ltd. Forestry Division................... New Zealand 625,000 207,999
Metsa Serla OY, B........................................... Finland 45,000 359,933
Stora Kopparbergs Bergslags AB, B........................... Sweden 31,000 344,198
-----------
1,061,202
-----------
HEALTH & PERSONAL CARE 2.1%
Astra AB, A................................................. Sweden 57,600 1,176,047
-----------
INDUSTRIAL COMPONENTS 2.2%
BTR Plc. ................................................... United Kingdom 221,000 452,259
Exide Corp ................................................. United States 46,600 757,250
-----------
1,209,509
-----------
INSURANCE 1.8%
Presidential Life Corp...................................... United States 32,400 643,950
Zurich Allied AG............................................ Switzerland 520 385,031
-----------
1,028,981
-----------
MACHINERY & ENGINEERING 1.9%
New Holland NV.............................................. Netherlands 48,000 657,000
VA Technologie AG........................................... Austria 4,600 398,826
-----------
1,055,826
-----------
MERCHANDISING 1.9%
Safeway Plc. ............................................... United Kingdom 66,000 329,149
Storehouse.................................................. United Kingdom 312,100 711,383
-----------
1,040,532
-----------
METALS & MINING 1.7%
WMC Ltd. ................................................... Australia 308,560 931,136
-----------
MULTI-INDUSTRY 3.9%
Brierley Investments Ltd.................................... New Zealand 765,889 173,970
Foster Wheeler Corp. ....................................... United States 9,200 121,325
Hicom Holdings Bhd. ........................................ Malaysia 440,000 146,043
Hutchison Whampoa Ltd. ..................................... Hong Kong 123,000 869,244
Jardine Matheson Holdings Ltd. ............................. Hong Kong 97,531 251,630
Swire Pacific Ltd., A ...................................... Hong Kong 132,000 591,229
-----------
2,153,441
-----------
REAL ESTATE 1.3%
*Catellus Development Corp ................................. United States 50,000 715,625
-----------
TELECOMMUNICATIONS 14.8%
*Cable & Wireless Optus Ltd. ............................... Australia 156,452 329,142
Compania de Telecomunicaciones de Chile SA, ADR ............ Chile 50,900 1,052,994
*Digital Telecommunications Philippines Inc. ............... Philippines 5,015,000 122,474
Nokia Corp., A.............................................. Finland 11,700 1,432,622
Northern Telecom, Ltd. ..................................... Canada 10,080 505,260
Philippine Long Distance Telephone Co., ADR ................ Philippines 23,211 602,035
PT Indosat TBK, ADR ........................................ Indonesia 500 6,094
Rostelecom, ADR ............................................ Russia 21,500 90,031
Telecom Italia SpA, di Risp................................. Italy 167,400 1,052,048
Telefonica del Peru SA, B .................................. Peru 115,000 144,661
Telefonica SA .............................................. Spain 19,000 846,107
</TABLE>
7
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
*Telefonica SA, rts. ....................................... Spain 19,000 $ 16,944
Telefonos de Mexico SA (Telmex), L, ADR .................... Mexico 30,900 1,504,444
Videsh Sanchar Nigam Ltd., GDR, 144A ....................... India 42,700 523,075
-----------
8,227,931
-----------
TRANSPORTATION .6%
Mayne Nickless Ltd., A...................................... Australia 97,783 362,850
-----------
UTILITIES ELECTRICAL & GAS 9.8%
Centrais Eletricas Brasileiras SA (Electrobras)............. Brazil 14,000,000 241,010
*Centrais Geradoras Do Sul Do Brasil SA..................... Brazil 7,000,000 9,154
*Centrica Plc. ............................................. United Kingdom 244,000 490,192
*CEZ AS..................................................... Czech Republic 17,315 382,670
Endesa SA, br. ............................................. Spain 33,600 891,602
*Evn AG..................................................... Austria 6,200 878,277
Guangdong Electric Power Development Co Ltd., B, 144A....... China 728,000 198,274
Iberdrola SA, br. .......................................... Spain 57,600 1,079,272
Korea Electric Power Corp................................... South Korea 51,220 1,269,319
-----------
5,439,770
-----------
TOTAL COMMON STOCKS (COST $42,792,688)...................... 47,703,166
-----------
PREFERRED STOCKS 5.4%
Banco Itau SA, pfd. ........................................ Brazil 2,450,000 1,196,338
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 11,700 163,069
News Corp. Ltd., pfd. ...................................... Australia 158,353 964,460
*Tele Celular Sul Participacoes SA, ADR, pfd................ Brazil 1,170 20,402
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd....... Brazil 3,900 11,456
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 2,340 97,841
*Tele Leste Celular Participacoes SA, ADR, pfd. ............ Brazil 234 6,640
*Tele Nordeste Celular Participacoes SA, ADR, pfd. ......... Brazil 585 10,823
*Tele Norte Celular Participacoes SA, ADR, pfd. ............ Brazil 234 5,280
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 11,700 145,519
*Tele Sudeste Celular Participacoes SA, ADR, pfd............ Brazil 2,340 48,409
*Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..... Brazil 11,700 1,280
