TEMPLETON INSTITUTIONAL FUNDS, INC.
Foreign Equity Series
[TIFI TEMPLETON LOGO]
SEMIANNUAL REPORT
JUNE 30, 2000
[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>
June 30, 2000
Shareholder:
By the end of the first quarter, even exuberant bulls seemed relieved
that the six-month superheated rise of Technology, Media, and Telecom sectors
(TMT) had cooled down. In succeeding weeks, the NASDAQ(R) - a reasonable proxy
for these sectors as a whole - fell 40%
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF 6/30/00
CUMULATIVE
ONE-YEAR THREE-YEAR FIVE-YEAR SINCE
AVERAGE AVERAGE AVERAGE INCEPTION(1)(3)
ANNUAL(1)(2) ANNUAL(1)(2) ANNUAL(1)(2) (10/18/90)
<S> <C> <C> <C> <C>
TIFI Foreign
Equity Series -
Primary Shares 12.95% 10.96% 14.68% 231.24%
MSCI AC World
ex U.S. Free Index(4) 18.11% 9.46% 11.11% 10.21%
MSCI EAFE Index(4) 17.44% 10.47% 11.63% 9.43%
</TABLE>
(1) 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 AC World ex U.S. Free
Index measures the performance of securities located in 46 countries,
including emerging markets in Latin America, Asia, and Eastern Europe. It
includes reinvested dividends. The MSCI EAFE tracks the performance of
approximately 1,000 securities in 20 countries. It includes reinvested
dividends.
Indices are unmanaged, do not contain cash, and do not include management or
other operating expenses. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of the countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares. Past performance is not predictive of
future results.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 8.
continued...
[GARY MOTYL'S PICTURE OMITTED]
GARY MOTYL IS EXECUTIVE VICE PRESIDENT AND CHIEF INVESTMENT OFFICER FOR GLOBAL
EQUITIES OF FTTRUST COMPANY AND PRESIDENT OF TEMPLETON INVESTMENT COUNSEL, INC.
HE IS A PORTFOLIO MANAGER AND RESEARCH ANALYST AND CURRENTLY MANAGES SEVERAL
INSTITUTIONAL MUTUAL FUNDS, IN ADDITION TO MANAGING MANY OF TEMPLETON'S SEPARATE
ACCOUNT PORTFOLIOS. MR. MOTYL'S RESEARCH RESPONSIBILITIES INCLUDE THE GLOBAL
AUTOMOBILE INDUSTRY AND COUNTRY COVERAGE OF GERMANY.
PRIOR TO JOINING TEMPLETON IN 1981, 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. HE IS ALSO A CHARTERED FINANCIAL ANALYST (CFA).
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued.......................................................
GEOGRAPHIC DISTRIBUTION ON 6/30/00
(Equity Assets as a Percentage of Total Net Assets)
[PIE CHART OMITTED]
<TABLE>
<S> <C>
North America 3.3%
Australia/New Zealand 4.6%
Latin America 9.4%
Asia 21.5%
Europe 57.5%
</TABLE>
FUND ASSET ALLOCATION ON 6/30/00
[PIE CHART OMITTED]
<TABLE>
<S> <C>
Short-Term Investments & Other Net Assets 3.7%
Equity* 96.3%
</TABLE>
*Equity includes convertible and preferred securities
(from its March 2000 all-time high), one of the sharpest and swiftest
sector-specific bear markets we recall. Along the way, Internet stocks, in
particular, including numerous high profile names that had been accorded almost
divine status by some investors last winter, fell 60% to 90%.
We believe that this bubble was simply a case of unsustainable
expectations for these sectors. The Internet is an important new technology, but
we don't think it has repealed the iron discipline of examining a Profit and
Loss Statement. (Interestingly, the U.S. National Academy of Engineering lists
the Internet as only 13th in importance among 20th Century achievements.) In
fact, we have long thought that the biggest beneficiaries of the Internet may
not be technology stocks but mainstream companies that learn how to use the
Internet well. It should be noted that, in the final weeks of the second
quarter, some technology-related stocks re-ignited, apparently because some
momentum investors concluded that the recent round of interest rate increases is
now behind us and the U.S. economy is dutifully set for a "soft-landing." No one
can know whether their conclusions are true, but the historical record is not
particularly encouraging.
Rising short-term interest rates worldwide apparently triggered
the decline in the TMT group and generally proved problematic for most other
stocks as well. The second quarter was generally weak across almost all markets.
Measured in U.S. dollars, for the six month period, the MSCI EAFE Index was down
3.9% and the MSCI World Index declined 3.5%. The fund returned - 1.35% for the
same period. Foreign exchange played an unusually large role in the quarter: Of
eighteen major currencies, only one managed to gain - marginally - over the U.S.
dollar. The euro and the yen were off 2.1% and 2.8%, respectively.
For our part, we have continued to focus on creating a
portfolio of companies that we believe are attractively valued with outstanding
fundamentals and appreciable upside potential on the three- to five-year
horizon. At the end of the period, the average price-to-earnings
2
<PAGE>
and price-to-cashflow ratios of the portfolio were slightly more than half that
of the benchmarks. This difference is a wide margin even by our own historical
standards, but is consistent with our record of recent months.
As you know, there has been considerable discussion about the
performance gap in recent years between so-called "growth" and "value" styles of
investing. To us, one fact stands out: Over the long term, the weight of
evidence firmly supports our conviction that margins, earnings, and valuations
matter - irrespective of so-called style. For us, stock selection is not about
style dogma. Rather, we focus dispassionately on ascertaining the earnings power
of a company on a five-year basis, roughly one business cycle, and on being
rigorous about what we are willing to pay for this earnings stream. Sometimes,
what others believe to be "growth" stocks fit our analysis. At other times,
companies with far more pedestrian earnings prospects appear to us to be the
best bargain candidates. For instance, the utility weighting in the portfolio
has been increasing because of what we see as a very favorable interplay between
deregulation, negative sentiment, and attractive dividend yields. Overall, our
constant challenge has been to consistently balance a security's downside
potential against possible reward, even in the face of wide swings in market
sentiment.
During the second quarter, we continued to take profits in some
of our major telecom or technology positions. Because of the markets' increasing
insistence on the delivery of near-term earnings estimates and the inability of
many companies to match expectations, we have seen a two-tier market emerge
globally and are finding potential bargains among high-quality names. The
consumer goods sector is a good example. We have recently been able to purchase
several household-name companies at what we consider to be excellent prices,
including Unilever in the Netherlands. In the energy sector, holdings of
European energy companies contributed positively to the Fund's total return. As
a result of this trading activity, cash represented 3% of the portfolio at the
end of June.
<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION ON 6/30/00
(Equity Assets as a Percentage of Total Net Assets)
<S> <C>
Finance 29.7%
Services 19.2%
Capital Equipment 17.8%
Energy 12.9%
Consumer Goods 8.5%
Materials 7.3%
Multi-Industry 0.9%
</TABLE>
<TABLE>
<CAPTION>
10 LARGEST POSITIONS ON 6/30/00
(Percent of Total Net Assets)
<S> <C>
Aventis SA 2.3%
Alcatel SA 2.2%
DBS Group Holdings Ltd. 2.1%
Total Fina Elf SA 2.1%
Nomura Securities Co. Ltd. 2.0%
Telefonos de Mexico SA (Telmex) 1.8%
Nippon Telegraph
& Telephone Corp. 1.8%
Sony Corp. 1.8%
AXA SA 1.7%
Koninklijke Philips Electronics NV 1.7%
</TABLE>
3
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY SERIES
letter continued.......................................................
