TEMPLETON RUSSIA FUND INC, N-30D, 1996-12-06

TEMPLETON RUSSIA FUND INC
N-30D, 1996-12-06

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<PAGE> 1
TEMPLETON RUSSIA FUND

[Photo of J. Mark Mobius, Ph.D.]

Dr. Mobius has been living overseas since earning his Ph.D. in economics and
political science at Massachusetts Institute of Technology in 1964. During his
extensive travels, he has acquired a thorough knowledge of the business
practices and customs that are unique to emerging markets. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $10 billion
in emerging markets investments for the Templeton Group of Funds.

YOUR FUND'S OBJECTIVE:

The Templeton Russia Fund seeks long-term capital appreciation through equity
investments in "Russia companies."

November 15, 1996
Dear Shareholder:

We are pleased to bring you the second semi-annual report for the Templeton
Russia Fund which covers the six months ended September 30, 1996. Some Russian
equity prices rose phenomenally during this period mainly, we believe, as a
result of improving economic fundamentals and increased investor confidence
following Boris Yeltsin's re-election as Russian President. The Russian market
has been one of the most volatile of all emerging markets this year, and prices
of many Russian stocks increased as much as 300%. Within this environment, your
Fund posted a remarkable six-month total return of 51.21% in market-price terms,
as shown in the Performance

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TEMPLETON RUSSIA FUND
PORTFOLIO BREAKDOWN ON 9/30/96
BASED ON TOTAL NET ASSETS

<TABLE>
<S> <C>
Utilities - Electric & Gas 30.1%

Energy Sources 20.0%

Telecommunications 14.8%

Merchandising 4.3%

Metals & Mining 4.0%

Other Stocks 2.4%

Short-Term Obligations &
Other Net Assets 24.4%
</TABLE>

Summary on page 5. Based on the change in actual net asset value, the six-month
total return was 69.07%.

Russia's economic situation improved greatly in many respects during this
period. After the fall of communism several years ago, the economy suffered from
declining gross domestic product (GDP) and rampant inflation. However, inflation
fell to an annualized rate of approximately 1% in June, while GDP declined only
slightly during the reporting period. It is likely that in the past, official
figures underestimated the economy's strength because they ignored the "gray
economy" -- the unregistered service sector -- which is believed by many to have
been expanding. In our opinion, if this sector had been included, figures might
show the Russian economy may actually have grown during the last two years. Also
on the positive side, year-to-date statistics indicate that Russia may be
running a healthy current account surplus on its balance of payments.

There are, of course, potential pitfalls facing the Russian market and investing
in Russia involves a high degree of risk. The country's budget deficit will
probably exceed the planned target of 3.6% of GDP. President Yeltsin's health
problems pose a risk to the political and economic stability of the country. And
the stock market's fragile regulatory environment was demonstrated by the recent
downgrading of the Russian Federation Commission on Securities and the Capital
Market (FCS). This would have diluted the FCS' powers to establish new
regulations and to enforce existing ones. Fortunately, the decision was later
reversed.

2
<PAGE> 3
TEMPLETON RUSSIA FUND
Top Ten Holdings as of 9/30/96
As a Percentage of Total Net Assets

<TABLE>
<CAPTION>
Company % of Total
Industry Net Assets
<S> <C>
Mosenergo
Utilities - Electric & Gas 13.4%

Rostelekom
Telecommunications 12.7%

Unified Energy System
Energy Sources 8.7%

Lukoil Holdings
Multi-Industry 8.2%

Irkutskenergo
Utilities - Electric & Gas 7.7%

GUM Trade House,
Merchandising 4.3%

Chernogorneft
Energy Sources 3.6%

Purneftegaz
Energy Sources 3.2%

Komineft
Energy Sources 2.2%

Krasnoyarsk Aluminum Plant
Metals & Mining 2.1%
</TABLE>

For a complete list of portfolio holdings, please see page 9 of this report.

