TEMPLETON INSTITUTIONAL FUNDS INC, N-30D, 2000-03-06

TEMPLETON INSTITUTIONAL FUNDS INC
N-30D, 2000-03-06

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TEMPLETON INSTITUTIONAL FUNDS, INC.

TIFI
EMERGING MARKETS SERIES

ANNUAL REPORT

[TEMPLETON LOGO] DECEMBER 31, 1999
<PAGE>

- -------------------------------------------------------------------------------
Mutual funds, annuities, and other investment products:

- are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the
U.S. government;

- are not deposits or obligations of, or guaranteed or endorsed by, any
bank;

- are subject to investment risks, including the possible loss of
principal.

- -------------------------------------------------------------------------------

Investing in developing markets involves special considerations, which may
include risks related to market and currency volatility, adverse social,
economic, and political developments, and their relatively small size and lesser
liquidity. These special risk considerations are discussed in the Fund's
prospectus. The Fund is designed for the aggressive portion of a
well-diversified portfolio.

<PAGE>

December 31, 1999

Dear Shareholder:
During the past quarter, emerging markets continued to recover as positive
economic news combined with a lessening of concern over the new millennium
computer issue helped to drive stock prices higher. The Templeton Institutional
Funds, Inc. Emerging Markets Series (the "Fund") for the quarter and one-year
periods ending December 31, 1999, posted cumulative total returns of 28.37% and
56.58%, compared to the

- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF 12/31/99

<TABLE>
<CAPTION>
Cumulative
One-Year Three-Year Five-Year Since
Average Average Average Inception(1),(3)
Annual(1),(2) Annual(1),(2) Annual(1),(2) (05/03/93)
<S> <C> <C> <C> <C>
TIFI Emerging
Markets Series 56.58% 4.41% 5.97% 57.40%

IFC Investable
Composite Index(4) 67.17% 3.58% 2.16% 61.34%

MSCI Emerging
Markets Free Index(5) 66.41% 3.18% 2.00% 67.24%
</TABLE>

(1)The Fund's manager and administrator have agreed in advance to waive their
respective fees in order to limit the total expenses of the Fund to an annual
rate of 1.60% of average net assets. If these fee waivers 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 waivers for the period ended December 31,
1999. After April 30, 2000, the manager and administrator may end this
arrangement at any time. Past fee waivers by the Fund's manager and
administrator increased the Fund's total returns. Without these waivers, the
Fund's total returns would have been lower.

(2)Average annual total return represents the average annual change in value of
an investment over the indicated periods.

(3)Cumulative total return represents the change in value of an investment over
the indicated periods.

(4)Source: International Finance Corporation. The IFC Investable Composite Index
tracks the performance of approximately 1,300 securities in emerging market
countries. It includes reinvested dividends.

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

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

All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.

- -------------------------------------------------------------------------------

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 12 of
this report.

continued...

[PHOTO OF MARK MOBIUS]

MARK MOBIUS JOINED TEMPLETON IN 1987 AS MANAGING DIRECTOR OF ITS FAR EAST
DIVISION IN HONG KONG, WITH RESPONSIBILITY FOR THE TEMPLETON GROUP'S RESEARCH
EXPERTISE, PRINCIPALLY IN EMERGING MARKETS COUNTRIES. IN THIS CAPACITY, HE
DIRECTS THE ANALYSTS BASED IN HONG KONG AND SINGAPORE AND MANAGES OUR EMERGING
MARKETS PORTFOLIOS. DR. MOBIUS HAS SPENT OVER TWENTY YEARS WORKING IN ASIA, AND
HAS EXTENSIVE EXPERIENCE IN ECONOMIC RESEARCH AND ANALYSIS.

PRIOR TO JOINING TEMPLETON, FROM 1983 TO 1986 HE WAS PRESIDENT OF INTERNATIONAL
INVESTMENT TRUST COMPANY LTD. IN TAIPEI, TAIWAN - THAT COUNTRY'S FIRST AND
LARGEST INVESTMENT MANAGEMENT FIRM. BEFORE THAT, HE SERVED AS A DIRECTOR AT
VICKERS DA COSTA, AN INTERNATIONAL SECURITIES FIRM. INITIALLY, HE STARTED IN
THAT FIRM'S HONG KONG OFFICE IN 1980, AND THEN MOVED TO TAIWAN IN 1983 TO OPEN
THAT FIRM'S OFFICE THERE AND TO DIRECT OPERATIONS IN INDIA, INDONESIA, THAILAND,
THE PHILIPPINES, AND KOREA. BEFORE JOINING VICKERS, DR. MOBIUS OPERATED HIS OWN
CONSULTING FIRM IN HONG KONG FOR TEN YEARS, AND WAS A RESEARCH SCIENTIST FOR
MONSANTO OVERSEAS ENTERPRISES COMPANY IN HONG KONG AND THE AMERICAN INSTITUTE
FOR RESEARCH IN KOREA AND THAILAND.

DR. MOBIUS HOLDS BACHELORS AND MASTERS DEGREES FROM BOSTON UNIVERSITY, AND
RECEIVED HIS PH.D. IN ECONOMICS AND POLITICAL SCIENCE IN 1964 FROM THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY. HE ALSO STUDIED AT THE UNIVERSITY OF
WISCONSIN, UNIVERSITY OF NEW MEXICO, AND KYOTO UNIVERSITY IN JAPAN.

<PAGE>

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

GEOGRAPHIC DISTRIBUTION ON 12/31/99
(Equity Assets as a Percentage of Total Net Assets)

[PIE CHART]

<TABLE>
<CAPTION>
Asia Latin America/Caribbean Middle-East/Africa Europe New Zealand
<S> <C> <C> <C> <C>
39.5% 35.8% 14.6% 8.9% 0.1%
</TABLE>

FUND ASSET ALLOCATION ON 12/31/99

[PIE CHART]

<TABLE>
<CAPTION>
Short-Term Investments &
Equity* Other Net Assets
<S> <C>
98.9% 1.1%
</TABLE>

*Equity includes convertible and preferred securities

International Finance Corporation (IFC) Investable Composite Index returns of
25.69% and 67.17%, respectively. For the quarter and one-year periods ending
December 31, 1999, the Morgan Stanley Capital International (MSCI) Emerging
Markets Free Index posted returns of 25.44% and 66.41%, respectively. Please
remember that the Fund's performance differs from that of an index because,
among other things, an index does not contain cash (the Fund generally carries a
certain percentage of cash at any given time), is not managed according to any
investment strategy, and includes no management or other operating expenses. Of
course, one cannot invest directly in an index, nor is an index representative
of the Fund's portfolio.

POLITICS

Political change was widespread throughout emerging markets as
new governments were elected and budgets set for the coming year. In Indonesia,
a relatively unknown candidate, muslim cleric Abdurrahman Wahid, was named
president by the parliament while popular favorite Megawati Sukarnoputri was
voted the nation's Vice President. In Malaysia, general elections held in
December reaffirmed Prime Minister Mahathir Muhamad's dominance for at least
another five years, while election results in India returned the BJP-led
government to power despite the loss of a confidence vote in the spring. In
Pakistan, the government of Nawaz Sharif was overthrown in a bloodless coup by
the nation's military. Despite increasing international concerns, the local
market favored the change. Events in Taiwan and Mainland China influenced
regional markets. Taiwan's comments that it would like to see its relationship
with China changed to one based on a 'state to state' approach prompted strong
posturing by mainland forces.

In Argentina, Fernando De la Rua won the presidential election.
Campaign attacks by other candidates weakened the stock markets by raising
concerns about the nation's debt levels and currency peg. De la Rua voiced his
support for the fixed currency regime and has promised austerity measures. This
has seemed to allay these concerns to some extent. In Brazil, the government's
fiscal adjustment appeared to be effective. The fiscal surplus for the first 10
months of the year surpassed the IMF's target for the year. Changes to the
nation's tax code were accepted although pension reforms required constitutional
amendments. Constitutional change was also the objective in Venezuela where
President Hugo Chavez continued to drive the Constitutional Assembly to approve
and pass his draft constitution by year's end.

