UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-06135
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TEMPLETON INSTITUTIONAL FUNDS, INC.
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(Exact name of registrant as specified in charter)

500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)

Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/06
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ITEM 1. REPORTS TO STOCKHOLDERS.

EMERGING MARKETS SERIES

ANNUAL REPORT 12/31/2006
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THE EXPERTISE OF MANY. THE STRENGTH OF ONE.
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TEMPLETON INSTITUTIONAL FUNDS, INC.

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Emerging Markets Series

[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INSTITUTIONAL

FRANKLIN o TEMPLETON o FIDUCIARY

Contents

ANNUAL REPORT

TIFI Emerging Markets Series ............................................... 1

Performance Summary ........................................................ 7

Your Fund's Expenses ....................................................... 9

Financial Highlights and Statement of Investments .......................... 11

Financial Statements ....................................................... 17

Notes to Financial Statements .............................................. 20

Report of Independent Registered Public Accounting Firm .................... 28

Tax Designation ............................................................ 29

Board Members and Officers ................................................. 32

Shareholder Information .................................................... 38

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Annual Report

TIFI Emerging Markets Series

YOUR FUND'S GOAL AND MAIN INVESTMENTS: TIFI Emerging Markets Series seeks
long-term capital growth. Under normal market conditions, the Fund invests at
least 80% of its net assets in securities issued by emerging market companies.

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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETONINSTITUTIONAL.COM OR CALL
1-800/321-8563 FOR MOST RECENT MONTH-END PERFORMANCE.
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This annual report for Templeton Institutional Funds, Inc. (TIFI) Emerging
Markets Series (the Fund) covers the fiscal year ended December 31, 2006.

PERFORMANCE OVERVIEW

TIFI Emerging Markets Series posted a +29.07% cumulative total return for the 12
months ended December 31, 2006. The Fund underperformed the Standard &
Poor's/International Finance Corporation Investable (S&P/IFCI) Composite Index
and the Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index,
which returned +35.11% and +32.59% during the same period. 1

1. Source: Standard & Poor's Micropal. The S&P/IFCI Composite Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity performance of global emerging markets. The MSCI EM Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global emerging markets. The indexes
are unmanaged and include reinvested dividends. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 12.

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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Annual Report | 1

GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/06

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Asia 47.3%
Europe 24.5%
Middle East & Africa 14.0%
Latin America 13.5%
Short-Term Investments & Other Net Assets 0.7%

ECONOMIC AND MARKET OVERVIEW

During the 12 months under review, strong investor confidence, continuing fund
inflows, robust corporate earnings and a supportive economic environment led
emerging markets to end 2006 at historical highs. After the markets experienced
a healthy correction in May, they recovered as fund flows stabilized, robust
economic data was reported and the U.S. showed signs of an easing monetary
policy. In addition, the interest rate spread on emerging market bonds relative
to U.S. Treasury yields maintained a downward trend during the year, falling
from about 250 basis points (100 basis points equal one percentage point) to
about 170 basis points due to rising liquidity and low inflation. 2 We believe
this signaled greater investor confidence in emerging markets.

Eastern European markets recorded the strongest returns in 2006. Russia
benefited from high commodity prices that supported its exports and from strong
foreign investor participation, while a weaker U.S. dollar enhanced returns in
Poland and the Czech Republic. Turkey was one of the few emerging markets to end
the year with a negative return. Although that market recovered some of the
losses from the correction earlier in the year, investors remained cautious due
to slowing progress for European Union accession talks and expectations of
slower growth after a substantial interest rate increase in the second quarter.

In South Africa, a consumer spending boom, propelled by low borrowing rates and
greater domestic demand, led to higher corporate earnings in related companies.
Foreign investment reached a record high, which boosted returns for South
Africa's markets.

Latin American markets benefited from strong commodity prices, solid domestic
demand and smooth power transitions in the region's key economies. International
confidence in the region, especially in Brazil, remained high. A loosening
monetary policy, growing foreign reserves and repayment of debt to foreign
lenders further supported the Brazilian market.

Asian giants China and India continued to report strong economic growth, which
led to significant fund inflows that pushed markets to record highs. Elsewhere
in the region, Thailand and South Korea struggled with strong local currencies,
which threatened to erode their export competitiveness. North Korea's nuclear
test in October exposed the region to geopolitical tensions. However, the
resumption of six-party talks could yield some positive

2. SOURCE: J.P. MORGAN

2 | Annual Report

results in the longer term. Although a military coup and capital controls in
Thailand initially rattled investor confidence in the nation's financial
markets, we continued to search for opportunities among Thai equities.

INVESTMENT STRATEGY

Our investment strategy employs a bottom-up, value-oriented, long-term approach.
We focus on the market price of a company's securities relative to our
evaluation of the company's long-term earnings, asset value, and cash flow
potential. As we look for investments, we focus on specific companies and
undertake in-depth research to construct an "action list" from which we make our
buy decisions. Before we make a purchase, we generally look at the company's
price/earnings ratio, profit margins and liquidation value. During our analysis,
we also consider the company's position in its sector, the economic framework
and political environment.

MANAGER'S DISCUSSION

During the 12 months under review, relative to the MSCI EM Index, the Fund's
performance benefited from underweighted exposure to Israeli and Taiwanese
securities and exposure to Croatian securities (not in the index). Stock
selection in South Africa and Taiwan further enhanced relative performance. In
South Africa, the Fund's overweighted exposure to non-index holdings Anglo
American and Remgro benefited the Fund's relative performance. Underweighted
positions in MTN Group and Sasol (sold during the period) also had a positive
impact. In Israel, the largest contributor to performance was the Fund's
underweighted position in Teva Pharmaceutical Industries. In Taiwan, the Fund's
overweighted positions in Uni-President Enterprises (sold during the period) and
Realtek Semiconductor, and zero weighting in Chi Mei Optoelectronics, which
declined during the year, benefited the Fund's relative performance. The Fund
only held one Croatian stock, Pliva, which outperformed the index and
contributed to relative performance. At the sector level, stock selection in the
pharmaceuticals and biotechnology, automobiles and components, and diversified
financials sectors contributed to relative Fund performance during the period. 3
The Fund also benefited from an underweighted position in the technology
hardware and equipment sector, which underperformed the broader MSCI EM Index. 4

TOP 10 COUNTRIES
12/31/06

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% OF TOTAL
NET ASSETS
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South Korea 15.2%
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South Africa 13.4%
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Taiwan 12.4%
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China 11.3%
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Brazil 10.1%
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Russia 8.2%
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Turkey 8.0%
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Hungary 3.5%
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Mexico 3.2%
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Thailand 2.4%
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3. The pharmaceuticals and biotechnology sector comprises pharmaceuticals in
the SOI. The automobiles and components sector comprises automobiles in
the SOI. The diversified financials sector comprises capital markets,
consumer finance and diversified financial services in the SOI.

4. The technology hardware and equipment sector comprises communications
equipment, computers and peripherals, and electronic equipment and
instruments in the SOI.

Annual Report | 3

TOP 10 EQUITY HOLDINGS
12/31/06

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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Samsung Electronics Co. Ltd. 4.5%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, SOUTH KOREA
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PetroChina Co. Ltd., H., ord. & 144A 4.2%
OIL, GAS & CONSUMABLE FUELS, CHINA
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Petroleo Brasileiro SA, ADR, pfd. 3.4%
OIL, GAS & CONSUMABLE FUELS, BRAZIL
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Remgro Ltd. 3.0%
DIVERSIFIED FINANCIAL SERVICES, SOUTH AFRICA
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Akbank TAS 2.8%
COMMERCIAL BANKS, TURKEY
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Old Mutual PLC 2.6%
INSURANCE, SOUTH AFRICA
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Gazprom, ord. & ADR 2.5%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
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Taiwan Semiconductor Manufacturing 2.5%
Co. Ltd.
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
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Banco Bradesco SA, ADR, pfd. 2.1%
COMMERCIAL BANKS, BRAZIL
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LUKOIL, ADR 2.1%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
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It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar goes up compared with a
foreign currency, an investment traded in that foreign currency will go down in
value because it will be worth fewer U.S. dollars. This can have a negative
effect on Fund performance. Conversely, when the U.S. dollar weakens in relation
to a foreign currency, an investment traded in that foreign currency will
increase in value, which can contribute to Fund performance. For the 12 months
ended December 31, 2006, the U.S. dollar declined in value relative to most
non-U.S. currencies. As a result, the Fund's performance was positively affected
by the portfolio's investment predominantly in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.

Conversely, the Fund's underweighted exposure to India and overweighted exposure
to Turkey detracted from Fund returns relative to the index. The Fund's position
in China also detracted from relative performance mainly due to an underweighted
position in China Life Insurance (sold during the period), which significantly
outperformed the MSCI EM Index. Overweighted positions in Turkish companies
Arcelik, Turkiye Vakiflar Bankasi (Vakifbank) and Tupras-Turkiye Petrol
Rafineleri (Tupras) negatively affected relative performance as these stocks
declined in value during the reporting period. Despite a small decline for the
year under review, the Turkish market actually rebounded more than 20% after a
June correction. Thus, we remained confident of the market's long-term uptrend.
Moreover, we believed these companies' valuations generally remained attractive,
so we increased our holdings at lower prices during the year. By sector, the
Fund's positions in the banks, capital goods and insurance sectors had a
negative impact on relative performance partly due to overweighted positions in
stocks such as LG Corporation, Kasikornbank and Old Mutual. 5

The Fund increased its exposure to Eastern and Southern Europe during the year
under review. More specifically, we increased our allocations in Turkey, Russia,
Hungary and Austria. Turkish investments included major commercial banks Akbank
and Vakifbank; Tupras, the country's largest industrial company, with a dominant
market share in oil refining; and Turkcell Iletisim Hizmetleri, a leading
provider of mobile communications services. Turkey's financial market correction
lowered valuations and provided the Fund with an opportunity to build positions
at what we considered attractive prices. The Fund also purchased MOL Magyar
Olaj-es Gazipari, a Hungarian integrated

5. The banks sector comprises commercial banks in the SOI. The capital goods
sector comprises building products, construction and engineering,
construction materials and industrial conglomerates in the SOI.

4 | Annual Report

oil and gas company with large exposure to Central and Eastern Europe; Russia's
Gazprom, the world's largest gas producer in terms of reserves and production;
and Austria's OMV, one of the leading oil and gas groups in Central and Eastern
Europe.

We also significantly increased our investments in South Africa during the
reporting period. The Fund increased its holdings in consumer sectors such as
insurance, wireless telecommunications, banking, home furnishing and retail
clothing. Significant additions included Old Mutual, a major financial services
group involved in life insurance, short-term insurance, asset management and
banking; MTN Group, a dominant wireless telecommunications services provider in
Africa; JD Group, the country's leading furniture retailer; and Edgars
Consolidated Stores, a leading specialty fashion retailer in southern Africa.
Higher disposable incomes and strong consumer demand could lead to greater
consumption of the products and services offered by these sectors of the
economy.

We also undertook selective investments in Israel, Brazil and Pakistan.
Purchases included Teva Pharmaceutical Industries, which is among the world's
largest generic pharmaceutical companies; and Pakistan Telecommunications, the
country's dominant integrated telecommunication services provider.

The Fund increased its exposure to the oil, gas and consumable fuels industry.
We believed the energy sector would benefit from greater revenues and earnings
due to relatively higher oil prices in recent years. A correction in commodity
prices during the period provided the Fund with an opportunity to build
positions at lower prices. We believed oil prices would remain firm because of
geopolitical and supply and demand problems. The Fund also invested in
semiconductors and computer hardware companies in an attempt to benefit from
greater export demand for Asian information technology products.

On the other hand, we substantially reduced the Fund's holdings in Singapore and
South Korea as certain stocks reached their sell targets. Specific sales
included Daewoo Shipbuilding & Marine Engineering, South Korea's major
shipbuilder; CJ Corporation, a prominent integrated food maker in South Korea;
Singapore Telecommunications, a leading integrated telecommunication services
provider in Singapore; and Fraser and Neave, a dominant player in the Singapore
soft drinks and beer market. One of the largest sales during the year was Pliva,
a Croatian pharmaceutical company. We sold our Pliva shares

Annual Report | 5

after the company was the subject of a takeover battle and the share price went
far above our sell limit. We also sold stocks selectively in India, Mexico and
China as the Fund continued to realign its exposure seeking to benefit from the
continued economic recovery in emerging markets.

We thank you for your continued participation in the Fund and look forward to
serving your future investment needs.

[PHOTO OMITTED] /s/ Mark Mobius

Mark Mobius
Managing Director
Templeton Asset Management Ltd.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.

6 | Annual Report

Performance Summary as of 12/31/06

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph do not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses on the sale of Fund shares.

PRICE AND DISTRIBUTION INFORMATION

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SYMBOL: TEEMX CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$1.93 $20.86 $18.93
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.5444
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Long-Term Capital Gain $2.9320
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TOTAL $3.4764
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PERFORMANCE 1

THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

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1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +29.07% +227.79% +140.98%
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Average Annual Total Return 3 +29.07% +26.80% +9.19%
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Value of $1,000,000 Investment 4 $1,290,704 $3,277,910 $2,409,799
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.

FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE CALL 1-800/321-8563.

Annual Report | 7

Performance Summary (CONTINUED)

TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $1,000,000 INVESTMENT 1

Total return represents the change in value of an investment over the periods
shown. It includes any Fund expenses, account fees and reinvested distributions.
The unmanaged indexes include reinvestment of any income or distributions. They
differ from the Fund in composition and do not pay management fees or expenses.
One cannot invest directly in an index.

AVERAGE ANNUAL TOTAL RETURN

- ------------------------------------
12/31/06
- ------------------------------------
1-Year +29.07%
- ------------------------------------
5-Year +26.80%
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10-Year +9.19%
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[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

TIFI Emerging S&P/IFCI
Markets Series Composite Index 5 MSCI EM Index 5
-------------- ----------------- ---------------
Date
Incept 1,000,000.00 1,000,000.00 1,000,000.00
Jan-97 1,073,895.40 1,070,641.77 1,068,209.68
Feb-97 1,114,826.91 1,123,082.05 1,113,956.14
Mar-97 1,092,272.58 1,094,947.42 1,084,694.90
Apr-97 1,102,744.16 1,076,357.48 1,086,611.06
May-97 1,155,102.51 1,112,954.69 1,117,710.27
Jun-97 1,196,988.98 1,161,011.07 1,177,526.80
Jul-97 1,251,763.93 1,172,220.53 1,195,104.83
Aug-97 1,140,603.47 1,022,557.64 1,043,028.58
Sep-97 1,193,767.10 1,055,853.06 1,071,928.88
Oct-97 971,446.34 882,605.92 896,038.79
Nov-97 899,755.88 841,513.83 863,344.45
Dec-97 886,796.45 852,640.05 884,149.33
Jan-98 814,963.61 796,731.50 814,805.27
Feb-98 895,348.42 878,083.29 899,851.13
Mar-98 930,496.90 912,516.30 938,901.04
Apr-98 932,213.67 914,985.71 928,673.25
May-98 800,879.89 800,837.93 801,407.17
Jun-98 723,624.71 718,764.74 717,342.67
Jul-98 728,775.11 747,426.54 740,086.99
Aug-98 559,671.88 537,304.74 526,098.42
Sep-98 587,998.81 563,164.17 559,471.39
Oct-98 676,413.27 627,840.51 618,384.74
Nov-98 749,376.58 675,064.51 669,814.79
Dec-98 726,898.80 664,992.65 660,107.62
Jan-99 691,909.75 649,621.26 649,457.34
Feb-99 691,909.58 661,191.42 655,774.65
Mar-99 788,628.66 737,604.39 742,199.42
Apr-99 942,678.33 838,184.29 834,025.00
May-99 917,295.22 823,201.35 829,173.08
Jun-99 1,006,574.03 912,960.24 923,277.42
Jul-99 961,934.83 899,697.57 898,196.12
Aug-99 927,798.66 909,408.73 906,368.04
Sep-99 886,660.51 884,076.47 875,694.65
Oct-99 912,043.74 899,114.90 894,340.53
Nov-99 989,068.39 979,939.51 974,531.15
Dec-99 1,138,204.76 1,111,289.92 1,098,472.23
Jan-00 1,087,029.81 1,112,871.45 1,105,019.09
Feb-00 1,048,207.38 1,111,789.35 1,119,613.11
Mar-00 1,061,936.95 1,128,048.61 1,125,077.14
Apr-00 970,131.81 1,011,348.19 1,018,427.99
May-00 892,450.57 983,185.82 976,324.22
Jun-00 958,655.95 1,011,015.23 1,010,715.15
Jul-00 918,049.85 962,403.93 958,734.54
Aug-00 935,704.60 966,038.68 963,448.41
Sep-00 843,899.54 879,637.08 879,324.02
Oct-00 773,280.13 808,412.64 815,570.40
Nov-00 732,673.83 736,993.98 744,261.94
Dec-00 773,823.21 758,330.79 762,230.85
Jan-01 861,392.22 855,719.87 867,190.06
Feb-01 793,481.64 789,794.96 799,288.10
Mar-01 719,316.19 721,761.33 720,782.43
Apr-01 756,845.77 764,490.44 756,397.57
May-01 783,652.75 787,630.75 765,426.10
Jun-01 780,078.51 773,369.22 749,714.32
Jul-01 734,506.61 720,512.75 702,339.47
Aug-01 737,187.31 710,718.35 695,411.71
Sep-01 645,150.56 600,538.28 587,776.22
Oct-01 664,808.85 637,773.65 624,252.96
Nov-01 705,018.95 712,494.10 689,427.07
Dec-01 735,163.48 771,759.94 744,150.50
Jan-02 773,377.34 799,311.89 769,368.19
Feb-02 772,467.41 814,738.77 782,007.80
Mar-02 818,780.24 871,507.45 829,046.66
Apr-02 846,133.63 879,581.59 834,427.52
May-02 840,663.07 865,181.32 821,132.56
Jun-02 787,779.76 802,752.42 759,529.61
Jul-02 745,837.72 751,921.42 701,762.29
Aug-02 744,014.08 761,660.33 712,575.58
Sep-02 689,307.03 677,034.49 635,694.98
Oct-02 707,542.69 720,512.75 676,943.80
Nov-02 764,985.01 770,539.11 723,540.22
Dec-02 749,536.25 741,377.88 699,500.17
Jan-03 741,207.99 742,043.78 696,454.62
Feb-03 740,282.81 720,068.81 677,657.37
Mar-03 713,490.61 693,626.70 658,442.63
Apr-03 787,812.55 764,434.95 717,091.51
May-03 834,263.75 817,624.37 768,558.15
Jun-03 862,134.43 868,233.40 812,361.84
Jul-03 899,295.59 914,902.47 863,238.00
Aug-03 942,030.71 980,910.63 921,178.30
Sep-03 969,901.49 991,620.65 927,931.40
Oct-03 1,045,152.48 1,072,167.81 1,006,896.15
Nov-03 1,066,520.05 1,085,929.91 1,019,271.30
Dec-03 1,153,109.36 1,165,117.51 1,093,162.90
Jan-04 1,190,062.03 1,204,933.27 1,131,986.59
Feb-04 1,233,647.10 1,263,006.02 1,184,205.05
Mar-04 1,232,383.68 1,286,562.53 1,199,421.16
Apr-04 1,162,966.97 1,189,284.43 1,101,359.77
May-04 1,148,703.02 1,173,108.40 1,079,668.33
Jun-04 1,172,476.00 1,173,163.90 1,084,600.09
Jul-04 1,154,408.55 1,149,024.72 1,065,421.94
Aug-04 1,193,395.88 1,200,382.90 1,110,020.71
Sep-04 1,255,205.22 1,269,692.85 1,174,131.95
Oct-04 1,292,290.97 1,306,401.04 1,202,260.46
Nov-04 1,391,186.19 1,419,910.66 1,313,620.15
Dec-04 1,457,550.57 1,492,688.88 1,376,859.81
Jan-05 1,446,925.76 1,496,295.89 1,381,217.72
Feb-05 1,558,970.59 1,621,902.83 1,502,500.81
Mar-05 1,484,068.61 1,520,629.28 1,403,514.61
Apr-05 1,438,447.99 1,486,556.98 1,366,106.40
May-05 1,495,721.28 1,542,271.30 1,414,204.81
Jun-05 1,544,253.23 1,594,267.64 1,463,021.76
Jul-05 1,631,621.92 1,704,614.19 1,566,542.19
Aug-05 1,623,867.89 1,718,958.96 1,580,643.87
Sep-05 1,754,905.91 1,879,470.60 1,728,034.53
Oct-05 1,656,867.65 1,757,026.72 1,615,131.28
Nov-05 1,784,986.17 1,899,586.58 1,748,859.37
Dec-05 1,867,041.94 2,018,007.27 1,852,459.64
Jan-06 2,055,420.84 2,234,566.19 2,060,488.52
Feb-06 2,060,347.57 2,236,036.74 2,058,525.79
Mar-06 2,076,142.51 2,262,423.35 2,076,978.73
Apr-06 2,216,588.20 2,454,399.16 2,225,182.76
May-06 2,004,921.51 2,211,425.88 1,992,549.96
Jun-06 1,983,164.40 2,202,075.41 1,988,328.44
Jul-06 2,033,612.04 2,230,265.53 2,018,065.39
Aug-06 2,071,184.78 2,296,134.96 2,070,491.76
Sep-06 2,071,184.91 2,316,223.19 2,087,895.14
Oct-06 2,170,084.56 2,419,966.15 2,187,145.82
Nov-06 2,291,744.42 2,607,696.79 2,350,071.94
Dec-06 2,409,799.37 2,726,616.91 2,456,108.98

ENDNOTES

1. Past expense reductions by the Fund's manager and administrator increased
the Fund's total returns. If the manager and administrator had not taken
this action, the Fund's total returns would have been lower.