We used the positive economic and political environment of the last six months
to increase our exposure to equities, from 57.8% of total net assets on March
31, 1996 to 75.6% on September 30, 1996. A number of stocks in the Fund's
portfolio generated outstanding returns during this period. When measured in
U.S. dollars, share prices of oil conglomerate Lukoil Holdings nearly doubled,
and prices of Mosenergo, an electricity generation and distribution company in
the Moscow area, more than tripled. Shares of Lenenergo, an energy company in
St. Petersburg and the Fund's top performer, increased by more than 500%.

We must stress that returns of this magnitude should not be expected in future
periods. In fact, we could see a sharp downturn in Russian equity prices in the
short term. However, over the long term, we believe there is potential for
continued expansion of the country's equity market. Russia possesses some of the
largest reserves of natural resources in the world and has 150 million consumers
and a generally well-trained, inexpensive workforce. And, in our opinion,
undervalued Russian stocks can still be found, even after the recent gains in
the equity market.

This discussion reflects the strategies we employed for the Fund during the
six-month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies,

3
<PAGE> 4
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing the securities we purchase or sell for the Fund.

Of course, investing in any emerging market, including Russia, means tolerating
a certain amount of volatility and, in some cases, severe market corrections.
Such highly speculative investing involves special risk considerations not
typically associated with investing in U.S. securities markets. These risks
include, but are not limited to, political, economic, legal and social
uncertainties (for example, regional conflicts and risk of war), market and
currency exchange rate volatility, delays in settling portfolio transactions,
risk of loss arising from Russia's underdeveloped system of share transfer,
registration, and custody, and the pervasiveness of corruption and crime in the
Russian economic system.

Thank you for investing in the Templeton Russia Fund. We appreciate your support
and welcome your comments.

4
<PAGE> 5
PERFORMANCE SUMMARY

In market-price terms, the Templeton Russia Fund produced a total return of
51.21% for the six months ended September 30, 1996. Based on the change in
actual net asset value (in contrast to market price), the Fund delivered a total
return of 69.07% for the same period. Both total return figures assume
reinvestment of dividends and capital gains in accordance with the dividend
reinvestment plan.

During the reporting period, shareholders received dividend income of 9.0 cents
($0.09) per share. The Fund's closing price on the New York Stock Exchange
(NYSE) increased by $6.875, from $13.625 on March 31, 1996 to $20.50 on
September 30, 1996, while the Fund's net asset value increased by $7.71, from
$11.30 to $19.01. Past performance is not predictive of future results, and
distributions will vary depending on income earned by the Fund, as well as any
profits realized from the sale of securities in the portfolio.

TEMPLETON RUSSIA FUND
Cumulative Total Returns
Periods Ended 9/30/96

<TABLE>
<CAPTION>
Since
Inception
One-Year (6/15/95)
<S> <C> <C>

Cumulative Total Return(1)
Based on change in
net asset value 51.05% 28.17%

Based on change in
market price 32.50% 41.56%

Average Annual Total Return(2)
Based on change in
net asset value 51.05% 21.12%

Based on change in
market price 32.50% 39.30%
</TABLE>

1. Cumulative total returns represent the change in value of an investment over
the periods indicated.

2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated.

All calculations assume reinvestment of dividend and capital gains
distributions, either at net asset value or at market price on the reinvestment
date, in accordance with the dividend reinvestment plan. The Investment Manager
has agreed to reduce its fee by one-half during the fiscal quarter following the
fiscal period ended September 30, 1995 and any of the succeeding eight full
quarters in which the average closing price of the Fund's shares on the New York
Stock Exchange is less than the $15.00 initial offering price. This fee
reduction was in effect for the period from October 1, 1995 through June 30,
1996. Without these reductions, the Fund's total return would have been lower
during periods when the Investment Manager reduced its fee. Past performance is
not predictive of future results.

5
<PAGE> 6
THE FOLLOWING LETTER WAS WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO RUSSIA.