<PAGE>

In Eastern Europe, EU membership continued to be the most
important topic. Slovakia received good news when Austria said it would not
block Slovakia's EU membership as planned despite Slovakia's refusal to hasten
the shutdown of its oldest nuclear power plants. The continued striving towards
EU goals could result in positive developments and lead to increased investor
confidence and market recovery. In Poland, Finance Minister Balcerowicz
announced he would not leave the government in protest to slow reform, allaying
fears of a new government and in turn boosting market sentiment. Meanwhile, the
Czech government remained in a potential period of uncertainty as frictions
mounted between ruling coalition members causing investors to adopt a more
cautious stance as the market bore pressure from the uncertainty.

ECONOMIC DEVELOPMENTS

The recovery in Asia continued to strengthen throughout the
year as trade continued to rise and domestic consumption began showing signs of
improvement. Both export and import levels increased, with trade balances
falling off from the huge surpluses seen in 1998 as import growth outpaced
export growth, in a sign of renewed economic strength in the region.

In Latin America, the rise in commodity prices helped brighten
the outlook for many countries and strong advances in some Latin American equity
markets reflected this optimism. According to many analysts, a region-wide
recovery in 2000 is expected for all but a few Latin American economies.

Convergence with EU admission standards proved beneficial for
the economies of Eastern and Southern Europe. However, natural disasters in
Turkey and Greece coupled with stalled privatization attempts in other Eastern
European countries kept growth low. The long-term outlook for emerging Europe
seems bright as EU membership continues to drive reform. Russia's continued
military campaign against the Chechens brought a great deal of concern in the
West. The election of a centralist Duma in December augured well for relations
with Europe, the U.S. and the IMF. The Chechnya conflict is still of great
concern and may hover over foreign relations. However, it is fueling the
popularity of Prime Minister Putin.

In South Africa, the strengthening of gold prices throughout
the year in addition to greater demand for diamonds and other natural resources
helped spur on the nation's economy. The continued streamlining of large
corporations and increased international demand for the goods and services
provided by other South African companies also helped increase economic activity
in South Africa.

INDUSTRY DIVERSIFICATION ON 12/31/99
(Equity Assets as a Percentage of Total Net Assets)

<TABLE>
<S> <C>
Services 25.1%
Materials 17.2%
Finance 17.0%
Energy 12.7%
Multi-Industry 10.8%
Consumer Goods 9.6%
Capital Equipment 6.5%
</TABLE>

10 LARGEST POSITIONS ON 12/31/99
(Percent of Total Net Assets)

<TABLE>
<S> <C>
Telefonos de Mexico SA
(Telmex), ADR 3.1%

Cemex SA 3.1%

Samsung Electronics Co. Ltd. 2.9%

Anglo American PLC 2.7%

Centrais Eletricas
Brasileiras SA (Electrobras) 2.5%

Korea Electric Power Corp. 2.4%

Akbank 2.1%

PT Telekomunikasi
Indonesia (Persero) 2.0%

Tele Norte Leste
Participacoes SA 2.0%

Cia Vale Do Rio Doce 2.0%
</TABLE>

<PAGE>

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

THE MARKETS

Despite an early case of Y2K jitters, most emerging markets
turned positive for the quarter as fears were eased by the announcement of
compliance tests and positive economic developments.

Morgan Stanley Capital International (MSCI) announced that
Malaysia would return to its indices at the end of May 2000. In expectation of a
positive reaction to its re-inclusion into the MSCI body of indices and in light
of its improving economic outlook, we added securities from Malaysia to the
Fund's portfolio at the end of the year. However, we are generally cautious
because of the Malaysian government's treatment of foreign portfolio investors.

In Latin America, election concerns and the state of the reform
process in individual countries were among the greatest detractors from market
performance. However, with the completion of elections in Argentina and Chile,
as well as the successful completion of primaries in Mexico, these fears
subsided towards the end of the year. On the positive side, slight improvements
in the economic conditions of countries such as Brazil and Mexico and the
continued strength of the U.S. economy despite interest rate increases and Y2K
concerns, helped feed the advances in the Brazilian and Mexican markets.

In Europe, Turkey's acceptance by the EU as a candidate for
membership resulted in a euphoric market reaction with the International Finance
Corporation (IFC) Turkey Index advancing over 100% for the quarter in U.S.
dollar terms. The continued drive to meet EU membership criteria also helped
other markets in the Eastern European region. Strong oil prices and an upswing
in the price of gold proved beneficial for Russian investors, as well as for
investors in South Africa.

OUTLOOK
Over the last 12 months, varying stock performances resulted in
some changes in the composition of the Fund's portfolio. The Fund's top ten
holdings were changed substantially as six companies were replaced. Anglo
American Corporation of South Africa (South Africa), Telekomunikasi Indonesia
(Indonesia), Tele Norte (Brazil), Samsung Electronics (Korea), Akbank (Turkey),
and Vale Do Rio Doce (Brazil) replaced TELEBRAS (Brazil), New World Development
(Hong Kong), Thai Farmers Bank (Thailand), Overseas Chinese Banking Corp.
(Singapore), Cheung Kong (Hong Kong), and United Overseas Bank (Singapore) among
the Fund's top ten holdings.

<PAGE>

We remain optimistic about the future of emerging markets.
1999 was a year of consolidation and renewal for the Emerging Markets after the
difficult and turbulent years of 1997 and 1998. In retrospect, however, it is
interesting to note how much sooner, quicker, and more vigorous the general
Emerging Markets recovery has been compared to what many commentators were
saying during the worst part of the crisis. The silver lining, which showed
through particularly clearly during the year 1999, has been the generalized
commitment to reform and open market liberalization by many emerging market
countries. The economic recovery in Asia continues and reforms to the corporate
and political structures of these countries continue to progress. In Latin
America, the recovery is just beginning, and with steady demand from Asia, this
recovery should be well supported. In Eastern Europe, we continue to see EU
convergence as a positive development and continue to find value in many of
these countries. In South Africa, the positive effects of corporate
streamlining and unbundling of large corporations are just beginning to be
felt, leading us to believe that many South African companies will become
international leaders in the years to come.

This discussion reflects our views, opinions, and portfolio
holdings as of December, 31 1999, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
better understand our investment and management philosophy. It should be
remembered that investing in foreign securities involves special risks related
to market and currency volatility, and 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. The Fund's definition of
"emerging markets" as used by the Fund's manager may differ from the definition
of the same term as used in managing other Franklin Templeton

<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. EMERGING MARKETS SERIES
[letter continued]

- --------------------------------------------------------------------------------
TOTAL RETURN INDEX COMPARISON
$5,000,000 Investment: 05/03/93-12/31/99