2. Cumulative total return represents the change in value of an investment
over the periods indicated.

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

4. These figures represent the value of a hypothetical $1,000,000 investment
in the Fund over the periods indicated.

5. Source: Standard & Poor's Micropal. The S&P/IFCI Composite Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance of global emerging markets. The MSCI EM Index is
a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global emerging markets.

8 | Annual Report

Your Fund's Expenses

As a Fund shareholder, you can incur two types of costs:

o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.

ACTUAL FUND EXPENSES

The first line (Actual) of the table provides actual account values and
expenses. The "Ending Account Value" is derived from the Fund's actual return,
which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) of the table can help you compare
ongoing costs of investing in the Fund with those of other mutual funds. This
information may not be used to estimate the actual ending account balance or
expenses you paid during the period. The hypothetical "Ending Account Value" is
based on the Fund's actual expense ratio and an assumed 5% annual rate of return
before expenses, which does not represent the Fund's actual return. The figure
under the heading "Expenses Paid During Period" shows the hypothetical expenses
your account would have incurred under this scenario. You can compare this
figure with the 5% hypothetical examples that appear in shareholder reports of
other funds.

Annual Report | 9

Your Fund's Expenses (CONTINUED)

Please note that expenses shown in the table are meant to highlight ongoing
costs and do not reflect any transaction costs, such as sales charges or
redemption fees, if applicable. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you compare total
costs of owning different funds. In addition, if transaction costs were
included, your total costs would have been higher. Please refer to the Fund
prospectus for additional information on operating expenses.

- --------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- --------------------------------------------------------------------------------------------------------

Actual $1,000 $1,215.10 $7.98
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.00 $7.27
- --------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio of 1.43%, multiplied by
the average account value over the period, multiplied by 184/365 to
reflect the one-half year period.

10 | Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL HIGHLIGHTS

EMERGING MARKETS SERIES

----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
----------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year .................. $ 18.93 $ 15.09 $ 12.18 $ 8.10 $ 8.08
----------------------------------------------------------------------
Income from investment operations a:

Net investment income b ............................ 0.44 0.33 0.21 0.24 0.14

Net realized and unrealized gains (losses) ......... 4.96 3.89 2.97 4.10 0.02
----------------------------------------------------------------------
Total from investment operations .................... 5.40 4.22 3.18 4.34 0.16
----------------------------------------------------------------------
Less distributions from:

Net investment income .............................. (0.54) (0.38) (0.27) (0.26) (0.14)

Net realized gains ................................. (2.93) -- -- -- --
----------------------------------------------------------------------
Total distributions ................................. (3.47) (0.38) (0.27) (0.26) (0.14)
----------------------------------------------------------------------
Redemption fees ..................................... -- c -- c -- c -- --
----------------------------------------------------------------------
Net asset value, end of year ........................ $ 20.86 $ 18.93 $ 15.09 $ 12.18 $ 8.10
======================================================================

Total return ........................................ 29.07% 28.09% 26.40% 53.84% 1.96%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) ..................... $3,209,602 $2,841,536 $2,063,532 $2,092,229 $1,234,595

Ratios to average net assets:

Expenses ........................................... 1.42% d 1.42% d 1.45% d 1.46% 1.49%

Net investment income .............................. 2.09% 1.98% 1.62% 2.52% 1.67%

Portfolio turnover rate ............................. 40.84% 36.42% 52.07% 46.83% 53.36%

a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.

b Based on average daily shares outstanding.

c Amount rounds to less than $0.01 per share.

d Benefit of expense reduction rounds to less than 0.01%.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 11

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006

- ---------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS SERIES INDUSTRY SHARES/RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS 99.3%
COMMON STOCKS AND RIGHTS 90.8%
AUSTRIA 0.8%
OMV AG ................................. Oil, Gas & Consumable Fuels 139,550 $ 7,919,315
Wienerberger AG ........................ Building Products 301,550 17,912,748
---------------
25,832,063
---------------
BRAZIL 1.6%
Centrais Eletricas Brasileiras SA ...... Electric Utilities 807,188,000 19,302,238
CPFL Energia SA ........................ Electric Utilities 716,178 10,056,326
Souza Cruz SA .......................... Tobacco 1,259,703 22,434,682
---------------
51,793,246
---------------
CHINA 11.3%
Aluminum Corp. of China Ltd., H ........ Metals & Mining 52,778,000 48,848,730
a,b China Coal Energy Co., H, 144A ......... Oil, Gas & Consumable Fuels 2,119,000 1,375,594
China Mobile (Hong Kong) Ltd. .......... Wireless Telecommunication Services 3,769,948 32,566,605
China Petroleum and Chemical Corp., H .. Oil, Gas & Consumable Fuels 38,776,000 35,889,165
China Shenhua Energy Co. Ltd., H ....... Oil, Gas & Consumable Fuels 1,644,500 3,957,378
Citic Pacific Ltd. ..................... Industrial Conglomerates 1,297,000 4,476,639
CNOOC Ltd. ............................. Oil, Gas & Consumable Fuels 66,754,000 63,414,648
Denway Motors Ltd. ..................... Automobiles 37,817,000 15,313,183
PetroChina Co. Ltd., H ................. Oil, Gas & Consumable Fuels 78,482,000 111,178,167
b PetroChina Co. Ltd., H, 144A ........... Oil, Gas & Consumable Fuels 16,358,000 23,172,861
Shanghai Industrial Holdings Ltd. ...... Industrial Conglomerates 7,264,000 15,463,366
Travelsky Technology Ltd., H ........... IT Services 4,568,000 6,964,319
---------------
362,620,655
---------------
CZECH REPUBLIC 0.2%
Philip Morris CR AS .................... Tobacco 10,093 5,251,170
---------------
HONG KONG 1.2%
Cheung Kong (Holdings) Ltd. ............ Real Estate 1,074,000 13,219,375
Cheung Kong Infrastructure Holdings Ltd. Electric Utilities 1,838,000 5,705,983
Dairy Farm International Holdings Ltd. . Food & Staples Retailing 1,034,019 3,515,665
Hopewell Holdings Ltd. ................. Transportation Infrastructure 946,000 3,319,874
MTR Corp. Ltd. ......................... Road & Rail 5,765,120 14,495,896
---------------
40,256,793
---------------
HUNGARY 3.5%
a Magyar Telekom PLC ..................... Diversified Telecommunication Services 5,657,593 31,430,247
MOL Magyar Olaj-es Gazipari Rt. ........ Oil, Gas & Consumable Fuels 329,249 37,342,952
OTP Bank Ltd. .......................... Commercial Banks 598,566 27,501,129
Richter Gedeon Nyrt. ................... Pharmaceuticals 68,608 15,649,303
---------------
111,923,631
---------------
INDIA 1.2%
Gail India Ltd. ........................ Gas Utilities 1,933,380 11,462,667
Indian Oil Corp. Ltd. .................. Oil, Gas & Consumable Fuels 712,660 7,270,376
Oil & Natural Gas Corp. Ltd. ........... Oil, Gas & Consumable Fuels 820,153 16,175,317
b Oil & Natural Gas Corp. Ltd., 144A ..... Oil, Gas & Consumable Fuels 91,290 1,800,450
Tata Chemicals Ltd. .................... Chemicals 114,730 560,581
---------------
37,269,391
---------------

12 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
INDONESIA 0.3%
PT Astra International Tbk ............. Automobiles 5,150,000 $ 8,990,382
---------------
ISRAEL 0.6%
a Taro Pharmaceutical Industries Ltd. .... Pharmaceuticals 600,210 6,002,100
Teva Pharmaceutical Industries Ltd., ADR Pharmaceuticals 407,980 12,680,018
---------------
18,682,118
---------------
MALAYSIA 1.2%
Maxis Communications Bhd. .............. Wireless Telecommunication Services 9,139,500 26,408,754
Sime Darby Bhd. ........................ Industrial Conglomerates 6,112,800 12,468,034
---------------
38,876,788
---------------
MEXICO 3.2%
Grupo Bimbo SA de CV, A ................ Food Products 1,513,034 7,563,244
Kimberly Clark de Mexico SA de CV, A ... Household Products 13,840,881 63,933,717
Telefonos de Mexico SA de CV, L, ADR ... Diversified Telecommunication Services 1,120,658 31,669,795
---------------
103,166,756
---------------
PAKISTAN 0.2%
Pakistan Telecommunications Corp., A ... Diversified Telecommunication Services 8,130,500 5,925,007
---------------
PANAMA 0.2%
Banco Latinoamericano de Exportaciones
SA, E ................................. Commercial Banks 470,100 7,972,896
---------------
PERU 0.0% c
Compania de Minas Buenaventura SA,
ADR ................................... Metals & Mining 47,700 1,338,462
---------------
PHILIPPINES 1.0%
San Miguel Corp., B .................... Beverages 19,771,298 31,239,054
---------------
POLAND 0.6%
a Grupa Lotos SA ......................... Oil, Gas & Consumable Fuels 68,700 1,166,572
Polski Koncern Naftowy Orlen SA ........ Oil, Gas & Consumable Fuels 1,127,656 18,526,915
---------------
19,693,487
---------------
RUSSIA 8.2%
b Evraz Group SA, GDR, 144A .............. Metals & Mining 120,000 3,042,000
Gazprom ................................ Oil, Gas & Consumable Fuels 1,024,770 11,784,855
Gazprom, ADR ........................... Oil, Gas & Consumable Fuels 1,508,274 69,380,604
LUKOIL, ADR ............................ Oil, Gas & Consumable Fuels 503,120 44,023,000
LUKOIL, ADR (London Exchange) .......... Oil, Gas & Consumable Fuels 257,200 22,453,560
Mining and Metallurgical Co.
Norilsk Nickel ........................ Metals & Mining 259,585 40,754,845
Mobile Telesystems, ADR ................ Wireless Telecommunication Services 274,800 13,792,212
a,b OAO TMK, 144A .......................... Energy Equipment & Services 368,784 3,060,907
TNK-BP ................................. Oil, Gas & Consumable Fuels 1,518,000 3,939,210
Unified Energy Systems ................. Electric Utilities 41,584,600 44,911,368
a ZAO Polyus Gold Co. .................... Metals & Mining 118,102 5,822,429
---------------
262,964,990
---------------

Annual Report | 13

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
SINGAPORE 0.9%
ComfortDelGro Corp. Ltd. ............... Road & Rail 16,213,000 $ 17,022,355
Fraser and Neave Ltd. .................. Industrial Conglomerates 4,377,290 12,845,417
---------------
29,867,772
---------------
SOUTH AFRICA 13.4%
Anglo American PLC ..................... Metals & Mining 1,347,489 65,752,272
Edgars Consolidated Stores Ltd. ........ Specialty Retail 4,912,593 27,343,000
a Imperial Holdings Ltd. ................. Air Freight & Logistics 1,275,161 29,836,084
JD Group Ltd. .......................... Specialty Retail 1,687,419 19,152,371
Massmart Holdings Ltd. ................. Food & Staples Retailing 1,650,509 16,531,583
MTN Group Ltd. ......................... Wireless Telecommunication Services 3,630,200 44,181,353
Nedbank Group Ltd. ..................... Commercial Banks 1,969,859 37,519,338
Old Mutual PLC ......................... Insurance 24,356,820 83,115,811
Remgro Ltd. ............................ Diversified Financial Services 3,822,844 97,093,556
Standard Bank Group Ltd. ............... Commercial Banks 759,919 10,246,099
---------------
430,771,467
---------------
SOUTH KOREA 15.2%
GS Holdings Corp. ...................... Oil, Gas & Consumable Fuels 539,800 17,470,946
Hana Financial Group Inc. .............. Commercial Banks 981,716 51,619,261
a Hite Brewery Co. Ltd. .................. Beverages 67,280 8,645,118
a Hyundai Development Co. ................ Construction & Engineering 514,830 31,443,381
a Kangwon Land Inc. ...................... Hotels, Restaurants & Leisure 2,279,417 49,509,918
LG Card Co. Ltd. ....................... Consumer Finance 713,370 47,481,293
LG Corp. ............................... Industrial Conglomerates 183,600 5,892,968
Lotte Shopping Co. Ltd. ................ Multiline Retail 72,930 30,269,871
Samsung Electronics Co. Ltd. ........... Semiconductors & Semiconductor Equipment 217,350 143,264,032
Samsung Fine Chemicals Co. Ltd. ........ Chemicals 46,810 1,172,767
a Shinhan Financial Group Co. Ltd. ....... Commercial Banks 613,470 31,333,145
SK Corp. ............................... Oil, Gas & Consumable Fuels 456,880 35,862,624
SK Telecom Co. Ltd. .................... Wireless Telecommunication Services 136,769 32,721,615
---------------
486,686,939
---------------
SWEDEN 1.0%
Oriflame Cosmetics SA, SDR ............. Personal Products 760,114 31,286,803
---------------
TAIWAN 12.4%
Asustek Computer Inc. .................. Computers & Peripherals 12,640,200 34,601,990
Chunghwa Telecom Co. Ltd. .............. Diversified Telecommunication Services 12,406,260 23,072,560
D-Link Corp. ........................... Communications Equipment 18,402,039 24,114,380
Lite-On Technology Corp. ............... Computers & Peripherals 17,930,602 24,239,467
MediaTek Inc. .......................... Semiconductors & Semiconductor Equipment 1,638,120 16,941,735
Mega Financial Holding Co. Ltd. ........ Commercial Banks 51,508,032 37,858,443
President Chain Store Corp. ............ Food & Staples Retailing 7,636,010 18,442,657
Realtek Semiconductor Corp. ............ Semiconductors & Semiconductor Equipment 17,423,172 29,996,623
Siliconware Precision Industries Co. ... Semiconductors & Semiconductor Equipment 10,550,001 16,576,954
Sunplus Technology Co. Ltd. ............ Semiconductors & Semiconductor Equipment 19,417,907 23,687,642
Synnex Technology International Corp. .. Electronic Equipment & Instruments 9,720,043 12,289,881
Taiwan Mobile Co. Ltd. ................. Wireless Telecommunication Services 30,918,878 32,071,753

14 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
TAIWAN (CONTINUED)
Taiwan Semiconductor Manufacturing
Co. Ltd. .............................. Semiconductors & Semiconductor Equipment 38,312,711 $ 79,364,983
United Microelectronics Corp. .......... Semiconductors & Semiconductor Equipment 36,448,000 22,650,668
a Yageo Corp. ............................ Electronic Equipment & Instruments 2,912,000 1,358,367
---------------
397,268,103
---------------
THAILAND 2.4%
Kasikornbank Public Co. Ltd., fgn. ..... Commercial Banks 13,339,200 23,517,630
PTT Public Co. Ltd., fgn. .............. Oil, Gas & Consumable Fuels 1,747,000 10,348,942
Siam Cement Public Co. Ltd., fgn. ...... Construction Materials 2,678,136 19,188,901
Siam Commercial Bank Public Co.
Ltd., fgn. ............................ Commercial Banks 4,245,500 6,946,093
Thai Airways International Public Co.
Ltd., fgn. ............................ Airlines 7,747,100 9,724,851
Thai Beverages Co. Ltd., fgn. .......... Beverages 33,986,000 5,984,036
a True Corp. Public Co. Ltd., fgn., rts.,
3/28/08 ............................... Diversified Telecommunication Services 2,088,420 --
---------------
75,710,453
---------------
TURKEY 8.0%
Akbank TAS ............................. Commercial Banks 14,796,670 89,898,525
Anadolu Efes Biracilik Ve Malt Sanayii
AS .................................... Beverages 23,700 732,515
Arcelik AS, Br. ........................ Household Durables 4,592,414 27,090,538
a KOC Holding AS ......................... Industrial Conglomerates 1,586,370 6,163,925
a Migros Turk TAS ........................ Food & Staples Retailing 139,308 1,801,015
Tupras-Turkiye Petrol Rafineleri AS .... Oil, Gas & Consumable Fuels 2,700,300 46,165,496
a Turk Hava Yollari Anonim Ortakligi ..... Airlines 828,000 3,568,209
a,b Turk Hava Yollari Anonim Ortakligi, 144A Airlines 3,314,000 14,281,456
Turkcell Iletisim Hizmetleri AS ........ Wireless Telecommunication Services 7,275,148 36,748,363
Turkiye Vakiflar Bankasi T.A.O. ........ Commercial Banks 6,233,752 29,286,083
---------------
255,736,125
---------------
UNITED KINGDOM 2.2%
HSBC Holdings PLC ...................... Commercial Banks 2,192,044 40,182,472
Provident Financial PLC ................ Consumer Finance 2,280,230 31,325,398
---------------
71,507,870
---------------
TOTAL COMMON STOCKS AND RIGHTS
(COST $1,936,667,413) ................. 2,912,632,421
---------------
PREFERRED STOCKS 8.5%
BRAZIL 8.5%
Banco Bradesco SA, ADR, pfd. ........... Commercial Banks 1,661,752 67,051,693
Companhia Vale do Rio Doce, ADR, pfd., A Metals & Mining 2,506,400 65,793,000
Petroleo Brasileiro SA, ADR, pfd. ...... Oil, Gas & Consumable Fuels 1,160,635 107,660,503
Unibanco - Uniao de Bancos Brasileiros
SA, GDR, pfd. ......................... Commercial Banks 350,500 32,582,480
---------------
TOTAL PREFERRED STOCKS
(COST $113,547,749) ................... 273,087,676
---------------

Annual Report | 15

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

- ---------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS SERIES PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------

TOTAL LONG TERM INVESTMENTS
(COST $2,050,215,162).................. $ 3,185,720,097
---------------
SHORT TERM INVESTMENTS (COST $12,829,154) 0.4%
UNITED STATES 0.4%
d Federal Home Loan Bank, 1/02/07 ........ $ 12,836,000 12,836,000
---------------
TOTAL INVESTMENTS
(COST $2,063,044,316) 99.7% ........... 3,198,556,097
OTHER ASSETS, LESS LIABILITIES 0.3% .... 11,046,150
---------------
NET ASSETS 100.0%....................... $ 3,209,602,247
===============

SELECTED PORTFOLIO ABBREVIATIONS

ADR - American Depository Receipt
GDR - Global Depository Receipt
SDR - Swedish Depository Receipt

a Non-income producing for the twelve months ended December 31, 2006.

b Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At December 31, 2006,
the aggregate value of these securities was $46,733,268, representing
1.46% of net assets.

c Rounds to less than 0.1% of net assets.

d The security is traded on a discount basis with no stated coupon rate.

16 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006

---------------
EMERGING
MARKETS SERIES
---------------

Assets:
Investments in securities:
Cost ................................................................................................. $ 2,063,044,316
---------------
Value ................................................................................................ $ 3,198,556,097
Cash .................................................................................................. 144,475
Foreign currency, at value (cost $2,597,986) .......................................................... 2,448,303
Receivables:
Investment securities sold ........................................................................... 17,450,359
Capital shares sold .................................................................................. 1,224,876
Dividends ............................................................................................ 6,123,214
Foreign tax .......................................................................................... 1,234,088
---------------
Total assets ..................................................................................... 3,227,181,412
---------------
Liabilities:
Payables:
Investment securities purchased ...................................................................... 1,581,344
Capital shares redeemed .............................................................................. 11,260,057
Affiliates ........................................................................................... 3,440,557
Deferred tax .......................................................................................... 175,198
Accrued expenses and other liabilities ................................................................ 1,122,009
---------------
Total liabilities ................................................................................ 17,579,165
---------------
Net assets, at value ........................................................................... $ 3,209,602,247
===============
Net assets consist of:
Paid-in capital ....................................................................................... $ 2,055,437,040
Distributions in excess of net investment income ...................................................... (47,974,409)
Net unrealized appreciation (depreciation) ............................................................ 1,135,331,135
Accumulated net realized gain (loss) .................................................................. 66,808,481
---------------
Net assets, at value ........................................................................... $ 3,209,602,247
===============
Shares outstanding ..................................................................................... 153,893,017
===============
Net asset value per share a ............................................................................ $ 20.86
===============

a Redemption price is equal to net asset value less redemption fees retained
by the Fund.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 17

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended December 31, 2006

---------------
EMERGING
MARKETS SERIES
---------------

Investment income:
Dividends (net of foreign taxes of $8,523,940) ....................................................... $ 102,776,519
Interest (net of foreign taxes of $617) .............................................................. 1,591,356
Other income (Note 8) ................................................................................ 536,396
---------------
Total investment income .......................................................................... 104,904,271
---------------
Expenses:
Management fees (Note 3a) ............................................................................. 36,373,949
Administrative fees (Note 3b) ......................................................................... 2,423,059
Transfer agent fees (Note 3c) ......................................................................... 9,134
Custodian fees (Note 4) ............................................................................... 2,935,723
Reports to shareholders ............................................................................... 33,519
Registration and filing fees .......................................................................... 355,878
Professional fees ..................................................................................... 137,710
Directors' fees and expenses .......................................................................... 74,265
Other ................................................................................................. 81,675
---------------
Total expenses ....................................................................................... 42,424,912
Expense reductions (Note 4) .......................................................................... (19,252)
---------------
Net expenses ..................................................................................... 42,405,660
---------------
Net investment income .......................................................................... 62,498,611
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .......................................................................................... 490,414,572
Foreign currency transactions ........................................................................ (1,454,614)
---------------
Net realized gain (loss) ......................................................................... 488,959,958
---------------
Net change in unrealized appreciation (depreciation) on:
Investments .......................................................................................... 219,678,551
Translation of assets and liabilities denominated in foreign currencies .............................. 24,787
Change in deferred taxes on unrealized appreciation (depreciation) .................................... (2,829)
---------------
Net change in unrealized appreciation (depreciation) ............................................. 219,700,509
---------------
Net realized and unrealized gain (loss) ................................................................ 708,660,467
---------------
Net increase (decrease) in net assets resulting from operations ........................................ $ 771,159,078
===============

18 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

----------------------------------
EMERGING MARKETS SERIES
YEAR ENDED DECEMBER 31,
----------------------------------
2006 2005
----------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 62,498,611 $ 46,949,051
Net realized gain (loss) from investments and foreign currency transactions ....... 488,959,958 326,585,364
Net change in unrealized appreciation (depreciation) on investments, translation
of assets and liabilities denominated in foreign currencies, and deferred taxes .. 219,700,509 246,568,439
----------------------------------
Net increase (decrease) in net assets resulting from operations ............... 771,159,078 620,102,854
----------------------------------

Distributions to shareholders from:
Net investment income .............................................................. (74,010,838) (55,791,328)
Net realized gain .................................................................. (394,234,085) --
----------------------------------
Total distributions to shareholders .................................................. (468,244,923) (55,791,328)
----------------------------------
Capital share transactions (Note 2) .................................................. 65,143,777 213,692,478
----------------------------------

Redemption fees ...................................................................... 7,862 712
----------------------------------
Net increase (decrease) in net assets .......................................... 368,065,794 778,004,716
Net assets:
Beginning of year ................................................................... 2,841,536,453 2,063,531,737
----------------------------------
End of year ......................................................................... $ 3,209,602,247 $ 2,841,536,453
==================================
Distributions in excess of net investment income included in net assets:
End of year ......................................................................... $ (47,974,409) $ (35,986,193)
==================================

Annual Report |
The accompanying notes are an integral part of these financial statements. | 19

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS

EMERGING MARKETS SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market.

