<PAGE> 1
TEMPLETON RUSSIA FUND
[PICTURE OF DR. MOBIUS]
J. MARK MOBIUS, PH.D.
President
Templeton Russia
Fund, Inc.
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 $12 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."
MARCH 31, 1997
Dear Shareholder:
We are pleased to bring you the second annual report for the Templeton Russia
Fund, which covers the year ended March 31, 1997. Although Russia's economy
contracted during the first three quarters of this reporting period, it grew
slightly in early 1997. Inflation and interest rates fell sharply, causing the
yield on Russian Treasury bills to plummet from over 200% per year in June 1996,
to approximately 30% in March 1997. The re-election of President Boris Yeltsin,
and the economy's stabilization, increased foreign interest in Russian equities,
and competition between
1
<PAGE> 2
international investors for the limited supply of available shares drove the
Russian equity market higher. New investors were also attracted by Russia's
inclusion in emerging market stock indices such as the Morgan Stanley Capital
International - Russia index. Within this environment, the Fund posted a
remarkable one-year total return of 147.08% in market-price terms, as shown in
the Performance Summary on page 6. Based on the change in actual net asset
value, the one-year total return was 181.92%. Lipper Analytical Services ranked
the Fund number one out of 20 closed-end European Region funds in total return
based on the change in net asset value during the one-year period ended March
31, 1997.(1)
TEMPLETON RUSSIA FUND
Portfolio Breakdown on 3/31/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<S> <C>
Utilities-Electrical & Gas 37.7%
Energy Sources 19.2%
Telecommunications 6.4%
Merchandising 4.3%
Building Materials & Components 4.3%
Metals & Mining 2.8%
Other Stocks 5.6%
Short-Term Obligations & Other Net Assets 19.7%
</TABLE>
Following Yeltsin's re-election, the government focused on passing laws designed
to make the stock market more efficient. Existing statutes were amended in order
to protect shareholder rights, and the Federal Securities Commission (FSC)
attempted to ensure the independence of stock registrars. If effective, this
could reduce the possibility a stock buyer now faces that an issuing company's
registrar might refuse to recognize a transaction. The FSC also has announced
plans to establish a central equity depository to speed up the settlement
process, which now can take several weeks.
As you can see in the charts on page 3, we took advantage of Russia's positive
economic and political environment by decreasing our cash position and
increasing our exposure to equities. Several
1. LIPPER ANALYTICAL SERVICES IS A NATIONALLY RECOGNIZED MUTUAL FUND RESEARCH
ORGANIZATION.
2
<PAGE> 3
stocks in the Fund's portfolio performed extraordinarily well. Shares of Unified
Energy System, a diversified utility company, rose nearly 538%, and those of
electric utility companies Irkutskenergo and Mosenergo appreciated about 470%
and 451%, respectively, during the period.
TEMPLETON RUSSIA FUND
Short-Term Obligations & Other Net Assets
Based on Total Net Assets
[BAR GRAPH]
<TABLE>
<S> <C>
3/31/96 42.2%
3/31/97 19.7%
</TABLE>
TEMPLETON RUSSIA FUND
Equity Investments
Based on Total Net Assets
[BAR GRAPH]
<TABLE>
<S> <C>
3/31/96 57.8%
3/31/97 80.3%
</TABLE>
Until recently, conditions in Russia made it difficult to calculate the value of
Russian companies, and we believe these businesses were considerably undervalued
by international investors. However, now that valuations there have risen, if
there are further gains next year, these may be more moderate. Also, these
stocks are prominent in global indices, making them targets for investors
wishing to "index" their international portfolios. Share prices of other
companies did not show such growth, and we must stress that returns of this
magnitude should not be expected in future years.
In our opinion, the Russian economy has the potential for continued growth at a
modest pace throughout 1997. If industrial production and revenues from
commodity exports rise, growth could accelerate in 1998. However, this would
require improved corporate management and acceleration of the government's
reform program. New laws favoring the rights of minority shareholders have yet
to be implemented, and, in Russia, the need exists for a more equitable
distribution of the tax burden and improved tax collection methods.