<TABLE>
<CAPTION>
TIFI Emerging MSCI Emerging Markets MSCI World IFC Investable
Markets Series(1) Free Index(4),(5) Index(4),(5) Composite Index(4)
<S> <C> <C> <C> <C>
5/3/1993 $ 5,000,000.00 $ 5,000,000.00 $ 5,000,000.00 $ 5,000,000.00
5/31/1993 $ 5,010,000.00 $ 5,139,310.00 $ 5,116,065.00 $ 5,105,123.31
6/30/1993 $ 5,030,000.00 $ 5,291,704.16 $ 5,073,963.93 $ 5,249,919.56
7/31/1993 $ 5,040,000.00 $ 5,431,478.13 $ 5,179,304.90 $ 5,413,646.12
8/31/1993 $ 5,415,000.00 $ 5,890,102.79 $ 5,417,574.01 $ 5,853,472.09
9/30/1993 $ 5,590,000.00 $ 6,105,534.42 $ 5,318,336.95 $ 6,088,690.23
10/31/1993 $ 5,840,000.00 $ 6,653,340.04 $ 5,465,760.19 $ 6,613,702.43
11/30/1993 $ 6,040,000.00 $ 6,947,765.76 $ 5,157,434.48 $ 7,032,987.30
12/31/1993 $ 6,646,548.00 $ 8,096,203.13 $ 5,410,684.06 $ 8,234,453.46
1/31/1994 $ 6,726,991.00 $ 8,243,504.08 $ 5,768,447.15 $ 8,290,438.61
2/28/1994 $ 6,596,272.00 $ 8,096,855.52 $ 5,694,726.11 $ 8,076,365.64
3/31/1994 $ 6,256,978.00 $ 7,364,177.72 $ 5,450,171.73 $ 7,260,150.11
4/30/1994 $ 5,912,185.00 $ 7,216,876.78 $ 5,619,611.52 $ 7,121,999.33
5/31/1994 $ 5,917,255.00 $ 7,463,871.36 $ 5,635,038.31 $ 7,290,156.36
6/30/1994 $ 5,775,282.00 $ 7,258,136.54 $ 5,620,381.13 $ 7,030,369.16
7/31/1994 $ 5,993,312.00 $ 7,709,434.83 $ 5,728,228.31 $ 7,536,047.95
8/31/1994 $ 6,485,149.00 $ 8,666,276.41 $ 5,901,728.62 $ 8,504,510.92
9/30/1994 $ 6,556,136.00 $ 8,764,764.91 $ 5,747,688.84 $ 8,715,965.71
10/31/1994 $ 6,373,599.00 $ 8,606,663.37 $ 5,912,232.70 $ 8,427,984.62
11/30/1994 $ 6,130,216.00 $ 8,159,165.85 $ 5,656,858.88 $ 8,111,809.11
12/31/1994 $ 5,889,310.00 $ 7,503,850.94 $ 5,712,697.17 $ 7,245,851.27
1/31/1995 $ 5,458,513.00 $ 6,705,501.36 $ 5,627,990.90 $ 6,278,596.57
2/28/1995 $ 5,342,933.00 $ 6,533,524.36 $ 5,711,134.44 $ 6,198,646.49
3/31/1995 $ 5,516,645.00 $ 6,575,035.31 $ 5,987,570.49 $ 6,180,521.90
4/30/1995 $ 5,706,148.00 $ 6,870,000.86 $ 6,197,425.49 $ 6,440,309.13
5/31/1995 $ 5,895,651.00 $ 7,235,480.30 $ 6,251,624.45 $ 6,683,583.17
6/30/1995 $ 5,937,763.00 $ 7,256,882.42 $ 6,250,912.14 $ 6,722,248.84
7/31/1995 $ 6,211,489.00 $ 7,419,776.27 $ 6,564,900.10 $ 6,935,717.61
8/31/1995 $ 6,043,042.00 $ 7,245,002.26 $ 6,419,824.74 $ 6,749,235.02
9/30/1995 $ 5,995,666.00 $ 7,210,616.68 $ 6,608,063.50 $ 6,697,881.31
10/31/1995 $ 5,779,843.00 $ 6,934,593.91 $ 6,505,250.82 $ 6,445,343.65
11/30/1995 $ 5,742,996.00 $ 6,810,927.77 $ 6,732,361.30 $ 6,413,122.48
12/31/1995 $ 5,817,153.00 $ 7,113,005.63 $ 6,930,449.66 $ 6,636,257.38
1/31/1996 $ 6,374,518.00 $ 7,618,610.88 $ 7,057,057.26 $ 7,201,546.74
2/29/1996 $ 6,271,467.00 $ 7,497,478.31 $ 7,101,332.82 $ 7,034,597.97
3/31/1996 $ 6,347,420.00 $ 7,555,874.67 $ 7,220,804.29 $ 7,135,693.30
4/30/1996 $ 6,515,599.00 $ 7,857,977.81 $ 7,391,902.69 $ 7,424,077.56
5/31/1996 $ 6,624,102.00 $ 7,822,890.06 $ 7,399,620.13 $ 7,358,828.82
6/30/1996 $ 6,634,952.00 $ 7,871,740.01 $ 7,438,364.99 $ 7,445,223.39
7/31/1996 $ 6,331,144.00 $ 7,333,756.80 $ 7,176,840.34 $ 6,956,661.88
8/31/1996 $ 6,461,348.00 $ 7,521,476.84 $ 7,260,703.65 $ 7,171,741.48
9/30/1996 $ 6,580,701.00 $ 7,586,634.12 $ 7,546,327.76 $ 7,277,670.47
10/31/1996 $ 6,564,425.00 $ 7,384,299.65 $ 7,600,372.14 $ 7,121,193.50
11/30/1996 $ 6,776,006.00 $ 7,508,028.54 $ 8,027,637.94 $ 7,226,518.37
12/31/1996 $ 6,914,453.00 $ 7,541,987.66 $ 7,900,438.25 $ 7,258,136.05
1/31/1997 $ 7,425,401.00 $ 8,056,424.16 $ 7,997,006.96 $ 7,771,266.59
2/28/1997 $ 7,708,421.00 $ 8,401,443.27 $ 8,090,350.59 $ 8,150,877.83
3/31/1997 $ 7,552,470.00 $ 8,180,755.68 $ 7,931,715.65 $ 7,950,096.44
4/30/1997 $ 7,624,876.00 $ 8,195,206.98 $ 8,192,366.90 $ 7,815,571.02
5/31/1997 $ 7,986,904.00 $ 8,429,757.09 $ 8,699,489.06 $ 8,081,198.59
6/30/1997 $ 8,276,527.00 $ 8,880,892.30 $ 9,134,787.91 $ 8,430,199.45
7/31/1997 $ 8,655,265.00 $ 9,013,465.56 $ 9,556,887.54 $ 8,511,559.39
8/31/1997 $ 7,886,650.00 $ 7,866,508.22 $ 8,918,966.64 $ 7,425,084.78
9/30/1997 $ 8,254,248.00 $ 8,084,473.91 $ 9,404,933.95 $ 7,666,143.28
10/31/1997 $ 6,717,020.00 $ 6,757,913.37 $ 8,911,376.54 $ 6,405,670.78
11/30/1997 $ 6,221,320.00 $ 6,511,332.98 $ 9,070,485.16 $ 6,101,981.64
12/31/1997 $ 6,131,707.00 $ 6,668,243.09 $ 9,182,450.14 $ 6,188,577.18
1/31/1998 $ 5,635,021.00 $ 6,145,250.98 $ 9,439,799.23 $ 5,781,174.60
2/28/1998 $ 6,190,836.00 $ 6,786,665.88 $10,079,868.32 $ 6,371,233.94
3/31/1998 $ 6,433,870.00 $ 7,081,179.69 $10,507,041.55 $ 6,620,951.91
4/30/1998 $ 6,445,741.00 $ 7,004,041.99 $10,611,282.12 $ 6,637,667.23
5/31/1998 $ 5,537,639.00 $ 6,044,202.83 $10,479,855.66 $ 5,809,972.58
6/30/1998 $ 5,003,462.00 $ 5,410,189.31 $10,730,091.13 $ 5,216,287.79
7/31/1998 $ 5,039,073.00 $ 5,581,726.83 $10,714,429.81 $ 5,423,916.22
8/31/1998 $ 3,869,819.00 $ 3,967,827.64 $ 9,287,175.73 $ 3,899,428.18
9/30/1998 $ 4,065,684.00 $ 4,219,526.15 $ 9,453,036.14 $ 4,084,501.56
10/31/1998 $ 4,677,020.00 $ 4,663,849.97 $10,309,238.48 $ 4,557,354.71
11/30/1998 $ 5,181,521.00 $ 5,051,734.91 $10,923,938.14 $ 4,900,314.23
12/31/1998 $ 5,026,098.00 $ 4,978,523.20 $11,459,263.00 $ 4,826,607.04
1/31/1999 $ 4,784,168.00 $ 4,898,199.11 $11,711,773.46 $ 4,709,602.07
2/28/1999 $ 4,784,168.00 $ 4,945,844.28 $11,401,846.44 $ 4,793,378.54
3/31/1999 $ 5,452,924.00 $ 5,597,658.61 $11,878,253.10 $ 5,352,626.31
4/30/1999 $ 6,518,091.00 $ 6,290,206.31 $12,348,166.40 $ 6,082,447.27
5/31/1999 $ 6,342,580.00 $ 6,253,612.90 $11,898,611.14 $ 5,973,699.20
6/30/1999 $ 6,959,892.00 $ 6,963,346.58 $12,455,251.48 $ 6,624,577.39
7/31/1999 $ 6,651,236.00 $ 6,774,184.00 $12,419,609.04 $ 6,529,925.96
8/31/1999 $ 6,415,205.00 $ 6,835,816.88 $12,399,297.14 $ 6,600,410.89
9/30/1999 $ 6,130,757.00 $ 6,604,478.00 $12,280,738.16 $ 6,416,747.39
10/31/1999 $ 6,306,268.00 $ 6,745,105.30 $12,920,781.00 $ 6,525,898.00
11/30/1999 $ 6,838,851.00 $ 7,349,901.91 $13,285,956.65 $ 7,112,333.19
12/31/1999 $ 7,870,045.00 $ 8,284,663.73 $14,363,022.72 $ 8,042,331.44
</TABLE>