*Telemig Celular Participacoes SA, ADR, pfd................. Brazil 585 12,431
*Telesp Celular Participacoes SA, ADR, pfd.................. Brazil 4,680 81,900
*Telesp Participacoes SA, ADR, pfd.......................... Brazil 11,700 258,863
-----------
TOTAL PREFERRED STOCKS (COST $2,774,821).................... 3,024,711
-----------
PRINCIPAL
AMOUNT**
---------
SHORT TERM INVESTMENTS (COST $4,808,513) 8.6%
U.S. Treasury Bills, 4.34% to 4.46%, with maturities to
5/20/99................................................... United States $ 4,860,000 4,812,095
-----------
TOTAL INVESTMENTS (COST $50,376,022) 99.6%.................. 55,539,972
OTHER ASSETS, LESS LIABILITIES .4%.......................... 239,461
-----------
TOTAL NET ASSETS 100.0%..................................... $55,779,433
-----------
-----------
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
See Notes to Financial Statements.
8
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $50,376,022)..... $55,539,972
Cash....................................................... 50,046
Receivables:
Investment securities sold................................ 209,843
Capital shares sold....................................... 11,256
Dividends................................................. 197,160
-----------
Total assets........................................... 56,008,277
-----------
Liabilities:
Payables:
Investment securities purchased........................... 85,719
Capital shares redeemed................................... 42,226
Custodian fees............................................ 38,892
To affiliates............................................. 35,190
Accrued expenses........................................... 26,817
-----------
Total liabilities...................................... 228,844
-----------
Net assets, at value........................................ $55,779,433
-----------
-----------
Net assets consist of:
Undistributed net investment income........................ $ 34,134
Net unrealized appreciation................................ 5,163,950
Distributions in excess of net realized gain............... (455,797)
Capital shares............................................. 51,037,146
-----------
Net assets, at value........................................ $55,779,433
-----------
-----------
Net asset value per share ($55,779,433 / 8,444,751 shares
outstanding).............................................. $6.61
-----------
-----------
</TABLE>
See Notes to Financial Statements.
9
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $168,619)
Dividends.................................................. $1,686,929
Interest................................................... 273,883
----------
Total investment income............................... $ 1,960,812
Expenses:
Management fees (Note 3)................................... 434,268
Administrative fees (Note 3)............................... 52,170
Transfer agent fees (Note 3)............................... 200
Custodian fees............................................. 23,466
Reports to shareholders.................................... 2,000
Registration and filing fees............................... 16,000
Professional fees.......................................... 18,500
Directors' fees and expenses............................... 1,050
Amortization of organization costs......................... 501
Other...................................................... 1,408
----------
Total expenses........................................ 549,563
-----------
Net investment income........................... 1,411,249
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,813,092
Foreign currency transactions............................. (30,148)
----------
Net realized gain..................................... 1,782,944
Net unrealized depreciation........................... (1,330,371)
-----------
Net realized and unrealized gain............................ 452,573
-----------
Net increase in net assets resulting from operations........ $ 1,863,822
-----------
-----------
</TABLE>
See Notes to Financial Statements.
10
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,411,249 $ 5,989,235
Net realized gain from investments and foreign currency
transactions............................................ 1,782,944 75,507,706
Net unrealized depreciation on investments................ (1,330,371) (49,401,146)
--------------------------------
Net increase in net assets resulting from operations.... 1,863,822 32,095,795
Distributions to shareholders from:
Net investment income..................................... (1,406,840) (7,267,170)
Net realized gains........................................ (37,469,952) (5,222,663)
In excess of net realized gains........................... (455,797) --
Capital share transactions (Note 2)........................ (27,121,467) (167,394,086)
--------------------------------
Net decrease in net assets.............................. (64,590,234) (147,788,124)
Net assets:
Beginning of year.......................................... 120,369,667 268,157,791
--------------------------------
End of year................................................ $ 55,779,433 $ 120,369,667
--------------------------------
--------------------------------
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of year................................................ $ 34,134 $ (16,933)
--------------------------------
--------------------------------
</TABLE>
See Notes to Financial Statements.