Templeton Foreign Equity Series - Primary Shares
Total Return Index Comparison
$5,000,000 Investment: 10/18/90 - 6/30/00
[Line Graph Omitted]
<TABLE>
<CAPTION>
TIFI-Foreign
Equity Series MSCI AC World
(Primary) MS EAFE CPI Free ex US
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
10/18/1990 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00
10/31/1990 $4,970,000.00 $5,327,390.18 $5,012,580.65 $5,301,096.77
11/30/1990 $4,875,000.00 $5,014,654.90 $5,023,844.97 $5,006,437.79
12/31/1990 $4,860,000.00 $5,097,844.71 $5,023,844.97 $5,097,842.38
01/31/1991 $5,005,000.00 $5,264,165.01 $5,053,882.54 $5,257,167.19
02/28/1991 $5,614,715.00 $5,830,025.21 $5,061,392.36 $5,821,803.43
03/31/1991 $5,452,703.00 $5,481,442.58 $5,068,901.74 $5,501,403.92
04/30/1991 $5,503,332.00 $5,536,863.42 $5,076,411.12 $5,561,173.60
05/31/1991 $5,579,275.00 $5,596,270.70 $5,091,429.88 $5,640,145.49
06/30/1991 $5,295,754.00 $5,186,515.67 $5,106,449.09 $5,247,865.76
07/31/1991 $5,604,589.00 $5,442,746.82 $5,113,958.48 $5,500,022.58
08/31/1991 $5,614,715.00 $5,333,546.81 $5,128,977.72 $5,405,578.72
09/30/1991 $5,756,475.00 $5,635,740.03 $5,151,505.88 $5,680,621.25
10/31/1991 $5,736,223.00 $5,717,043.98 $5,159,015.28 $5,779,946.29
11/30/1991 $5,685,595.00 $5,451,663.94 $5,174,034.52 $5,522,493.79
12/31/1991 $5,899,356.00 $5,734,913.70 $5,177,789.00 $5,809,186.32
01/31/1992 $6,060,450.00 $5,614,098.62 $5,185,298.87 $5,728,234.78
02/29/1992 $6,154,884.00 $5,414,697.07 $5,204,072.56 $5,552,332.78
03/31/1992 $6,108,304.00 $5,058,741.06 $5,230,355.62 $5,216,553.35
04/30/1992 $6,304,442.00 $5,084,069.36 $5,237,865.00 $5,233,682.79
05/31/1992 $6,657,491.00 $5,425,937.34 $5,245,374.37 $5,551,457.61
06/30/1992 $6,584,639.00 $5,170,374.93 $5,264,148.09 $5,283,552.38
07/31/1992 $6,360,482.00 $5,039,702.80 $5,275,412.42 $5,171,150.36
08/31/1992 $6,181,155.00 $5,357,514.58 $5,290,431.62 $5,446,929.62
09/30/1992 $6,024,245.00 $5,253,420.96 $5,305,450.42 $5,335,171.92
10/31/1992 $5,811,295.00 $4,979,450.38 $5,324,224.12 $5,100,881.63
11/30/1992 $5,822,502.00 $5,027,836.40 $5,331,733.52 $5,129,108.79
12/31/1992 $5,820,811.00 $5,055,364.00 $5,327,979.02 $5,171,933.10
01/31/1993 $5,843,979.00 $5,056,254.56 $5,354,262.10 $5,171,334.45
02/28/1993 $5,971,400.00 $5,210,483.42 $5,373,035.80 $5,329,600.04
03/31/1993 $6,119,128.00 $5,666,177.81 $5,391,809.51 $5,768,434.34
04/30/1993 $6,316,145.00 $6,205,469.88 $5,406,828.72 $6,277,951.24
05/31/1993 $6,484,189.00 $6,338,043.79 $5,414,338.10 $6,417,706.03
06/30/1993 $6,362,502.00 $6,240,618.99 $5,421,847.51 $6,340,898.61
07/31/1993 $6,466,806.00 $6,460,506.95 $5,421,847.51 $6,551,658.47
08/31/1993 $6,924,581.00 $6,810,730.45 $5,436,866.30 $6,903,278.30
09/30/1993 $6,872,430.00 $6,658,919.54 $5,448,130.62 $6,761,359.39
10/31/1993 $7,278,054.00 $6,865,592.90 $5,470,659.24 $7,005,918.64
11/30/1993 $7,110,009.00 $6,266,909.90 $5,474,413.70 $6,472,364.34
12/31/1993 $7,801,439.00 $6,720,849.45 $5,474,413.70 $6,977,184.54
01/31/1994 $8,357,848.00 $7,290,513.62 $5,489,432.92 $7,550,984.13
02/28/1994 $8,129,428.00 $7,271,818.26 $5,508,206.61 $7,493,885.48
03/31/1994 $7,768,919.00 $6,960,159.91 $5,526,980.29 $7,150,645.88
04/30/1994 $7,881,598.00 $7,257,022.08 $5,534,489.69 $7,393,225.11
05/31/1994 $7,911,250.00 $7,216,906.35 $5,538,244.62 $7,395,711.74
06/30/1994 $7,656,240.00 $7,320,511.25 $5,557,018.32 $7,448,159.69
07/31/1994 $7,988,347.00 $7,392,525.31 $5,572,037.11 $7,569,265.20
08/31/1994 $8,261,148.00 $7,569,172.66 $5,594,565.75 $7,823,955.00
09/30/1994 $8,065,443.00 $7,332,435.81 $5,609,584.53 $7,630,278.23
10/31/1994 $8,237,426.00 $7,578,317.97 $5,613,339.47 $7,835,374.92
11/30/1994 $7,881,598.00 $7,215,768.06 $5,620,848.89 $7,457,415.46
12/31/1994 $7,819,892.00 $7,262,640.17 $5,620,848.89 $7,439,963.47
01/31/1995 $7,594,903.00 $6,985,367.82 $5,643,377.53 $7,102,526.23
02/28/1995 $7,713,478.00 $6,967,108.98 $5,665,905.72 $7,063,662.27
03/31/1995 $7,749,977.00 $7,403,609.36 $5,684,679.87 $7,462,756.87
04/30/1995 $8,090,635.00 $7,684,023.29 $5,703,453.59 $7,753,870.35
05/31/1995 $8,297,464.00 $7,594,405.99 $5,714,717.45 $7,719,610.73
06/30/1995 $8,346,129.00 $7,463,241.56 $5,725,981.79 $7,612,826.21
07/31/1995 $8,759,786.00 $7,929,905.44 $5,725,981.79 $8,045,121.53
08/31/1995 $8,534,708.00 $7,629,333.63 $5,741,001.04 $7,765,980.92
09/30/1995 $8,692,871.00 $7,780,319.67 $5,752,264.88 $7,898,690.44
10/31/1995 $8,504,292.00 $7,573,179.09 $5,771,038.61 $7,687,653.70
11/30/1995 $8,638,122.00 $7,785,872.50 $5,767,284.14 $7,868,206.79
12/31/1995 $8,834,439.00 $8,101,557.48 $5,763,529.24 $8,179,304.51
01/31/1996 $9,117,594.00 $8,136,742.46 $5,797,322.14 $8,291,660.92
02/29/1996 $9,262,241.00 $8,166,279.81 $5,816,095.84 $8,291,983.46
03/31/1996 $9,331,739.00 $8,341,768.18 $5,846,133.82 $8,446,334.67
04/30/1996 $9,672,913.00 $8,586,345.57 $5,868,662.01 $8,702,589.96
05/31/1996 $9,786,638.00 $8,430,390.58 $5,879,926.32 $8,571,906.82
06/30/1996 $9,755,048.00 $8,479,902.51 $5,883,681.24 $8,615,375.82
07/31/1996 $9,502,326.00 $8,234,177.24 $5,894,945.55 $8,328,959.37
08/31/1996 $9,780,320.00 $8,254,343.81 $5,906,209.43 $8,377,816.12
09/30/1996 $9,862,544.00 $8,475,712.60 $5,924,983.15 $8,585,858.91
10/31/1996 $9,957,437.00 $8,391,084.22 $5,943,756.87 $8,499,888.46
11/30/1996 $10,469,859.00 $8,727,046.45 $5,955,021.18 $8,827,793.83
12/31/1996 $10,741,158.00 $8,616,881.02 $5,955,021.18 $8,725,567.98
01/31/1997 $10,938,364.00 $8,317,304.98 $5,973,794.86 $8,565,275.97
02/28/1997 $11,089,455.00 $8,455,350.12 $5,992,568.59 $8,722,344.30
03/31/1997 $11,201,336.00 $8,488,052.20 $6,007,587.82 $8,704,063.22
04/30/1997 $11,148,686.00 $8,535,143.40 $6,015,097.25 $8,777,463.63
05/31/1997 $11,609,376.00 $9,092,673.57 $6,011,342.32 $9,319,628.69
06/30/1997 $12,122,715.00 $9,596,180.00 $6,018,852.17 $9,833,842.35
07/31/1997 $12,563,661.00 $9,753,397.58 $6,026,361.59 $10,032,952.58
08/31/1997 $11,852,883.00 $9,026,975.45 $6,037,625.89 $9,243,696.02
09/30/1997 $12,807,168.00 $9,534,694.16 $6,052,644.66 $9,743,451.01