Periods ended December 31, 1999

<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE-YEAR FIVE-YEAR (05/03/93)
<S> <C> <C> <C>
Average Annual
Total Return(1),(2) 56.58% 5.97% 7.05%

Cumulative Total
Return(1),(3) 56.58% 33.63% 57.40%
</TABLE>

(1)The Fund's manager and administrator have agreed in advance to waive their
respective fees in order to limit the total expenses of the Fund to an annual
rate of 1.60% of average net assets. If these fee waivers 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 waivers for the period ended December 31, 1999.
After April 30, 2000, the manager and administrator may end this arrangement at
any time. Past fee waivers by the Fund's manager and administrator increased the
Fund's total returns. Without these waivers, 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 World Index tracks the
performance of approximately 1,364 securities in 22 countries and is designed to
measure world stock market performance. It includes reinvested dividends. The
IFC Investable Composite Index tracks the performance of approximately 1,300
securities in emerging market countries. It includes reinvested dividends. The
MSCI Emerging Markets Free Index measures the performance of securities located
in 25 emerging market countries such as Brazil, China, Korea and Poland. It
includes reinvested dividends. Indices are unmanaged, do not contain cash and do
not include management or other operating expenses. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.

(5)We are replacing the MSCI World Index with the MSCI Emerging Markets Free
Index as a benchmark for the Fund because we believe its composition provides a
more appropriate comparison to the Fund's current and past portfolio. The MSCI
Emerging Markets Free Index measures the performance of securities located in 25
emerging market countries such as Brazil, China, Korea and Poland. The MSCI
World Index, which may be excluded from next year's report, tracks the
performance of approximately 1,364 securities in 22 countries, but excludes
emerging markets.

- --------------------------------------------------------------------------------

funds. While short-term volatility can be disconcerting, declines in excess of
50% are not unusual in emerging markets. In fact, the Mexican Bolsa Index has
increased 4,121.31% in the last 15 years, but has suffered 8 declines of more
than 15% during that time.1 These special risks and other considerations are
discussed in the Fund's prospectus.

Thank you for your continued support.

Best regards,

/s/ Donald F. Reed

Donald F. Reed, CFA, CIC
President
Templeton Institutional Funds, Inc.

/s/ J. Mark Mobius

J. Mark Mobius, Ph. D.
Managing Director
Templeton Asset Management Ltd.

(1) Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended December 31, 1999. Market return is measured in U.S. dollars and
does not include reinvested dividends.

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

6
<PAGE>

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

Country
FOCUS

SANTIAGO, Chile -- Santiago at this time of the year is pleasantly warm, but
with a dull gray cloud of pollution hanging over the city. We arrived at a
politically interesting point in the life of Chileans. The Presidential election
was a tie with both leading candidates, Ricardo Lagos and Joaquin Lavin
obtaining 47% of the vote each, with a tiny difference of 30,000 votes out of 8
million cast. Lagos, the left of center candidate who was in exile during
General Pinochet's 17-year rule and who was against an extended term for the
military junta in the 1988 referendum, was over-confident as the candidate of
the ruling Concertacion coalition. But the right of center candidate, Lavin,
came up from behind with a combination of aggressive campaigning and strong
support from the business community. It was unusual for a right of center
candidate to go into the countryside, sleep in common people's homes, and win
their confidence and hearts. Policy differences between the candidates are
relatively small, but the hot spot is labor reform related to a new law. This
law, among other things, would end employers' rights to replace striking workers
after 15 days. Political extremism of the Allende and Pinochet era is gone and
in the new democratic framework, anyone who wants to be elected must be truly in
the center and must be popular with the majority of voters. Thankfully, one of
the issues on which both candidates agree is the ending of rules forcing foreign
portfolio investors to leave their money in the country for a minimum of one
year. Any change would be welcome, but perhaps too late since most foreign
investors now access shares of Chilean companies through American Depository
Receipts (ADRs) traded in New York.

The economic outlook is improving. After high rates of growth
in previous years, the country plunged into a recession with growth in 1998 at
3% and an actual slight decline of less than 1% estimated for 1999 GDP. Copper
is the key to Chile's economy and the decline in copper prices in recent years
resulted in a rise in unemployment. Copper prices have been improving and the
outlook is good with a 5% GDP growth spurt forecast for 2000. Inflation is also
in check with a 3% inflation rate -- a far cry from 1990 when inflation raged at
around 27%.

<PAGE>

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

We made visits to all the major companies in Chile. The
recurring theme was an emphasis on cost cutting, reorganization, and efficiency.
Also, there was a new emphasis on profitability being demanded by strategic
shareholders, particularly from Spain, who had purchased state-owned electric
and other utility companies at high prices and now demanded a return for their
investments.

At the Endesa controlled Enersis company, the holding company
for electric power and distribution companies in Chile, Brazil, Argentina,
Colombia, and Peru, the picture was brighter than our previous

[MAP GRAPHIC OF CHILE]

<PAGE>

visits. With the severe drought over in Chile, the hydroelectric plants on which
the company depended for the largest part of their income had steadily rising
reservoirs of water to drive the turbines, and the penalties they had to pay for
not supplying promised electricity were things of the past. They outlined an
important new plan, dubbed the "Genesis Plan," which called for restructuring in
order to achieve dramatic cost cutting. The plan included savings in both
distribution and generation of electricity by a reduction in personnel by 30%,
as well as the introduction of information technology improvements. We then met
executives of Enersis' generation subsidiary, Endesa Chile, who had been
impacted by a downturn in electricity demand stemming from the economic
situation as well as the 1998 drought, which impacted their hydroelectric
plants. They reviewed plans to integrate the power grids of their subsidiary in
Argentina, Central Costanera, and power plants in Brazil so that energy
deficient Brazil could obtain power from energy rich Argentina.

We met our old friends the Luksic family, a prominent Chilean
business family with roots in Croatia. Guillermo Luksic, who heads the family's
holding company Quinenco S.A., told us of his plans for the future. One of my
first emerging market investments was made in a Luksic-controlled company,
Antofagasta, which was listed in London, but had a railroad running from Bolivia
to the north of Chile, as well as extensive copper mining holdings. Guillermo
and his staff told us of plans to streamline the companies within the Luksic
group, which included Madeco, one of the largest copper processing companies in
the world; CCU, a beer company with its own beer brand and the Budweiser
franchise in Argentina; Banco Edwards, a recent bank acquisition; VTR, a holding
company for Telefonica del Sur, a telephone company in southern Chile;
Lucchetti, a pasta manufacturer; Hoteles Carreras, a hotel group expanding into
hotel management; and Habitaria, a residential real estate developer recently
created. The basic thrust of their strategy to streamline the companies was to
simplify the decision-making process, emphasize value for shareholders, return
on capital employed, and quality of human resources. The consulting firm,
McKinsey and Co., had advised them on the new strategy.

Although Quinenco is a listed company, almost all of the
subsidiaries are also listed, except Habitaria, the new property company. The
group is probably one of the most transparent and investor-friendly in Chile.
The large parts of the group are CCU and Madeco. Madeco is the leading

<PAGE>

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

manufacturer of non-ferrous products in Chile, Argentina, Peru, and Brazil. The
zero tariff agreement between Chile and Mexico means that cheaper Mexican
products are finding their way to Chile. So cost cuts and increased efficiencies
were needed. Before the restructuring, each of the ten plants in various
countries was operated independently. The new structure called for a refocus on
product categories rather than countries in order to produce synergies and
coordination between plants. This would enable the most efficient producers to
survive. So wire and cable producers in Chile, Argentina, Peru, and Brazil were
put under one group, brass mills in Chile and Argentina another group, flexible
packaging companies in Chile and Argentina another, and aluminum profile
subsidiaries in Chile and Peru a fourth group. A number of staff functions such
as accounting and administration are being combined producing substantial
savings. Inefficient plants are being shut down and product lines are being
allocated to the most efficient and low cost plants in the region. We were happy
to hear that they had introduced new performance measurements for all units, the
most important being Return on Capital Employed (ROCE).

- - This letter reflects our opinions as of the close of the period. However,
market and economic conditions are changing constantly, which can be
expected to affect our strategies and the Fund's portfolio composition.