3
<PAGE> 4
TEMPLETON RUSSIA FUND
Top 10 Holdings on 3/31/97
As a Percentage of Total Net Assets
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------
<S> <C>
Unified Energy System
Utilities - Electrical & Gas 13.9%
Irkutskenergo
Utilities - Electrical & Gas 12.1%
Mosenergo
Utilities - Electrical & Gas 11.2%
Purneftegaz
Energy Sources 5.0%
Alfa Cement Holding
Building Materials & Components 4.3%
Lukoil Holdings
Energy Sources 4.1%
GUM Trade House
Merchandising 3.6%
Komineft
Energy Sources 3.4%
Tomskneft
Energy Sources 3.2%
Rostelekom
Telecommunications 3.1%
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 12 OF THIS REPORT.
Despite the necessity for these changes, we remain optimistic about long-term
prospects for Russia's economy and stock market.
This discussion reflects the strategies we employed for the Fund during the
fiscal year under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our 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
4
<PAGE> 5
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.
We thank you for your continued support and interest in the Fund.
- --------------------------------------------------------------------------------
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
- --------------------------------------------------------------------------------
5
<PAGE> 6
PERFORMANCE SUMMARY
In market-price terms, the Templeton Russia Fund produced a total return of
147.08% for the one year ended March 31, 1997. Based on the change in actual net
asset value (in contrast to market price), the Fund delivered a total return of
181.92% 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 distributions of 9.0 cents
($0.09) per share in dividend income, and 67.0 cents ($0.67) per share in
capital gains, of which 44.5 cents ($0.445) represented long-term gains, and
22.5 cents ($0.225) represented short-term gains. The Fund's closing price on
the New York Stock Exchange increased $19.00, from $13.625 on March 31, 1996 to
$32.625 on March 31, 1997, while the Fund's net asset value increased $19.58,
from $11.30 to $30.88. We believe it is important to maintain a long-term
investment perspective, and encourage shareholders to view their investments in
a similar manner. Past performance is not predictive of future results, and
distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Fund's operating expenses.
6
<PAGE> 7
TEMPLETON RUSSIA FUND
CUMULATIVE TOTAL RETURNS
PERIODS ENDED 3/31/97
<TABLE>
<CAPTION>
Since
Inception
One-Year (6/15/95)
<S> <C> <C>
Cumulative Total Return(1)
Based on change in
net asset value 181.92% 127.03%
Based on change in
market price 147.08% 125.51%
Average Annual Total Return(2)
Based on change in
net asset value 181.92% 57.92%
Based on change in
market price 147.08% 57.33%
</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 DIVIDENDS AND CAPITAL GAINS EITHER AT
NET ASSET VALUE OR AT MARKET PRICE ON THE REINVESTMENT DATE, IN ACCORDANCE WITH
THE DIVIDEND REINVESTMENT PLAN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE WITH MARKET CONDITIONS, CURRENCIES AND THE POLITICAL, SOCIAL AND
ECONOMIC CLIMATES OF COUNTRIES WHERE INVESTMENTS ARE MADE. EMERGING MARKETS
INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE
ASSOCIATED WITH THE RELATIVELY SMALL SIZE AND LESSER LIQUIDITY OF THESE MARKETS.
RUSSIAN SECURITIES INVOLVE ADDITIONAL SIGNIFICANT RISKS, INCLUDING POLITICAL AND
SOCIAL UNCERTAINTY (FOR EXAMPLE, REGIONAL CONFLICTS AND RISK OF WAR), CURRENCY
EXCHANGE RATE VOLATILITY, PERVASIVENESS OF CORRUPTION AND CRIME IN THE RUSSIAN
ECONOMIC SYSTEM, DELAYS IN SETTLING PORTFOLIO TRANSACTIONS AND RISK OF LOSS
ARISING OUT OF RUSSIA'S SYSTEM OF SHARE REGISTRATION AND CUSTODY. YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE IS NOT PREDICTIVE OF
FUTURE RESULTS.
THE INVESTMENT MANAGER 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 WAS 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.
7
<PAGE> 8
THE FOLLOWING LETTER WAS
WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO VLADIVOSTOK.
It is difficult to imagine just how big Russia is. If you fly eastward from
Moscow, it takes nine hours to reach Vladivostok. Located on Russia's Pacific
coast, the city is home to many ports, shipyards, and fishing companies.
When I arrived, it seemed as though the plane that brought me from Moscow was a
"time machine" taking me back two years. In 1995, when we opened our first
office in Russia, I had to explain to company managers what a stock market is,
how to raise funds by issuing securities, and what information investors need.