Government securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value.

Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.

The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into

20 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

question the availability (including the reliability) of the value of a
portfolio security held by the Fund. The investment manager monitors price
movements following the close of trading in foreign stock markets through a
series of country specific market proxies (such as baskets of American
Depository Receipts, futures contracts and exchange traded funds). These price
movements are measured against established trigger thresholds for each specific
market proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Fund's 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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Directors.

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 on the
Statement of Operations.

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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.

C. FOREIGN CURRENCY CONTRACTS

When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.

Annual Report | 21

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. FOREIGN CURRENCY CONTRACTS (CONTINUED)

The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.

D. INCOME AND DEFERRED TAXES

No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its taxable income and net
realized gains.

Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.

The Fund may be subject to a tax imposed on net realized gains on securities of
certain foreign countries. The Fund records an estimated deferred tax liability
for net unrealized gains on these securities in an amount that would be payable
if the securities were disposed of on the valuation date.

E. 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.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.

Common expenses incurred by TIFI are allocated among the funds based on the
ratio of net assets of each Fund to the combined net assets of TIFI. Fund
specific expenses are charged directly to the fund that incurred the expense.

22 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

F. ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.

G. REDEMPTION FEES

A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Prior to March 1, 2005, the redemption fee was 1% of the amount redeemed. Such
fees are retained by the Fund and accounted for as an addition to paid-in
capital.

H. GUARANTEES AND INDEMNIFICATIONS

Under TIFI's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, TIFI, on behalf of the Fund, enters into contracts with service
providers that contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Fund that have not yet occurred. Currently, the
Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At December 31, 2006, there were 1.14 billion shares of TIFI authorized ($0.01
par value), of which 325 million have been classified as Fund shares.
Transactions in the Fund's shares were as follows:

-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------

Shares sold ...................... 21,134,826 $ 441,896,309 33,273,305 $ 537,595,503
Shares issued in reinvestment
of distributions ................ 21,751,689 442,666,138 2,750,866 49,329,161
Shares redeemed .................. (39,129,699) (819,418,670) (22,672,825) (373,232,186)
-------------------------------------------------------------------
Net increase (decrease) .......... 3,756,816 $ 65,143,777 13,351,346 $ 213,692,478
===================================================================

Annual Report | 23

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:

- --------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- --------------------------------------------------------------------------------------------

Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

A. MANAGEMENT FEES

The Fund pays an investment management fee to TAML based on the average daily
net assets of the Fund as follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion

B. ADMINISTRATIVE FEES

The Fund pays its allocated share of an administrative fee to FT services based
on the aggregate average net assets of certain funds within TIFI as follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.150% Up to and including $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% In excess of $1.2 billion

C. TRANSFER AGENT FEES

The Fund paid transfer agent fees of $9,134, of which $4,549 was retained by
Investor Services.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended December 31, 2006, the
custodian fees were reduced as noted in the Statement of Operations.

24 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

5. INCOME TAXES

For tax purposes, capital losses may be carried forward to offset future capital
gains, if any. At December 31, 2006, the Fund had no tax basis capital losses.
During the the year ended December 31, 2006, the Fund utilized $25,624,201 of
capital loss carryforwards.

For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At December 31, 2006, the Fund deferred realized currency losses of
$660,135.

The tax character of distributions paid during the years ended December 31, 2006
and 2005, was as follows:

-----------------------------
2006 2005
-----------------------------
Distributions paid from:
Ordinary income .................. $ 74,010,838 $ 55,791,328
Long term capital gain ........... 394,234,085 --
-----------------------------
$ 468,244,923 $ 55,791,328
=============================

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and passive foreign
investment company shares and foreign taxes paid on net realized gains.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, passive foreign investment company shares and foreign taxes paid
on net realized gains.

At December 31, 2006, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:

Cost of investments ............................... $ 2,139,259,350
===============

Unrealized appreciation ........................... $ 1,065,157,456
Unrealized depreciation ........................... (5,860,709)
---------------
Net unrealized appreciation (depreciation) ........ $ 1,059,296,747
===============

Undistributed ordinary income ..................... $ 67,826,457
Undistributed long term capital gains ............. 27,882,785
---------------
Distributable earnings ............................ $ 95,709,242
===============

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2006, aggregated $1,207,508,453 and $1,565,708,871,
respectively.

Annual Report | 25

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

7. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.

8. REGULATORY MATTERS

As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators. Specifically, the
Company entered into settlements with the SEC, among others, concerning market
timing and marketing support.

On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006, and is recorded as other income.

The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.

In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.

The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.

26 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMERGING MARKETS SERIES

9. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Fund is
currently evaluating the impact, if any, of applying the various provisions of
FIN 48.

In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.

Annual Report | 27

Templeton Institutional Funds, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 (one of the
funds constituting the Templeton Institutional Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. 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 audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
February 22, 2007

28 | Annual Report

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED)

EMERGING MARKETS SERIES

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $422,116,870 as long
term capital gain dividends for the fiscal year ended December 31, 2006.

Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $41,950,949 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006.

Under Section 854(b)(2) of the Code, the Fund designates 0.12% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended December 31, 2006.

Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $57,570,976 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2006. In January 2007, shareholders will receive Form 1099-DIV
which will include their share of qualified dividends distributed during the
calendar year 2006. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.

Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $1,577,099 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended December 31, 2006.

At December 31, 2006, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the Fund on these investments. As shown in the table
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid as allowed, pursuant to Section 853 of the Code. This designation
will allow shareholders of record on December 14, 2006, to treat their
proportionate share of foreign taxes paid by the Fund as having been paid
directly by them. The shareholder shall consider these amounts as foreign taxes
paid in the tax year in which they receive the Fund distribution.

The following table provides a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund to shareholders of record.

Annual Report | 29

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

EMERGING MARKETS SERIES

Record Date: 12/14/2006

- --------------------------------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Argentina .............. $0.0000 $0.0001 $0.0001
Austria ................ 0.0005 0.0024 0.0024
Brazil ................. 0.0067 0.0674 0.0041
China .................. 0.0000 0.0615 0.0321
Croatia ................ 0.0000 0.0028 0.0000
Czech Republic ......... 0.0001 0.0005 0.0005
Finland ................ 0.0003 0.0012 0.0012
Hong Kong .............. 0.0000 0.0166 0.0000
Hungary ................ 0.0000 0.0064 0.0064
India .................. 0.0001 0.0099 0.0093
Indonesia .............. 0.0008 0.0036 0.0036
Israel ................. 0.0000 0.0002 0.0002
Malaysia ............... 0.0000 0.0097 0.0000
Mexico ................. 0.0000 0.0388 0.0388
Pakistan ............... 0.0000 0.0002 0.0002
Panama ................. 0.0000 0.0042 0.0042
Peru ................... 0.0000 0.0004 0.0004
Philippines ............ 0.0008 0.0022 0.0022
Poland ................. 0.0032 0.0149 0.0149
Portugal ............... 0.0002 0.0010 0.0010
Russia ................. 0.0037 0.0733 0.0729
Singapore .............. 0.0000 0.0093 0.0000
South Africa ........... 0.0000 0.0659 0.0190
South Korea ............ 0.0117 0.0497 0.0456
Sweden ................. 0.0000 0.0047 0.0000
Taiwan ................. 0.0316 0.0853 0.0000
Thailand ............... 0.0022 0.0158 0.0154
Turkey ................. 0.0000 0.0236 0.0236
United Kingdom ......... 0.0000 0.0110 0.0000
--------------------------------------------------
TOTAL .................. $0.0619 $0.5826 $0.2981
==================================================

Foreign Tax Paid per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or, as a tax
deduction.

Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income. 1

30 | Annual Report

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

EMERGING MARKETS SERIES

Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund. 1

In January 2007, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2006. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2006 individual income
tax returns.

1 Qualified dividends are taxed at a maximum rate of 15% (5% for those in
the 10% and 15% income tax brackets). In determining the amount of foreign
tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may
be required to the foreign tax credit limitation calculation to reflect
the rate differential applicable to such dividend income. The rules
however permit certain individuals to elect not to apply the rate
differential adjustments for capital gains and/or dividends for any
taxable year. Please consult your tax advisor and the instructions to Form
1116 for more information.

Annual Report | 31

Templeton Institutional Funds, Inc.

BOARD MEMBERS AND OFFICERS

The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member will serve until that person's successor is elected and qualified.

INDEPENDENT BOARD MEMBERS

- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------

HARRIS J. ASHTON (1932) Director Since 1992 142 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (1944) Director Since 1990 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holding Ltd.; Director and Vice Chairman, Caribbean Utilities Co. Ltd; Director, Provo Power Company
Ltd.; director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power Ltd.
(1977-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 1996 143 Director, Hess Corporation
500 East Broward Blvd. (formerly Amerada Hess
Suite 2100 Corporation) (exploration and
Fort Lauderdale, FL 33394-3091 refining of oil and gas), H.J.
Heinz Company (processed foods
and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary
of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------

32 | Annual Report

DAVID W. NIEMIEC (1949) Director Since 2005 20 Director, Emeritus Corporation
500 East Broward Blvd. (assisted living) and OSI
Suite 2100 Pharmaceuticals, Inc.
Fort Lauderdale, FL 33394-3091 (pharmaceutical products).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); Director, various private companies; and FORMERLY, Managing Director, Saratoga
Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon Read, & Co. Inc.
(investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Director Since 2003 103 Director, Hess Corporation
500 East Broward Blvd. (formerly Amerada Hess
Suite 2100 Corporation) (exploration and
Fort Lauderdale, FL 33394-3091 refining of oil and gas) and
Sentient Jet (private jet
service); and FORMERLY, Director,
Becton Dickinson and Company
(medical technology), Cooper
Industries, Inc. (electrical
products and tools and hardware),
Health Net, Inc. (formerly
Foundation Health) (integrated
managed care), The Hertz
Corporation (car rental), Pacific
Southwest Airlines, The RCA
Corporation, Unicom (formerly
Commonwealth Edison), UAL
Corporation (airlines) and White
Mountains Insurance Group, Ltd.
(holding company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since 2005 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (1997-2001); Senior Fellow of The Brookings
Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S.
Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. TSERETOPOULOS Director Since 1990 20 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Report | 33

INTERESTED BOARD MEMBERS AND OFFICERS

**NICHOLAS F. BRADY (1930) Director Since 1993 10 Director, Hess Corporation
500 East Broward Blvd. (formerly Amerada Hess
Suite 2100 Corporation) (exploration and
Fort Lauderdale, FL 33394-3091 refining of oil and gas) and
Weatherford International, Ltd.
(oilfield products and servicing)
(2004-present); and FORMERLY,
Director, H.J. Heinz Company
(processed foods and allied
products) (1987-1988; 1993-2003)
and Total Logistics, Inc.
(operating and investment
business) (until 2005).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Darby Overseas Investments, Ltd., Darby Technology Ventures Group, LLC (investment firms) and Franklin Templeton
Investment Funds (1994-present); Director, Templeton Capital Advisors Ltd.; and FORMERLY, Chairman, Darby Emerging Markets
Investments LDC (until 2004) and Templeton Emerging Markets Investment Trust PLC (until 2003); Secretary of the United States
Department of the Treasury (1988-1993); Chairman of the Board, Dillon, Read & Co. Inc. (investment banking) (until 1988); and
U.S. Senator, New Jersey (April 1982-December 1982).
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and Vice 142 None
One Franklin Parkway Chairman of President since
San Mateo, CA 94403-1906 the Board and 1993 and
Vice President Chairman of the
Board since 1995

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (1964) Vice President Since 2001 Not Applicable Not Applicable
PO Box N-7759
Lyford Cay, Nassau, Bahamas

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; and officer of 14 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------

34 | Annual Report

JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services,
LLC, Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; Vice President, Templeton Global Advisors Limited; and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy
Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman,
Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until
1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin Templeton Services, LLC; and officer of some
of the other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Report | 35

MARK MOBIUS (1936) Vice President Since 1993 Not Applicable Not Applicable
17th Floor, The Chater House
8 Connaught Road
Central Hong Kong

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; and officer
and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment
companies in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited
(investment manager of Taiwan R.O.C. Fund) (1986-1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
- ------------------------------------------------------------------------------------------------------------------------------------
GARY P. MOTYL (1952) President Since 2005 Not Applicable Not Applicable
500 East Broward Blvd. and Chief
Suite 2100 Executive
Fort Lauderdale, FL 33394-3091 Officer -
Investment
Management

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Templeton Investment Counsel, LLC; and officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President
and Assistant Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust
International of the South; and officer of 14 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 16 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------

36 | Annual Report

GALEN VETTER (1951) Chief Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Financial
Suite 2100 Officer and
Fort Lauderdale, FL 33394-3091 Chief
Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------

* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.

** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Nicholas F. Brady is considered to be an interested person of
the Fund under the federal securities laws due to his ownership interest
in a subsidiary of Resources, as well as his director positions with such
company and certain other related companies.

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a director of the Fund.

THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF DIRECTORS
HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT
COMMITTEE AND HAS DESIGNATED EACH OF FRANK A. OLSON AND DAVID W. NIEMIEC AS AN
AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS. OLSON AND
NIEMIEC QUALIFY AS SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND
AND EXPERIENCE. MR. OLSON HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2003. HE CURRENTLY SERVES AS CHAIRMAN EMERITUS OF THE HERTZ CORPORATION
AND WAS FORMERLY ITS CHAIRMAN OF THE BOARD FROM 1980 TO 2000 AND ITS CHIEF
EXECUTIVE OFFICER FROM 1977 TO 1999. MR. OLSON IS ALSO A DIRECTOR AND AUDIT
COMMITTEE MEMBER OF HESS CORPORATION (FORMERLY, AMERADA HESS CORPORATION), A
FORMER DIRECTOR AND AUDIT COMMITTEE MEMBER OF WHITE MOUNTAINS INSURANCE GROUP,
LTD. AND FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF UAL
CORPORATION. MR. NIEMIEC HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2005, CURRENTLY SERVES AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY
ITS MANAGING DIRECTOR FROM 1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS
CORPORATION AND OSI PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS
FORMERLY MANAGING DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS
VICE CHAIRMAN FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF
DILLON, READ & CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD
OF DIRECTORS BELIEVES THAT MR. OLSON AND MR. NIEMIEC HAVE EACH ACQUIRED AN
UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL
STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE
ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING
FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF
ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MESSRS. OLSON AND NIEMIEC ARE
INDEPENDENT DIRECTORS AS THAT TERM IS DEFINED UNDER THE APPLICABLE U.S.
SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES.

THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL FRANKLIN TEMPLETON INSTITUTIONAL SERVICES AT
1-800/321-8563 TO REQUEST THE SAI.

Annual Report | 37

Templeton Institutional Funds, Inc.

SHAREHOLDER INFORMATION

EMERGING MARKETS SERIES

PROXY VOTING POLICIES AND PROCEDURES

The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

38 | Annual Report

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[LOGO](R) FRANKLIN TEMPLETON INSTITUTIONAL
FRANKLIN(R) TEMPLETON(R) 600 Fifth Avenue
INSTITUTIONAL New York, NY 10020

ANNUAL REPORT

TEMPLETON INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS SERIES

INVESTMENT MANAGER

Templeton Asset Management Ltd.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906

FRANKLIN TEMPLETON INSTITUTIONAL SERVICES

1-800/321-8563
franklintempletoninstitutional.com

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges,
and expenses before investing. 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 investment manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund. The prospectus
contains this and other information; please read it carefully before investing.

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
identified by the presence of a regular beeping tone.

ZT456 A2006 02/07

FOREIGN EQUITY SERIES

ANNUAL REPORT 12/31/2006
- --------------------------------------------------------------------------------

THE EXPERTISE OF MANY. THE STRENGTH OF ONE.
- --------------------------------------------------------------------------------

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

TEMPLETON INSTITUTIONAL FUNDS, INC.

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

Foreign Equity Series

[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INSTITUTIONAL

FRANKLIN o TEMPLETON o FIDUCIARY

Contents

ANNUAL REPORT

TIFI Foreign Equity Series ................................................ 1

Performance Summary ....................................................... 6

Your Fund's Expenses ...................................................... 8

Financial Highlights and Statement of Investments ......................... 10

Financial Statements ...................................................... 17

Notes to Financial Statements ............................................. 20

Report of Independent Registered Public Accounting Firm ................... 29

Tax Designation ........................................................... 30

Board Members and Officers ................................................ 33

Shareholder Information ................................................... 39

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

Annual Report

TIFI Foreign Equity Series

YOUR FUND'S GOAL AND MAIN INVESTMENTS: TIFI Foreign Equity Series seeks
long-term capital growth. Under normal market conditions, the Fund invests at
least 80% of its net assets in foreign (non-U.S.) equity securities.

We are pleased to bring you Templeton Institutional Funds, Inc. (TIFI) Foreign
Equity Series' (the Fund's) annual report for the fiscal year ended December 31,
2006.

PERFORMANCE OVERVIEW

For the year under review, the Fund's Primary Shares posted a cumulative total
return of +29.04%. The Fund outperformed its benchmarks, the Morgan Stanley
Capital International (MSCI) All Country (AC) World ex USA Index; the MSCI
Europe, Australasia, Far East (EAFE) Index; and the MSCI AC World Index, which
posted total returns of +27.16%, +26.86%, and +21.53%, respectively, for the
same period. 1 Please note that index

1. Source: Standard & Poor's Micropal. The MSCI AC World ex USA Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed and emerging
markets, excluding the U.S. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
MSCI AC World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed and emerging markets. The indexes are
unmanaged and include reinvested dividends. One cannot invest directly in
an index, nor is an index representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 12.

- -----------------------------------------------------
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
- -----------------------------------------------------

Annual Report | 1

GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/06

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Europe 65.4%
Asia 21.5%
North America 3.6%
Australia & New Zealand 2.4%
Latin America 2.1%
Middle East & Africa 0.6%
Short-Term Investments & Other Net Assets 4.4%

performance information is provided for reference and that we do not attempt to
track an index but rather undertake investments on the basis of fundamental
research. You can find the Fund's long-term performance data in the Performance
Summary beginning on page 6.

ECONOMIC AND MARKET OVERVIEW

The global economy grew in 2006, although gross domestic product growth slowed
in the U.S. while it accelerated in Europe. The economic drivers remained
consistent over the past four years: strong corporate and consumer demand,
reasonably low inflation, a tight or improving labor market, and a relatively
moderate interest rate environment, despite recent interest rate hikes by many
of the world's central banks. However, the economy also faced head-winds from
elevated energy prices, higher global interest rates and a weaker U.S. housing
market. These factors dampened investor confidence mid-year, when many equity
markets declined before rebounding later in the year.

Despite such challenges, global economic activity was healthy. Strong global
liquidity -- whether petrodollars, corporate cash, private equity, household
savings or central banks' reserves -- continued to search for a home. Largely as
a result, bond yield spreads over U.S. Treasuries narrowed, and equity and
commodity markets rose in the latter part of the year. The shift from risk
aversion to risk tolerance was concurrent with the U.S. Federal Reserve Board's
decisions since June to hold the federal funds target rate at 5.25%, as well as
with lower oil prices in the second half of the year.

Narrowing corporate credit spreads globally reflected greater risk tolerance,
while abundant cash supplies in the capital markets contributed to record global
merger and acquisition activity in 2006. The total value of deals announced as a
result of hostile takeovers, private equity buyouts and broad corporate
consolidation was $3.8 trillion. 2 This figure surpassed the $3.4 trillion mark
set in 2000. 2 Announced deals from private equity alone reached a record $700
billion, more than double the record set in 2005 and 20 times greater than a
decade ago. 3

2. Source: "Can M&A's `Best of Times' Get Better?," THE WALL STREET JOURNAL,
1/2/07.

3. Source: "TPG tops buy-out league with $101bn," THE WALL STREET JOURNAL,
12/27/06.

2 | Annual Report

With this economic backdrop, the non-U.S. equity markets -- including emerging
markets that remained a major magnet for global fund flows -- led global equity
markets to end 2006 on a strong note, and all major regions delivered
double-digit total returns for the year. Stock market indexes in the U.S. and
most European countries reached six-year highs in the fourth quarter, and many
emerging market indexes in Asia, Europe and Latin America neared or reached
all-time highs.

INVESTMENT STRATEGY

We employ a bottom-up, value-oriented, long-term investment strategy. Our
in-depth fundamental internal research evaluates a company's potential to grow
earnings, asset value and/or cash flow over a five-year horizon. Stocks are
selected for purchase or sale utilizing strict valuation parameters, reflecting
our focus on individual companies rather than countries or sectors.