<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Highlights

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999+ 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $8.31 $10.37 $12.45 $10.75 $11.21
----------------------------------------------------------------
Income from investment operations:
Net investment income...................................... .10 .18 .18 .15 .19
Net realized and unrealized gains (losses)................. 4.59 (2.05) (1.60) 1.86 (.34)
----------------------------------------------------------------
Total from investment operations............................ 4.69 (1.87) (1.42) 2.01 (.15)
----------------------------------------------------------------
Less distributions from:
Net investment income...................................... (.10) (.19) (.18) (.15) (.17)
Net realized gains......................................... -- -- (.48) (.16) (.14)
----------------------------------------------------------------
Total distributions......................................... (.10) (.19) (.66) (.31) (.31)
----------------------------------------------------------------
Net asset value, end of year................................ $12.90 $8.31 $10.37 $12.45 $10.75
================================================================
Total Return................................................ 56.58% (18.03)% (11.32)% 18.86% (1.23)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $2,608,708 $1,733,607 $1,923,881 $1,565,537 $798,515
Ratios to average net assets:
Expenses................................................... 1.43% 1.51% 1.57% 1.56% 1.52%
Net investment income...................................... 1.02% 2.03% 1.42% 1.56% 2.00%
Portfolio turnover rate..................................... 49.35% 38.11% 24.72% 7.92% 13.47%
</TABLE>

+Based on average weighted shares outstanding.
See Notes to Financial Statements.
11
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 98.9%
ARGENTINA 5.3%
Banco de Galicia y Buenos Aires SA de CV, B.......... Banking 678,343 $ 3,371,839
Banco Frances SA..................................... Banking 581,690 4,595,994
*Buenos Aires Embotelladora SA, B.................... Beverages & Tobacco 6,066 27,301
*Molinos Rio de la Plata SA, B....................... Food & Household Products 4,972,631 12,234,385
Perez Companc SA, B.................................. Energy Sources 4,889,760 25,039,077
Quilmes Industrial SA, ADR, pfd. .................... Beverages & Tobacco 1,367,000 16,318,563
Telecom Argentina Stet-France SA, ADR................ Telecommunications 1,121,025 38,395,106
Telefonica de Argentina SA, ADR...................... Telecommunications 1,054,390 32,554,291
Transportadora de Gas del Sur SA, ADR................ Utilities Electrical & Gas 465,900 4,280,456
--------------
136,817,012
--------------
AUSTRIA 1.6%
Austria Tabak AG..................................... Beverages & Tobacco 160,952 7,777,807
Bank Austria AG...................................... Banking 359,680 20,277,942
OMV AG............................................... Energy Sources 149,000 14,475,486
--------------
42,531,235
--------------
BRAZIL 15.0%
Aracruz Celulose SA, ADR............................. Forest Products & Paper 748,900 19,658,625
Banco Bradesco SA, pfd. ............................. Banking 692,152,006 5,429,169
*Banco Bradesco SA, pfd., rts. ...................... Banking 44,944,262 178,384
Banco do Brasil SA................................... Banking 686,529,792 3,192,278
Brasmotor SA, pfd. .................................. Multi-Industry 26,347,000 3,694,268
Centrais Eletricas Brasileiras SA (Electrobras), B,
pfd. .............................................. Utilities Electrical & Gas 2,711,422,060 64,689,892
Cia Cervejaria Brahma, pfd. ......................... Beverages & Tobacco 8,786,000 6,419,884
Cia Energetica de Minas Gerais Cemig, Br., pfd. ..... Utilities Electrical & Gas 617,245,000 13,838,042
Cia Vale do Rio Doce, A, pfd. ....................... Metals & Mining 1,856,981 51,397,205
Copene-Petroquimica do Nordeste SA, A, pfd. ......... Chemicals 16,686,700 5,523,746
Duratex SA, pfd. .................................... Forest Products & Paper 188,563,900 5,897,515
Embratel Participacoes SA, pfd. ..................... Telecommunications 524,961,968 13,512,722
Investimentos Itau SA, pfd. ......................... Multi-Industry 30,545,704 31,619,411
Investimentos Itau SA, pfd., new..................... Multi-Industry 1,405,804 1,400,746
*Mannesmann SA....................................... Machinery & Engineering 6,870,720 475,417
Petroleo Brasileiro SA, pfd. ........................ Energy Sources 27,084,000 6,896,562
Tele Centro Sul Participacoes SA, pfd. .............. Telecommunications 1,854,189,968 33,860,906
Tele Norte Leste Participacoes SA, pfd. ............. Telecommunications 1,952,037,968 52,407,330
Tele Sudeste Celular Participacoes SA, pfd. ......... Telecommunications 3,240,532,968 23,947,476
Telecomunicacoes de Sao Paulo SA, ADR, pfd........... Telecommunications 1,350,700 33,007,731
Telesp Celular Participacoes SA, pfd. ............... Telecommunications 226,170,968 4,006,350
Unibanco Uniao de Bamncos Brasileiros SA, GDR........ Banking 334,845 10,087,206
--------------
391,140,865
--------------
CHILE 2.2%
Compania de Telecomunicaciones de Chile SA, ADR...... Telecommunications 1,514,710 27,643,458
Empresa Nacional de Electricidad SA, ADR............. Electrical & Electronics 1,072,245 15,212,476
Enersis SA, ADR...................................... Utilities Electrical & Gas 600,148 14,103,478
--------------
56,959,412
--------------
CHINA .8%
*China Telecom HK Ltd................................ Telecommunications 2,620,000 16,380,266
Guangshen Railway Co. Ltd., H........................ Transportation 22,458,000 2,513,470
Shandong Huaneng Power Development Co. Ltd., ADR..... Utilities Electrical & Gas 356,900 1,539,131
--------------
20,432,867
--------------
COLOMBIA .9%
Bavaria SA........................................... Beverages & Tobacco 274,638 1,201,084
Cementos Argos SA.................................... Building Materials & Components 2,605,880 6,671,053
Cia Colombiana de Tabacos SA......................... Beverages & Tobacco 1,972,824 2,617,806
</TABLE>

12
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
COLOMBIA (CONT.)
Compania Nacional de Chocolates SA................... Food & Household Products 2,303,605 $ 8,722,984
Compania Suramericana de Inversiones SA.............. Insurance 3,185,645 3,567,922
--------------
22,780,849
--------------
CZECH REPUBLIC 1.4%
*CEZ AS.............................................. Utilities Electrical & Gas 8,161,480 20,172,908
*Cesky Telecom AS.................................... Telecommunications 702,523 11,340,827
Tabak AS............................................. Beverages & Tobacco 18,951 3,822,486
--------------
35,336,221
--------------
EGYPT .3%
Commercial International Bank Ltd. .................. Banking 545,442 7,967,766
Suez Cement Co. ..................................... Building Materials & Components 20,200 336,593
--------------
8,304,359
--------------
HONG KONG 4.8%
Cable & Wireless HKT Ltd. ........................... Telecommunications 187,200 540,637
CDL Hotel International Ltd. ........................ Leisure & Tourism 1,018,076 405,999
Cheung Kong Holdings Ltd. ........................... Multi-Industry 3,778,000 47,993,504
Cheung Kong Infrastructure Holdings Ltd. ............ Multi-Industry 1,669,000 3,220,557
Dairy Farm International Holdings Ltd. .............. Merchandising 8,443,119 7,598,807
Hang Lung Development Co. Ltd. ...................... Real Estate 5,532,000 6,262,507
Hong Kong Land Holdings Ltd. ........................ Real Estate 3,044,000 4,505,120
HSBC Holdings PLC.................................... Banking 1,206,396 16,916,082
Hutchison Whampoa Ltd. .............................. Multi-Industry 1,302,000 18,926,610
Jardine Matheson Holdings Ltd. ...................... Multi-Industry 1,708,250 6,730,505
New World Development Co. Ltd. ...................... Real Estate 5,589,047 12,582,276
Shangri-La Asia Ltd. ................................ Leisure & Tourism 526,796 603,137
--------------
126,285,741
--------------
HUNGARY 2.7%
Borsodchem RT........................................ Chemicals 261,022 10,682,395
Egis RT.............................................. Multi-Industry 62,663 2,477,778
*Fotex First Hungarian American Photo Service Co. ... Multi-Industry 1,892,831 688,574
Fotex First Hung-Amer Photo Co., cvt., 12.00%,
5/11/00............................................ Multi-Industry 16,000 16,000
Gedeon Richter Ltd. ................................. Health & Personal Care 240,847 15,827,905
Mol Magyar Olay-Es Gazipari RT....................... Energy Sources 809,460 16,803,737
OTP Bank............................................. Banking 100,030 5,851,893
Tiszai Vegyi Kombinat RT............................. Chemicals 921,805 17,568,605
--------------
69,916,887
--------------
INDIA .6%
Grasim Industries Ltd. .............................. Multi-Industry 83,829 786,258
Hindalco Industries Inc. ............................ Metals & Mining 11,629 215,203
ICICI Ltd. .......................................... Financial Services 1,300 2,749
*ICICI Ltd., ADR..................................... Financial Services 32,600 452,325
*Mahanagar Telephone Nigam Ltd. ..................... Telecommunications 919,000 4,077,402
*NIIT Ltd. .......................................... Data Processing & Reproduction 10,780 821,647
Reliance Industries Ltd. ............................ Chemicals 1,804,900 9,696,670
--------------
16,052,254
--------------
INDONESIA 5.9%
*Asia Pulp & Paper Co. Ltd., ADR..................... Forest Products & Paper 1,071,880 8,441,055
*Asia Pulp & Paper Co. Ltd., ADR, wts., 7/27/00...... Forest Products & Paper 106,040 99,413
*PT Barito Pacific Timber TBK........................ Forest Products & Paper 28,660,500 2,563,551
PT Gudang Garamm..................................... Beverages & Tobacco 4,882,500 13,136,458
*PT Indah Kiat Pulp & Paper Corp. ................... Forest Products & Paper 52,042,500 20,481,843
*PT Indocement Tunggal Prakarsa...................... Building Materials & Components 8,642,500 3,834,240
*PT Indofoods Sukses Makmurr......................... Food & Household Products 13,197,870 16,526,850
</TABLE>