Now, I had to go through the same process again. However, the region has
benefited from proximity to several rapidly growing Asian economies. As we drove
through the city, I noticed a number of construction sites covered with logos of
developers from South Korea and other Asian countries.
The first day in Vladivostok, the weather was wonderful, but the next day a snow
storm paralyzed the city. Ice covered the roads, immobilizing vehicles;
companies suspended their operations; and we had to postpone meetings planned
for that day. The following morning, we visited an air transportation company
that had a small fleet of old planes desperately in need of repair or
replacement. Its business had fallen 40% during the preceding year. We were
greeted by the managing director, who immediately asked us: "Is the destruction
of the Russian economy by you capitalists on schedule?" His question was a good
example of the suspicion with which many managers still regard the motives of
foreign investors. Unaffected by our discussion of the merits of foreign
investment, he refused to give us any details about the financial situation of
the company, and eventually stood up, signaling an abrupt end to the meeting.
The next company we visited was completely different. Three years ago it had
been struggling to
8
<PAGE> 9
keep up with orders, but was now working at only 10% of capacity. A producer of
radio and TV components, it has established ties with U.S., South Korean and
European firms. Although these alliances have not produced much business, the
managing director was hoping to conclude a contract with South Korea that might
increase production 50%. I believe his eagerness to work with foreign companies
should pay off in the long term, and the company may be one to watch in a few
years' time.
Despite the challenges they face, many Russian companies have the ability to
prosper. What differentiates those that do from those that do not, may be the
inclination of managers to embrace foreign investment. In my opinion, more and
more Russian companies will realize this, which should provide an increasing
number of investment opportunities for the Fund in the future.*
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
Templeton Russia Fund, Inc.
* THIS LETTER REFLECTS THE STRATEGIES EMPLOYED FOR THE FUND DURING THE PAST
FISCAL YEAR AND INCLUDES OUR OPINIONS AS OF THE CLOSE OF THE PERIOD. SINCE
ECONOMIC AND MARKET CONDITIONS ARE CONSTANTLY CHANGING, OUR STRATEGIES, AND OUR
EVALUATIONS, CONCLUSIONS AND DECISIONS REGARDING PORTFOLIO HOLDINGS MAY CHANGE
AS NEW CIRCUMSTANCES ARISE.
9
<PAGE> 10
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF
SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
BY PROFESSOR
ROBERT HERRMANN
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs have been launched in various
locations, with the support of generous local donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
10
<PAGE> 11
TEMPLETON RUSSIA FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
JUNE 15, 1995
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1997 MARCH 31, 1996
------------------ ----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.30 $ 14.10
-------- -------
Income from investment operations:
Net investment income (loss) (.15) .15
Net realized and unrealized gain (loss) 20.49 (2.78)
-------- -------
Total from investment operations 20.34 (2.63)
-------- -------
Underwriting expenses deducted from capital -- (.10)
-------- -------
Distributions:
Dividends from net investment income (.09) (.07)
Dividends from net realized gains (.67) --
-------- -------
Total distributions (.76) (.07)
-------- -------
Change in net asset value 19.58 (2.80)
-------- -------
Net asset value, end of period $ 30.88 $ 11.30
======== =======
TOTAL RETURN*
Based on market value per share 147.08% (8.73)%
Based on net asset value per share 181.92% (19.47)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $164,157 $ 59,942
Ratio of expenses inclusive of fee waiver, to average net assets 2.36% 2.00%**
Ratio of net investment income (loss) to average net assets (.72)% 1.54%**
Portfolio turnover rate 18.86% .50%
Average commission rate paid (per share) $ 0.0007 --
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
TEMPLETON RUSSIA FUND, INC.