MANAGER'S DISCUSSION

During the year under review, the Fund benefited from cash availability in the
capital markets, which had a broad-based impact across countries and sectors.
Each of the Fund's 10 major investment sectors contributed double-digit absolute
total returns over the past year.

Relative to the MSCI AC World ex USA Index, the Fund's returns were higher in
eight out of ten major sectors, with industrials and telecommunication services
providing the highest relative returns. 4 Holdings that delivered the strongest
returns within these sectors included Vestas Wind Systems (wind turbines;
Demark) and British Airways in industrials; and Telenor (Norway) and China
Mobile in telecommunication services.

PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 12/31/06

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Commercial Banks 13.3%
Diversified Telecommunication Services 9.2%
Oil, Gas & Consumable Fuels 5.8%
Insurance 5.1%
Pharmaceuticals 4.4%
Electric Utilities 3.6%
Household Durables 3.6%
Food Products 3.5%
Media 3.5%
Semiconductors & Semiconductor Equipment 3.4%
Aerospace & Defense 3.3%
Industrial Conglomerates 2.9%
Wireless Telecommunication Services 2.2%
Paper & Forest Products 2.1%
Metals & Mining 2.0%
Other 27.7%
Short-Term Investments & Other Net Assets 4.4%

4. The industrials sector comprises aerospace and defense, air freight and
logistics, airlines, building products, commercial services and supplies,
construction and engineering, electrical equipment, industrial
conglomerates, machinery, marine, road and rail, trading companies and
distributors, and transportation infrastructure in the SOI. The
telecommunication services sector comprises diversified telecommunication
services and wireless telecommunication services in the SOI.

Annual Report | 3

TOP 10 EQUITY HOLDINGS
12/31/06

- ---------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ---------------------------------------------------------------
Samsung Electronics Co. Ltd. 2.4%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, SOUTH KOREA
- ---------------------------------------------------------------
Housing Development Finance Corp. Ltd. 1.8%
THRIFTS & MORTGAGE FINANCE, INDIA
- ---------------------------------------------------------------
Nordea Bank AB, FDR 1.8%
COMMERCIAL BANKS, SWEDEN
- ---------------------------------------------------------------
E.ON AG 1.8%
ELECTRIC UTILITIES, GERMANY
- ---------------------------------------------------------------
Compagnie Generale des Etablissements
Michelin, B 1.8%
AUTO COMPONENTS, FRANCE
- ---------------------------------------------------------------
Celesio AG 1.7%
HEALTH CARE PROVIDERS & SERVICES,
GERMANY
- ---------------------------------------------------------------
Atlas Copco AB, A 1.7%
MACHINERY, SWEDEN
- ---------------------------------------------------------------
Rolls-Royce Group PLC, ord. & B 1.6%
AEROSPACE & DEFENSE, U.K.
- ---------------------------------------------------------------
Telefonica SA, ord. & ADR 1.6%
DIVERSIFIED TELECOMMUNICATION
SERVICES, SPAIN
- ---------------------------------------------------------------
Sanofi-Aventis, ord. & ADR 1.6%
PHARMACEUTICALS, FRANCE
- ---------------------------------------------------------------

performance. For the 12 months ended December 31, 2006, the U.S. dollar declined
in value relative to most non-U.S. currencies. As a result, the Fund's
performance was positively affected by the portfolio's investment predominantly
in securities with non-U.S. currency exposure. However, one cannot expect the
same result in future periods.

The Fund's consumer staples and materials sector holdings slightly
underperformed those of the index. 5 This was partly due to stock selection in
food, beverage and tobacco stocks, and our underweighted position in metals and
mining stocks. The demand for industrial commodities such as metals -- and
related equities -- remained heightened, partly as a result of interest from
financial players, such as hedge funds, as opposed to the underlying
commodities' end-users.

Our value-focused, bottom-up process has always driven our stock selection and,
thus, the Fund's absolute and relative weightings whether by sector, country or
industry. Based on this investment strategy, we believed that certain of our
materials-related holdings' valuations exceeded what we could justify based on
underlying company and industry fundamentals. As a result -- and given other
stock alternatives that our analyses revealed as having greater potential to
unlock value over the longer term -- we reduced or liquidated these positions.
We used part of these proceeds to buy telecommunications companies despite their
apparent unattractiveness in the broader market. As of December 31, 2006, the
Fund's largest relative overweighted position was in telecommunication services,
which had the greatest positive effect on performance relative to the benchmark,
and served as a measure of confirmation of our stock selection process.

5. The consumer staples sector comprises beverages, food and staples
retailing, food products, household products, personal products, and
tobacco in the SOI. The materials sector comprises chemicals, construction
materials, containers and packaging, metals and mining, and paper and
forest products in the SOI.

4 | Annual Report

Thank you for your continued participation in the Fund. We look forward to
serving your future investment needs.

[PHOTO] /s/ Gary P. Motyl, CFA

Gary P. Motyl, CFA
President - Templeton Investment Counsel, LLC
Chief Investment Officer - Templeton Institutional
Global Equities

Annual Report | 5

Performance Summary as of 12/31/06

Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graph do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses on the sale of Fund shares.

PRICE AND DISTRIBUTION INFORMATION

- ---------------------------------------------------------------------------------------------------------------
PRIMARY SHARES (SYMBOL: TFEQX) CHANGE 12/31/06 12/31/05
- ---------------------------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$4.36 $26.67 $22.31
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- ---------------------------------------------------------------------------------------------------------------
Dividend Income $0.7356
- ---------------------------------------------------------------------------------------------------------------
Short-term Capital Gain $0.1321
- ---------------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $1.1844
- ---------------------------------------------------------------------------------------------------------------
TOTAL $2.0521
- ---------------------------------------------------------------------------------------------------------------
SERVICE SHARES (SYMBOL: N/A) CHANGE 12/31/06 9/18/06
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.52 $26.67 $25.15
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (9/18/06-12/31/06)
- ---------------------------------------------------------------------------------------------------------------
Dividend Income $0.6577
- ---------------------------------------------------------------------------------------------------------------
Short-term Capital Gain $0.1321
- ---------------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $1.0480
- ---------------------------------------------------------------------------------------------------------------
TOTAL $1.8378
- ---------------------------------------------------------------------------------------------------------------

PERFORMANCE

THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

- ---------------------------------------------------------------------------------------------------------------
PRIMARY SHARES 1 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------------------------

Cumulative Total Return 2 +29.04% +115.98% +179.34%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +29.04% +16.65% +10.82%
- ---------------------------------------------------------------------------------------------------------------
Value of $1,000,000 Investment 4 $1,290,417 $2,159,829 $2,793,367
- ---------------------------------------------------------------------------------------------------------------
SERVICE SHARES INCEPTION (9/18/06)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +13.31%
- ---------------------------------------------------------------------------------------------------------------
Aggregate Total Return 5 +13.31%
- ---------------------------------------------------------------------------------------------------------------
Value of $1,000,000 Investment 4 $1,133,066
- ---------------------------------------------------------------------------------------------------------------

FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE CALL 1-800/321-8563.

6 | Annual Report

Performance Summary (CONTINUED)

TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $1,000,000 INVESTMENT 1

PRIMARY SHARES (1/1/97-12/31/06)
$ Millions

[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]

TIFI Foreign MSCI AC World MSCI AC
Calendar Month Equity Series ex USA Index 6 MSCI EAFE Index 6 World Index 6 CPI 6

Incept 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
Jan-97 1,018,359.85 981,629.54 1,016,776.35 965,233.77 1,003,165.63
Feb-97 1,032,425.95 999,630.59 1,030,639.10 981,254.15 1,006,218.20
Mar-97 1,042,842.12 997,535.48 1,010,022.29 985,049.29 1,008,705.48
Apr-97 1,037,940.39 1,005,947.57 1,042,462.73 990,514.24 1,009,949.12
May-97 1,080,830.49 1,068,083.11 1,104,663.77 1,055,216.35 1,009,270.77
Jun-97 1,128,622.31 1,127,015.29 1,161,190.75 1,113,648.90 1,010,514.41
Jul-97 1,169,674.26 1,149,834.56 1,213,695.91 1,131,894.19 1,011,758.06
Aug-97 1,103,500.97 1,059,380.76 1,128,540.74 1,047,592.00 1,013,680.05
Sep-97 1,192,344.75 1,116,655.85 1,188,726.84 1,106,513.38 1,016,167.33
Oct-97 1,104,113.68 1,021,584.37 1,117,946.22 1,021,703.81 1,018,767.67
Nov-97 1,096,761.10 1,008,818.45 1,135,048.98 1,011,524.00 1,018,089.32
Dec-97 1,114,295.83 1,020,428.63 1,149,951.44 1,020,579.62 1,016,845.68
Jan-98 1,127,775.21 1,050,952.83 1,175,267.08 1,067,491.58 1,018,767.67
Feb-98 1,199,665.27 1,121,078.27 1,255,667.00 1,136,236.09 1,020,802.71
Mar-98 1,287,865.96 1,159,814.03 1,309,244.12 1,171,479.41 1,022,837.76
Apr-98 1,304,616.59 1,168,120.58 1,321,515.07 1,181,018.56 1,024,646.69
May-98 1,290,442.98 1,146,937.29 1,296,441.22 1,175,554.36 1,026,455.62
Jun-98 1,278,202.13 1,142,625.69 1,319,798.35 1,184,715.25 1,027,699.27
Jul-98 1,300,751.06 1,153,497.04 1,320,229.54 1,196,989.33 1,028,942.91
Aug-98 1,091,368.15 990,822.69 1,135,262.57 1,048,959.28 1,030,186.55
Sep-98 1,075,261.77 969,892.71 1,157,845.95 1,017,074.14 1,031,430.19
Oct-98 1,158,370.68 1,071,481.72 1,263,589.73 1,123,380.78 1,033,917.47
Nov-98 1,220,863.43 1,129,062.90 1,340,302.32 1,181,211.66 1,033,917.47
Dec-98 1,227,516.17 1,167,962.26 1,402,547.68 1,228,095.98 1,033,239.12
Jan-99 1,214,383.96 1,166,711.52 1,431,212.14 1,224,747.27 1,035,839.46
Feb-99 1,186,737.20 1,140,588.64 1,395,241.53 1,195,841.67 1,036,856.98
Mar-99 1,250,857.96 1,195,657.80 1,457,998.69 1,246,048.20 1,040,022.61
Apr-99 1,353,421.38 1,255,466.02 1,520,989.57 1,296,823.07 1,047,484.45
May-99 1,303,525.66 1,196,496.89 1,467,243.21 1,230,322.40 1,047,484.45
Jun-99 1,365,202.31 1,251,476.34 1,540,292.65 1,278,572.86 1,047,484.45
Jul-99 1,372,825.27 1,280,828.97 1,533,997.99 1,316,870.70 1,050,310.91
Aug-99 1,365,895.31 1,285,272.50 1,532,156.34 1,321,974.05 1,053,476.54
Sep-99 1,338,175.47 1,293,964.29 1,515,637.91 1,335,575.28 1,057,998.87
Oct-99 1,359,658.35 1,342,146.51 1,592,398.86 1,385,892.37 1,060,146.98
Nov-99 1,427,571.96 1,395,811.89 1,641,877.60 1,434,330.26 1,060,599.21
Dec-99 1,563,077.93 1,528,933.08 1,778,659.42 1,563,344.87 1,060,599.21
Jan-00 1,466,519.94 1,445,967.84 1,682,720.32 1,464,284.32 1,063,538.72
Feb-00 1,507,175.94 1,485,025.52 1,688,426.62 1,503,979.35 1,069,643.87
Mar-00 1,537,552.68 1,540,912.67 1,799,425.34 1,562,569.79 1,078,236.29
Apr-00 1,471,782.84 1,454,912.95 1,718,703.03 1,480,623.90 1,079,140.76
May-00 1,466,667.41 1,417,697.07 1,674,100.43 1,444,752.41 1,079,932.17
Jun-00 1,541,937.34 1,478,048.86 1,730,853.08 1,501,592.00 1,085,811.19
Jul-00 1,520,744.83 1,419,697.19 1,680,016.28 1,438,931.53 1,088,185.42
Aug-00 1,543,398.89 1,437,260.21 1,732,239.36 1,451,716.03 1,088,185.42
Sep-00 1,471,052.06 1,357,535.27 1,637,098.17 1,381,316.85 1,093,838.33
Oct-00 1,410,397.66 1,314,387.64 1,605,068.77 1,348,968.25 1,095,647.26
Nov-00 1,400,897.57 1,255,418.52 1,505,631.74 1,298,670.09 1,096,325.61
Dec-00 1,471,554.99 1,298,281.17 1,530,786.19 1,345,132.98 1,095,421.14
Jan-01 1,494,995.69 1,317,765.15 1,569,485.02 1,344,498.75 1,102,656.87
Feb-01 1,445,509.77 1,213,437.19 1,437,430.23 1,243,802.47 1,107,292.26
Mar-01 1,336,159.46 1,127,664.40 1,340,656.95 1,161,449.54 1,110,005.65
Apr-01 1,411,757.96 1,204,360.15 1,438,320.83 1,242,910.01 1,113,962.69
May-01 1,402,967.44 1,171,102.28 1,422,285.98 1,200,029.46 1,118,824.19
Jun-01 1,371,321.55 1,126,186.74 1,378,698.92 1,151,401.11 1,121,085.36
Jul-01 1,337,917.57 1,101,129.88 1,356,981.95 1,130,543.19 1,117,580.55
Aug-01 1,322,973.68 1,073,782.65 1,294,619.72 1,102,138.92 1,118,032.79
Sep-01 1,160,349.01 959,865.74 1,176,363.20 990,755.43 1,122,668.17
Oct-01 1,198,148.26 986,759.13 1,201,360.48 1,016,089.67 1,118,824.19
Nov-01 1,269,351.49 1,031,891.03 1,275,244.11 1,053,611.29 1,116,902.20
Dec-01 1,293,328.24 1,045,184.68 1,287,196.70 1,059,892.22 1,112,492.93
Jan-02 1,256,682.45 1,000,422.19 1,251,927.29 1,003,655.80 1,115,432.45
Feb-02 1,277,239.84 1,007,625.77 1,242,731.12 1,010,744.37 1,119,954.78
Mar-02 1,339,323.61 1,062,362.46 1,298,851.08 1,065,925.13 1,125,833.80
Apr-02 1,341,114.15 1,069,265.23 1,257,714.18 1,073,644.52 1,132,278.12
May-02 1,365,286.44 1,080,912.35 1,259,491.35 1,088,209.40 1,132,052.01
Jun-02 1,308,884.44 1,034,239.45 1,182,629.65 1,045,297.05 1,132,956.47
Jul-02 1,168,327.08 933,457.88 1,083,450.54 942,185.02 1,134,200.11
Aug-02 1,171,012.89 933,510.65 1,086,251.29 940,269.46 1,137,817.98
Sep-02 1,026,874.45 834,581.43 967,108.21 839,523.96 1,139,626.91
Oct-02 1,083,276.45 879,354.47 1,038,324.06 884,709.68 1,142,001.13
Nov-02 1,156,688.57 921,641.89 1,095,121.04 924,975.70 1,141,775.01
Dec-02 1,101,913.06 891,867.07 1,042,910.05 893,942.89 1,139,287.73
Jan-03 1,071,935.21 860,556.55 1,012,472.45 856,690.87 1,144,375.35
Feb-03 1,040,140.52 843,120.18 994,728.93 837,107.46 1,153,193.89
Mar-03 1,006,419.62 826,765.67 990,969.06 821,287.38 1,160,090.45
Apr-03 1,121,491.20 906,432.56 1,079,464.99 902,724.37 1,157,716.22
May-03 1,184,506.58 964,172.06 1,142,290.66 958,260.30 1,155,455.06
Jun-03 1,213,731.11 991,007.39 1,164,221.21 981,976.98 1,156,698.70
Jul-03 1,274,919.96 1,017,367.76 1,190,068.79 1,005,894.33 1,157,829.28
Aug-03 1,324,236.35 1,047,580.60 1,218,306.08 1,030,360.72 1,162,464.67
Sep-03 1,333,369.01 1,076,912.12 1,226,087.76 1,062,328.03 1,165,969.47
Oct-03 1,434,741.59 1,146,720.92 1,300,467.06 1,128,609.46 1,164,838.89
Nov-03 1,460,313.05 1,171,725.01 1,320,390.74 1,153,862.29 1,161,334.09
Dec-03 1,571,454.47 1,261,186.67 1,404,119.33 1,244,059.57 1,160,203.50
Jan-04 1,595,559.37 1,281,435.86 1,428,177.65 1,261,743.70 1,165,969.47
Feb-04 1,640,060.74 1,314,018.23 1,454,533.00 1,291,085.12 1,171,848.50
Mar-04 1,625,971.19 1,322,103.13 1,446,787.59 1,298,856.01 1,178,858.11
Apr-04 1,588,699.64 1,281,013.67 1,413,577.44 1,270,576.31 1,182,362.92
May-04 1,592,426.80 1,285,066.68 1,425,501.82 1,276,078.37 1,189,485.59
Jun-04 1,625,971.19 1,312,920.54 1,454,311.36 1,304,556.47 1,193,103.45
Jul-04 1,581,245.33 1,274,659.74 1,408,177.41 1,262,399.13 1,190,729.23
Aug-04 1,591,495.01 1,284,866.14 1,417,321.18 1,268,260.15 1,191,972.87
Sep-04 1,649,265.90 1,326,177.25 1,447,182.52 1,301,593.22 1,194,347.09
Oct-04 1,714,491.11 1,372,301.29 1,482,895.22 1,346,056.11 1,200,678.35
Nov-04 1,840,282.58 1,467,552.21 1,564,350.97 1,438,382.12 1,201,356.70
Dec-04 1,905,348.96 1,530,569.06 1,625,326.92 1,501,551.11 1,196,947.43
Jan-05 1,880,909.36 1,504,203.41 1,591,197.96 1,474,113.51 1,199,434.71
Feb-05 1,969,267.92 1,578,397.69 1,647,064.04 1,538,145.05 1,206,444.32
Mar-05 1,923,686.22 1,535,582.54 1,611,560.89 1,500,098.64 1,215,828.15
Apr-05 1,863,897.26 1,497,712.27 1,576,964.46 1,466,521.34 1,223,968.34
May-05 1,887,623.04 1,507,105.95 1,607,595.50 1,468,764.80 1,222,724.70
Jun-05 1,904,705.60 1,535,461.16 1,624,553.19 1,488,841.96 1,223,403.05
Jul-05 1,991,067.44 1,592,113.53 1,685,057.65 1,534,577.86 1,229,055.96
Aug-05 2,024,283.53 1,632,859.95 1,698,638.31 1,573,797.31 1,235,387.22
Sep-05 2,085,970.56 1,717,086.48 1,750,220.64 1,644,209.36 1,250,537.03
Oct-05 2,010,048.06 1,654,576.26 1,703,405.64 1,596,303.08 1,253,024.31
Nov-05 2,062,244.78 1,710,204.81 1,766,307.87 1,635,775.09 1,242,962.13
Dec-05 2,164,701.54 1,792,489.27 1,810,185.09 1,711,998.55 1,237,987.56
Jan-06 2,290,838.34 1,917,467.50 1,899,696.55 1,817,233.25 1,247,484.45
Feb-06 2,277,254.38 1,911,931.56 1,897,677.59 1,813,511.19 1,249,971.74
Mar-06 2,333,469.51 1,967,465.13 1,938,415.54 1,874,170.91 1,256,868.29
Apr-06 2,432,370.23 2,068,911.65 2,003,913.00 1,965,066.41 1,267,608.82
May-06 2,338,365.58 1,973,528.81 1,926,603.99 1,891,117.83 1,273,940.08
Jun-06 2,339,344.80 1,971,560.35 1,926,555.63 1,891,811.13 1,276,427.36
Jul-06 2,384,388.69 1,991,730.39 1,940,180.62 1,910,755.01 1,280,158.28
Aug-06 2,451,954.53 2,048,182.22 1,991,460.71 1,963,813.86 1,282,645.56
Sep-06 2,497,977.64 2,049,512.11 2,015,212.76 1,967,231.11 1,276,314.30
Oct-06 2,600,795.22 2,132,968.14 2,091,191.91 2,043,919.92 1,269,417.75
Nov-06 2,693,820.65 2,210,407.99 2,151,341.75 2,105,569.80 1,267,495.76
Dec-06 2,793,367.25 2,279,293.26 2,199,893.61 2,171,798.22 1,274,392.31

AVERAGE ANNUAL TOTAL RETURN

- ----------------------------------------
PRIMARY SHARES 12/31/06
- ----------------------------------------
1-Year +29.04%
- ----------------------------------------
5-Year +16.65%
- ----------------------------------------
10-Year +10.82%
- ----------------------------------------

ENDNOTES

SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN
DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN
ADDITION TO THOSE ASSOCIATED WITH THESE MARKETS' SMALLER SIZE AND LESSER
LIQUIDITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.

2. Cumulative total return represents the change in value of an investment
over the periods indicated.

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

4. These figures represent the value of a hypothetical $1,000,000 investment
in the Fund over the periods indicated.

5. Aggregate total return represents the change in value of an investment
over the period indicated. Since the share class has existed for less than
one year, average annual total returns are not available.

6. Source: Standard & Poor's Micropal. The MSCI AC World ex USA Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed and emerging markets
excluding the U.S. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets, excluding the U.S. and Canada.
The MSCI AC World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed and emerging markets. The Consumer Price
Index (CPI), calculated by the U.S. Bureau of Labor Statistics, is a
commonly used measure of the inflation rate.

Annual Report | 7

Your Fund's Expenses

As a Fund shareholder, you can incur two types of costs:

o Transaction costs, including sales charges (loads) on Fund purchases, if
applicable, and redemption fees; and

o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, if applicable, and other Fund expenses. All mutual funds
have ongoing costs, sometimes referred to as operating expenses.