10/31/1997 $11,859,464.00 $8,803,900.47 $6,067,663.88 $8,913,902.80
11/30/1997 $11,780,489.00 $8,716,182.19 $6,063,908.96 $8,802,513.24
12/31/1997 $11,968,833.00 $8,794,213.47 $6,056,399.54 $8,903,817.93
01/31/1998 $12,113,617.00 $9,198,448.28 $6,067,663.84 $9,170,158.02
02/28/1998 $12,885,800.00 $9,790,811.34 $6,078,927.73 $9,782,038.84
03/31/1998 $13,833,182.00 $10,094,498.51 $6,090,192.04 $10,120,028.33
04/30/1998 $14,013,103.00 $10,176,696.60 $6,101,456.34 $10,192,507.57
05/31/1998 $13,860,862.00 $10,129,612.59 $6,112,720.66 $10,007,671.94
06/30/1998 $13,729,381.00 $10,208,550.33 $6,120,230.08 $9,970,051.60
07/31/1998 $13,971,583.00 $10,314,314.79 $6,127,739.48 $10,064,817.64
08/31/1998 $11,722,566.00 $9,038,757.51 $6,135,248.90 $8,645,444.88
09/30/1998 $11,549,565.00 $8,764,007.12 $6,142,758.75 $8,462,819.79
10/31/1998 $12,442,252.00 $9,680,039.02 $6,157,777.55 $9,349,283.33
11/30/1998 $13,113,497.00 $10,178,360.65 $6,157,777.55 $9,851,708.96
12/31/1998 $13,184,950.00 $10,582,357.29 $6,154,023.10 $10,191,126.24
01/31/1999 $13,043,894.00 $10,553,501.85 $6,169,041.87 $10,180,212.97
02/28/1999 $12,746,936.00 $10,304,425.49 $6,176,551.26 $9,952,277.29
03/31/1999 $13,435,674.00 $10,737,049.06 $6,195,324.94 $10,432,784.40
04/30/1999 $14,537,325.00 $11,174,570.71 $6,240,381.75 $10,954,596.39
05/31/1999 $14,001,386.00 $10,601,541.86 $6,240,381.75 $10,440,060.19
06/30/1999 $14,663,866.00 $11,017,310.90 $6,240,381.75 $10,919,784.52
07/31/1999 $14,745,745.00 $11,347,318.91 $6,259,155.87 $11,175,901.40
08/31/1999 $14,671,309.00 $11,391,293.18 $6,274,174.65 $11,214,673.29
09/30/1999 $14,373,566.00 $11,508,493.86 $6,304,212.64 $11,290,513.86
10/31/1999 $14,604,317.00 $11,942,070.15 $6,315,476.95 $11,710,929.12
11/30/1999 $15,333,788.00 $12,359,453.87 $6,319,234.66 $12,179,187.23
12/31/1999 $16,789,276.00 $13,471,157.44 $6,319,234.66 $13,340,739.28
01/31/2000 $15,752,131.00 $12,617,564.01 $6,334,255.48 $12,616,823.93
02/29/2000 $16,188,824.00 $12,959,611.27 $6,371,804.95 $12,957,622.63
03/31/2000 $16,515,108.00 $13,464,479.10 $6,424,372.34 $13,445,267.09
04/30/2000 $15,808,663.00 $12,758,360.47 $6,428,124.17 $12,694,828.80
05/31/2000 $15,753,718.00 $12,449,259.85 $6,431,878.19 $12,370,100.67
06/30/2000 $16,562,204.00 $12,939,040.00 $6,469,427.50 $12,896,794.41
</TABLE>
Periods ended June 30, 2000
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year (10/18/90)
<S> <C> <C> <C>
Average Annual
Total Return(1)(2) 12.95% 14.68% 13.14%
Cumulative Total
Return(1)(3) 12.95% 98.44% 231.24%
</TABLE>
(1) Past fee waivers by the Fund's manager and administrator increased the
Fund's total returns. Without these waivers, the Primary Shares total
returns would have been lower.
(2) Average annual total return represents the average annual change in value of
an investment over the indicated periods.
(3) Cumulative total return represents the change in value of an investment over
the indicated periods.
(4) Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.
(5) Source: U.S. Bureau of Labor Statistics (June 2000).
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.
In terms of individual markets, Japan stands out this quarter
for several reasons. First, the MSCI Japan index fell a sizable 6.2%, partly due
to the unraveling of overinflated near-term expectations for Japanese companies
and the economy. The difficulty Japan still finds itself in, fully a decade
after its market peak, was exemplified by the political disarray evident in the
general election. To most investors, this signals a lack of policy direction and
an economy that is still relatively weak. This weakness provided potential
bargain buying opportunities in several Japanese companies, including Komatsu,
NTT, and Nomura Securities. Further, while we are encouraged by the economic
recovery in other markets in the Asian region, the recent pullbacks in Hong Kong
and Korea have provided us with good bargain-hunting prospects again.
In sum, even with the latest recovery of some
technology-stocks, the recent declines in the TMT sector overall have
underscored what we believe to be the extreme overvaluation and riskiness of
many companies in this sector. It has also reinforced our conviction that, by
following our value stock selection discipline, the Fund's portfolio should be
well-positioned for the long term.
This discussion reflects our views, opinions, and portfolio
holdings as of June 30, 2000, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although past performance
is not predictive of future results, these insights may help you better
understand our investment and management philosophy.
Of course, it should be remembered that investing in foreign
securities involves special risks related to market and currency volatility, and
economic, social, political, and other factors in the countries where the Fund
invests. Emerging market securities involve heightened risks related to the same
factors, in addition to those associated with these markets' relatively small
size and lesser liquidity. Investing in any emerging market means accepting a
certain amount of volatility and, in some cases,
4
<PAGE>
the consequences of severe market corrections. 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 4,341.56% 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. The
Fund's definition of "emerging markets" as used by the Fund's manager may differ
from the definition of the same terms as used in managing other Franklin
Templeton funds.
From everyone at the Templeton organization, we would like to
thank you for your support.
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-CIO Institutional Global Equities
FTTrust Company
President
Templeton Investment Counsel, Inc.
1. Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 2000. Market return is measured in U.S. dollars and does
not include reinvested dividends.
For the most current portfolio information, call 1-800-362-6243.