We arrived in Russia after a two-week trip to India. Our Russian trip spanned
the length and breadth of this great nation, which includes almost half the
world's 24 time zones. Our itinerary took us from Moscow to Murmansk, near the
Finnish and Norwegian border on the Barents Sea. From Murmansk we flew south to
St. Petersburg, then to Sochi, where such authors as Pushkin and Lermontov were
exiled during the time of the tsars. From Sochi, we flew to Anapa, then drove to
Novorossijsk. The one-hour drive was comfortable, as the climate was pleasant
and warm, and the roads were in excellent condition.

In Novorossijsk, we visited the Novorossijsk Sea Shipping Company (NovoShip).
NovoShip is one of three prosperous companies in Novorossijsk: NovoShip,
NovoCement and NovoPort. Established in 1967, NovoShip is an offshoot of Baltic
Shipping, which came into being in 1845. During the Communist era, the company
specialized in transporting bulk cargo, but after being privatized, it started
to ship general cargo, which tends to produce higher profit margins. Although
the nearest container terminal to Novorossijsk is in Odessa, NovoShip plans to
containerize its operations. For this purpose, a railway link with Odessa is
being built.

From Novorossijsk, we headed north to Nizhnevartovsk in the heart of the Russian
oil country, but because the airport landing lights were not working, we flew to
Yekaterinburg. There, we stayed at a hotel where the hot water taps were out of
order, forcing us to shower in the basement. We arrived at the Nizhnevartovsk
airport the next day, intending to visit the Megionneftegas Company. Our guide
told us that it would take only 15 minutes to drive from the airport to the
company's plant. Three and a half hours later, battered and bruised from the
jolts we received on the treacherous roads, we

6
<PAGE> 7
returned to the airport -- without finding Megionneftegas. Although the driver
blamed it on a road detour, I don't think he knew where he was going.

Russia has many problems such as corruption, the extreme gulf between rich and
poor, and an inefficient tax system. Most business payments are made by barter,
and many bills go unpaid, making it difficult for companies to finance their
operations properly. But the potential for growth here is enormous, and I
believe that Russia can overcome its political, economic and social problems.
Many stocks are selling at a fraction of book value and are priced at less than
five times earnings. And the strength of the Russian people is legendary. In
1941, they withstood the full onslaught of the Nazi blitzkrieg and stopped the
German panzers outside of Moscow. During the siege of Leningrad, they fought the
Germans bravely for 900 days. And this summer, neither violence nor corruption
seemed to mar the presidential elections. In my opinion, this is a positive sign
for the future of the country and encouraging for prospects of the Fund.*

Sincerely,

/s/ J. Mark Mobius, Ph.D.
- ---------------------------
J. Mark Mobius, Ph.D.
President
Templeton Russia Fund, Inc.

* The letter reflects the strategies employed for the Fund during the past six
months and includes our opinions as of the close of the period. Since economic
and market conditions are constantly changing, our strategies, evaluations,
conclusions and decisions regarding portfolio holdings may change as new
circumstances arise.

7
<PAGE> 8

TEMPLETON RUSSIA FUND, INC.
Financial Highlights

- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)

<TABLE>
<CAPTION>
SIX MONTHS JUNE 15, 1995
ENDED (COMMENCEMENT
SEPTEMBER 30, 1996 OF OPERATIONS) TO
(UNAUDITED) MARCH 31, 1996
------------------ ----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.30 $ 14.10
-------- -------
Income from investment operations:
Net investment income (loss) (.04) .15
Net realized and unrealized gain (loss) 7.84 (2.78)
-------- -------
Total from investment operations 7.80 (2.63)
Underwriting expenses deducted from capital -- (.10)
Distributions to shareholders from net investment income (.09) (.07)
-------- -------
Change in net asset value 7.71 (2.80)
-------- -------
Net asset value, end of period $ 19.01 $ 11.30
======== =======
TOTAL RETURN*
Based on market value per share 51.21% (8.73)%
Based on net asset value per share 69.07% (19.47)%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000) $100,889 $ 59,942
Ratio of expenses inclusive of fee waiver, to average net assets 2.19%** 2.00%**
Ratio of net investment income (loss) to average net assets (.41)%** 1.54%**
Portfolio turnover rate 7.41% .50%
Average commission rate paid (per share) $ .0001
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