11
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Growth 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 through a flexible policy of investing in stocks and
debt obligations of companies and governments of any nation including developing
nations. 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.
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. 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.
12
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Notes to Financial Statements (continued)
2. CAPITAL STOCK
At December 31, 1998, there were 940 million shares authorized ($0.01 par
value), of which 120 million have been classified as Fund shares. Transactions
in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997
-------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,936,045 $ 15,134,178 2,784,905 $ 40,329,111
Shares issued on reinvestment of distributions.............. 5,406,284 38,984,371 914,805 12,348,992
Shares redeemed............................................. (7,737,881) (81,240,016) (14,852,462) (220,072,189)
---------------------------------------------------------------
Net decrease................................................ (395,552) $(27,121,467) (11,152,752) $(167,394,086)
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
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 agreed in advance to limit total expenses of the Fund to an
annual rate of 0.90% of average daily net assets through April 30, 1999. For the
year ended December 31, 1998, no fee waiver or reimbursement was necessary under
the agreement.
Legal fees of $4,104 were paid to a law firm in which a partner is an officer of
the Fund.
4. INCOME TAXES
At December 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $50,671,008 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 15,901,825
Unrealized depreciation..................................... (11,032,861)
------------
Net unrealized appreciation................................. $ 4,868,964
============
</TABLE>
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and losses on the sale of
securities and foreign currencies subsequent to October 31.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $7,438,285 and $21,368,317, respectively.
13
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc. - Growth Series
We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Growth Series of Templeton Institutional
Funds, Inc. as of December 31, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth Series of Templeton Institutional Funds, Inc. as of December 31, 1998,
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
January 28, 1999
14
PAGE
TEMPLETON INSTITUTIONAL FUNDS, INC.
GROWTH SERIES
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton Growth
Series Fund hereby designates $1,746,586 as a capital gain dividend for the
fiscal year ended December 31, 1998.
Under Section 854(b)(2) of the Internal Revenue Code, the Templeton Growth
Series Fund hereby designates 3.03% of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
December 31, 1998.
At December 31, 1998, more than 50% of the Templeton Growth Series Fund's total
assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. As in prior years, the Fund intends to make an election under
Section 853 of the Internal Revenue Code. This election will allow shareholders
to treat their proportionate share of foreign taxes paid by the Fund as having
been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV, which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to shareholders in December 1998.
<TABLE>
<CAPTION>
FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia................................................... $ 0.0021 $0.0085
Austria..................................................... 0.0005 0.0027
Brazil...................................................... 0.0022 0.0110
Canada...................................................... 0.0001 0.0005
Chile....................................................... 0.0003 0.0006
China....................................................... 0.0000 0.0007
Czech Republic.............................................. -0.0004 0.0000
Finland..................................................... 0.0014 0.0069
France...................................................... 0.0018 0.0211
Germany..................................................... 0.0002 0.0015
Hong Kong................................................... 0.0000 0.0189
India....................................................... 0.0000 0.0043
Indonesia................................................... 0.0001 0.0006
Italy....................................................... 0.0005 0.0028
Malaysia.................................................... 0.0001 0.0004
Mexico...................................................... 0.0000 0.0074
Netherlands................................................. 0.0016 0.0080
New Zealand................................................. 0.0006 0.0028
Norway...................................................... 0.0004 0.0020
Peru........................................................ 0.0000 0.0006
Philippines................................................. 0.0000 0.0003
Russia...................................................... 0.0000 0.0001
Singapore................................................... 0.0008 0.0022
South Korea................................................. 0.0003 0.0013
Spain....................................................... 0.0011 0.0105
Sweden...................................................... 0.0021 0.0107
Switzerland................................................. 0.0003 0.0014
United Kingdom.............................................. 0.0059 0.0444
--------------------------------------
TOTAL....................................................... $ 0.0220 $0.1722
--------------------------------------
--------------------------------------
</TABLE>
15
PAGE
This page intentionally left blank.
PAGE
This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc., which contains more complete information,
including risk factors, charges, and expenses. Like any investment in
securities, the value of the Fund's portfolio will be subject to the risk of
loss from market, currency, economic, political and other factors, as well as
investment decisions by the Investment Manager, which will not always be
profitable or wise. The Fund and its investors are not protected from such
losses by the Investment Manager. Therefore, investors who cannot accept this
risk should not invest in shares of the Funds.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
[RECYCLE LOGO]
ZT455 A 12/98