Investment Portfolio, March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 77.4%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AEROSPACE & MILITARY
TECHNICAL SYSTEMS: 0.1% * Perm Motor Rus. 690,000 $ 36,570
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 1.0%
* Kamaz Rus. 1,012,720 1,569,716
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS &
COMPONENTS: 4.3% * Alfa Cement Holding Rus. 370,000 7,030,000
- ---------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 19.2%
* Chernogorneft Rus. 269,000 3,261,625
* Komineft Rus. 1,547,047 5,569,369
Lukoil-Holdings Rus. 474,000 6,730,800
Orenburgneft Rus. 315,185 1,828,073
* Purneftegaz Rus. 1,640,365 8,152,614
* Rao Gazprom, ADR, 144A Rus. 22,000 367,950
* Samotlorneft Rus. 118,945 267,626
* Tomskneft Rus. 521,895 5,271,140
------------
31,449,197
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD
PRODUCTS: 0.1% * Red October Rus. 4,000 96,000
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY &
ENGINEERING: 0.3% * Uralmash Rus. 24,200 459,800
- ---------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 4.3%
GUM Trade House Rus. 212,012 5,830,330
* Tsum Trade House Rus. 1,576,000 1,260,800
------------
7,091,130
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING: 2.8%
Krasnoyarsk Aluminum Plant Rus. 212,548 2,433,675
* Norilsk Nickel Rus. 383,800 2,272,096
------------
4,705,771
- ---------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 0.1%
* Novolipetsk Ferrous Metal Factory Rus. 2,000 85,000
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS:
6.4% Rostelekom Rus. 1,307,500 5,125,400
* Saint Petersburg City Telephone Network Rus. 2,947,050 4,715,280
* Tyumen Telecom Rus. 8,000 26,800
* Vimpel-Communications, ADR Rus. 24,000 768,000
------------
10,635,480
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
TEMPLETON RUSSIA FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION: 1.1%
* Aeroflot Rus. 5,100 $ 459,000
* Murmansk Sea Shipping Rus. 13,000 281,125
* Novorossiysk Sea Shipping Rus. 30,000 7,050
Primorsk Shipping Rus. 492,000 1,168,500
------------
1,915,675
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES-ELECTRICAL &
GAS: 37.7% Irkutskenergo Rus. 77,400,000 19,891,800
Lenenergo Rus. 1,094,400 946,656
Mosenergo Rus. 14,068,000 18,358,740
Unified Energy System Rus. 118,891,150 22,791,433
------------
61,988,629
------------
TOTAL COMMON STOCKS
(cost $53,388,874) 127,062,968
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 2.9%
- ---------------------------------------------------------------------------------------------------------------------
* Lukoil Holdings, pfd. Rus. 175,000 1,916,250
* Norilsk Nickel, pfd. Rus. 20,000 82,000
* Novorosissk Sea Shipping, pfd. Rus. 1,381,000 193,340
* Rostelekom, pfd. Rus. 870,000 2,453,400
* Saint Petersburg City Telephone Net, pfd. Rus. 65,000 78,000
------------
TOTAL PREFERRED STOCKS
(cost $883,011) 4,722,990
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL IN
CURRENCY LOCAL CURRENCY**
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT:
3.9% (cost $6,474,000)
- ---------------------------------------------------------------------------------------------------------------------
Aubrey G. Lanston & Co., 6.45%, 4/01/97
(Maturity Value $3,274,587)
U.S. Treasury Note, 6.625%, 7/31/01 U.S. 3,319,000+ 3,274,000
Swiss Bank Corp., 6.35%, 4/01/97
(Maturity Value $3,200,564)
U.S. Treasury Note, 6.625%, 7/31/01 U.S. 3,264,000+ 3,200,000
------------
6,474,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
TEMPLETON RUSSIA FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE CURRENCY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 16.8%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche Bank Inc., 5.53%, 4/01/97 U.S. 1,650,000 $ 1,650,000
Federal Farm Credit Bank, 5.22% to 5.31%
with maturities to 5/09/97 U.S. 4,500,000 4,476,201
Federal Home Loan Bank, 5.22% to 5.31%
with maturities to 5/08/97 U.S. 4,390,000 4,376,797
Federal Home Loan Mortgage Corp., 5.16% to 5.38%
with maturities to 5/23/97 U.S. 6,830,000 6,802,802
Federal National Mortgage Assn., 5.16% to 6.50%
with maturities to 5/07/97 U.S. 8,300,000 8,275,581
United States Treasury Bills, 4.97% to 5.01%
with maturities to 4/24/97 U.S. 2,000,000 1,994,276
------------
SHORT TERM OBLIGATIONS
(cost $27,578,734) 27,575,657
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 101.0%
(cost $88,324,619) 165,835,615
OTHER ASSETS, LESS
LIABILITIES: (1.0%) (1,679,024)
------------
TOTAL NET ASSETS: 100.0% $164,156,591
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRY INDICATED.