8
<PAGE> 9

TEMPLETON RUSSIA FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited)

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

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 72.9%
- ------------------------------------------------------------------------------------------------------------------------
AEROSPACE & MILITARY TECHNICAL SYSTEMS: 0.1%
* Perm Motor Rus. 690,000 $ 11,316
- ------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 0.8%
* Kamaz Rus. 613,200 855,414
- ------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 19.0%
* Chernogorneft Rus. 530,000 3,630,500
* Komineft Rus. 1,547,047 2,204,542
Lukoil-Holdings Rus. 789,000 7,235,130
* Orenburgneft Rus. 315,185 561,029
* Purneftegaz Rus. 1,617,365 3,267,077
* Samotlorneft Rus. 168,945 211,181
* Tomskneft Rus. 521,895 2,087,580
------------
19,197,039
- ------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 0.1%
* Red October Rus. 1,000 13,750
- ------------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 0.1%
* Uralmash Rus. 23,000 74,750
- ------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 4.3%
GUM Trade House Rus. 227,012 4,324,579
- ------------------------------------------------------------------------------------------------------------------------
METALS & MINING: 4.0%
* Krasnoyarsk Aluminum Plant Rus. 205,232 2,154,936
* Norilsk Nickel Rus. 300,000 1,875,000
------------
4,029,936
- ------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 0.1%
Novolipetsk Ferrons Metal Factory Rus. 2,000 72,000
- ------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 13.1%
Rostelekom Rus. 4,607,500 11,058,000
* Saint Petersburg City Telephone Network Rus. 98,235 2,146,435
------------
13,204,435
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 1.2%
* Murmansk Sea Shipping Rus. 12,000 252,000
* Primorsk Shipping Rus. 452,000 994,400
------------
1,246,400
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL & GAS: 30.1%
* Irkutskenergo Rus. 77,400,000 7,740,000
* Lenenergo Rus. 1,094,400 415,872
</TABLE>

9
<PAGE> 10

TEMPLETON RUSSIA FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited) (cont.)

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

<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 4.0% (cost $4,072,000)
- ------------------------------------------------------------------------------------------------------------------------
Lehman Securities Inc., 5.70%, 10/01/96
(Maturity Value $4,072,645)
U.S. Treasury Bond, 11.75%, 2/15/01 U.S. 3,420,000+ 4,072,000
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 21.7%
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Bank Inc., 5.28%, 10/02/96 U.S. 1,500,000 1,500,000
Federal Farm Credit Bank, 5.15% to 5.35%
with maturities to 10/15/96 U.S. 3,905,000 3,900,280
Federal Home Loan Bank, 5.23% to 5.26%
with maturities to 10/23/96 U.S. 3,760,000 3,751,118
Federal Home Loan Mortgage Corp., 5.22% to 5.28%
with maturities to 10/18/96 U.S. 6,120,000 6,107,733
Federal National Mortgage Assn., 5.23% to 5.30%
with maturities to 10/28/96 U.S. 6,680,000 6,663,389
------------
SHORT TERM OBLIGATIONS (cost $21,922,550) 21,922,520
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 101.3% (cost $77,941,044) 102,207,568
OTHER ASSETS, LESS LIABILITIES: (1.3%) (1,318,453)
------------
TOTAL NET ASSETS: 100.0% $100,889,115
============
</TABLE>

* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRY INDICATED.
+ PRINCIPAL AMOUNT FOR THE REPURCHASE AGREEMENT IS FOR THE UNDERLYING
COLLATERAL.

SEE NOTES TO FINANCIAL STATEMENTS.