[Line Graph Omitted]
Templeton Foreign Equity Series - Service Shares*
Total Return Index Comparison
$5,000,000 Investment: 10/18/90 - 6/30/00
<TABLE>
<CAPTION>
TIFI Foreign MSCI AC
Equity Series- MS EAFE World ex US
Service Shares(1) Index(4) Free Index(4) CPI Index(5)
----------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
10/18/1990 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00
10/31/1990 $4,970,000.00 $5,327,390.18 $5,012,580.65 $5,301,096.77
11/30/1990 $4,875,000.00 $5,014,654.90 $5,023,844.97 $5,006,437.79
12/31/1990 $4,860,000.00 $5,097,844.71 $5,023,844.97 $5,097,842.38
01/31/1991 $5,005,000.00 $5,264,165.01 $5,053,882.54 $5,257,167.19
02/28/1991 $5,614,715.00 $5,830,025.21 $5,061,392.36 $5,821,803.43
03/31/1991 $5,452,703.00 $5,481,442.58 $5,068,901.74 $5,501,403.92
04/30/1991 $5,503,332.00 $5,536,863.42 $5,076,411.12 $5,561,173.60
05/31/1991 $5,579,275.00 $5,596,270.70 $5,091,429.88 $5,640,145.49
06/30/1991 $5,295,754.00 $5,186,515.67 $5,106,449.09 $5,247,865.76
07/31/1991 $5,604,589.00 $5,442,746.82 $5,113,958.48 $5,500,022.58
08/31/1991 $5,614,715.00 $5,333,546.81 $5,128,977.72 $5,405,578.72
09/30/1991 $5,756,475.00 $5,635,740.03 $5,151,505.88 $5,680,621.25
10/31/1991 $5,736,223.00 $5,717,043.98 $5,159,015.28 $5,779,946.29
11/30/1991 $5,685,595.00 $5,451,663.94 $5,174,034.52 $5,522,493.79
12/31/1991 $5,899,356.00 $5,734,913.70 $5,177,789.00 $5,809,186.32
01/31/1992 $6,060,450.00 $5,614,098.62 $5,185,298.87 $5,728,234.78
02/29/1992 $6,154,884.00 $5,414,697.07 $5,204,072.56 $5,552,332.78
03/31/1992 $6,108,304.00 $5,058,741.06 $5,230,355.62 $5,216,553.35
04/30/1992 $6,304,442.00 $5,084,069.36 $5,237,865.00 $5,233,682.79
05/31/1992 $6,657,491.00 $5,425,937.34 $5,245,374.37 $5,551,457.61
06/30/1992 $6,584,639.00 $5,170,374.93 $5,264,148.09 $5,283,552.38
07/31/1992 $6,360,482.00 $5,039,702.80 $5,275,412.42 $5,171,150.36
08/31/1992 $6,181,155.00 $5,357,514.58 $5,290,431.62 $5,446,929.62
09/30/1992 $6,024,245.00 $5,253,420.96 $5,305,450.42 $5,335,171.92
10/31/1992 $5,811,295.00 $4,979,450.38 $5,324,224.12 $5,100,881.63
11/30/1992 $5,822,502.00 $5,027,836.40 $5,331,733.52 $5,129,108.79
12/31/1992 $5,820,811.00 $5,055,364.00 $5,327,979.02 $5,171,933.10
01/31/1993 $5,843,979.00 $5,056,254.56 $5,354,262.10 $5,171,334.45
02/28/1993 $5,971,400.00 $5,210,483.42 $5,373,035.80 $5,329,600.04
03/31/1993 $6,119,128.00 $5,666,177.81 $5,391,809.51 $5,768,434.34
04/30/1993 $6,316,145.00 $6,205,469.88 $5,406,828.72 $6,277,951.24
05/31/1993 $6,484,189.00 $6,338,043.79 $5,414,338.10 $6,417,706.03
06/30/1993 $6,362,502.00 $6,240,618.99 $5,421,847.51 $6,340,898.61
07/31/1993 $6,466,806.00 $6,460,506.95 $5,421,847.51 $6,551,658.47
08/31/1993 $6,924,581.00 $6,810,730.45 $5,436,866.30 $6,903,278.30
09/30/1993 $6,872,430.00 $6,658,919.54 $5,448,130.62 $6,761,359.39
10/31/1993 $7,278,054.00 $6,865,592.90 $5,470,659.24 $7,005,918.64
11/30/1993 $7,110,009.00 $6,266,909.90 $5,474,413.70 $6,472,364.34
12/31/1993 $7,801,439.00 $6,720,849.45 $5,474,413.70 $6,977,184.54
01/31/1994 $8,357,848.00 $7,290,513.62 $5,489,432.92 $7,550,984.13
02/28/1994 $8,129,428.00 $7,271,818.26 $5,508,206.61 $7,493,885.48
03/31/1994 $7,768,919.00 $6,960,159.91 $5,526,980.29 $7,150,645.88
04/30/1994 $7,881,598.00 $7,257,022.08 $5,534,489.69 $7,393,225.11
05/31/1994 $7,911,250.00 $7,216,906.35 $5,538,244.62 $7,395,711.74
06/30/1994 $7,656,240.00 $7,320,511.25 $5,557,018.32 $7,448,159.69
07/31/1994 $7,988,347.00 $7,392,525.31 $5,572,037.11 $7,569,265.20
08/31/1994 $8,261,148.00 $7,569,172.66 $5,594,565.75 $7,823,955.00
09/30/1994 $8,065,443.00 $7,332,435.81 $5,609,584.53 $7,630,278.23
10/31/1994 $8,237,426.00 $7,578,317.97 $5,613,339.47 $7,835,374.92
11/30/1994 $7,881,598.00 $7,215,768.06 $5,620,848.89 $7,457,415.46
12/31/1994 $7,819,892.00 $7,262,640.17 $5,620,848.89 $7,439,963.47
01/31/1995 $7,594,903.00 $6,985,367.82 $5,643,377.53 $7,102,526.23
02/28/1995 $7,713,478.00 $6,967,108.98 $5,665,905.72 $7,063,662.27
03/31/1995 $7,749,977.00 $7,403,609.36 $5,684,679.87 $7,462,756.87
04/30/1995 $8,090,635.00 $7,684,023.29 $5,703,453.59 $7,753,870.35
05/31/1995 $8,297,464.00 $7,594,405.99 $5,714,717.45 $7,719,610.73
06/30/1995 $8,346,129.00 $7,463,241.56 $5,725,981.79 $7,612,826.21
07/31/1995 $8,759,786.00 $7,929,905.44 $5,725,981.79 $8,045,121.53
08/31/1995 $8,534,708.00 $7,629,333.63 $5,741,001.04 $7,765,980.92
09/30/1995 $8,692,871.00 $7,780,319.67 $5,752,264.88 $7,898,690.44
10/31/1995 $8,504,292.00 $7,573,179.09 $5,771,038.61 $7,687,653.70
11/30/1995 $8,638,122.00 $7,785,872.50 $5,767,284.14 $7,868,206.79
12/31/1995 $8,834,439.00 $8,101,557.48 $5,763,529.24 $8,179,304.51
01/31/1996 $9,117,594.00 $8,136,742.46 $5,797,322.14 $8,291,660.92
02/29/1996 $9,262,241.00 $8,166,279.81 $5,816,095.84 $8,291,983.46
03/31/1996 $9,331,739.00 $8,341,768.18 $5,846,133.82 $8,446,334.67
04/30/1996 $9,672,913.00 $8,586,345.57 $5,868,662.01 $8,702,589.96
05/31/1996 $9,786,638.00 $8,430,390.58 $5,879,926.32 $8,571,906.82
06/30/1996 $9,755,048.00 $8,479,902.51 $5,883,681.24 $8,615,375.82
07/31/1996 $9,502,326.00 $8,234,177.24 $5,894,945.55 $8,328,959.37
08/31/1996 $9,780,320.00 $8,254,343.81 $5,906,209.43 $8,377,816.12
09/30/1996 $9,862,544.00 $8,475,712.60 $5,924,983.15 $8,585,858.91
10/31/1996 $9,957,437.00 $8,391,084.22 $5,943,756.87 $8,499,888.46
11/30/1996 $10,469,859.00 $8,727,046.45 $5,955,021.18 $8,827,793.83
12/31/1996 $10,741,158.00 $8,616,881.02 $5,955,021.18 $8,725,567.98
01/31/1997 $10,938,364.00 $8,317,304.98 $5,973,794.86 $8,565,275.97
02/28/1997 $11,089,455.00 $8,455,350.12 $5,992,568.59 $8,722,344.30
03/31/1997 $11,201,336.00 $8,488,052.20 $6,007,587.82 $8,704,063.22
04/30/1997 $11,148,686.00 $8,535,143.40 $6,015,097.25 $8,777,463.63
05/31/1997 $11,609,376.00 $9,092,673.57 $6,011,342.32 $9,319,628.69
06/30/1997 $12,122,715.00 $9,596,180.00 $6,018,852.17 $9,833,842.35
07/31/1997 $12,563,661.00 $9,753,397.58 $6,026,361.59 $10,032,952.58
08/31/1997 $11,852,883.00 $9,026,975.45 $6,037,625.89 $9,243,696.02
09/30/1997 $12,807,168.00 $9,534,694.16 $6,052,644.66 $9,743,451.01
10/31/1997 $11,859,464.00 $8,803,900.47 $6,067,663.88 $8,913,902.80
11/30/1997 $11,780,489.00 $8,716,182.19 $6,063,908.96 $8,802,513.24
12/31/1997 $11,968,833.00 $8,794,213.47 $6,056,399.54 $8,903,817.93
01/31/1998 $12,113,617.00 $9,198,448.28 $6,067,663.84 $9,170,158.02
02/28/1998 $12,885,800.00 $9,790,811.34 $6,078,927.73 $9,782,038.84
03/31/1998 $13,833,182.00 $10,094,498.51 $6,090,192.04 $10,120,028.33