13
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA (CONT.)
PT Indosat........................................... Telecommunications 7,579,000 $ 16,920,558
*PT Semen Cibinong................................... Building Materials & Components 1,002,000 71,699
PT Semen Gresik (Persero)............................ Building Materials & Components 5,927,462 9,394,868
*PT Sinar Mas Agro Resources & Technology Corp. ..... Food & Household Products 3,830,600 2,165,420
PT Tambang Timah..................................... Metals & Mining 7,262,000 5,066,512
PT Telekomunikasi Indonesia (Persero), B............. Telecommunications 92,481,400 52,610,170
*PT Tjiwi Kimia...................................... Forest Products & Paper 6,720,014 2,187,912
--------------
153,500,549
--------------
ISRAEL .5%
Bank Hapoalim BM..................................... Financial Services 122,000 379,965
Discount Investment Corp. ........................... Financial Services 5,400 274,237
*Formula Systems Ltd. ............................... Data Processing & Reproduction 91,594 3,862,344
Koor Industries Ltd. ................................ Multi-Industry 31,827 3,179,023
Teva Pharmaceutical Industries Ltd., ADR............. Health & Personal Care 61,360 4,398,745
--------------
12,094,314
--------------
MALAYSIA .1%
Resorts World Bhd. .................................. Leisure & Tourism 607,000 1,741,132
--------------
MEXICO 10.2%
Cemex SA............................................. Building Materials & Components 14,308,647 80,037,814
*Cifra SA de CV, V................................... Merchandising 5,809,001 11,648,656
Coca Cola Femsa SA de CV, L, ADR..................... Beverages & Tobacco 66,550 1,168,784
*DESC SA de CV DESC, B............................... Multi-Industry 2,343,020 1,928,819
Fomento Economico Mexicano SA de CV Femsa............ Beverages & Tobacco 211,600 9,416,200
*Grupo Carso SA de CV................................ Multi-Industry 807,000 4,020,095
*Grupo Financiero Banamex Accival SA de CV........... Banking 11,771,359 47,209,672
*Grupo Financiero Bancomer SA de CV.................. Banking 32,465,875 13,568,851
*Grupo Televisa SA de CV, CPO........................ Broadcasting & Publishing 126,800 4,282,427
Kimberly Clark de Mexico SA de CV, A................. Forest Products & Paper 832,610 3,251,353
Panamerican Beverages Inc., A........................ Food & Household Products 80,400 1,653,225
Telefonos de Mexico SA (Telmex), ADR................. Telecommunications 718,600 80,842,500
Tubos de Acero de Mexico SA.......................... Machinery & Engineering 600 7,909
Vitro SA de CV, A.................................... Food & Household Products 3,559,942 6,725,379
--------------
265,761,684
--------------
NEW ZEALAND .1%
*Brierley Investments Ltd. .......................... Multi-Industry 17,719,000 3,703,262
--------------
PAKISTAN .1%
Pakistan Telecommunications Corp., A................. Telecommunications 8,147,100 3,411,986
--------------
PERU .5%
Telefonica del Peru SA, ADR Telecommunications 870,430 11,642,001
--------------
PHILIPPINES 1.7%
*A Soriano Corp. .................................... Multi-Industry 4,207,500 62,643
*Belle Corp. ........................................ Real Estate 19,652,000 926,521
Philippine Long Distance Telephone Co., ADR.......... Telecommunications 1,030,140 26,654,873
*Philippine National Bank............................ Banking 54,550 128,592
RFM Corp. ........................................... Food & Household Products 22,911,293 2,387,777
San Miguel Corp., B.................................. Food & Household Products 10,035,640 14,194,330
--------------
44,354,736
--------------
POLAND 1.2%
Bank Rozwoju Eksportu SA............................. Banking 74,761 2,368,486
Bank Slaski SA W Katowicach.......................... Banking 83,163 5,651,464
Impexmetal SA........................................ Metals & Mining 129,000 630,181
Prokom Software SA................................... Data Processing & Reproduction 137,074 4,243,161
</TABLE>

14
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
POLAND (CONT.)
*Rolimpex SA......................................... Wholesale & International Trade 212,908 $ 283,191
Telekomunikacja Polska SA............................ Telecommunications 2,243,864 14,705,856
Warta SA............................................. Insurance 143,383 4,126,379
--------------
32,008,718
--------------
RUSSIA 1.9%
Aeroflot - Russia International Airlines............. Transportation 4,668,500 675,765
GAZ Auto Works....................................... Automobiles 20,970 733,950
*GUM Trade House..................................... Merchandising 540,000 405,000
Irkutskenergo........................................ Utilities Electrical & Gas 14,677,320 1,467,732
Lukoil Holdings, ADR................................. Energy Sources 192,360 10,002,720
*Mosenergo, GDR...................................... Utilities Electrical & Gas 362,900 937,117
Novorosissk Sea Shipping............................. Transportation 1,010,000 103,525
*Red October......................................... Food & Household Products 67,000 319,925
*Rostelecom, ADR..................................... Telecommunications 1,019,980 17,212,163
*Rostelecom, pfd. ................................... Telecommunications 2,195,200 1,822,016
Tyumen Aviatrans..................................... Transportation 1,930,000 19,300
Unified Energy Systems............................... Utilities Electrical & Gas 63,010,000 7,561,200
Unified Energy Systems, ADR.......................... Utilities Electrical & Gas 163,800 1,845,207
Unified Energy Systems, pfd. ........................ Utilities Electrical & Gas 1,079,000 53,950
*Vimpel Communications, ADR.......................... Telecommunications 156,755 6,995,192
--------------
50,154,762
--------------
SINGAPORE 7.4%
City Developments Ltd. .............................. Real Estate 2,929,000 17,146,653
Creative Technology Ltd. ............................ Electrical & Electronics 42,800 776,079
Cycle & Carriage Ltd. ............................... Automobiles 663,000 2,050,105
DBS Group Holdings Ltd. ............................. Banking 410,366 6,726,504
First Capital Corp. Ltd. ............................ Real Estate 2,242,000 2,988,436
Fraser and Neave Ltd. ............................... Beverages & Tobacco 5,025,000 18,555,239
*Golden Agri-Resources Ltd. ......................... Misc Materials & Commodities 8,595,000 3,354,398
Jurong Shipyard Ltd. ................................ Machinery & Engineering 1,875,000 9,400,330
Keppel Corp., Ltd. .................................. Transportation 8,449,000 22,118,067
MCL Land Ltd. ....................................... Real Estate 2,288,000 2,115,593
Natsteel Ltd. ....................................... Metals & Mining 9,230,000 18,399,039
Oversea Chinese Banking Corp. Ltd., fgn. ............ Banking 2,734,200 25,117,538
Overseas Union Enterprise Ltd. ...................... Leisure & Tourism 1,200,000 4,034,824
Sembcorp Industries Ltd. ............................ Multi-Industry 7,603,070 10,362,635
Singapore Telecommunications Ltd. ................... Telecommunications 2,904,000 5,998,055
United Industrial Corporation Ltd. .................. Multi-Industry 16,453,000 9,285,992
United Overseas Bank Ltd. ........................... Banking 3,914,592 34,550,887
United Overseas Land Ltd. ........................... Real Estate 1,275,000 1,194,236
--------------
194,174,610
--------------
SLOVAK REPUBLIC .1%
Nafta Gbely AS....................................... Utilities Electrical & Gas 80,331 689,986
*Slovnaft AS......................................... Chemicals 106,971 1,522,881
*Vychodoslovenske Zeleziarne AS...................... Metals & Mining 48,977 167,341
--------------
2,380,208
--------------
SOUTH AFRICA 13.8%
AECI Ltd. ........................................... Chemicals 265,700 541,760
Anglo American Platinum Corp. Ltd. .................. Metals & Mining 29,620 899,909
Anglo American PLC................................... Metals & Mining 1,086,428 70,075,047
Barlow Ltd. ......................................... Multi-Industry 4,268,100 30,719,225
BOE Ltd. ............................................ Financial Services 7,408,000 7,221,446
CG Smith Ltd. ....................................... Multi-Industry 9,097,900 36,583,757
Comparex Holdings Ltd. .............................. Data Processing & Reproduction 393,500 2,755,459
De Beers/Centenary Linked Units...................... Misc Materials & Commodities 559,400 16,268,497
</TABLE>