ACTUAL FUND EXPENSES

The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = $8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.

8 | Annual Report

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.

- -----------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
PRIMARY SHARES VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -----------------------------------------------------------------------------------------------------------------

Actual $1,000 $1,194.10 $4.42
- -----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.17 $4.08
- -----------------------------------------------------------------------------------------------------------------
SERVICE SHARES
- -----------------------------------------------------------------------------------------------------------------
Actual (9/18/06-12/31/06) $1,000 $1,133.10 $2.43
- -----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.17 $4.08
- -----------------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio for each class (Primary
Shares: 0.80% and Service Shares: 0.80%), multiplied by the average
account value over the period, multiplied by 184/365 for Primary Shares
(Actual and Hypothetical) and Service Shares (Hypothetical only) to
reflect the one-half year period. For actual Service Shares expenses, the
multiplier is 104/365 to reflect the number of days since inception.

Annual Report | 9

Templeton Institutional Funds, Inc.

FINANCIAL HIGHLIGHTS

FOREIGN EQUITY SERIES

----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
PRIMARY SHARES 2006 2005 2004 2003 2002
----------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year ............... $ 22.31 $ 20.27 $ 16.95 $ 12.13 $ 14.47
----------------------------------------------------------------------------
Income from investment operations a:

Net investment income b ......................... 0.55 0.42 0.33 0.25 0.23

Net realized and unrealized gains (losses) ...... 5.86 2.32 3.25 4.87 (2.37)
----------------------------------------------------------------------------
Total from investment operations ................. 6.41 2.74 3.58 5.12 (2.14)
----------------------------------------------------------------------------
Less distributions from:

Net investment income ........................... (0.74) (0.66) (0.26) (0.30) (0.20)

Net realized gains .............................. (1.31) (0.04) -- -- --
----------------------------------------------------------------------------
Total distributions .............................. (2.05) (0.70) (0.26) (0.30) (0.20)
----------------------------------------------------------------------------
Redemption fees .................................. -- c -- c -- c -- --
----------------------------------------------------------------------------
Net asset value, end of year ..................... $ 26.67 $ 22.31 $ 20.27 $ 16.95 $ 12.13
============================================================================
Total return ..................................... 29.04% 13.61% 21.25% 42.61% (14.80)%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) .................. $7,311,236 $6,245,721 $5,658,170 $4,642,764 $3,164,910

Ratios to average net assets:

Expenses ........................................ 0.80% d 0.81% d 0.82% d 0.83% 0.83%

Net investment income ........................... 2.25% 2.01% 1.89% 1.85% 1.68%

Portfolio turnover rate .......................... 7.59% 12.97% 18.25% 8.93% 16.26%

b Based on average daily shares outstanding.

c Amount rounds to less than $0.01 per share.

d Benefit of expense reduction rounds to less than 0.01%.

10 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL HIGHLIGHTS (CONTINUED)

FOREIGN EQUITY SERIES

------------
PERIOD ENDED
DECEMBER 31,
SERVICE SHARES 2006 d
------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $ 25.15
--------
Income from investment operations a:
Net investment income b ..................................... 0.05
Net realized and unrealized gains (losses) .................. 3.31
--------
Total from investment operations ............................. 3.36
--------
Less distributions from:
Net investment income ....................................... (0.66)
Net realized gains .......................................... (1.18)
--------
Total distributions .......................................... (1.84)
--------
Redemption fees .............................................. -- e
--------
Net asset value, end of period ............................... $ 26.67
========
Total return c ............................................... 13.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $ 11
Ratios to average net assets:
Expenses .................................................... 0.80% f,g
Net investment income ....................................... 2.25% g
Portfolio turnover rate ...................................... 7.59%

b Based on average daily shares outstanding.

c Total return is not annualized for periods less than a year.

d For the period September 18, 2006 (effective date) to December 31, 2006.

e Amount rounds to less than $0.01 per share.

f Benefit of expense reduction rounds to less than 0.01%.

g Annualized.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 11

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006

- ----------------------------------------------------------------------------------------------------------------------------
FOREIGN EQUITY SERIES INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS 95.6%
COMMON STOCKS 95.1%
AUSTRALIA 2.4%
Alumina Ltd. ............................... Metals & Mining 6,912,015 $ 34,593,225
National Australia Bank Ltd. ............... Commercial Banks 2,903,680 92,603,466
Qantas Airways Ltd. ........................ Airlines 11,228,850 46,270,363
--------------
173,467,054
--------------
BERMUDA 1.4%
ACE Ltd. ................................... Insurance 1,108,930 67,167,890
XL Capital Ltd., A ......................... Insurance 450,020 32,410,440
--------------
99,578,330
--------------
BRAZIL 0.5%
Embraer-Empresa Brasileira de
Aeronautica SA, ADR ...................... Aerospace & Defense 980,000 40,601,400
--------------
CANADA 1.9%
Alcan Inc. ................................. Metals & Mining 740,843 36,099,606
BCE Inc. (CAD Traded) ...................... Diversified Telecommunication Services 2,259,189 60,878,382
BCE Inc. (USD Traded) ...................... Diversified Telecommunication Services 5,416 146,232
Husky Energy Inc. .......................... Oil, Gas & Consumable Fuels 578,590 38,749,765
--------------
135,873,985
--------------
CHINA 1.7%
China Mobile (Hong Kong) Ltd. .............. Wireless Telecommunication Services 8,492,000 73,357,938
China Telecom Corp. Ltd., H ................ Diversified Telecommunication Services 89,754,000 49,150,876
--------------
122,508,814
--------------
DENMARK 0.8%
a Vestas Wind Systems AS ..................... Electrical Equipment 1,451,613 61,348,970
--------------
FINLAND 2.1%
Stora Enso OYJ, R (EUR/FIM Traded) ......... Paper & Forest Products 1,673,625 26,511,223
Stora Enso OYJ, R (SEK Traded) ............. Paper & Forest Products 2,814,636 44,368,970
UPM-Kymmene OYJ ............................ Paper & Forest Products 3,278,200 82,739,653
--------------
153,619,846
--------------
FRANCE 8.9%
Accor SA ................................... Hotels, Restaurants & Leisure 494,470 38,314,963
AXA SA ..................................... Insurance 2,311,148 93,568,979
Compagnie Generale des Etablissements
Michelin, B .............................. Auto Components 1,341,820 128,417,032
France Telecom SA .......................... Diversified Telecommunication Services 3,183,580 88,042,052
Sanofi-Aventis ............................. Pharmaceuticals 1,236,450 114,170,693
Sanofi-Aventis, ADR ........................ Pharmaceuticals 6,813 314,556
Suez SA .................................... Multi-Utilities 1,478,380 76,558,735
Suez SA, ADR ............................... Multi-Utilities 7,250 376,710
a Thomson SA ................................. Household Durables 2,572,370 50,289,678
Total SA, B ................................ Oil, Gas & Consumable Fuels 806,748 58,199,389
--------------
648,252,787
--------------
GERMANY 10.0%
BASF AG .................................... Chemicals 534,020 52,228,491
BASF AG, ADR ............................... Chemicals 6,430 625,060

12 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
GERMANY (CONTINUED)
Bayerische Motoren Werke AG ................ Automobiles 1,647,950 $ 94,846,406
Celesio AG ................................. Health Care Providers & Services 2,357,104 125,424,363
Deutsche Post AG ........................... Air Freight & Logistics 3,524,380 106,538,989
E.ON AG .................................... Electric Utilities 956,750 130,450,908
a Infineon Technologies AG ................... Semiconductors & Semiconductor Equipment 4,780,650 67,272,027
Muenchener Rueckversicherungs- .............
Gesellschaft AG .......................... Insurance 321,287 55,559,050
Siemens AG ................................. Industrial Conglomerates 978,790 97,679,107
--------------
730,624,401
--------------
HONG KONG 2.0%
Cheung Kong (Holdings) Ltd. ................ Real Estate 2,550,000 31,386,784
Cheung Kong (Holdings) Ltd., ADR ........... Real Estate 31,535 388,150
Hutchison Whampoa Ltd. ..................... Industrial Conglomerates 5,342,550 54,289,810
Hutchison Whampoa Ltd., ADR ................ Industrial Conglomerates 4,795 243,629
Swire Pacific Ltd., A ...................... Real Estate 5,440,500 58,432,319
Swire Pacific Ltd., B ...................... Real Estate 154,500 315,389
--------------
145,056,081
--------------
INDIA 4.2%
Housing Development Finance Corp. Ltd. ..... Thrifts & Mortgage Finance 3,668,470 135,092,666
ICICI Bank Ltd. ............................ Commercial Banks 4,935,848 99,623,236
Satyam Computer Services Ltd. .............. IT Services 6,695,072 73,446,222
Satyam Computer Services Ltd., ADR ......... IT Services 95,400 2,290,554
--------------
310,452,678
--------------
ISRAEL 0.6%
a Check Point Software Technologies Ltd. ..... Software 2,073,240 45,445,421
--------------
ITALY 2.2%
Eni SpA .................................... Oil, Gas & Consumable Fuels 2,433,040 81,834,990
Mediaset SpA ............................... Media 2,998,145 35,579,733
UniCredito Italiano SpA .................... Commercial Banks 5,363,030 47,007,663
--------------
164,422,386
--------------
JAPAN 4.8%
FUJIFILM Holdings Corp. .................... Leisure Equipment & Products 1,053,900 43,294,586
Hitachi Ltd. ............................... Electronic Equipment & Instruments 6,516,000 40,617,230
Hitachi Ltd., ADR .......................... Electronic Equipment & Instruments 2,275 141,869
Mitsubishi UFJ Financial Group Inc. ........ Commercial Banks 2,836 35,022,640
NEC Corp. .................................. Computers & Peripherals 3,873,000 18,513,353
NEC Corp., ADR ............................. Computers & Peripherals 14,625 70,200
Nintendo Co. Ltd. .......................... Software 171,900 44,623,094
Nomura Holdings Inc. ....................... Capital Markets 1,731,200 32,650,431
Sompo Japan Insurance Inc. ................. Insurance 3,473,000 42,451,506
Sony Corp. ................................. Household Durables 1,023,100 43,834,250
Sony Corp., ADR ............................ Household Durables 4,405 188,666
Takeda Pharmaceutical Co. Ltd. ............. Pharmaceuticals 763,500 52,403,033
--------------
353,810,858
--------------

Annual Report | 13

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
MEXICO 1.1%
Telefonos de Mexico SA de CV, L, ADR ....... Diversified Telecommunication Services 2,933,954 $ 82,913,540
--------------
NETHERLANDS 6.2%
ING Groep NV ............................... Diversified Financial Services 2,548,410 112,997,716
ING Groep NV, ADR .......................... Diversified Financial Services 12,965 572,664
Koninklijke Philips Electronics NV ......... Household Durables 2,954,061 111,408,944
Koninklijke Philips Electronics NV,
N.Y. shs. ................................ Household Durables 11,935 448,517
SBM Offshore NV ............................ Energy Equipment & Services 2,308,110 79,369,673
Unilever NV ................................ Food Products 3,797,500 103,766,815
Unilever NV, N.Y. shs. ..................... Food Products 7,620 207,645
Wolters Kluwer NV .......................... Media 1,499,375 43,127,855
--------------
451,899,829
--------------
NORWAY 1.4%
Telenor ASA ................................ Diversified Telecommunication Services 5,272,050 99,132,058
--------------
PORTUGAL 0.8%
Portugal Telecom SGPS SA ................... Diversified Telecommunication Services 4,496,290 58,403,621
--------------
SINGAPORE 1.6%
DBS Group Holdings Ltd. .................... Commercial Banks 5,624,185 82,889,290
DBS Group Holdings Ltd., ADR ............... Commercial Banks 7,605 448,330
Singapore Telecommunications Ltd. .......... Diversified Telecommunication Services 16,342,000 34,955,010
--------------
118,292,630
--------------
SOUTH KOREA 6.5%
Kookmin Bank ............................... Commercial Banks 900,573 72,530,019
a Kookmin Bank, ADR .......................... Commercial Banks 216,498 17,458,399
a Korea Electric Power Corp. ................. Electric Utilities 1,146,540 52,272,361
a Korea Electric Power Corp., ADR ............ Electric Utilities 12,195 276,948
a KT Corp., ADR .............................. Diversified Telecommunication Services 903,955 22,915,259
LG Electronics Inc. ........................ Household Durables 938,340 55,493,226
POSCO ...................................... Metals & Mining 224,020 74,432,452
POSCO, ADR ................................. Metals & Mining 4,080 337,293
Samsung Electronics Co. Ltd. ............... Semiconductors & Semiconductor Equipment 270,520 178,310,495
--------------
474,026,452
--------------
SPAIN 5.1%
Banco Santander Central Hispano SA ......... Commercial Banks 4,618,890 86,213,919
Endesa SA .................................. Electric Utilities 1,042,932 49,327,961
Iberdrola SA, Br. .......................... Electric Utilities 727,858 31,821,991
Repsol YPF SA .............................. Oil, Gas & Consumable Fuels 2,520,610 87,176,074
Telefonica SA .............................. Diversified Telecommunication Services 5,433,139 115,612,878
Telefonica SA, ADR ......................... Diversified Telecommunication Services 8,892 566,865
--------------
370,719,688
--------------
SWEDEN 4.8%
Atlas Copco AB, A .......................... Machinery 3,695,490 124,060,413
Nordea Bank AB, FDR ........................ Commercial Banks 8,593,898 132,956,069
Securitas AB, B ............................ Commercial Services & Supplies 1,926,540 29,877,230
a Securitas Direct AB, B ..................... Diversified Consumer Services 1,926,540 6,101,985

14 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
SWEDEN (CONTINUED)
a Securitas Systems AB ..................... Commercial Services & Supplies 1,926,540 $ 7,789,169
Swedbank AB, A ........................... Commercial Banks 1,405,980 50,996,326
--------------
351,781,192
--------------
SWITZERLAND 3.8%
Adecco SA ................................ Commercial Services & Supplies 1,031,040 70,439,522
Lonza Group AG ........................... Chemicals 420,110 36,303,462
Nestle SA ................................ Food Products 267,320 94,989,586
Nestle SA, ADR ........................... Food Products 2,310 205,209
Swiss Reinsurance Co. .................... Insurance 922,362 78,418,369
Swiss Reinsurance Co., ADR ............... Insurance 3,295 280,138
UBS AG ................................... Capital Markets 9,510 573,738
--------------
281,210,024
--------------
TAIWAN 0.7%
Chunghwa Telecom Co. Ltd., ADR ........... Diversified Telecommunication Services 1,247,929 24,621,639
Compal Electronics Inc., GDR ............. Computers & Peripherals 1,135,589 5,178,286
b Compal Electronics Inc., GDR, 144A ....... Computers & Peripherals 4,284,621 19,537,872
--------------
49,337,797
--------------
UNITED KINGDOM 19.3%
Alliance Boots PLC ....................... Food & Staples Retailing 2,235,880 36,692,963
Amvescap PLC ............................. Capital Markets 3,236,560 37,776,367
BAE Systems PLC .......................... Aerospace & Defense 9,364,718 78,079,969
BP PLC ................................... Oil, Gas & Consumable Fuels 4,940,110 54,902,580
a British Airways PLC ...................... Airlines 7,028,710 72,608,650
a British Airways PLC, ADR ................. Airlines 8,225 849,396
British Sky Broadcasting Group PLC ....... Media 6,149,950 62,868,393
Cadbury Schweppes PLC .................... Food Products 5,278,910 56,496,910
Compass Group PLC ........................ Hotels, Restaurants & Leisure 14,860,370 84,395,228
GlaxoSmithKline PLC ...................... Pharmaceuticals 4,105,410 108,055,301
HSBC Holdings PLC ........................ Commercial Banks 3,254,421 59,656,959
HSBC Holdings PLC, ADR ................... Commercial Banks 3,790 347,354
National Grid PLC ........................ Multi-Utilities 4,010,399 57,921,511
Pearson PLC .............................. Media 3,511,000 53,046,536
a Rolls-Royce Group PLC .................... Aerospace & Defense 13,555,704 118,863,344
a,c Rolls-Royce Group PLC, B ................. Aerospace & Defense 497,494,336 988,884
Royal Bank of Scotland Group PLC ......... Commercial Banks 2,923,660 114,110,192
Royal Dutch Shell PLC, B, ADR ............ Oil, Gas & Consumable Fuels 1,415,307 100,699,093
Shire PLC ................................ Pharmaceuticals 2,293,320 47,560,991
Shire PLC, ADR ........................... Pharmaceuticals 8,590 530,518
Smiths Group PLC ......................... Industrial Conglomerates 2,980,820 57,878,697
Standard Chartered PLC ................... Commercial Banks 2,715,610 79,346,266
Vodafone Group PLC ....................... Wireless Telecommunication Services 31,957,073 88,555,126
Yell Group PLC ........................... Media 3,309,540 36,943,051
--------------
1,409,174,279
--------------

Annual Report | 15

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

- ----------------------------------------------------------------------------------------------------------------------------
SHARES/
FOREIGN EQUITY SERIES INDUSTRY PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS (CONTINUED)
UNITED STATES 0.3%
News Corp., A .............................. Media 1,089,919 $ 23,411,460
--------------
TOTAL COMMON STOCKS
(COST $3,544,073,765) .................... 6,955,365,581
--------------
PREFERRED STOCKS (COST $31,484,036) 0.5%
BRAZIL 0.5%
Tele Norte Leste Participacoes SA,
ADR, pfd. ................................ Diversified Telecommunication Services 2,195,300 32,753,876
--------------
TOTAL LONG TERM INVESTMENTS
(COST $3,575,557,801) .................... 6,988,119,457
--------------
SHORT TERM INVESTMENTS 4.2%
UNITED STATES (COST $163,947,258) 2.2%
d U.S. Treasury Bills, 1/04/07 - 5/24/07 ..... $165,505,000 164,023,821
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET
FUND (COST $3,739,505,059) ............... 7,152,143,278
--------------
UNITED STATES (COST $145,485,554) 2.0%
e Franklin Institutional Fiduciary Trust
Money Market Portfolio, 4.97% ............ 145,485,554 145,485,554
--------------
TOTAL INVESTMENTS
(COST $3,884,990,613) 99.8% .............. 7,297,628,832
OTHER ASSETS, LESS LIABILITIES 0.2% ........ 13,618,165
--------------
NET ASSETS 100.0% .......................... $7,311,246,997
==============

CURRENCY ABBREVIATIONS

CAD - Canadian Dollar
EUR - Euro
FIM - Finnish Markka
SEK - Swedish Krona
USD - United States Dollar

SELECTED PORTFOLIO ABBREVIATIONS

ADR - American Depository Receipt
FDR - Foreign Depository Receipt
GDR - Global Depository Receipt

a Non-income producing for the twelve months ended December 31, 2006.

b Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At December 31,
2006, the value of this security was $19,537,872, representing 0.27% of
net assets.

c See Note 9 regarding restricted securities.

d The security is traded on a discount basis with no stated coupon rate.

e See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.