04/30/1998 $14,013,103.00 $10,176,696.60 $6,101,456.34 $10,192,507.57
05/31/1998 $13,860,862.00 $10,129,612.59 $6,112,720.66 $10,007,671.94
06/30/1998 $13,729,381.00 $10,208,550.33 $6,120,230.08 $9,970,051.60
07/31/1998 $13,971,583.00 $10,314,314.79 $6,127,739.48 $10,064,817.64
08/31/1998 $11,722,566.00 $9,038,757.51 $6,135,248.90 $8,645,444.88
09/30/1998 $11,549,565.00 $8,764,007.12 $6,142,758.75 $8,462,819.79
10/31/1998 $12,442,252.00 $9,680,039.02 $6,157,777.55 $9,349,283.33
11/30/1998 $13,113,497.00 $10,178,360.65 $6,157,777.55 $9,851,708.96
12/31/1998 $13,184,950.00 $10,582,357.29 $6,154,023.10 $10,191,126.24
01/31/1999 $13,043,894.00 $10,553,501.85 $6,169,041.87 $10,180,212.97
02/28/1999 $12,746,936.00 $10,304,425.49 $6,176,551.26 $9,952,277.29
03/31/1999 $13,435,674.00 $10,737,049.06 $6,195,324.94 $10,432,784.40
04/30/1999 $14,537,325.00 $11,174,570.71 $6,240,381.75 $10,954,596.39
05/31/1999 $14,008,829.27 $10,601,541.86 $6,240,381.75 $10,440,060.19
06/30/1999 $14,663,866.60 $11,017,310.90 $6,240,381.75 $10,919,784.52
07/31/1999 $14,745,746.63 $11,347,318.91 $6,259,155.87 $11,175,901.40
08/31/1999 $14,671,309.71 $11,391,293.18 $6,274,174.65 $11,214,673.29
09/30/1999 $14,373,564.94 $11,508,493.86 $6,304,212.64 $11,290,513.86
10/31/1999 $14,611,761.92 $11,942,070.15 $6,315,476.95 $11,710,929.12
11/30/1999 $15,341,233.26 $12,359,453.87 $6,319,234.66 $12,179,187.23
12/31/1999 $16,788,903.69 $13,471,157.44 $6,319,234.66 $13,340,739.28
01/31/2000 $15,751,781.85 $12,617,564.01 $6,334,255.48 $12,616,823.93
02/29/2000 $16,188,465.65 $12,959,611.27 $6,371,804.95 $12,957,622.63
03/31/2000 $16,522,591.53 $13,464,479.10 $6,424,372.34 $13,445,267.09
04/30/2000 $15,808,311.69 $12,758,360.47 $6,428,124.17 $12,694,828.80
05/31/2000 $15,753,369.33 $12,449,259.85 $6,431,878.19 $12,370,100.67
06/30/2000 $16,561,836.49 $12,939,040.00 $6,469,427.50 $12,896,794.41
</TABLE>
Periods ended June 30, 2000
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year (10/18/90)
Average Annual
<S> <C> <C> <C>
Total Return(1)(2) 12.95% 16.51% 14.07%
Cumulative Total
Return(1)(3) 12.94% 95.85% 228.41%
</TABLE>
* On May 3, 1999, the Fund began selling Service Shares to certain eligible
investors as described in the prospectus. This share class has a Rule 12b-1
plan. Performance quotations have been calculated as follows: (a) For
periods prior to May 3, 1999, figures reflect Primary Shares performance
including the effect of Primary Shares expenses, and does not take into
account the Rule 12b-1 fee applicable to the Service Shares; and (b) for
periods after May 3, 1999, figures reflect actual Service Shares
performance, including the deduction of all fees and expenses applicable to
Service Shares.
(1) Past fee waivers by the Fund's manager and administrator increased the
Service Shares 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) Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. 5Source: U.S. Bureau of Labor Statistics (June 2000).
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.
5
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Highlights
<TABLE>
<CAPTION>
PRIMARY SHARES
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $21.53 $17.76 $17.36 $16.34 $14.04 $12.86
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .24 .37 .42 .42 .45 .31
Net realized and unrealized gains
(losses)............................... (.53) 4.42 1.29 1.43 2.54 1.35
-----------------------------------------------------------------------------------
Total from investment operations.......... (.29) 4.79 1.71 1.85 2.99 1.66
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.01) (.38) (.40) (.43) (.45) (.31)
In excess of net investment income....... -- -- -- -- (.02) --
Net realized gains....................... (.13) (.64) (.91) (.40) (.14) (.17)
In excess of net realized gains.......... -- -- -- -- (.08) --
-----------------------------------------------------------------------------------
Total distributions....................... (.14) (1.02) (1.31) (.83) (.69) (.48)
-----------------------------------------------------------------------------------
Net asset value, end of period............ $21.10 $21.53 $17.76 $17.36 $16.34 $14.04
===================================================================================
Total Return*............................. (1.35%) 27.34% 10.16% 11.43% 21.58% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $4,933,860 $5,247,862 $4,551,663 $3,706,006 $2,857,591 $1,817,883
Ratios to average net assets:
Expenses................................. .83%** .84% .83% .84% .87% .88%
Net investment income.................... 2.27%** 1.88% 2.33% 2.49% 3.20% 2.70%
Portfolio turnover rate................... 14.45% 10.56% 15.40% 15.25% 7.39% 20.87%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on average weighted shares outstanding effective year ended December 31,
1999.
6
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Highlights (continued)
<TABLE>
<CAPTION>
SERVICE SHARES
--------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $21.53 $19.53
--------------------------------------
Income from investment operations:
Net investment income...................................... .24 .25
Net realized and unrealized gains (losses)................. (.53) 2.73
--------------------------------------
Total from investment operations............................ (.29) 2.98
--------------------------------------
Less distributions from:
Net investment income...................................... (.01) (.37)
Net realized gains......................................... (.13) (.61)
--------------------------------------
Total distributions......................................... (.14) (.98)
--------------------------------------
Net asset value, end of period.............................. $21.10 $21.53
======================================
Total Return*............................................... (1.35)% 15.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $21 $22
Ratios to average net assets:
Expenses................................................... .83%** .84%**
Net investment income...................................... 2.28%** 1.91%**
Portfolio turnover rate..................................... 14.45% 10.56%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period May 3, 1999 (effective date) to December 31, 1999.
++Based on average weighted shares outstanding effective year ended December 31,
1999.
See Notes to Financial Statements.