15
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SOUTH AFRICA (CONT.)
Edgars Consolidated Stores Ltd. ..................... Textiles & Apparel 298,330 $ 3,809,706
Fedsure Holdings Ltd. ............................... Insurance 165,800 1,346,872
Firstrand Ltd. ...................................... Insurance 6,999,000 10,006,694
Iscor Ltd. .......................................... Metals & Mining 4,916,865 18,612,990
Johnnies Industrial Corporation Ltd. ................ Multi-Industry 769,300 8,999,123
Kersaf Investments Ltd. ............................. Leisure & Tourism 181,800 723,656
Liberty Life Association of Africa Ltd. ............. Insurance 1,623,355 18,725,954
Palabora Mining Co. Ltd. ............................ Metals & Mining 231,200 1,680,942
Rembrandt Group Ltd. ................................ Multi-Industry 2,305,970 21,954,483
Sanlam Ltd. ......................................... Financial Services 334,800 467,795
Sappi Ltd. .......................................... Forest Products & Paper 1,542,860 15,240,599
Sasol Ltd. .......................................... Energy Sources 5,159,700 42,836,827
South African Breweries PLC.......................... Beverages & Tobacco 3,913,878 39,806,460
Standard Bank Investment Corp. Ltd. ................. Financial Services 1,224,395 5,082,580
Tongaat-Hulett Group Ltd. ........................... Multi-Industry 678,347 5,730,958
--------------
360,090,739
--------------
SOUTH KOREA 6.4%
Hana Bank............................................ Banking 560,211 4,366,242
Korea Electric Power Corp. .......................... Utilities Electrical & Gas 1,996,520 61,891,241
LG Electronics Inc. ................................. Electrical & Electronics 43,819 1,813,732
Samsung Electronics Co. Ltd. ........................ Electrical & Electronics 317,499 74,376,692
*Samsung Heavy Industries Co. Ltd. .................. Machinery & Engineering 2,346,211 11,343,636
Samsung SDI Co. Ltd. ................................ Electrical & Electronics 299,904 12,466,287
--------------
166,257,830
--------------
TAIWAN .6%
China Steel Corp. ................................... Metals & Mining 793,000 586,191
Mitac International Corp. ........................... Data Processing & Reproduction 820,000 1,256,715
*Silicon Integrated Systems Co. Ltd. ................ Electrical & Electronics 1,317,000 4,448,048
*Siliconware Precision Industries Co Ltd. ........... Electronic Components & Instruments 2,839,000 7,236,578
*Sunplus Technology Company Ltd. .................... Electrical & Electronics 88,000 420,583
UNI-President Enterprises Corp. ..................... Food & Household Products 915,000 723,021
*WUS Printed Circuit Co. Ltd. ....................... Electronic Components & Instruments 541,000 798,098
--------------
15,469,234
--------------
THAILAND 6.8%
Advanced Info Service Public Co. Ltd., fgn. ......... Telecommunications 477,500 8,041,034
American Standard Sanitaryware Public Co. Ltd.
fgn. .............................................. Building Materials & Components 142,600 759,925
*Bangkok Bank Public Co. Ltd. ....................... Banking 3,981,100 6,470,746
*Bangkok Bank Public Co. Ltd., fgn. ................. Banking 347,940 880,743
BEC World Public Co Ltd., fgn. ...................... Telecommunications 744,900 5,279,600
*Charoen Pokphand Feedmill Public Co. Ltd., fgn. .... Food & Household Products 3,429,762 10,052,593
Dusit Thani Public Company Ltd., fgn. ............... Leisure & Tourism 70,600 71,014
*Hana Microelectronics Co. Ltd., fgn. ............... Electrical & Electronics 737,500 3,576,472
Hua Thai Manufacturing Public Co. Ltd., fgn. ........ Textiles & Apparel 62,400 91,447
*Jasmine International Public Co. Ltd., fgn. ........ Telecommunications 1,351,900 936,568
*Land and House Public Co. Ltd., fgn. ............... Real Estate 2,029,266 1,933,021
Saha Union Public Co. Ltd., fgn. .................... Multi-Industry 3,197,071 1,064,838
*Serm Suk Public Co. Ltd. ........................... Food & Household Products 410,000 1,485,745
Serm Suk Public Co. Ltd., fgn. ...................... Food & Household Products 8,200 41,404
*Shin Corporations Public Company Ltd., fgn. ........ Electrical & Electronics 1,560,800 14,805,350
*Siam Cement Public Co. Ltd. ........................ Building Materials & Components 694,400 13,691,873
Siam Cement Public Co. Ltd., fgn. ................... Building Materials & Components 672,600 22,437,922
*Siam Commercial Bank, 5.25%, cvt., 144A, fgn.,
pfd. .............................................. Banking 7,161,200 8,777,383
Siam Makro Public Company Ltd., fgn. ................ Merchandising 2,280,000 3,219,824
*Telecomasia Corp. Public Co. Ltd., fgn. ............ Telecommunications 3,283,200 4,286,619
*Thai Airways International Public Co. Ltd., fgn. ... Transportation 1,535,200 2,331,639
*Thai Farmers Bank Public Co. Ltd. .................. Banking 21,506,764 24,641,396
</TABLE>

16
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

*Non-income producing.
**Securities denominated in U.S. dollars.
See Notes to Financial Statements.
17
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$1,999,684,076)........................................... $2,582,695,163
Cash....................................................... 21,514,602
Receivables:
Investment securities sold................................ 6,502,969
Capital shares sold....................................... 647,454
Dividends and interest.................................... 6,150,215
--------------
Total assets........................................... 2,617,510,403
--------------
Liabilities:
Payables:
Investment securities purchased........................... 3,017,863
Capital shares redeemed................................... 1,574,465
To affiliates............................................. 2,787,836
Distributions to shareholders.............................. 182,348
Custodian Fees............................................. 1,126,553
Accrued expenses........................................... 112,964
--------------
Total liabilities...................................... 8,802,029
--------------
Net assets, at value........................................ $2,608,708,374
==============
Net assets consist of:
Distributions in excess of net investment income........... (326,502)
Net unrealized appreciation................................ 583,011,087
Accumulated net realized loss.............................. (405,909,573)
Capital shares............................................. 2,431,933,362
--------------
Net assets, at value........................................ $2,608,708,374
==============
Net asset value per share ($2,608,708,374 / 202,247,355
shares outstanding)....................................... $12.90
==============
</TABLE>