10
<PAGE> 11

TEMPLETON RUSSIA FUND, INC.
Financial Statements

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

STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (unaudited)

<TABLE>
<S> <C>
Assets:
Investments in securities at value
(identified cost $77,941,044) $102,207,568
Cash 481
Interest receivable 1,965
Unamortized organization costs 80,008
------------
Total assets 102,290,022
------------
Liabilities:
Payable for investment securities
purchased 1,054,081
Accrued expenses 346,826
------------
Total liabilities 1,400,907
------------
Net assets, at value $100,889,115
============
Net assets consist of:
Undistributed net investment loss $ (209,315)
Net unrealized appreciation 24,266,524
Accumulated net realized gain 2,457,290
Net capital paid in on shares of
capital stock 74,374,616
------------
Net assets, at value $100,889,115
============
Shares outstanding (Note 3) 5,306,623
============
Net asset value per share
($100,889,115 / 5,306,623) $ 19.01
============
</TABLE>

STATEMENT OF OPERATIONS
For the six months ended
September 30, 1996 (unaudited)

<TABLE>
<S> <C> <C>
Investment Income:
(net of $16,682 foreign
taxes withheld)
Dividends $ 141,801
Interest 673,966
-----------
Expenses: $ 815,767
Management fees (Note 4) 449,781
Administrative fees (Note 4) 116,417
Transfer agent fees 5,781
Custodian fees 340,243
Reports to shareholders 11,721
Audit fees 28,175
Legal fees (Note 4) 23,373
Registration and filing fees 7,808
Directors' fees and expenses 6,905
Amortization of
organization costs 10,773
Other 4,258
-----------
Total expenses 1,005,235
-----------
Net investment loss (189,468)
Realized and unrealized gain:
Net realized gain on
investments 2,458,057
Net unrealized appreciation
on investments 39,084,788
-----------
Net realized and
unrealized gain 41,542,845
-----------
Net increase in net assets
resulting from operations $41,353,377
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12

TEMPLETON RUSSIA FUND, INC.
Financial Statements (cont.)

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

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS JUNE 15, 1995
ENDED (COMMENCEMENT
SEPTEMBER 30, 1996 OF OPERATIONS) TO
(UNAUDITED) MARCH 31, 1996
------------------ -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ (189,468) $ 801,705
Net realized gain (loss) on investments 2,458,057 (767)
Net unrealized appreciation (depreciation) 39,084,788 (14,818,264)
------------ ------------
Net increase (decrease) in net assets resulting from operations 41,353,377 (14,017,326)
Distributions to shareholders from net investment income (477,241) (344,311)
Capital share transactions (Note 3) 70,654 74,203,951
------------ ------------
Net increase in net assets 40,946,790 59,842,314
Net assets:
Beginning of period 59,942,325 100,011
------------ ------------
End of period $100,889,115 $ 59,942,325
============ ============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

12
<PAGE> 13

TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (unaudited)

- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES

Templeton Russia Fund, Inc. (the Fund) is a Maryland corporation and a
closed-end, non-diversified management investment company registered under the
Investment Company Act of 1940. The Fund seeks to achieve its objectives by
investing in equity securities of Russia or Russian related companies. The
following summarizes the Fund's significant accounting policies.

A. SECURITIES VALUATIONS:

Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange on
which the securities are traded. Over-the-counter securities and listed
securities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and
approved in good faith by the Board of Directors.

B. FOREIGN CURRENCY TRANSACTIONS:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.

Reported net 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, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange rates.

C. INCOME TAXES:

It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND EXPENSES:

Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign
securities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.

E. UNAMORTIZED ORGANIZATION COSTS:

Organization costs are being amortized on a straight line basis over five years.

F. REPURCHASE AGREEMENTS:

The Fund through its custodian, receives delivery of the underlying securities,
whose market is required to be at least 102% of the resale price at the time of
purchase. The Fund's investment advisor, TAML, is responsible for determining
that the value of these underlying securities remains at least equal to the
resale price.

13
<PAGE> 14

TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (unaudited) (cont.)