7
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED)
<TABLE>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 91.9%
AEROSPACE & DEFENSE .4%
BAE Systems PLC............................................. United Kingdom 3,212,373 $ 19,889,800
Rolls-Royce PLC............................................. United Kingdom 10,110 35,928
--------------
19,925,728
--------------
AIR FREIGHT & COURIERS .4%
Mayne Nickless Ltd., A...................................... Australia 9,050,000 18,637,274
--------------
AIRLINES .9%
British Airways PLC......................................... United Kingdom 7,617,200 43,789,933
--------------
AUTO COMPONENTS .4%
Autoliv Inc. ............................................... Sweden 750,000 18,046,875
Autoliv Inc., SDR........................................... Sweden 9,100 224,102
Sylea SA.................................................... France 2,300 116,186
--------------
18,387,163
--------------
AUTOMOBILES .4%
Tata Engineering & Locomotive Co., GDR, 144A................ India 200,000 545,000
Volkswagen AG............................................... Germany 554,000 21,400,827
--------------
21,945,827
--------------
BANKS 14.7%
Australia & New Zealand Banking Group Ltd. ................. Australia 3,384,161 26,027,944
Banca Nazionale del Lavoro SpA.............................. Italy 10,000,000 35,178,865
Banco Bilbao Vizcaya Argentaria SA, ADR..................... Spain 2,893,333 42,676,662
Banco Bradesco SA, ADR...................................... Brazil 2,128,100 17,822,837
*Banco Pinto & Sotto Mayor SA............................... Portugal 356,800 7,955,186
Bank Austria AG............................................. Austria 3,400 166,278
Bank Handlowy W Warszawie SA, GDR, 144A..................... Poland 219,284 3,404,384
BNP Paribas, ADR, 144A...................................... France 833,500 80,534,489
Canadian Imperial Bank of Commerce.......................... Canada 1,555,200 42,666,451
Credit Suisse Group......................................... Switzerland 297,400 59,348,318
DBS Group Holdings Ltd. .................................... Singapore 8,256,485 106,011,548
Deutsche Bank AG............................................ Germany 718,100 60,263,846
DNB Holding ASA............................................. Norway 43,000 179,089
Foreningssparbanken AB, A................................... Sweden 1,569,680 23,086,161
HSBC Holdings PLC........................................... Hong Kong 3,565,371 40,706,325
Kookmin Bank................................................ South Korea 202,968 2,584,826
Kookmin Bank, GDR........................................... South Korea 339,683 4,313,974
National Australia Bank Ltd. ............................... Australia 20,300 340,023
National Bank of Canada..................................... Canada 1,154,200 17,215,239
*Nordic Baltic Holding AB................................... Sweden 43,194 316,359
Nordic Baltic Holding AB, FDR............................... Sweden 9,346,158 68,265,906
*Philippine National Bank................................... Philippines 1,530,112 1,999,799
Svenska Handelsbanken, A.................................... Sweden 4,063,350 59,298,689
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 21,000,000 17,667,304
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 275,000 7,906,250
--------------
725,936,752
--------------
BEVERAGES .4%
PanAmerican Beverages Inc., A............................... Mexico 1,444,100 21,571,244
--------------
BIOTECHNOLOGY .2%
*CellTech Group PLC......................................... United Kingdom 591,318 11,386,477
--------------
</TABLE>
8
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS 3.1%
Akzo Nobel NV............................................... Netherlands 663,256 $ 28,291,565
BASF AG..................................................... Germany 660,000 26,887,389
Bayer AG, Br. .............................................. Germany 899,230 34,564,552
Clariant AG................................................. Switzerland 111,500 41,552,795
Imperial Chemical Industries PLC............................ United Kingdom 2,887,000 22,180,125
Yule Catto & Company PLC.................................... United Kingdom 42,500 114,522
--------------
153,590,948
--------------
COMMERCIAL SERVICES & SUPPLIES .5%
Williams PLC................................................ United Kingdom 3,952,000 23,003,527
--------------
COMMUNICATIONS EQUIPMENT 4.2%
Alcatel SA.................................................. France 1,266,435 83,397,956
Alcatel SA, ADR............................................. France 394,146 26,210,708
Marconi PLC................................................. United Kingdom 3,625,000 47,111,774
Nokia Corp., A.............................................. Finland 951,200 48,734,365
--------------
205,454,803
--------------
CONSTRUCTION & ENGINEERING .4%
Balfour Beatty PLC.......................................... United Kingdom 6,281,099 7,369,169
Daito Trust Construction Co. Ltd. .......................... Japan 278,100 4,599,735
Okumura Corp. .............................................. Japan 1,865,000 6,768,678
--------------
18,737,582
--------------
CONSTRUCTION MATERIALS .2%
Hanson PLC.................................................. United Kingdom 1,247,763 8,802,361
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 815,746 3,077,894
--------------
11,880,255
--------------
CONTAINERS & PACKAGING .2%
Assidoman AB................................................ Sweden 200,000 2,861,703
Assidoman AB, 144A.......................................... Sweden 60,000 858,511
Jefferson Smurfit Group PLC................................. United Kingdom 4,300,000 7,258,126
--------------
10,978,340
--------------
DISTRIBUTORS
Inchcape PLC................................................ United Kingdom 18,833 74,127
--------------
DIVERSIFIED FINANCIALS 7.6%
BPI-Socieda de Gestora Participacoes Socias SA.............. Portugal 3,407,040 12,083,555
Housing Development Finance Corp. Ltd. ..................... India 2,400,000 30,034,585
Hutchison Whampoa Ltd. ..................................... Hong Kong 6,116,550 76,895,296
ICICI Ltd., 144A............................................ India 12,867,916 36,135,879
ICICI Ltd., ADR, 144A....................................... India 1,676,500 31,434,375
ING Groep NV................................................ Netherlands 895,690 60,786,446
Nomura Securities Co. Ltd. ................................. Japan 3,994,000 97,957,847
Swire Pacific Ltd., A....................................... Hong Kong 4,993,000 29,207,446
Swire Pacific Ltd., B....................................... Hong Kong 154,500 125,855
--------------
374,661,284
--------------
</TABLE>
9
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
DIVERSIFIED TELECOMMUNICATION SERVICES 13.1%
Cable & Wireless HKT Ltd. .................................. Hong Kong 14,505,500 $ 31,912,733
*Cable & Wireless Optus Ltd., 144A.......................... Australia 12,037,500 35,991,949
Cia de Telecomunicaciones de Chile SA, ADR.................. Chile 3,415,550 61,906,844
Koninklijke KPN NV.......................................... Netherlands 812,800 36,501,361
Nippon Telegraph & Telephone Corp. ......................... Japan 6,800 90,619,536
Philippine Long Distance Telephone Co., ADR................. Philippines 1,247,355 22,140,551
Portugal Telecom SA......................................... Portugal 36,000 405,813
PT Indosat, ADR............................................. Indonesia 158,300 1,800,663
Telecom Argentina Stet-France Telecom SA, ADR............... Argentina 1,115,400 30,673,500
Telecom Corp. of New Zealand Ltd. .......................... New Zealand 5,903,000 20,702,335
Telecom Italia SpA.......................................... Italy 7,362,000 48,925,220
Telecomunicacoes de Sao Paulo SA, ADR....................... Brazil 1,139,700 21,084,450
Telefonica de Argentina SA, ADR............................. Argentina 1,534,466 48,719,296
Telefonica del Peru SA, ADR................................. Peru 19,600 222,950
*Telefonica SA.............................................. Spain 3,525,543 76,036,883
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 1,588,212 90,726,611
Videsh Sanchar Nigam Ltd. .................................. India 1,000,000 27,081,538
Videsh Sanchar Nigam Ltd., GDR, 144A........................ India 121,800 1,903,125
--------------
647,355,358
--------------
ELECTRIC UTILITIES 5.0%
British Energy Ltd. ........................................ United Kingdom 2,422,781 6,409,328
E.On AG..................................................... Germany 1,073,700 51,974,474
Endesa SA................................................... Spain 1,567,200 30,480,511
Evn AG...................................................... Austria 266,013 9,944,507
Gener SA, ADR............................................... Chile 840,000 12,337,500
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 8,563,300 27,572,875
Iberdrola SA, Br. .......................................... Spain 3,027,029 39,171,132
Korea Electric Power Corp. ................................. South Korea 639,410 19,841,336
National Power PLC.......................................... United Kingdom 4,069,416 25,904,740
Shandong Huaneng Power Development Co. Ltd., ADR............ China 4,931,515 20,650,719
--------------
244,287,122
--------------
ELECTRICAL EQUIPMENT 1.3%
ABB Ltd., A................................................. Switzerland 419,498 50,370,201
ABB Ltd., Br. .............................................. Switzerland 29,603 3,449,352
Kyudenko Corp. ............................................. Japan 524,000 1,579,850
Makita Corp. ............................................... Japan 740,000 7,070,932
--------------
62,470,335
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.2%
Hitachi Ltd. ............................................... Japan 4,242,000 61,341,714
--------------
FOOD & DRUG RETAILING .5%
Safeway PLC................................................. United Kingdom 5,693,700 22,151,792
--------------
FOOD PRODUCTS 1.2%
Golden Hope Plantations Bhd. ............................... Malaysia 1,960,000 2,176,632
Northern Foods PLC.......................................... United Kingdom 2,771,811 5,024,817