16 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006

--------------
FOREIGN
EQUITY SERIES
--------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................ $3,739,505,059
Cost - Sweep Money Fund (Note 7) ........................... 145,485,554
--------------
Total cost of investments .................................. $3,884,990,613
==============
Value - Unaffiliated issuers ............................... $7,152,143,278
Value - Sweep Money Fund (Note 7) .......................... 145,485,554
--------------
Total value of investments ................................. 7,297,628,832
Cash ........................................................ 171,008
Receivables:
Capital shares sold ........................................ 41,227,863
Dividends .................................................. 6,471,928
--------------
Total assets ......................................... 7,345,499,631
--------------
Liabilities:
Payables:
Capital shares redeemed .................................... 24,664,809
Affiliates ................................................. 4,572,854
Deferred tax ................................................ 3,825,527
Accrued expenses and other liabilities ...................... 1,189,444
--------------
Total liabilities .................................... 34,252,634
--------------
Net assets, at value .............................. $7,311,246,997
==============
Net assets consist of:
Paid-in capital ............................................. $3,969,041,404
Distributions in excess of net investment income ............ (102,604,468)
Net unrealized appreciation (depreciation) .................. 3,408,949,345
Accumulated net realized gain (loss) ........................ 35,860,716
--------------
Net assets, at value .............................. $7,311,246,997
==============
PRIMARY SHARES:
Net assets, at value ........................................ $7,311,236,393
==============
Shares outstanding .......................................... 274,123,629
==============
Net asset value per share a ................................. $ 26.67
==============
SERVICE SHARES:
Net assets, at value ........................................ $ 10,604
==============
Shares outstanding (excluding fractional shares) ............ 397
==============
Net asset value per share a ................................. $ 26.67
==============

a Redemption price is equal to net asset value less redemption fees retained
by the Fund.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 17

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended December 31, 2006

--------------
FOREIGN
EQUITY SERIES
--------------

Investment income:
Dividends: (net of foreign taxes of $17,270,147)
Unaffiliated issuers ............................................................ $ 186,840,685
Sweep Money Fund (Note 7) ....................................................... 6,974,376
Interest ......................................................................... 9,047,904
Other income (Note 10) ........................................................... 222,204
--------------
Total investment income ................................................... 203,085,169
--------------
Expenses:
Management fees (Note 3a) ........................................................ 44,644,167
Administrative fees (Note 3b) .................................................... 5,399,820
Transfer agent fees (Note 3c) .................................................... 24,493
Custodian fees (Note 4) .......................................................... 2,664,144
Reports to shareholders .......................................................... 48,115
Registration and filing fees ..................................................... 110,127
Professional fees ................................................................ 168,937
Directors' fees and expenses ..................................................... 157,723
Other ............................................................................ 154,266
--------------
Total expenses ............................................................ 53,371,792
Expense reductions (Note 4) ............................................... (296,353)
--------------
Net expenses ........................................................... 53,075,439
--------------
Net investment income ............................................... 150,009,730
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................................................... 340,362,019
Foreign currency transactions ................................................... 902,822
--------------
Net realized gain (loss) .................................................. 341,264,841
--------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................................... 1,217,102,154
Translation of assets and liabilities denominated in foreign currencies ......... 214,007
Change in deferred taxes on unrealized appreciation (depreciation) ............... (3,825,527)
--------------
Net change in unrealized appreciation (depreciation) ...................... 1,213,490,634
--------------
Net realized and unrealized gain (loss) ........................................... 1,554,755,475
--------------
Net increase (decrease) in net assets resulting from operations ................... $1,704,765,205
==============

18 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

--------------------------------
FOREIGN EQUITY SERIES
YEAR ENDED DECEMBER 31,
--------------------------------
2006 2005
--------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ....................................................................... $ 150,009,730 $ 116,631,880
Net realized gain (loss) from investments and foreign currency transactions ................. 341,264,841 308,568,945
Net change in unrealized appreciation (depreciation) on investments, translation of assets
and liabilities denominated in foreign currencies, and deferred taxes ..................... 1,213,490,634 328,701,779
--------------------------------
Net increase (decrease) in net assets resulting from operations ........................ 1,704,765,205 753,902,604
--------------------------------
Distributions to shareholders from:
Net investment income:
Primary Shares .............................................................................. (191,899,440) (183,533,480)
Service Shares .............................................................................. (262) --
Net realized gains:
Primary Shares .............................................................................. (343,352,663) (10,751,350)
Service Shares .............................................................................. (469) --
--------------------------------
Total distributions to shareholders ........................................................... (535,252,834) (194,284,830)
--------------------------------
Capital share transactions (Note 2)
Primary Shares .............................................................................. (104,014,174) 27,925,243
Service Shares .............................................................................. 10,000 --
--------------------------------
Total capital share transactions .............................................................. (104,004,174) 27,925,243
--------------------------------
Redemption fees ............................................................................... 18,250 7,845
--------------------------------
Net increase (decrease) in net assets .................................................. 1,065,526,447 587,550,862
Net assets:
Beginning of year ............................................................................ 6,245,720,550 5,658,169,688
--------------------------------
End of year .................................................................................. $7,311,246,997 $6,245,720,550
================================
Distributions in excess of net investment income included in net assets:
End of year .................................................................................. $ (102,604,468) $ (61,250,841)
================================

Annual Report |
The accompanying notes are an integral part of these financial statements. | 19

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS

FOREIGN EQUITY SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Institutional Funds, Inc. (TIFI) is registered under the Investment
Company Act of 1940, as amended, (the 1940 Act) as an open-end investment
company, consisting of three separate funds. The Foreign Equity Series (the
Fund) included in this report is diversified. The Fund offers two classes of
shares: Primary and Service shares. Effective September 18, 2006, the Fund began
offering a new class of shares, Service shares. Each class of shares differs by
its voting rights on matters affecting a single class. Unlike Primary shares,
Service shares bear a sub-transfer agency fee of up to 0.15% of the average
daily net assets. The financial statements of the remaining funds in TIFI are
presented separately.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

20 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the Fund. The investment manager monitors price movements following the
close of trading in foreign stock markets through a series of country specific
market proxies (such as baskets of American Depository Receipts, futures
contracts and exchange traded funds). These price movements are measured against
established trigger thresholds for each specific market proxy to assist in
determining if an event has occurred. If such an event occurs, the securities
may be valued using fair value procedures, which may include the use of
independent pricing services. All security valuation procedures are approved by
the Fund's Board of Directors.

B. FOREIGN CURRENCY TRANSLATION

Annual Report | 21

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. FOREIGN CURRENCY CONTRACTS

D. INCOME AND DEFERRED TAXES

The Fund is subject to a tax imposed on net realized gains on securities of
certain foreign countries. The Fund records an estimated deferred tax liability
for net unrealized gains on these securities in an amount that would be payable
if the securities were disposed of on the valuation date.

E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

22 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in class-level
expenses may result in payment of different per share distributions by class.

F. ACCOUNTING ESTIMATES

G. REDEMPTION FEES

H. GUARANTEES AND INDEMNIFICATIONS

Annual Report | 23

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

2. CAPITAL STOCK

At December 31, 2006, there were 1.14 billion shares of TIFI authorized ($0.01
par value), of which 755 million have been classified as Fund shares.
Transactions in the Fund's shares were as follows:

-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------

PRIMARY SHARES:
Shares sold ...................... 43,115,685 $ 1,054,636,410 43,810,911 $ 915,696,969
Shares issued in reinvestment
of distributions ................ 18,348,681 477,022,238 7,621,447 166,418,307
Shares redeemed .................. (67,262,525) (1,635,672,822) (50,689,026) (1,054,190,033)
-----------------------------------------------------------------------
Net increase (decrease) .......... (5,798,159) $ (104,014,174) 743,332 $ 27,925,243
=======================================================================
SERVICE SHARES: a
Shares sold ...................... 397 $ 10,000
--------------------------------
Net increase (decrease) .......... 397 $ 10,000
================================

a For the period September 18, 2006 (effective date) to December 31, 2006.

3. TRANSACTIONS WITH AFFILIATES

- ---------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ---------------------------------------------------------------------------------------------

Templeton Investment Counsel, LLC (TIC) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

A. MANAGEMENT FEES

The Fund pays an investment management fee to TIC based on the average daily net
assets of the Fund as follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.700% Up to and including $1 billion
0.680% Over $1 billion, up to and including $5 billion
0.660% Over $5 billion, up to and including $10 billion
0.640% Over $10 billion, up to and including $15 billion
0.620% Over $15 billion, up to and including $20 billion
0.600% In excess of $20 billion

24 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

B. ADMINISTRATIVE FEES

The Fund pays its allocated share of an administrative fee to FT Services based
on the aggregate average daily net assets of certain funds within TIFI as
follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.150% Up to and including $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% In excess of $1.2 billion

C. TRANSFER AGENT FEES

The Fund paid transfer agent fees of $24,493, of which $19,735 was retained by
Investor Services.

D. OTHER AFFILIATED TRANSACTIONS

At December 31, 2006, Franklin Advisers, Inc. (Advisers) owned 100% of the
Fund's outstanding Service shares. Shares held by Advisers are not subject to
sub-transfer agency fees.

4. EXPENSE OFFSET ARRANGEMENT

5. INCOME TAXES

The tax character of distributions paid during the years ended December 31, 2006
and 2005, was as follows:

----------------------------
2006 2005
----------------------------
Distributions paid from:
Ordinary income ................. $225,949,128 $183,533,480
Long term capital gain .......... 309,303,706 10,751,350
----------------------------
$535,252,834 $194,284,830
============================

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and passive foreign
investment company shares.

Annual Report | 25

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

5. INCOME TAXES (CONTINUED)

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.

Cost of investments ............................... $4,005,725,689
==============

Unrealized appreciation ........................... $3,331,440,425
Unrealized depreciation ........................... (39,537,282)
--------------
Net unrealized appreciation (depreciation) ........ $3,291,903,143
==============

Undistributed ordinary income ..................... $ 17,815,202
Undistributed long term capital gains ............. 36,176,122
--------------
Distributable earnings ............................ $ 53,991,324
==============

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2006, aggregated $483,964,878 and $1,021,604,684,
respectively.

7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers, Inc. (an affiliate of the investment manager). Management
fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in
an amount not to exceed the management and administrative fees paid by the Sweep
Money Fund.

8. CONCENTRATION OF RISK

26 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

9. RESTRICTED SECURITIES

The Fund may invest in securities that are restricted under the Securities Act
of 1933 (the 1933 Act) or which are subject to legal, contractual, or other
agreed upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior registration
unless the sale is pursuant to an exemption under the 1933 Act. Disposal of
these securities may require greater effort and expense, and prompt sale at an
acceptable price may be difficult. The Fund may have registration rights for
restricted securities. The issuer generally incurs all registration costs.

At December 31, 2006, the Fund held an investment in a restricted security,
excluding 144A securities deemed to be liquid, valued in accordance with
procedures approved by the Fund's Board of Directors as reflecting fair value,
as follows:

- -------------------------------------------------------------------------------------------------------------
ACQUISITION
SHARES ISSUER DATE COST VALUE
- -------------------------------------------------------------------------------------------------------------

497,494,336 Rolls-Royce Group PLC, B (0.01% OF NET ASSETS) .... 10/11/06 $945,592 $988,884
--------

10. REGULATORY MATTERS

Annual Report | 27

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN EQUITY SERIES

10. REGULATORY MATTERS (CONTINUED)

11. NEW ACCOUNTING PRONOUNCEMENTS

28 | Annual Report

Templeton Institutional Funds, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON INSTITUTIONAL FUNDS,
INC. - FOREIGN EQUITY 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 Foreign Equity Series (one of the
funds constituting the Templeton Institutional Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. 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 audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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 audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian, provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
February 22, 2007

Annual Report | 29

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED)

FOREIGN EQUITY SERIES

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $306,316,774 as a long
term capital gain dividend for the fiscal year ended December 31, 2006.

Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $34,045,245 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006.

Under Section 854(b)(2) of the Code, the Fund designates 0.06% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended December 31, 2006.

Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $190,280,833 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2006. In January 2007, shareholders will receive Form 1099-DIV
which will include their share of qualified dividends distributed during the
calendar year 2006. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.

Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $16,024,625 as interest related dividends for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006.

At December 31, 2006, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the Fund on these investments. As shown in the table
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on December 14, 2006, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.

The following table provides a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund to shareholders of record.

30 | Annual Report

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

FOREIGN EQUITY SERIES

Record Date: 12/14/2006
- --------------------------------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Australia .............. $0.0000 $0.0209 $0.0209
Bermuda ................ 0.0000 0.0054 0.0054
Brazil ................. 0.0003 0.0023 0.0023
Canada ................. 0.0025 0.0295 0.0295
China .................. 0.0000 0.0070 0.0027
Finland ................ 0.0032 0.0170 0.0121
France ................. 0.0095 0.0535 0.0535
Germany ................ 0.0100 0.0624 0.0624
Hong Kong .............. 0.0000 0.0149 0.0000
India .................. 0.0000 0.0093 0.0044
Italy .................. 0.0031 0.0164 0.0164
Japan .................. 0.0012 0.0137 0.0137
Mexico ................. 0.0000 0.0066 0.0066
Netherlands ............ 0.0075 0.0394 0.0394
Norway ................. 0.0010 0.0053 0.0053
Portugal ............... 0.0016 0.0084 0.0084
Singapore .............. 0.0000 0.0069 0.0000
South Africa ........... 0.0000 0.0025 0.0025
South Korea ............ 0.0041 0.0195 0.0195
Spain .................. 0.0090 0.0477 0.0477
Sweden ................. 0.0084 0.0463 0.0463
Switzerland ............ 0.0028 0.0150 0.0150
Taiwan ................. 0.0023 0.0086 0.0049
United Kingdom ......... 0.0000 0.1685 0.1655
--------------------------------------------
TOTAL .................. $0.0665 $0.6270 $0.5844
============================================

Annual Report | 31

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

FOREIGN EQUITY SERIES

32 | Annual Report

Templeton Institutional Funds, Inc.

BOARD MEMBERS AND OFFICERS

INDEPENDENT BOARD MEMBERS

HARRIS J. ASHTON (1932) Director Since 1992 142 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091

- ------------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (1944) Director Since 1990 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holding Ltd.; Director and Vice Chairman, Caribbean Utilities Co. Ltd.; Director, Provo Power Company
Ltd.; director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power Ltd.
(1977-2003).

- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 1996 143 Director, Hess Corporation (formerly
500 East Broward Blvd. Amerada Hess Corporation)
Suite 2100 (exploration and refining of oil and
Fort Lauderdale, FL 33394-3091 gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Report | 33

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); Director, various private companies; and FORMERLY, Managing Director, Saratoga
Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon Read, & Co. Inc.
(investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Director Since 2003 103 Director, Hess Corporation (formerly
500 East Broward Blvd. Amerada Hess Corporation)
Suite 2100 (exploration and refining of oil and
Fort Lauderdale, FL 33394-3091 gas) and Sentient Jet (private jet
service); and FORMERLY, Director,
Becton Dickinson and Company (medical
technology), Cooper Industries Inc.
(electrical products and tools and
hardware), Health Net, Inc. (formerly
Foundation Health) (integrated
managed care), The Hertz Corporation
(car rental), Pacific Southwest
Airlines, The RCA Corporation, Unicom
(formerly Commonwealth Edison), UAL
Corporation (airlines) and White
Mountains Insurance Group, Ltd.
(holding company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999));
and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since 2005 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

34 | Annual Report

INTERESTED BOARD MEMBERS AND OFFICERS

**NICHOLAS F. BRADY (1930) Director Since 1993 10 Director, Hess Corporation (formerly
500 East Broward Blvd. Amerada Hess Corporation)
Suite 2100 (exploration and refining of oil and
Fort Lauderdale, FL 33394-3091 gas) and Weatherford International,
Ltd. (oilfield products and servicing)
(2004-present); and FORMERLY, Director,
H.J. Heinz Company (processed foods
and allied products) (1987-1988;
1993-2003) and Total Logistics, Inc.
(operating and investment business)
(until 2005).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Darby Overseas Investments, Ltd., Darby Technology Ventures Group, LLC (investment firms) and Franklin Templeton
Investment Funds (1994-present); Director, Templeton Capital Advisors Ltd.; and FORMERLY, Chairman, Darby Emerging Markets
Investments LDC (until 2004) and Templeton Emerging Markets Investment Trust PLC (until 2003); Secretary of the United States
Department of the Treasury (1988-1993); Chairman of the Board, Dillon, Read & Co. Inc. (investment banking) (until 1988); and U.S.
Senator, New Jersey (April 1982-December 1982).
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and Vice 142 None
One Franklin Parkway Chairman of President since
San Mateo, CA 94403-1906 the Board and 1993 and
Vice President Chairman of the
Board since 1995

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (1964) Vice President Since 2001 Not Applicable Not Applicable
PO Box N-7759
Lyford Cay, Nassau, Bahamas

Annual Report | 35

JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin Templeton
Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment
Services, Inc.; Vice President, Templeton Global Advisors Limited and officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and
Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk,
U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin Templeton Services, LLC; and officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------

36 | Annual Report

MARK MOBIUS (1936) Vice President Since 1993 Not Applicable Not Applicable
17th Floor
The Chater House
8 Connaught Road
Central Hong Kong

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; and officer and/or
director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies
in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited (investment manager of
Taiwan R.O.C. Fund) (1986-1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
- ------------------------------------------------------------------------------------------------------------------------------------
GARY P. MOTYL (1952) President Since 2005 Not Applicable Not Applicable
500 East Broward Blvd. and Chief
Suite 2100 Executive
Fort Lauderdale, FL 33394-3091 Officer -
Investment
Management

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Templeton Investment Counsel, LLC; and officer and/or director of some of the other subsidiaries of Franklin Resources,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Assistant Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International
of the South; and officer of 14 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 16 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

Annual Report | 37

GALEN VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a director of the Fund.

38 | Annual Report

Templeton Institutional Funds, Inc.

SHAREHOLDER INFORMATION

FOREIGN EQUITY SERIES

PROXY VOTING POLICIES AND PROCEDURES

QUARTERLY STATEMENT OF INVESTMENTS

Annual Report | 39

This page intentionally left blank.

[LOGO](R) FRANKLIN TEMPLETON INSTITUTIONAL
FRANKLIN(R) TEMPLETON(R) 600 Fifth Avenue
INSTITUTIONAL New York, NY 10020

ANNUAL REPORT

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES

INVESTMENT MANAGER

Templeton Investment Counsel, LLC

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906

FRANKLIN TEMPLETON INSTITUTIONAL SERVICES

1-800/321-8563
franklintempletoninstitutional.com

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges,
and expenses before investing. 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 Investment Manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund. The prospectus
contains this and other information; please read it carefully before investing.

ZT454 A2006 02/07

FOREIGN SMALLER COMPANIES SERIES

ANNUAL REPORT 12/31/2006
- --------------------------------------------------------------------------------

THE EXPERTISE OF MANY. THE STRENGTH OF ONE.
- --------------------------------------------------------------------------------

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

TEMPLETON INSTITUTIONAL FUNDS, INC.

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

Foreign Smaller Companies Series

[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INSTITUTIONAL

FRANKLIN o TEMPLETON o FIDUCIARY

Contents

ANNUAL REPORT

TIFI Foreign Smaller Companies Series .................................... 1

Performance Summary ...................................................... 6

Your Fund's Expenses ..................................................... 8

Financial Highlights and Statement of Investments ........................ 10

Financial Statements ..................................................... 16

Notes to Financial Statements ............................................ 19

Report of Independent Registered Public Accounting Firm .................. 27

Tax Designation .......................................................... 28

Board Members and Officers ............................................... 31

Shareholder Information .................................................. 37

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

Annual Report

TIFI Foreign Smaller Companies Series

YOUR FUND'S GOAL AND MAIN INVESTMENTS: TIFI Foreign Smaller Companies Series
seeks long-term capital growth. Under normal market conditions, the Fund invests
at least 80% of its net assets in investments of smaller companies located
outside the U.S., including emerging markets.

We are pleased to bring you Templeton Institutional Funds, Inc. (TIFI) Foreign
Smaller Companies Series' (the Fund's) annual report for the fiscal year ended
December 31, 2006.

PERFORMANCE OVERVIEW

The Fund posted a +28.78% cumulative total return for the 12-month period ended
December 31, 2006. The Fund outperformed its benchmark, the S&P/Citigroup Global
Equity ex-U.S. less than $2 Billion Index, which returned +23.11% during the
same period. 1 Please note that index performance information is provided for
reference and that we do not attempt to track the index but rather undertake
investments on the basis of fundamental research. You can find more of the
Fund's performance data in the Performance Summary beginning on page 6.

1. Source: Standard & Poor's Micropal. The S&P/Citigroup Global Equity
ex-U.S. less than $2 Billion Index is a free float-adjusted, market
capitalization-weighted index designed to measure performance of global
developed and emerging market equity securities, excluding the U.S., with
market capitalizations less than $2 billion. The index is unmanaged and
includes reinvested dividends. One cannot invest directly in an index, nor
is an index representative of the Fund's portfolio.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 11.

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

- -----------------------------------------------------
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
- -----------------------------------------------------

Annual Report | 1

ECONOMIC AND MARKET OVERVIEW

The global economy grew in 2006, although gross domestic product growth slowed
in the U.S. while it accelerated in Europe. The economic drivers remained
consistent over the past four years: strong corporate and consumer demand,
reasonably low inflation, a tight or improving labor market, and a relatively
moderate interest rate environment, despite recent interest rate hikes by many
of the world's central banks. However, the economy also faced headwinds from
elevated energy prices, higher global interest rates and a weaker U.S. housing
market. These factors dampened investor confidence mid-year, when many equity
markets declined before rebounding later in the year.

2. Source: "Can M&A's 'Best of Times' Get Better?," THE WALL STREET JOURNAL,
1/2/07.

3. Source: "TPG tops buy-out league with $101bn," THE WALL STREET JOURNAL,
12/27/06.

2 | Annual Report

INVESTMENT STRATEGY

When choosing equity investments, we apply a bottom-up, value-oriented,
long-term approach, focusing on the market price of a company's securities
relative to our evaluation of the company's potential long-term (typically five
years) earnings, asset value and cash flow. We also consider a company's
price/earnings ratio, profit margins and liquidation value.

MANAGER'S DISCUSSION

Several holdings performed well during the period. One example is Vestas Wind
Systems. Denmark-based Vestas is the world's leading wind turbine manufacturer.
The company has a leading market share and a reputation for providing reliable
and efficient products. The company's competitive advantage is its technological
ability to develop durable, reliable and cost effective wind turbines. Vestas
could benefit from increased demand in the coming years for environmentally
friendly power sources as wind power is the cheapest renewable energy source.

The Fund also benefited from its Lojas Renner holding. Lojas Renner is one of
Brazil's largest apparel retailers and was listed in the Bovespa Novo Mercado in
May 2005. 4 Lojas Renner offers shareholder protection that we think may enhance
its share price versus those of its peers who may have lower corporate
governance standards. Lojas Renner sells quality apparel under 11 private label
brands, each of which targets a specific style or occasion. Most of the
company's stores are located in shopping malls where they are able to reach
families and different age groups. Based on our analysis, we believe that Lojas
Renner could benefit from Brazil's declining interest rate cycle, decreasing
unemployment, rising personal incomes and greater discretionary consumer
spending.

Our position in China Resources Power Holdings also boosted the Fund's
performance. China Resources Power is an independent power producer controlled
by The China Resources Group, a major Chinese state-owned conglomerate. The
company has coal-fired plants with three under construction. Based on our
analysis, we believe China Resources Power represents a good investment
opportunity due to its exposure to the high growth Chinese power sector. The
company is a relative newcomer to the industry but has secured a strong project
pipeline to support its long-term growth.

GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/06

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Europe 40.8%
Asia 36.7%
North America 10.4%
Australia & New Zealand 4.4%
Latin America 3.1%
Middle East & Africa 0.8%
Short-Term Investments & Other Net Assets 3.8%

4. The Novo Mercado is a trading segment designed for shares issued by
companies that voluntarily undertake to abide by corporate governance
practices and transparency requirements in addition to those already
requested by Brazilian Law.