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

G. ACCOUNTING ESTIMATES:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. MARKET AND GEOGRAPHIC RISK CONSIDERATIONS

Investing in equity securities of Russian companies includes certain endemic
risks not typically associated with investing in countries with more developed
securities markets, such as political, economic and legal uncertainties, delays
in settling portfolio transactions and the risk of loss from Russia's
underdeveloped systems of share registration and transfer.
3. TRANSACTIONS IN SHARES OF CAPITAL STOCK

On June 15, 1995, the Fund completed its initial public offering of 4.6 million
shares of its common stock. Proceeds paid to the Fund amount to $64,400,000
after deduction of underwriting commissions as well as offering expenses of
$460,000. On July 7, 1995, the Fund completed a subsequent offering of 690,000
shares of its common stock resulting in additional proceeds of $9,729,000.

At September 30, 1996, there were 100,000,000 shares of capital stock authorized
($.01 par value).

During the period ended September 30, 1996, and for the year ended March 31,
1996, 3,945 shares were issued for $70,654 and 5,585 shares were issued for
$74,951 from reinvested distributions, respectively.
4. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Certain officers of the Fund are also directors or officers of Templeton Asset
Management Limited (TAML) and Templeton Global Investors, Inc. (TGII), the
Fund's investment manager and administrative manager, respectively.

The Fund pays monthly an investment management fee to TAML equal, on an annual
basis, to 1.25% of the average weekly net assets of the Fund. The Fund pays TGII
monthly fees of 0.25% per annum of the Fund's average weekly net assets of which
0.20% is paid to Princeton Administrators L.P., an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, for sub-administrative services. TAML has
agreed to reduce its fees by one half during the fiscal quarter following the
fiscal period ending September 30, 1995 and any of the succeeding eight full
fiscal quarters in which the average closing price of the Fund's shares on the
New York Stock Exchange is less than the $15 initial offering price. Such
reduction in fees amounted to $122,959 for the period ended September 30, 1996.

An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received $23,373 for the six months ended September 30,
1996.
5. PURCHASES AND SALES OF SECURITIES

Purchases and Sales of securities (excluding short-term securities) for the
period ended September 30, 1996 were $4,885,039 and $5,088,022, respectively.
The cost of securities for federal income tax purposes is the same as that shown
in the Investment Portfolio. Realized gains and losses are reported on an
identified cost basis.

At September 30, 1996, the aggregate gross unrealized appreciation and
depreciation of portfolio securities based on cost for federal income tax
purposes, was as follows:

<TABLE>
<S> <C>
Unrealized appreciation $31,810,785
Unrealized depreciation (7,544,261)
-----------
Net unrealized appreciation $24,266,524
===========
</TABLE>

14
<PAGE> 15

TEMPLETON RUSSIA FUND, INC.
Annual Meeting of Shareholders, July 24, 1996

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

An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on July 24, 1996. The purpose of
the meeting was to elect eleven directors of the Fund, to ratify the selection
of McGladrey & Pullen, LLP, as the Fund's independent public accountants for the
fiscal year ended March 31, 1997 and in their discretion, to authorize the
proxyholders to vote upon such other matters which may legally come before the
meeting or any other adjournment thereof. At the meeting, the following persons
were elected by the shareholders to serve as directors of the Fund: Harris J.
Ashton, Nicholas F. Brady, Harmon E. Burns, Martin L. Flanagan, S. Joseph
Fortunato, John Wm. Galbraith, Andrew H. Hines, Jr., Charles B. Johnson, Betty
P. Krahmer, Gordon S. Macklin and Fred R. Millsaps. The shareholders ratified
the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent
public accountants for the fiscal year ending March 31, 1997. No other business
was transacted at the meeting.