Tate & Lyle PLC............................................. United Kingdom 3,088,948 15,688,603
Unilever NV................................................. Netherlands 765,000 35,234,702
--------------
58,124,754
--------------
GAS UTILITIES 1.4%
BG Group PLC................................................ United Kingdom 4,429,607 28,616,722
Centrica PLC................................................ United Kingdom 5,833,935 19,429,670
TransCanada PipeLines Ltd. ................................. Canada 2,759,800 21,043,475
--------------
69,089,867
--------------
</TABLE>
10
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH CARE EQUIPMENT & SUPPLIES 1.5%
Nycomed Amersham PLC........................................ United Kingdom 7,558,120 $ 73,390,966
--------------
HEALTH CARE PROVIDERS & SERVICES .4%
Gehe AG..................................................... Germany 640,000 20,858,096
--------------
HOUSEHOLD DURABLES 4.1%
Fairview Holdings PLC....................................... United Kingdom 1,816,252 4,028,050
Koninklijke Philips Electronics NV.......................... Netherlands 1,755,136 83,110,040
LG Electronics Inc. ........................................ South Korea 770,000 21,545,705
Sony Corp. ................................................. Japan 934,800 87,467,700
Taylor Woodrow PLC.......................................... United Kingdom 1,979,028 4,538,849
--------------
200,690,344
--------------
INDUSTRIAL CONGLOMERATES .5%
Norsk Hydro ASA............................................. Norway 611,300 25,745,873
Preussag AG................................................. Germany 5,036 162,679
--------------
25,908,552
--------------
INSURANCE 4.8%
Ace Ltd. ................................................... Bermuda 1,018,200 28,509,600
AXA SA...................................................... France 543,299 85,928,775
Muenchener Rueckversicherungs-Gesellschaft.................. Germany 112,998 35,527,150
*Muenchener Rueckversicherungs-Gesellschaft, wts.,
6/03/02................................................... Germany 19 1,548
Mutual Risk Management Ltd. ................................ Bermuda 14,300 247,569
Partnerre Ltd. ............................................. Bermuda 3,200 113,400
XL Capital Ltd., A.......................................... Bermuda 500,400 27,084,150
Zurich Allied AG............................................ Switzerland 114,655 56,830,410
--------------
234,242,602
--------------
MACHINERY 3.9%
CNH Global NV............................................... Netherlands 3,181,200 29,426,100
IHC Caland NV............................................... Netherlands 450,605 22,028,349
Invensys PLC................................................ United Kingdom 5,602,719 20,992,067
Komatsu Ltd. ............................................... Japan 5,556,000 39,173,725
*Kvaerner ASA, A............................................ Norway 454,600 4,786,551
*Kvaerner ASA, rts., 7/13/00................................ Norway 233,283 131,001
Svedala Industri, A......................................... Sweden 1,355,000 25,953,711
VA Technologie AG, Br. ..................................... Austria 118,510 6,268,339
VA Technologie AG, Br., 144A................................ Austria 28,000 1,481,002
Volvo AB, B................................................. Sweden 1,895,125 41,376,860
--------------
191,617,705
--------------
MARINE
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 44,980 383,362
Stolt Nielsen SA, ADR....................................... Norway 2,000 35,875
--------------
419,237
--------------
MEDIA .4%
Television Broadcasts Ltd. ................................. Hong Kong 1,938,000 12,927,790
Wolters Kluwer NV........................................... Netherlands 267,650 7,157,926
--------------
20,085,716
--------------
</TABLE>
11
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 2.1%
Boehler-Uddeholm AG......................................... Austria 22,450 $ 788,690
Boehler-Uddeholm AG, 144A................................... Austria 60,750 2,134,205
*Grupo Mexico SA de CV, B................................... Mexico 3,400,000 9,567,735
Iluka Resources Ltd. ....................................... Australia 4,870,699 13,981,371
Industrias Penoles SA....................................... Mexico 33,900 54,758
Pechiney SA, A.............................................. France 568,000 23,792,799
Pohang Iron & Steel Co. Ltd. ............................... South Korea 205,600 17,879,423
Sapa AB..................................................... Sweden 11,355 200,664
WMC Ltd. ................................................... Australia 8,198,378 36,784,312
--------------
105,183,957
--------------
MULTILINE RETAIL .6%
House of Fraser PLC......................................... United Kingdom 1,750,000 1,258,383
Marks & Spencer PLC......................................... United Kingdom 4,315,500 15,123,882
Matsuzakaya Co. Ltd. ....................................... Japan 1,656,000 4,460,659
Next PLC.................................................... United Kingdom 20,400 179,272
*Storehouse................................................. United Kingdom 13,238,000 8,717,517
--------------
29,739,713
--------------
MULTI-UTILITIES .1%
Hyder PLC................................................... United Kingdom 1,083,333 5,137,291
--------------
OIL & GAS 5.8%
Eni SpA..................................................... Italy 5,700,000 33,001,035
Fletcher Challenge Energy Ltd. ............................. New Zealand 1,405,000 4,596,756
MOL Magyar Olay-Es Gazipari RT, GDS 144A.................... Hungary 1,339,742 18,555,427
PC Holdings SA, ADR......................................... Argentina 1,445,559 26,471,798
*Ranger Oil Ltd. ........................................... Canada 32,600 179,300
*Renaissance Energy Ltd. ................................... Canada 1,210,200 11,720,571
Repsol SA................................................... Spain 2,555,800 51,079,742
Shell Transport & Trading Co. PLC........................... United Kingdom 34,750 294,331
Shell Transport & Trading Co. PLC, ADR...................... United Kingdom 670,000 33,458,125
Total Fina Elf SA, B........................................ France 686,187 105,634,017
--------------
284,991,102
--------------
PAPER & FOREST PRODUCTS 1.8%
*Asia Pacific Resources International Hldgs. Ltd., A........ Indonesia 103,250 122,609
*Asia Pulp & Paper Co. Ltd., ADR............................ Indonesia 225,100 1,139,569
*Asia Pulp & Paper Co. Ltd., wts., 7/27/00.................. Indonesia 37,020 651
Carter Holt Harvey Ltd. .................................... New Zealand 3,149,000 2,742,424
Metsa Serla OY, B........................................... Finland 1,418,000 10,534,009
Stora Enso OYJ, R (SEK Traded).............................. Finland 2,814,636 25,832,653
Stora Enso OYJ, R (EUR/FIM Traded).......................... Finland 89,300 817,468
Svenska Cellulosa AB, B..................................... Sweden 613,533 11,716,656
UPM-Kymmene Corp. .......................................... Finland 1,505,000 37,508,148
--------------
90,414,187
--------------
PHARMACEUTICALS 3.7%
Astrazeneca PLC............................................. United Kingdom 778,543 36,392,957
Aventis SA.................................................. France 1,567,712 114,883,998
Merck KGAA.................................................. Germany 964,327 29,579,449
Ono Pharmaceutical Co Ltd. ................................. Japan 7,000 301,025
--------------
181,157,429
--------------
</TABLE>
12
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE .2%
Cheung Kong Holdings Ltd. .................................. Hong Kong 50,000 $ 553,218
Inversiones y Representacion SA............................. Argentina 3,065,176 7,051,315
Inversiones y Representacion SA, GDR........................ Argentina 25,290 578,509
Union du Credit Bail Immobilier............................. France 2,100 291,879
--------------
8,474,921
--------------
ROAD & RAIL .7%
Canadian National Railway Co. .............................. Canada 480,000 13,962,341
Stagecoach Holdings PLC..................................... United Kingdom 19,348,000 21,454,818
--------------
35,417,159
--------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS 1.2%
* Hyundai Electronics Industries Co. ....................... South Korea 3,050,000 60,178,023
--------------
SPECIALTY RETAIL .2%
Best Denki Co. Ltd. ........................................ Japan 1,125,000 7,751,288
--------------
TRADING COMPANIES & DISTRIBUTORS .2%
Internatio-Muller NV........................................ Netherlands 680,526 11,741,754
--------------
TRANSPORTATION INFRASTRUCTURE 1.2%
Autostrade Concessioni e Costruzioni SpA, A................. Italy 4,865,000 36,280,913
BAA PLC..................................................... United Kingdom 3,075,000 24,974,453
--------------
61,255,366
--------------
WATER UTILITIES .8%
Thames Water Group PLC...................................... United Kingdom 3,152,655 40,543,476
--------------
TOTAL COMMON STOCKS (COST $3,319,580,003)................... 4,533,981,090
--------------
PREFERRED STOCKS 4.4%
ABN Amro Holdings NV, cvt. pfd. ............................ Netherlands 457,188 42,399,581
Banco Bradesco SA, pfd. .................................... Brazil 3,586,486,932 31,212,774
Banco Itau SA, pfd. ........................................ Brazil 540,250,000 47,466,532
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 1,146,400 27,083,700
News Corp. Ltd., pfd. ...................................... Australia 5,534,958 67,011,952
Volkswagen AG, pfd. ........................................ Germany 1,900 45,349
--------------
TOTAL PREFERRED STOCKS (COST $120,341,837).................. 215,219,888
--------------
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $150,188,319) 3.0%
U.S. Treasury Bills, 5.620% to 5.945% with maturities to
9/28/00................................................... United States $ 152,116,000 150,262,867
--------------
TOTAL INVESTMENTS (COST $3,590,110,159) 99.3%............... 4,899,463,845
OTHER ASSETS, LESS LIABILITIES .7%.......................... 34,417,625
--------------
TOTAL NET ASSETS 100.0%..................................... $4,933,881,470
==============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
See Notes to Financial Statements.