Annual Report | 3

PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 12/31/06

[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

Machinery 8.3%
Commercial Services & Supplies 7.0%
Textiles, Apparel & Luxury Goods 5.5%
Electronic Equipment & Instruments 5.5%
Energy Equipment & Services 5.5%
Commercial Banks 4.3%
Electrical Equipment 4.1%
Specialty Retail 3.7%
Capital Markets 3.5%
Independent Power Producers & Energy Traders 3.0%
Health Care Providers & Services 2.7%
Leisure Equipment & Products 2.5%
Transportation Infrastructure 2.1%
Communications Equipment 2.0%
Auto Components 2.0%
Paper & Forest Products 2.0%
Computers & Peripherals 2.0%
Other 30.5%
Short-Term Investments & Other Net Assets 3.8%

There were some detractors from Fund performance over the past year. Bio-Treat
Technology negatively impacted Fund performance as the company's share price
fell following news of a loss in its fourth quarter. Based in China, Bio-Treat
is a pioneer in waste and wastewater management biotechnology. Through its
research and development team, Bio-Treat successfully developed a proprietary
application of biological processes for waste and wastewater treatment for
residential, commercial and municipal projects called the BMS Biological Process
Technology. Bio-Treat provides us with exposure to the high-growth wastewater
treatment industry in China. In view of the widespread pollution in many cities
across China and the need to clean up the environment before the 2008 Olympics,
China has stepped up its pollution control efforts. Based on our analysis, we
expect these efforts to continue to benefit the companies engaged in pollution
control, and with its unique technology and solutions, Bio-Treat could stand out
from its competition when it bids for large municipal projects.

Also hindering performance during the period was Fountain Set Holdings, a
vertically integrated fabric supplier. The company is one of the world's largest
knitted cotton fabric producers and distributes knitted fabric and yarn products
to more than 40 countries. Key customers include Wal-Mart, Target, J.C. Penney,
The Gap and Marks & Spencer. Sentiment toward China garment and fabrics
producers swung from optimistic in 2002 -- when the process to eliminate trade
quotas set by the World Trade Organization began -- to doubtful and pessimistic
as the final quota expiration created confusion and renewed protectionism from
importing and competing countries. Additionally, Fountain Set announced that the
company violated wastewater disposal laws. Looking at the poor performance of
the shares since we initiated our position, we sold Fountain Set and used the
losses to offset capital gains.

4 | Annual Report

Chitaly Holdings (sold by period-end), a modern-style furniture manufacturer,
also hindered Fund performance. The company sells its award-winning brand names
Royal, Knight and Simplified to middle class consumers through its growing
franchise distribution network in China. We originally purchased shares of
Chitaly because we believed the company would be a strong beneficiary of China's
rising property prices. However, prices have risen so sharply that home buyers
seemed priced out of the market, leading to weak demand for home furniture.

Thank you for your continued participation in TIFI Foreign Smaller Companies
Series. We look forward to serving your future investment needs.

[PHOTO OMITTED] /s/ Tucker Scott

Tucker Scott, CFA

[PHOTO OMITTED] /s/ Cynthia L. Sweeting

Cynthia L. Sweeting, CFA

Portfolio Management Team
TIFI Foreign Smaller Companies Series

TOP 10 EQUITY HOLDINGS
12/31/06

- ---------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ---------------------------------------------------------
Game Group PLC 2.3%
SPECIALTY RETAIL, U.K.
- ---------------------------------------------------------
Draka Holding NV 2.1%
ELECTRICAL EQUIPMENT, NETHERLANDS
- ---------------------------------------------------------
Vestas Wind Systems AS 2.1%
ELECTRICAL EQUIPMENT, DENMARK
- ---------------------------------------------------------
China Resources Power Holdings Co. Ltd. 1.8%
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS, CHINA
- ---------------------------------------------------------
Vossloh AG 1.8%
MACHINERY, GERMANY
- ---------------------------------------------------------
Aalberts Industries NV 1.8%
MACHINERY, NETHERLANDS
- ---------------------------------------------------------
OPG Groep NV 1.7%
HEALTH CARE PROVIDERS & SERVICES,
NETHERLANDS
- ---------------------------------------------------------
Daegu Bank Co. Ltd. 1.6%
COMMERCIAL BANKS, SOUTH KOREA
- ---------------------------------------------------------
D-Link Corp. 1.6%
COMMUNICATIONS EQUIPMENT, TAIWAN
- ---------------------------------------------------------
Vedior NV 1.6%
COMMERCIAL SERVICES & SUPPLIES,
NETHERLANDS
- ---------------------------------------------------------

Annual Report | 5

Performance Summary as of 12/31/06

PRICE AND DISTRIBUTION INFORMATION

- -------------------------------------------------------------------------------------------
SYMBOL: TFSCX CHANGE 12/31/06 12/31/05
- -------------------------------------------------------------------------------------------

Net Asset Value (NAV) +$4.24 $22.42 $18.18
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- -------------------------------------------------------------------------------------------
Dividend Income $0.3322
- -------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0599
- -------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5610
- -------------------------------------------------------------------------------------------
TOTAL $0.9531
- -------------------------------------------------------------------------------------------

PERFORMANCE 1

THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.

- ----------------------------------------------------------------------------------------------
1-YEAR 3-YEAR INCEPTION (10/21/02)
- ----------------------------------------------------------------------------------------------

Cumulative Total Return 2 +28.78% +75.37% +167.83%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return 3 +28.78% +20.59% +26.47%
- ----------------------------------------------------------------------------------------------
Value of $1,000,000 Investment 4 $1,287,821 $1,753,675 $2,678,251
- ----------------------------------------------------------------------------------------------

FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE CALL 1-800/321-8563.

6 | Annual Report

Performance Summary (CONTINUED)

TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $1,000,000 INVESTMENT 1

Total return represents the change in value of an investment over the periods
shown. It includes any Fund expenses, account fees and reinvested distributions.
The unmanaged index includes reinvestment of any income or distributions. It
differs from the Fund in composition and does not pay management fees or
expenses. One cannot invest directly in an index.

10/21/02-12/31/06
$ Millions

[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

S&P/Citigroup Global
TIFI Foreign Smaller Equity ex-U.S. less
Date Companies Series than $2 Billion Index 5
---- ---------------------- ---------------------------
Incept $ 1,000,000 $ 1,000,000
Oct-02 $ 1,012,000 $ 1,002,640
Nov-02 $ 1,032,000 $ 1,039,233
Dec-02 $ 1,010,000 $ 1,034,512
Jan-03 $ 979,000 $ 1,035,387
Feb-03 $ 946,000 $ 1,024,301
Mar-03 $ 950,000 $ 1,011,659
Apr-03 $ 1,022,000 $ 1,085,278
May-03 $ 1,106,999 $ 1,178,455
Jun-03 $ 1,152,999 $ 1,238,670
Jul-03 $ 1,217,999 $ 1,285,780
Aug-03 $ 1,286,999 $ 1,366,071
Sep-03 $ 1,316,999 $ 1,435,074
Oct-03 $ 1,411,999 $ 1,540,404
Nov-03 $ 1,430,999 $ 1,547,557
Dec-03 $ 1,527,201 $ 1,646,986
Jan-04 $ 1,580,250 $ 1,711,255
Feb-04 $ 1,624,117 $ 1,773,391
Mar-04 $ 1,603,946 $ 1,842,141
Apr-04 $ 1,566,860 $ 1,766,102
May-04 $ 1,569,951 $ 1,740,645
Jun-04 $ 1,619,398 $ 1,805,172
Jul-04 $ 1,575,101 $ 1,744,466
Aug-04 $ 1,572,011 $ 1,768,308
Sep-04 $ 1,622,489 $ 1,835,435
Oct-04 $ 1,662,664 $ 1,890,958
Nov-04 $ 1,779,072 $ 2,039,434
Dec-04 $ 1,852,238 $ 2,140,642
Jan-05 $ 1,852,238 $ 2,165,408
Feb-05 $ 1,931,848 $ 2,266,644
Mar-05 $ 1,892,013 $ 2,211,030
Apr-05 $ 1,812,423 $ 2,149,636
May-05 $ 1,833,936 $ 2,158,960
Jun-05 $ 1,882,336 $ 2,218,226
Jul-05 $ 1,973,757 $ 2,315,094
Aug-05 $ 1,981,285 $ 2,370,042
Sep-05 $ 2,043,668 $ 2,485,124
Oct-05 $ 1,951,161 $ 2,398,179
Nov-05 $ 2,008,169 $ 2,500,889
Dec-05 $ 2,079,648 $ 2,680,780
Jan-06 $ 2,211,196 $ 2,870,701
Feb-06 $ 2,254,665 $ 2,845,261
Mar-06 $ 2,326,139 $ 2,953,665
Apr-06 $ 2,444,620 $ 3,113,736
May-06 $ 2,321,530 $ 2,939,051
Jun-06 $ 2,282,410 $ 2,856,163
Jul-06 $ 2,285,858 $ 2,824,901
Aug-06 $ 2,356,022 $ 2,913,031
Sep-06 $ 2,375,581 $ 2,922,326
Oct-06 $ 2,454,958 $ 3,045,956
Nov-06 $ 2,553,904 $ 3,192,351
Dec-06 $ 2,678,251 $ 3,300,366

AVERAGE ANNUAL TOTAL RETURN

- -----------------------------------
12/31/06
- -----------------------------------
1-Year +28.78%
- -----------------------------------
3-Year +20.59%
- -----------------------------------
Since Inception (10/21/02) +26.47%
- -----------------------------------

ENDNOTES

THE FUND INVESTS IN FOREIGN SECURITIES, WHICH CAN INVOLVE EXPOSURE TO CURRENCY
VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. EMERGING MARKETS
INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE
ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. THE FUND'S
INVESTMENTS IN SMALLER-COMPANY STOCKS CARRY SPECIAL RISKS AS SUCH STOCKS HAVE
HISTORICALLY EXHIBITED GREATER PRICE VOLATILITY THAN LARGE-COMPANY STOCKS,
PARTICULARLY OVER THE SHORT TERM. ADDITIONALLY, SMALLER COMPANIES OFTEN HAVE
RELATIVELY SMALL REVENUES, LIMITED PRODUCT LINES AND SMALL MARKET SHARE. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.

1. The Fund's manager and administrator agreed in advance to assume as their
own certain expenses otherwise payable by the Fund. If the manager and
administrator had not taken this action, the Fund's total returns would
have been lower. This agreement may be ended after 4/30/07 upon notice to
the Board of Directors.

2. Cumulative total return represents the change in value of an investment
over the periods indicated.

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

4. These figures represent the value of a hypothetical $1,000,000 investment
in the Fund over the periods indicated.

5. Source: Standard & Poor's Micropal. The S&P/Citigroup Global Equity
ex-U.S. less than $2 Billion Index is a free float-adjusted, market
capitalization-weighted index designed to measure performance of global
developed and emerging market equity securities, excluding the U.S., with
market capitalizations less than $2 billion.

Annual Report | 7

Your Fund's Expenses

As a Fund Shareholder, you can incur two types of costs:

o Transaction costs, including sales charges (loads) on Fund purchases, if
applicable, and redemption fees; and

ACTUAL FUND EXPENSES

The first line (Actual) of the table provides actual account values and
expenses. The "Ending Account Value" is derived from the Fund's actual return,
which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000.

IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period."

IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

8 | Annual Report

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES, IF APPLICABLE. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you compare total
costs of owning different funds. In addition, if transaction costs were
included, your total costs would have been higher. Please refer to the Fund
prospectus for additional information on operating expenses.

- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------

Actual $1,000 $1,173.40 $5.20
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.42 $4.84
- -------------------------------------------------------------------------------------------------------

* Expenses are equal to the annualized expense ratio, net of expense
waivers, of 0.95%, multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.

Annual Report | 9

Templeton Institutional Funds, Inc.

FINANCIAL HIGHLIGHTS

FOREIGN SMALLER COMPANIES SERIES

-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002 f
-------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year ........................ $ 18.18 $ 17.45 $ 14.97 $ 10.10 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:

Net investment income (loss) b .......................... 0.30 0.38 0.21 0.17 (0.01)

Net realized and unrealized gains (losses) .............. 4.89 1.74 2.93 4.99 0.11
-------------------------------------------------------------------
Total from investment operations .......................... 5.19 2.12 3.14 5.16 0.10
-------------------------------------------------------------------
Less distributions from:

Net investment income ................................... (0.33) (0.36) (0.16) (0.13) --

Net realized gains ...................................... (0.62) (1.03) (0.50) (0.16) --
-------------------------------------------------------------------
Total distributions ....................................... (0.95) (1.39) (0.66) (0.29) --
-------------------------------------------------------------------
Redemption fees ........................................... -- d -- d -- -- --
-------------------------------------------------------------------
Net asset value, end of year .............................. $ 22.42 $ 18.18 $ 17.45 $ 14.97 $ 10.10
===================================================================

Total return c ............................................ 28.78% 12.28% 21.28% 51.21% 1.00%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) ........................... $ 170,757 $ 131,567 $ 97,495 $ 33,583 $ 6,195

Ratios to average net assets:

Expenses before waiver and payments by affiliates ....... 1.07% 1.07% 1.16% 1.58% 7.71% g

Expenses net of waiver and payments by affiliates ....... 0.95% e 0.95% e 0.95% e 0.95% 0.95% g

Net investment income (loss) ............................ 1.45% 2.12% 1.34% 1.40% (0.55)% g

Portfolio turnover rate ................................... 17.30% 24.59% 27.51% 12.58% --

b Based on average daily shares outstanding.

c Total return is not annualized for periods less than one year.

d Amount rounds to less than $0.01 per share.

e Benefit of expense reduction rounds to less than 0.01%.

f For the period October 21, 2002 (commencement of operations) to December
31, 2002.

g Annualized.

10 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006

- ------------------------------------------------------------------------------------------------------------------------------
FOREIGN SMALLER COMPANIES SERIES INDUSTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS 96.2%
COMMON STOCKS 95.3%
AUSTRALIA 4.4%
Billabong International Ltd. ................ Textiles, Apparel & Luxury Goods 133,957 $ 1,839,974
Downer EDI Ltd. ............................. Commercial Services & Supplies 232,245 1,281,506
Iluka Resources Ltd. ........................ Metals & Mining 235,139 1,234,365
PaperlinX Ltd. .............................. Paper & Forest Products 832,142 2,581,589
Repco Corp. Ltd. ............................ Distributors 443,845 597,383
-------------
7,534,817
-------------
BAHAMAS 1.0%
a Steiner Leisure Ltd. ........................ Diversified Consumer Services 37,530 1,707,615
-------------
BELGIUM 1.1%
Barco NV .................................... Electronic Equipment & Instruments 20,740 1,889,071
-------------
BERMUDA 0.3%
a Weatherford International Ltd. .............. Energy Equipment & Services 11,732 490,280
-------------
BRAZIL 2.3%
b Companhia de Saneamento de Minas Gerais,
144A ...................................... Water Utilities 141,900 1,663,747
b Lojas Renner SA, 144A ....................... Multiline Retail 162,000 2,327,826
-------------
3,991,573
-------------
CANADA 9.1%
CAE Inc. .................................... Aerospace & Defense 176,720 1,630,328
a Dorel Industries Inc., B .................... Household Durables 44,300 1,199,075
a GSI Group Inc. .............................. Electronic Equipment & Instruments 151,050 1,463,675
Legacy Hotels ............................... Real Estate 204,730 1,665,600
Linamar Corp. ............................... Auto Components 106,490 1,270,295
MDS Inc. .................................... Health Care Services 115,390 2,106,282
North West Co. Fund ......................... Diversified Financial Services 162,450 2,165,071
a Open Text Corp. ............................. Internet Software & Services 87,800 1,802,339
Precision Drilling Trust .................... Energy Equipment & Services 28,080 650,641
a Saxon Energy Services Inc. .................. Energy Equipment & Services 313,300 1,099,676
Transcontinental Inc., B .................... Commercial Services & Supplies 25,630 465,200
-------------
15,518,182
-------------
CHINA 6.6%
Bio-Treat Technology Ltd. ................... Commercial Services & Supplies 1,625,000 641,120
China Oilfield Services Ltd. ................ Energy Equipment & Services 3,454,000 2,397,640
China Resources Power Holdings Co. Ltd. ..... Independent Power Producers & Energy Traders 2,036,000 3,072,654
People's Food Holdings Ltd. ................. Food Products 1,948,000 1,587,922
Sinotrans Ltd., H ........................... Air Freight & Logistics 3,233,000 1,167,831
Travelsky Technology Ltd., H ................ IT Services 1,153,000 1,757,850
Weiqiao Textile Co. Ltd., H ................. Textiles, Apparel & Luxury Goods 488,500 658,103
-------------
11,283,120
-------------
DENMARK 2.1%
a Vestas Wind Systems AS ...................... Electrical Equipment 83,180 3,515,405
-------------

Annual Report | 11

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
FINLAND 3.7%
Amer Sports OYJ ............................. Leisure Equipment & Products 123,430 $ 2,717,735
Elcoteq SE, A ............................... Communications Equipment 50,300 649,377
Huhtamaki OYJ ............................... Containers & Packaging 89,790 1,763,686
KCI Konecranes OYJ .......................... Machinery 41,560 1,223,407
-------------
6,354,205
-------------
GERMANY 3.5%
Celesio AG .................................. Health Care Providers & Services 34,250 1,822,484
a Jenoptik AG ................................. Electronic Equipment & Instruments 118,490 1,166,839
Vossloh AG .................................. Machinery 40,810 3,057,731
-------------
6,047,054
-------------
HONG KONG 5.0%
Asia Satellite Telecommunications Holdings
Ltd. ...................................... Diversified Telecommunication Services 318,000 571,481
a,b China Communications Services Corp. Ltd.,
144A ...................................... Diversified Telecommunication Services 188,000 107,302
Dah Sing Financial Group .................... Commercial Banks 137,600 1,246,141
Giordano International Ltd. ................. Specialty Retail 1,694,000 925,487
Hang Lung Group Ltd. ........................ Real Estate 355,000 1,079,263
Hopewell Holdings Ltd. ...................... Transportation Infrastructure 384,000 1,347,602
Ngai Lik Industrial Holding Ltd. ............ Household Durables 2,832,000 243,914
Techtronic Industries Co. Ltd. .............. Household Durables 680,000 881,125
Texwinca Holdings Ltd. ...................... Textiles, Apparel & Luxury Goods 667,000 462,150
Yue Yuen Industrial Holdings Ltd. ........... Textiles, Apparel & Luxury Goods 501,000 1,590,752
-------------
8,455,217
-------------
INDIA 1.1%
Hindustan Petroleum Corp. Ltd. .............. Oil, Gas & Consumable Fuels 141,770 894,679
Tata Motors Ltd., ADR ....................... Machinery 51,220 1,046,425
-------------
1,941,104
-------------
INDONESIA 0.5%
PT Indosat Tbk .............................. Diversified Telecommunication Services 1,215,400 912,209
-------------
ISRAEL 0.8%
a Orbotech Ltd. ............................... Electronic Equipment & Instruments 54,930 1,397,419
-------------
JAPAN 4.7%
Japan Airport Terminal Co. Ltd. ............. Transportation Infrastructure 80,000 940,228
Meitec Corp. ................................ Commercial Services & Supplies 51,500 1,561,851
Sangetsu Co. Ltd. ........................... Household Durables 29,300 712,593
Sohgo Security Services Co. Ltd. ............ Commercial Services & Supplies 136,200 2,740,362
Takuma Co. Ltd. ............................. Machinery 141,000 824,430
Tokyo Individualized Educational Institute
Inc. ...................................... Diversified Consumer Services 506,440 1,289,128
-------------
8,068,592
-------------
LUXEMBOURG 0.3%
a Thiel Logistik AG ........................... IT Services 149,260 585,181
-------------
MEXICO 0.8%
Grupo Aeroportuario del Sureste SA de CV, ADR Transportation Infrastructure 31,810 1,350,971
-------------

12 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
NETHERLANDS 9.2%
Aalberts Industries NV ...................... Machinery 34,657 $ 2,996,558
a Draka Holding NV ............................ Electrical Equipment 103,895 3,538,382
Imtech NV ................................... Construction & Engineering 27,200 1,728,484
OPG Groep NV ................................ Health Care Providers & Services 24,110 2,832,550
SBM Offshore NV ............................. Energy Equipment & Services 51,800 1,781,262
Vedior NV ................................... Commercial Services & Supplies 132,640 2,750,686
-------------
15,627,922
-------------
NORWAY 0.7%
Prosafe ASA ................................. Energy Equipment & Services 80,750 1,146,060
-------------
PHILIPPINES 0.1%
a,b PNOC Energy Development Corp., 144A ......... Independent Power Producers & Energy Traders 1,900,000 187,870
-------------
RUSSIA 0.6%
a,b X 5 Retails Group NV, GDR, 144A ............. Food & Staples Retailing 30,750 793,350
a,b X 5 Retails Group NV, GDR, 144A (IPO) ....... Food & Staples Retailing 5,778 149,072
-------------
942,422
-------------
SINGAPORE 2.5%
Cerebos Pacific Ltd. ........................ Food Products 562,358 1,283,546
Huan Hsin Holdings Ltd. ..................... Electronic Equipment & Instruments 1,516,000 548,684
Osim International Ltd. ..................... Specialty Retail 1,443,360 1,317,750
Venture Corp. Ltd. .......................... Electronic Equipment & Instruments 131,000 1,153,282
-------------
4,303,262
-------------
SOUTH KOREA 6.3%
Bank of Pusan ............................... Commercial Banks 186,080 2,320,998
Daeduck Electronics Co. Ltd. ................ Electronic Equipment & Instruments 72,480 554,901
Daegu Bank Co. Ltd. ......................... Commercial Banks 163,580 2,796,690
a Halla Climate Control Corp. ................. Auto Components 162,580 2,158,992
a Hansol Paper Co. Ltd. ....................... Paper & Forest Products 52,730 802,290
a Sindo Ricoh Co. ............................. Office Electronics 12,820 785,742
a Youngone Corp. .............................. Textiles, Apparel & Luxury Goods 251,810 1,413,385
-------------
10,832,998
-------------
SPAIN 1.1%
Sol Melia SA ................................ Hotels, Restaurants & Leisure 91,738 1,817,692
-------------
SWEDEN 1.5%
D. Carnegie & Co. AB ........................ Capital Markets 115,310 2,482,518
-------------
SWITZERLAND 3.8%
a Kuoni Reisen Holding AG, B .................. Hotels, Restaurants & Leisure 2,590 1,385,811
a Medisize Holding AG ......................... Health Care Equipment & Supplies 6,600 449,551
a SIG Holding AG .............................. Machinery 3,210 1,072,151
Verwaltungs-und Privat-Bank AG .............. Capital Markets 6,760 1,802,962
Vontobel Holding AG ......................... Capital Markets 40,680 1,759,334
-------------
6,469,809
-------------