The results of the voting at the Annual Meeting are as follows:

1. ELECTION OF ELEVEN (11) DIRECTORS FOR THE TERMS SET FORTH BELOW:

<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERMS EXPIRING 1999: FOR SHARES AGAINST SHARES
- -------------------- -------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Harris J. Ashton 3,454,208 65.14% 2,273 0.04%
Nicholas F. Brady 3,427,730 64.64% 28,751 0.54%
S. Joseph Fortunato 3,454,593 65.11% 3,888 0.07%
TERMS EXPIRING 1998:
- --------------------
Martin L. Flanagan 3,452,347 65.11% 4,134 0.08%
John Wm. Galbraith 3,440,560 64.88% 15,921 0.30%
Andrew H. Hines, Jr. 3,452,142 65.10% 4,339 0.08%
Charles B. Johnson 3,452,703 65.11% 3,778 0.07%
TERMS EXPIRING 1997:
- --------------------
Harmon E. Burns 3,443,557 64.94% 12,924 0.24%
Betty P. Krahmer 3,453,403 65.13% 3,078 0.06%
Gordon S. Macklin 3,453,503 65.13% 2,978 0.06%
Fred R. Millsaps 3,441,852 64.91% 14,629 0.28%
</TABLE>

2. RATIFICATION OF THE SELECTION OF MCGLADREY & PULLEN, LLP, AS INDEPENDENT
PUBLIC ACCOUNTANTS OF THE FUND FOR THE FISCAL YEAR ENDED MARCH 31, 1997:

<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
-------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
3,437,794 64.83% 2,082 0.04% 16,606 0.31%
</TABLE>

15
<PAGE> 16

TEMPLETON RUSSIA FUND, INC.

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

DIVIDEND REINVESTMENT PLAN

The Fund offers a Dividend Reinvestment Plan ( the "Plan") with the following
features: --If shares of the Fund are held in the shareholder's name, the
shareholder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder
instructs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. --Participants should contact Chemical Mellon
Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750,
Pittsburgh, PA 15230, to receive the Plan brochure. --To receive dividends or
distributions in cash, the shareholder must notify Chemical Mellon Securities
Trust Company ("Mellon") or the institution in whose name the shares are held.
Mellon must receive written notice within 10 business days before the record
date for the distribution. --Whenever the Fund declares dividends in either cash
or common stock of the Fund, if the market price is equal to or exceeds net
asset value but not less than 95% of the then current market price of the Fund's
shares. If the market price is lower than net asset value and if dividends
and/or capital gains distributions are payable only in cash, the participant
will receive shares purchased on the New York Stock Exchange. --The automatic
reinvestment of dividends and/or capital gains does not relieve the participant
of any income tax which may be payable on dividends or distributions. --The
participants may withdraw from the Plan without penalty at any time by written
notice to Mellon. Upon withdrawal, the participant will receive, without charge,
stock certificates issued and in the participant's name for all full shares; or,
if the participant's wishes, Mellon will sell the participant's shares and send
the proceeds, net of any brokerage commissions. A $5.00 fee is charges by Mellon
upon any cash withdrawal or termination. --Whenever shares are purchased on the
New York Stock Exchange, each participant will pay a pro rata portion of
brokerage commissions. Brokerage commissions will be deducted from amounts to be
invested.

16
<PAGE> 17

TEMPLETON RUSSIA FUND, INC.

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

TRANSFER AGENT

Chemical Mellon Shareholder Services
Securities Transfer Services
450 West 33rd Street, 15th Floor
New York, NY 10001
800-526-0801

SHAREHOLDER INFORMATION

Weekly comparative net asset value and market price information about Templeton
Russia Fund, Inc. shares is published each Monday in the Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers
in a table called "Publicly Traded Funds". Daily market prices for the Fund's
shares are published in the New York Stock Exchange Composite Transactions
section of newspapers under the designation "TempltnTRF". The Fund's New York
Stock Exchange trading symbol is TRF.

For current information about the net asset value, call 1-800-292-9293.

If any shareholder is not receiving copies of the Reports to Shareholders
because shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton Russia Fund, Inc., 700 Central Avenue, St.
Petersburg, FL 33701.