13
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$3,590,110,159)........................................... $4,899,463,845
Receivables:
Investment securities sold................................ 67,990,701
Capital shares sold....................................... 44,901,423
Dividends and interest.................................... 19,606,633
--------------
Total assets.......................................... 5,031,962,602
--------------
Liabilities:
Payables:
Investment securities purchased........................... 1,713,705
Capital shares redeemed................................... 85,638,885
To affiliates............................................. 3,224,853
Funds advanced by custodian................................ 2,075,428
Deferred tax liability (Note 1d)........................... 4,676,936
Accrued expenses........................................... 751,325
--------------
Total liabilities..................................... 98,081,132
--------------
Net assets, at value........................................ $4,933,881,470
==============
Net assets consist of:
Undistributed net investment income........................ $ 55,740,906
Net unrealized appreciation................................ 1,304,632,051
Accumulated net realized gain.............................. 178,351,733
Capital shares............................................. 3,395,156,780
--------------
Net assets, at value........................................ $4,933,881,470
==============
PRIMARY SHARES:
Net asset value per share ($4,933,859,859 / 233,859,115
shares outstanding)...................................... $21.10
==============
SERVICE SHARES:
Net asset value per share ($21,611 / 1,024 shares
outstanding)............................................. $21.10
==============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income: (net of foreign taxes of $8,002,576)
Dividends.................................................. $ 65,417,673
Interest................................................... 12,675,000
-------------
Total investment income............................... $ 78,092,673
Expenses:
Management fees (Note 3)................................... 17,626,168
Administrative fees (Note 3)............................... 2,081,641
Transfer agent fees (Note 3)............................... 11,200
Custodian fees............................................. 996,000
Reports to shareholders.................................... 30,700
Registration and filing fees............................... 41,000
Professional fees.......................................... 37,500
Directors' fees and expenses............................... 57,000
Other...................................................... 34,132
-------------
Total expenses........................................ 20,915,341
-------------
Net investment income........................... 57,177,332
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 184,678,641
Foreign currency transactions............................. (2,426,060)
-------------
Net realized gain..................................... 182,252,581
Net unrealized depreciation on:
Investments............................................... (305,961,291)
Deferred taxes (Note 1d).................................. (1,662,711)
Translation of assets and liabilities denominated in
foreign currencies...................................... (93,545)
-------------
Net unrealized depreciation........................... (307,717,547)
-------------
Net realized and unrealized loss............................ (125,464,966)
-------------
Net decrease in net assets resulting from operations........ $ (68,287,634)
=============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 57,177,332 $ 87,588,345
Net realized gain from investments and foreign currency
transactions............................................ 182,252,581 169,553,535
Net unrealized appreciation (depreciation) on investments,
deferred taxes, and translation of assets and liabilities
denominated in foreign currencies........................ (307,717,547) 895,450,685
-------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................. (68,287,634) 1,152,592,565
Distributions to shareholders from:
Net investment income:
Primary Shares........................................... (1,552,602) (89,589,385)
Service Shares........................................... (7) (378)
Net realized gains:
Primary Shares........................................... (32,830,789) (151,647,099)
Service Shares........................................... (136) (619)
Capital share transactions (Note 2):
Primary Shares............................................ (211,331,583) (215,154,150)
Service Shares............................................ -- 20,000
-------------------------------------
Net increase (decrease) in net assets................... (314,002,751) 696,220,934
Net assets:
Beginning of period........................................ 5,247,884,221 4,551,663,287
-------------------------------------
End of period.............................................. $4,933,881,470 $5,247,884,221
=====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 55,740,906 $ 116,183
=====================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Foreign Equity Series (the Fund) is a separate, diversified series of Templeton
Institutional Funds, Inc. (the Company), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks long-term
capital growth. Under normal conditions, the Fund invests primarily in the
equity securities of companies located outside the United States, including
emerging markets. The following summarizes the Fund's significant accounting
policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of the net assets of each class.
Common expenses incurred by the Company are allocated among the funds comprising
the Company based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
d. DEFERRED TAXES:
Deferred taxes are recorded for estimated tax liabilities inherent in certain of
the Fund's foreign portfolio securities which may arise from subsequent sales of
those securities and asset repatriations from countries that impose such taxes.
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.
17
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK
The Fund offers two classes of shares: Primary and Service shares. The shares
differ by distribution fees and voting rights on matters affecting a single
class and the exchange privilege of each class.
At June 30, 2000, there were 1.14 billion shares authorized ($0.01 par value),
of which 455 million and 100 million were designated as Primary shares and
Service shares, respectively. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY SHARES:
Shares sold.............................................. 119,773,876 $ 2,472,045,174 107,154,380 $ 2,067,120,582
Shares issued on reinvestment of distributions........... 1,525,363 32,368,207 10,874,808 220,380,537
Shares redeemed.......................................... (131,168,039) (2,715,744,964) (130,611,950) (2,502,655,269)
----------------------------------------------------------------------
Net decrease............................................. (9,868,800) $ (211,331,583) (12,582,762) $ (215,154,150)
======================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999+
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICE SHARES:
Shares sold.............................................. -- $ -- 1,024 $ 20,000
----------------------------------------------------------------------
Net increase............................................. -- $ -- 1,024 $ 20,000
======================================================================
</TABLE>
+Effective date of Service Shares was May 3, 1999.
Templeton Global Investors, Inc., a subsidiary of Franklin Resources, is the
record owner of 100% of the Fund's Service shares as of June 30, 2000.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Company are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
The Fund pays an investment management fee to TICI of 0.70% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Company's aggregate average daily
net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 1.00% of average daily net assets through April 30, 2000.
For the six months ended June 30, 2000, no reimbursement was necessary under the
agreement.
The Fund reimburses Distributors up to .35% per year of the average daily net
assets of Service shares, for costs incurred in marketing the Fund's Service
shares.
18
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
Notes to Financial Statements (unaudited) (continued)
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 June 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,590,808,439 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,700,410,221
Unrealized depreciation..................................... (391,754,815)
--------------
Net unrealized appreciation................................. $1,308,655,406
==============
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 2000 aggregated $686,625,772 and $778,278,555,
respectively.
19
<PAGE>
This report must be preceded or accompanied by the current prospectus of the
Templeton Institutional Funds, Inc., Foreign Equity Series, which contains more
complete information, including risk factors, charges, and expenses. Like any
investment in securities, the value of the Fund's portfolio will be subject to
the risk of loss from market, currency, economic, political, and other factors.
The Fund and its investors are not protected from such losses by the manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
B1