See Notes to Financial Statements.
18
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $4,755,466)
Dividends.................................................. $ 49,169,093
Interest................................................... 1,542,503
-------------
Total investment income............................... $ 50,711,596
Expenses:
Management fees (Note 3)................................... 25,876,285
Administrative fees (Note 3)............................... 1,730,530
Transfer agent fees (Note 3)............................... 16,720
Custodian fees............................................. 1,702,300
Reports to shareholders.................................... 44,800
Registration and filing fees............................... 29,100
Professional fees.......................................... 76,400
Directors' fees and expenses............................... 72,900
Other...................................................... 43,311
-------------
Total expenses........................................ 29,592,346
--------------
Net investment income........................... 21,119,250
--------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments (Net of foreign taxes of $1,979,318).......... (266,773,666)
Foreign currency transactions............................. (672,345)
-------------
Net realized loss..................................... (267,446,011)
Net unrealized appreciation on investments............ 1,184,901,219
--------------
Net realized and unrealized gain............................ 917,455,208
--------------
Net increase in net assets resulting from operations........ $ 938,574,458
==============
</TABLE>

See Notes to Financial Statements.
19
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
-------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 21,119,250 $ 37,666,792
Net realized loss from investments and foreign currency
transactions............................................ (267,446,011) (90,517,102)
Net unrealized appreciation (depreciation) on
investments.............................................. 1,184,901,219 (334,534,122)
-----------------------------------
Net increase (decrease) in net assets resulting from
operations............................................. 938,574,458 (387,384,432)
Distributions to shareholders from:
Net investment income..................................... (20,341,580) (40,080,848)
In excess of net investment income........................ (326,502) --
Capital share transactions (Note 2)........................ (42,804,880) 237,190,928
-----------------------------------
Net increase (decrease) in net assets................... 875,101,496 (190,274,352)
Net assets:
Beginning of year.......................................... 1,733,606,878 1,923,881,230
-----------------------------------
End of year................................................ $2,608,708,374 $1,733,606,878
===================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of year................................................ $ (326,502) $ 605,716
===================================
</TABLE>

See Notes to Financial Statements.
20
<PAGE>

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Emerging Market Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks to achieve
long-term capital growth by investing at least 65% of its total assets in equity
securities of developing markets issuers. The following summarizes the Fund's
significant accounting policies.

a. SECURITY VALUATION:

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.

b. FOREIGN CURRENCY TRANSLATION:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

Certain countries in which the Fund invests have imposed restrictions on the
repatriation of their currencies. Other countries have previously instituted
currency exchange controls in the past during periods of serious imbalance in
their balance of payments or upon the occurrence of other destabilizing events.
Exchange control regulations may restrict the Fund's ability to convert
investment income, capital, or the proceeds of securities into U.S. dollars. As
of December 31, 1999, the Fund has investments with a value of approximately
$5.4 million in countries with restrictions on the repatriation of their
currencies or formal exchange controls currently in place.

c. 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.

d. 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.

21
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Notes to Financial Statements (continued)

2. CAPITAL STOCK

At December 31, 1999, there were 1.14 billion shares authorized ($0.01 par
value), of which 325 million have been classified as Fund shares. Transactions
in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998
-----------------------------------------------------------------
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 34,178,900 $ 358,928,791 72,904,287 $ 672,866,243
Shares issued on reinvestment of distributions.............. 1,596,732 18,896,296 4,292,592 36,277,062
Shares redeemed............................................. (42,078,563) (420,629,967) (54,174,577) (471,952,377)
-----------------------------------------------------------------
Net increase (decrease)..................................... (6,302,931) $ (42,804,880) 23,022,302 $ 237,190,928
=================================================================
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Company are also officers or directors of Templeton
Asset Management Ltd. (TAML), Franklin Templeton Services, Inc. (FT Services),
Franklin/Templeton Distributors, Inc. (Distributors), and Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent, respectively.

The Fund pays an investment management fee to TAML of 1.25% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Company's aggregate average daily
net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>

TAML and FT Services agreed in advance to limit total expenses of the Fund to an
annual rate of 1.60% of average daily net assets through April 30, 2000. For the
year ended December 31, 1999, no reimbursement was necessary under the
agreement.

4. 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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $2,045,959,920 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 741,889,259
Unrealized depreciation..................................... (205,154,016)
-------------
Net unrealized appreciation................................. $ 536,735,243
=============
</TABLE>

Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of passive foreign investment
companies, wash sales, and losses realized subsequent to October 31 on the sales
of securities and foreign currencies.

22
<PAGE>

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

4. INCOME TAXES (CONT.)
At December 31, 1999 the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:

<TABLE>
<S> <C>
Capital loss carryovers expiring in:
2006...................................................... $ 85,095,886
2007...................................................... 248,064,895
------------
$333,160,781
------------
</TABLE>

At December 31, 1999 the Fund had deferred capital and currency losses occurring
subsequent to October 31, 1999 of $27,704,673. For tax purposes, such losses
will be reflected in the year ending December 31, 2000.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1999 aggregated $997,784,025 and $1,060,274,668,
respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Emerging Markets Series, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December 31,
1999, the Fund had not utilized this credit facility.

23
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Templeton Institutional Funds, Inc. - Emerging Markets Series

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Emerging Markets Series of
Templeton Institutional Funds, Inc. at December 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above. The financial statements for the year ended
December 31, 1998 including the financial highlights for each of the four years
in the period then ended were audited by other independent accountants whose
report dated January 28, 1999 expressed an unqualified opinion on those
financial statements.

PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
January 28, 2000

24
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
CHANGE IN INDEPENDENT AUDITOR

On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.

None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.

During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.

On October 21, 1999, the Fund, with the approval of its Board of Directors and
its Audit Committee, engaged PwC as its independent auditors.

25
<PAGE>

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES
Tax Designation

At December 31, 1999, more than 50% of the Templeton Emerging Markets 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. 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.

The following table provides a breakdown by country of foreign source income and
foreign taxes paid to shareholders of record on December 9, 1999.

<TABLE>
<CAPTION>
FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina................................................... $0.0000 $0.0076
Austria..................................................... 0.0003 0.0009
Brazil...................................................... 0.0063 0.0192
Chile....................................................... 0.0009 0.0015
China....................................................... 0.0000 0.0018
Colombia.................................................... 0.0000 0.0033
Czech Republic.............................................. 0.0004 0.0011
Ecuador..................................................... 0.0000 0.0001
Egypt....................................................... 0.0000 0.0008
Ghana....................................................... 0.0000 0.0001
Hong Kong................................................... 0.0000 0.0049
Hungary..................................................... 0.0009 0.0024
India....................................................... 0.0000 0.0013
Indonesia................................................... 0.0008 0.0021
Israel...................................................... 0.0004 0.0007
Malaysia.................................................... 0.0012 0.0019
Mexico...................................................... 0.0007 0.0077
Pakistan.................................................... 0.0003 0.0009
Peru........................................................ 0.0000 0.0010
Philippines................................................. 0.0005 0.0009
Poland...................................................... 0.0003 0.0009
Russia...................................................... 0.0000 0.0002
Singapore................................................... 0.0051 0.0129
South Africa................................................ 0.0000 0.0164
South Korea................................................. 0.0018 0.0045
Sri Lanka................................................... 0.0000 0.0001
Thailand.................................................... 0.0002 0.0008
Turkey...................................................... 0.0000 0.0042
Venezuela................................................... 0.0000 0.0059
----------------------------------
TOTAL....................................................... $0.0201 $0.1061
----------------------------------
----------------------------------
</TABLE>

In January 2000, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1999. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.

26
<PAGE>

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<PAGE>

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<PAGE>
This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc. Emerging Markets Series, which contains more
complete information, including risk factors, charges, and expenses. Like any
investment in securities, the value of the Fund's portfolio will be subject to
the risk of loss from market, currency, economic, political, and other factors,
as well as investment decisions by the manager, which will not always be
profitable or wise. The Fund and its investors are not protected from such
losses by the manager. Therefore, investors who cannot accept this risk should
not invest in shares of the Fund.

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

Principal Underwriter:

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

Institutional Services: 1-800-321-8563
[RECYCLE LOGO] Fund Information: 1-800-362-6243

ZT456 A 02/00