17
<PAGE> 18

NOTES
<PAGE> 19

LITERATURE REQUEST
- --------------------------------------------------------------------------------

For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone calls
to or from our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.

FRANKLIN TEMPLETON GROUP

Global Growth

Franklin Global Health
Care Fund

Franklin Templeton
Japan Fund

Templeton Developing
Markets Trust

Templeton Foreign Fund

Templeton Foreign Smaller
Companies Fund

Templeton Global
Infrastructure Fund

Templeton Global
Opportunities Trust

Templeton Global
Real Estate Fund

Templeton Global Smaller
Companies Fund

Templeton Greater
European Fund

Templeton Growth Fund

Templeton Latin America
Fund

Templeton Pacific
Growth Fund

Templeton World Fund

GLOBAL GROWTH AND INCOME

Franklin Global Utilities Fund

Franklin Templeton German
Government Bond Fund

Franklin Templeton
Global Currency Fund

Mutual European Fund

Templeton Global Bond Fund

Templeton Growth and
Income Fund

GLOBAL INCOME

Franklin Global Government
Income Fund

Franklin Templeton Hard
Currency Fund

Franklin Templeton High
Income Currency Fund

Templeton Americas
Government Securities Fund

GROWTH

Franklin Blue Chip Fund

Franklin California Growth Fund

Franklin DynaTech Fund

Franklin Equity Fund

Franklin Gold Fund

Franklin Growth Fund

Franklin MidCap Growth Fund

Franklin Small Cap Growth Fund

Mutual Discovery Fund

GROWTH AND INCOME

Franklin Asset Allocation Fund

Franklin Balance Sheet
Investment Fund

Franklin Convertible
Securities Fund

Franklin Equity Income Fund

Franklin Income Fund

Franklin MicroCap Value Fund

Franklin Natural Resources Fund

Franklin Real Estate
Securities Fund

Franklin Rising Dividends Fund

Franklin Strategic Income Fund

Franklin Utilities Fund

Franklin Value Fund

Mutual Beacon Fund

Mutual Qualified Fund

Mutual Shares Fund

Templeton American Trust, Inc.

INCOME

Franklin Adjustable Rate
Securities Fund

Franklin Adjustable U.S.
Government Securities Fund

Franklin's AGE High
Income Fund

Franklin Investment Grade
Income Fund

Franklin Short-Intermediate U.S.
Government Securities Fund

Franklin U.S. Government
Securities Fund

Franklin Money Fund

Franklin Federal Money Fund

FOR NON-U.S. INVESTORS:

Franklin Tax-Advantaged
High Yield Securities Fund

Franklin Tax-Advantaged
International Bond Fund

Franklin Tax-Advantaged
Government Securities Fund

FOR CORPORATIONS:

Franklin Corporate Qualified
Dividend Fund

FRANKLIN FUNDS SEEKING
TAX-FREE INCOME

Federal Intermediate-Term
Tax-Free Income Fund

Federal Tax-Free Income Fund

High Yield Tax-Free
Income Fund

Insured Tax-Free Income Fund

Puerto Rico Tax-Free
Income Fund

Tax-Exempt Money Fund

FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME

Alabama

Arizona*

Arkansas**

California*

Colorado

Connecticut

Florida*

Georgia

Hawaii**

Indiana

Kentucky

Louisiana

Maryland

Massachusetts***

Michigan*

Minnesota***

Missouri

New Jersey

New York*

North Carolina

Ohio***

Oregon

Pennsylvania

Tennessee**

Texas

Virginia

Washington**

VARIABLE ANNUITIES

Franklin Valuemark(R)

Franklin Templeton
Valuemark Income Plus
(an immediate annuity)

*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).

**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.

***Portfolio of insured municipal securities.
11/96.1
<PAGE> 20

[Graphic]

TEMPLETON
RUSSIA
FUND, INC.

SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996

TEMPLETON RUSSIA FUND, INC.

700 Central Avenue
St. Petersburg,
Florida 33701-3628

Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.

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

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