Annual Report | 13

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
TAIWAN 7.2%
D-Link Corp. ................................ Communications Equipment 2,125,420 $ 2,785,191
Fu Sheng Industrial Co. Ltd. ................ Industrial Conglomerates 1,658,408 1,623,545
Giant Manufacturing Co. Ltd. ................ Leisure Equipment & Products 940,000 1,543,348
KYE Systems Corp. ........................... Computers & Peripherals 1,286,448 1,468,647
Pihsiang Machinery Manufacturing Co. Ltd. ... Health Care Equipment & Supplies 479,000 852,601
Simplo Technology Co. Ltd. .................. Computers & Peripherals 524,000 1,897,560
Ta Chong Bank Ltd. .......................... Commercial Banks 2,673,000 898,246
Taiwan Fu Hsing ............................. Building Products 617,110 547,322
Test-Rite International Co. Ltd. ............ Distributors 1,110,613 649,292
-------------
12,265,752
-------------
THAILAND 2.7%
BEC World Public Co. Ltd., fgn. ............. Media 1,673,200 995,896
Glow Energy Public Co. Ltd., fgn. ........... Independent Power Producers & Energy Traders 708,000 659,069
b Glow Energy Public Co. Ltd., fgn., 144A ..... Independent Power Producers & Energy Traders 1,271,300 1,183,439
a Total Access Communication Public Co.
Ltd., fgn. ................................ Wireless Telecommunication Services 410,000 1,763,000
-------------
4,601,404
-------------
UNITED KINGDOM 12.3%
Bodycote International PLC .................. Machinery 441,480 1,973,386
b Bodycote International PLC, 144A ............ Machinery 35,200 157,342
Burberry Group PLC .......................... Textiles, Apparel & Luxury Goods 156,510 1,978,466
DS Smith PLC ................................ Containers & Packaging 360,250 1,382,771
Electrocomponents PLC ....................... Electronic Equipment & Instruments 209,920 1,205,541
a Fiberweb PLC ................................ Personal Products 327,880 1,325,944
FKI PLC ..................................... Machinery 885,590 1,790,660
Future PLC .................................. Media 908,830 809,812
Game Group PLC .............................. Specialty Retail 1,804,650 4,011,244
Homeserve PLC ............................... Commercial Services & Supplies 69,716 2,580,385
John Wood Group PLC ......................... Energy Equipment & Services 353,390 1,813,201
Yule Catto & Company PLC .................... Chemicals 431,050 1,966,862
-------------
20,995,614
-------------
TOTAL COMMON STOCKS
(COST $106,624,294) ....................... 162,715,338
-------------

14 | Annual Report

Templeton Institutional Funds, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2006 (CONTINUED)

- ------------------------------------------------------------------------------------------------------------------------------
FOREIGN SMALLER COMPANIES SERIES SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------

LONG TERM INVESTMENTS (CONTINUED)
PREFERRED STOCKS (COST $482,296) 0.9%
GERMANY 0.9%
Hugo Boss AG, pfd. .......................... Textiles, Apparel & Luxury Goods 29,430 $ 1,506,178
-------------
TOTAL LONG TERM INVESTMENTS
(COST $107,106,590) ....................... 164,221,516
-------------

----------
PRINCIPAL
AMOUNT
----------

SHORT TERM INVESTMENTS (COST $5,071,205) 2.9%
UNITED STATES 2.9%
c U.S. Treasury Bills, 1/25/07 - 5/24/07 ...... $5,158,000 5,073,434
-------------
TOTAL INVESTMENTS
(COST $112,177,795) 99.1% ................. 169,294,950
OTHER ASSETS, LESS LIABILITIES 0.9% ......... 1,462,005
-------------
NET ASSETS 100.0% ........................... $ 170,756,955
=============

SELECTED PORTFOLIO ABBREVIATIONS

ADR - American Depository Receipt
GDR - Global Depository Receipt

a Non-income producing during the twelve months ended December 31, 2006.

b Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At December 31,
2006, the aggregate value of these securities was $6,569,948, representing
3.85% of net assets.

c The security is traded on a discount basis with no stated coupon rate.

Annual Report |
The accompanying notes are an integral part of these financial statements. | 15

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006

----------------
FOREIGN SMALLER
COMPANIES SERIES
----------------

Assets:
Investments in securities:
Cost .............................................................................................. $ 112,177,795
================
Value ............................................................................................. $ 169,294,950
Cash ............................................................................................... 14,410
Foreign currency, at value (cost $1,061,445) ....................................................... 1,052,502
Receivables:
Capital shares sold ............................................................................... 293,481
Dividends ......................................................................................... 300,753
----------------
Total assets .................................................................................. 170,956,096
----------------
Liabilities:
Payables:
Investment securities purchased ................................................................... 40,565
Affiliates ........................................................................................ 105,712
Deferred tax ....................................................................................... 17,081
Accrued expenses and other liabilities ............................................................. 35,783
----------------
Total liabilities ............................................................................. 199,141
----------------
Net assets, at value ........................................................................ $ 170,756,955
================
Net assets consist of:
Paid-in capital .................................................................................... $ 113,628,462
Distributions in excess of net investment income ................................................... (345,904)
Net unrealized appreciation (depreciation) ......................................................... 57,093,478
Accumulated net realized gain (loss) ............................................................... 380,919
----------------
Net assets, at value ........................................................................ $ 170,756,955
================
Shares outstanding ................................................................................. 7,617,981
================
Net asset value per share a ........................................................................ $ 22.42
================

a Redemption price is equal to net asset value less redemption fees retained
by the Fund.

16 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended December 31, 2006

----------------
FOREIGN SMALLER
COMPANIES SERIES
----------------

Investment income:
Dividends (net of foreign taxes of $351,608) ....................................................... $ 3,041,055
Interest (net of foreign taxes of $452) ............................................................ 494,032
Other income (Note 8) .............................................................................. 54
----------------
Total investment income ....................................................................... 3,535,141
----------------
Expenses:
Management fees (Note 3a) .......................................................................... 1,104,414
Administrative fees (Note 3b) ...................................................................... 294,510
Transfer agent fees (Note 3c) ...................................................................... 14,903
Custodian fees (Note 4) ............................................................................ 59,827
Reports to shareholders ............................................................................ 19,918
Registration and filing fees ....................................................................... 21,862
Professional fees .................................................................................. 42,383
Directors' fees and expenses ....................................................................... 13,405
Other .............................................................................................. 14,219
----------------
Total expenses ................................................................................ 1,585,441
Expense reductions (Note 4) ................................................................... (2,021)
Expenses waived/paid by affiliates (Note 3d) .................................................. (184,970)
----------------
Net expenses ................................................................................ 1,398,450
----------------
Net investment income ..................................................................... 2,136,691
----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (net of foreign taxes of $7,532) ...................................................... 4,348,167
Foreign currency transactions ..................................................................... (32,052)
----------------
Net realized gain (loss) .................................................................... 4,316,115
----------------
Net change in unrealized appreciation (depreciation) on:
Investments ....................................................................................... 31,555,269
Translation of assets and liabilities denominated in foreign currencies ........................... 12,226
Change in deferred taxes on unrealized appreciation (depreciation) ................................. (17,081)
----------------
Net change in unrealized appreciation (depreciation) ........................................ 31,550,414
----------------
Net realized and unrealized gain (loss) ............................................................. 35,866,529
----------------
Net increase (decrease) in net assets resulting from operations ..................................... $ 38,003,220
================

Annual Report |
The accompanying notes are an integral part of these financial statements. | 17

Templeton Institutional Funds, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

----------------------------------
FOREIGN SMALLER COMPANIES SERIES
YEAR ENDED DECEMBER 31,
----------------------------------
2006 2005
----------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ........................................................... $ 2,136,691 $ 2,469,756
Net realized gain (loss) from investments and foreign currency transactions ..... 4,316,115 6,131,736
Net change in unrealized appreciation (depreciation) on investments, translation
of assets and liablilities denominated in foreign currencies, and deferred taxes 31,550,414 5,888,506
----------------------------------
Net increase (decrease) in net assets resulting from operations .............. 38,003,220 14,489,998
----------------------------------
Distributions to shareholders from:
Net investment income ........................................................... (2,432,984) (2,471,905)
Net realized gains .............................................................. (4,533,082) (6,793,091)
----------------------------------
Total distributions to shareholders .............................................. (6,966,066) (9,264,996)
----------------------------------

Capital share transactions (Note 2) .............................................. 8,152,453 28,847,120
----------------------------------

Redemption fees .................................................................. 300 3
----------------------------------
Net increase (decrease) in net assets ........................................ 39,189,907 34,072,125
Net assets:
Beginning of year ................................................................ 131,567,048 97,494,923
----------------------------------
End of year ...................................................................... $ 170,756,955 $ 131,567,048
==================================
Distributions in excess of net investment income included in net assets:
End of year ...................................................................... $ (345,904) $ (15,899)
==================================

18 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS

FOREIGN SMALLER COMPANIES SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Annual Report | 19

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. SECURITY VALUATION (CONTINUED)

foreign stock markets through a series of country specific market proxies (such
as baskets of American Depository Receipts, futures contracts and exchange
traded funds). These price movements are measured against established trigger
thresholds for each specific market proxy to assist in determining if an event
has occurred. If such an event occurs, the securities may be valued using fair
value procedures, which may include the use of independent pricing services. All
security valuation procedures are approved by the Fund's Board of Directors.

B. FOREIGN CURRENCY TRANSLATION

C. FOREIGN CURRENCY CONTRACTS

20 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. INCOME AND DEFERRED TAXES

E. 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.
Interest income and estimated expenses are accrued daily. Amortization of
premium and all return of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recognized as soon as the Fund is notified
of the ex-dividend date. Distributions to shareholders are recorded on the
ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States. These differences may be permanent or temporary. Permanent
differences are reclassified among capital accounts to reflect their tax
character. These reclassifications have no impact on net assets or the results
of operations. Temporary differences are not reclassified, as they may reverse
in subsequent periods.

F. ACCOUNTING ESTIMATES

Annual Report | 21

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

G. REDEMPTION FEES

H. GUARANTEES AND INDEMNIFICATIONS

2. CAPITAL STOCK

At December 31, 2006, there were 1.14 billion shares of TIFI authorized ($0.01
par value), of which 60 million have been classified as Fund shares.
Transactions in the Fund's shares were as follows:

-------------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------

Shares sold ........................ 727,781 $ 14,831,483 1,496,864 $ 25,920,894
Shares issued in reinvestment
of distributions .................. 269,840 5,836,582 447,719 8,097,280
Shares redeemed .................... (618,009) (12,515,612) (292,789) (5,171,054)
-------------------------------------------------------
Net increase (decrease) ............ 379,612 $ 8,152,453 1,651,794 $ 28,847,120
=======================================================

3. TRANSACTIONS WITH AFFILIATES

- -----------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- -----------------------------------------------------------------------------------------

Templeton Investment Counsel, LLC (TIC) Investment manager
Franklin Templeton Investment Management Limited (FTIML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

22 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES

The Fund pays an investment management fee to TIC based on the average daily net
assets of of the Fund as follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.750% Up to and including $1 billion
0.730% Over $1 billion, up to and including $5 billion
0.710% Over $5 billion, up to and including $10 billion
0.690% Over $10 billion, up to and including $15 billion
0.670% Over $15 billion, up to and including $20 billion
0.650% In excess of $20 billion

Under a subadvisory agreement, FTIML, an affiliate of TIC, provides subadvisory
services to the Fund and receives from TIC fees based on the average daily net
assets of the Fund.

B. ADMINISTRATIVE FEES

The Fund pays an administrative fee to FT Services of 0.20% per year of the
average daily net assets of the Fund.

C. TRANSFER AGENT FEES

The Fund paid transfer agent fees of $14,903, of which $9,886 was retained by
Investor Services.

D. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENT

FT Services agreed in advance to voluntarily waive a portion of administrative
fees through April 30, 2007, as noted in the Statement of Operations.
Additionally, TIC agreed in advance to voluntarily waive a portion of management
fees through April 30, 2007. Total expenses waived by FT Services and TIC are
not subject to reimbursement by the Fund subsequent to the Fund's fiscal year
end.

4. EXPENSE OFFSET ARRANGEMENT

Annual Report | 23

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

5. INCOME TAXES

The tax character of distributions paid during the years ended December 31, 2006
and 2005, was as follows:

-------------------------
2006 2005
-------------------------
Distributions paid from:
Ordinary income ............... $ 2,873,774 $ 5,361,453
Long term capital gain ........ 4,092,292 3,903,543
-------------------------
$ 6,966,066 $ 9,264,996
=========================

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, passive foreign
investment company shares, foreign taxes paid on net realized gains and
organizational costs.

Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions and foreign taxes paid on net realized gains.

Cost of investments ............................. $ 112,767,750
=============

Unrealized appreciation ......................... $ 59,249,337
Unrealized depreciation ......................... (2,722,137)
-------------
Net unrealized appreciation (depreciation) ...... $ 56,527,200
=============

Undistributed ordinary income ................... $ 227,766
Undistributed long term capital gains ........... 403,202
-------------
Distributable earnings .......................... $ 630,968
=============

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2006, aggregated $32,666,915 and $23,831,651,
respectively.

24 | Annual Report

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

7. CONCENTRATION OF RISK

8. REGULATORY MATTERS

Annual Report | 25

Templeton Institutional Funds, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

9. NEW ACCOUNTING PRONOUNCEMENTS

26 | Annual Report

Templeton Institutional Funds, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON INSTITUTIONAL FUNDS,
INC. - FOREIGN SMALLER COMPANIES 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 Foreign Smaller Companies Series
(one of the funds constituting the Templeton Institutional Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2006, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. 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 audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
February 22, 2007

Annual Report | 27

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED)

FOREIGN SMALLER COMPANIES SERIES

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $3,906,169 as a long
term capital gain dividend for the fiscal year ended December 31, 2006.

Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $448,962 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006.

Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $2,049,854 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2006. In January 2007, shareholders will receive Form 1099-DIV
which will include their share of qualified dividends distributed during the
calendar year 2006. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.

Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $492,223 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended December 31, 2006.

At December 31, 2006, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the Fund on these investments. As shown in the table
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on December 14, 2006, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.

The following table provides a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund to shareholders of record.

28 | Annual Report

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

Record Date: 12/14/2006

- --------------------------------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Australia .................. $ 0.0017 $ 0.0180 $ 0.0180
Belgium .................... 0.0012 0.0053 0.0053
Bermuda .................... 0.0000 0.0012 0.0000
Brazil ..................... 0.0009 0.0102 0.0000
Canada ..................... 0.0070 0.0222 0.0056
Cayman Islands ............. 0.0000 0.0009 0.0000
China ...................... 0.0000 0.0155 0.0000
Finland .................... 0.0029 0.0132 0.0132
Germany .................... 0.0019 0.0086 0.0051
Hong Kong .................. 0.0000 0.0264 0.0000
India ...................... 0.0010 0.0039 0.0039
Indonesia .................. 0.0004 0.0018 0.0018
Japan ...................... 0.0011 0.0106 0.0106
Mexico ..................... 0.0000 0.0018 0.0018
Netherlands ................ 0.0046 0.0206 0.0206
Norway ..................... 0.0016 0.0070 0.0070
Singapore .................. 0.0000 0.0067 0.0000
South Korea ................ 0.0045 0.0186 0.0186
Spain ...................... 0.0002 0.0010 0.0010
Sweden ..................... 0.0028 0.0124 0.0124
Switzerland ................ 0.0016 0.0130 0.0087
Taiwan ..................... 0.0131 0.0380 0.0000
Thailand ................... 0.0024 0.0164 0.0164
United Kingdom ............. 0.0000 0.0378 0.0378
------------------------------------------------
TOTAL ...................... $ 0.0489 $ 0.3111 $ 0.1878
================================================

Annual Report | 29

Templeton Institutional Funds, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

FOREIGN SMALLER COMPANIES SERIES

30 | Annual Report

Templeton Institutional Funds, Inc.

BOARD MEMBERS AND OFFICERS

INDEPENDENT BOARD MEMBERS

HARRIS J. ASHTON (1932) Director Since 1992 142 Director, Bar-S Foods (meat
500 East Broward Blvd. packing company).
Suite 2100
Fort Lauderdale, FL 33394-3091

Annual Report | 31

32 | Annual Report

INTERESTED BOARD MEMBERS AND OFFICERS

**NICHOLAS F. BRADY (1930) Director Since 1993 10 Director, Hess Corporation
500 East Broward Blvd. (formerly Amerada Hess Corporation)
Suite 2100 (exploration and refining of oil
Fort Lauderdale, FL 33394-3091 and gas) and Weatherford
International, Ltd. (oilfield
products and servicing)
(2004-present); and FORMERLY,
Director, H.J. Heinz Company
(processed foods and allied
products) (1987-1988; 1993-2003)
and Total Logistics, Inc.
(operating and investment business)
(until 2005).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Darby Overseas Investments, Ltd., Darby Technology Ventures Group, LLC (investment firms) and Franklin Templeton
Investment Funds (1994-present); Director, Templeton Capital Advisors Ltd.; and FORMERLY, Chairman, Darby Emerging Markets
Investments LDC (until 2004) and Templeton Emerging Markets Investment Trust PLC (until 2003); Secretary of the United States
Department of the Treasury (1988-1993); Chairman of the Board, Dillon, Read & Co. Inc. (investment banking) (until 1988); and U.S.
Senator, New Jersey (April 1982- December 1982).
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and Vice 142 None
One Franklin Parkway Chairman of President since
San Mateo, CA 94403-1906 the Board and 1993 and
Vice President Chairman of the
Board since 1995

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of
41 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006

Annual Report | 33

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; Vice President, Templeton Global Advisors Limited; and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director,
Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin Templeton Services, LLC; and officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------

34 | Annual Report

MARK MOBIUS (1936) Vice President Since 1993 Not Applicable Not Applicable
17th Floor, The Chater House
8 Connaught Road
Central Hong Kong

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; and officer
and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment
companies in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited (investment
manager of Taiwan R.O.C. Fund) (1986-1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
- ------------------------------------------------------------------------------------------------------------------------------------
GARY P. MOTYL (1952) President Since 2005 Not Applicable Not Applicable
500 East Broward Blvd. and Chief
Suite 2100 Executive
Fort Lauderdale, FL 33394-3091 Officer -
Investment
Management

Annual Report | 35

GALEN VETTER (1951) Chief Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Financial
Suite 2100 Officer and
Fort Lauderdale, FL 33394-3091 Chief
Accounting
Officer

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a director of the Fund.

36 | Annual Report

Templeton Institutional Funds, Inc.

SHAREHOLDER INFORMATION

FOREIGN SMALLER COMPANIES SERIES

PROXY VOTING POLICIES AND PROCEDURES

QUARTERLY STATEMENT OF INVESTMENTS

Annual Report | 37

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[LOGO](R) FRANKLIN TEMPLETON INSTITUTIONAL
FRANKLIN(R) TEMPLETON(R) 600 Fifth Avenue
INSTITUTIONAL NEW YORK, NY 10020

ANNUAL REPORT

TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN SMALLER COMPANIES SERIES

INVESTMENT MANAGER

Templeton Investment Counsel, LLC

SUBADVISOR

Franklin Templeton Investment Management Limited, London,
Geneva Branch

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906

FRANKLIN TEMPLETON INSTITUTIONAL SERVICES

1-800/321-8563
franklintempletoninstitutional.com

ZT458 A2006 02/07

ITEM 2. CODE OF ETHICS.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial experts are David W. Niemiec and Frank A.
Olson and they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees

The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $217,376 for the fiscal year ended December 31, 2006 and $236,756 for the
fiscal year ended December 31, 2005.

(b) Audit-Related Fees

There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.

There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.

There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.

The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $3,961 for the fiscal year ended
December 31, 2006 and $4,955 for the fiscal year ended December 31, 2005. The
services for which these fees were paid included tax compliance and advice.

(d) All Other Fees

The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $5,610 for the fiscal year ended December 31,
2006 and $0 for the fiscal year ended December 31, 2005. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.

The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $170,251 for the fiscal year ended December
31, 2006 and $5,835 for the fiscal year ended December 31, 2005. The services
for which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process and
the review of the ICI transfer agent survey.

(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:

(i) pre-approval of all audit and audit related services;

(ii) pre-approval of all non-audit related services to be
provided to the Fund by the auditors;

(iii) pre-approval of all non-audit related services to be
provided to the registrant by the auditors to the registrant's investment
adviser or to any entity that controls, is controlled by or is under common
control with the registrant's investment adviser and that provides ongoing
services to the registrant where the non-audit services relate directly to the
operations or financial reporting of the registrant; and

(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.

(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f) No disclosures are required by this Item 4(f).

(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $179,822 for the fiscal year ended December 31, 2006 and $10,790
for the fiscal year ended December 31, 2005.

(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Directors that would require disclosure
herein.

ITEM 11. CONTROLS AND PROCEDURES.

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes
in the Registrant's internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of their
evaluation in connection with the preparation of this Shareholder Report on Form
N-CSR.

ITEM 12. EXHIBITS.

(A)(1) Code of Ethics

(A)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

TEMPLETON INSTITUTIONAL FUNDS, INC.

By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 27, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 27, 2007

By /s/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date February 27, 2007