+ PRINCIPAL AMOUNT FOR THE REPURCHASE AGREEMENT IS FOR THE UNDERLYING
COLLATERAL.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
TEMPLETON RUSSIA FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in securities at value
(identified cost $88,324,619) $165,835,615
Cash 607
Receivables:
Investment securities sold 125,000
Dividends and interest 5,702
Unamortized organization costs 69,293
------------
Total assets 166,036,217
------------
Liabilities:
Payable for investment securities
purchased 1,192,018
Accrued expenses 687,608
------------
Total liabilities 1,879,626
------------
Net assets, at value $164,156,591
============
Net assets consist of:
Accumulated net investment loss $ (823,046)
Net unrealized appreciation 77,510,996
Accumulated net realized gain 12,864,945
Net capital paid in on shares of
capital stock 74,603,696
------------
Net assets, at value $164,156,591
============
Shares outstanding (Note 3) 5,315,678
============
Net asset value per share ($164,156,591
divided by 5,315,678 shares outstanding) $ 30.88
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended March 31, 1997
<TABLE>
<S> <C> <C>
Investment Income:
(net of $50,626 foreign
taxes withheld)
Interest $ 1,405,312
Dividends 430,319
-----------
Total income $ 1,835,631
Expenses:
Management fees (Note 4) 1,273,563
Administrative fees (Note
4) 281,172
Transfer agent fees 14,808
Custodian fees 880,082
Reports to shareholders 27,222
Audit fees 55,350
Legal fees 50,718
Registration and filing
fees 16,170
Directors' fees and
expenses 12,912
Amortization of
organization costs 21,488
Other 5,266
-----------
Total expenses 2,638,751
------------
Net investment loss (803,120)
Realized and unrealized gain:
Net realized gain on
investments 16,421,485
Net unrealized appreciation
on investments 92,329,260
-----------
Net realized and
unrealized gain 108,750,745
------------
Net increase in net assets
resulting from operations $107,947,625
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
TEMPLETON RUSSIA FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JUNE 15, 1995
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1997 MARCH 31, 1996
------------------ ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ (803,120) $ 801,705
Net realized gain (loss) on investments 16,421,485 (767)
Net unrealized appreciation (depreciation) 92,329,260 (14,818,264)
------------ ------------
Net increase (decrease) in net assets resulting from operations 107,947,625 (14,017,326)
Distributions to shareholders:
From net investment income (477,320) (344,311)
From net realized gain (3,555,773) --
Capital share transactions (Note 3) 299,734 74,203,951
------------ ------------
Net increase in net assets 104,214,266 59,842,314
Net assets:
Beginning of period 59,942,325 100,011
------------ ------------
End of period $164,156,591 $ 59,942,325
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 in good faith by
management and approved 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 value is required to be at least 102% of the resale price at the
time of the 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.
17
<PAGE> 18
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (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 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 SHARE 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 amounted to $64,400,000
after deduction of underwriting commissions and 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 $9,729,000.
At March 31, 1997, there were 100,000,000 shares of capital stock authorized
($.01 par value).
During the year ended March 31, 1997, and for the period ended March 31, 1996,
additional shares were issued from reinvested dividends amounting to 13,000
shares ($299,734) and 5,585 shares ($74,951), 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 Franklin Templeton Services, Inc. (FTSI), 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 FTSI
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 year ended March 31, 1997.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received legal fees for the year ended March 31, 1997.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 1997 were $16,043,602 and $27,921,481, 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.
18
<PAGE> 19
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
At March 31, 1997, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income taxes purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $79,315,077
Unrealized depreciation (1,804,081)
-----------
Net unrealized appreciation $77,510,996
===========
</TABLE>
19
<PAGE> 20
TEMPLETON RUSSIA FUND, INC.
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Russia Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Russia Fund, Inc. as of March 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets, and the financial highlights for the periods indicated
in the accompanying financial statements. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Russia Fund, Inc. as of March 31, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
April 25, 1997
20
<PAGE> 21
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 Chase 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 Chase 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.
21
<PAGE> 22
TEMPLETON RUSSIA FUND, INC.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chase 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.
22
<PAGE> 23
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
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.
FUND ALLOCATOR SERIES:
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
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 U.S. 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.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97
<PAGE> 24
[WORLD MAP LOGO]
Templeton Russia Fund, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
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.
[RECYCLE LOGO]
TLTRF A97 5/97
TEMPLETON
RUSSIA
FUND, INC.
ANNUAL REPORT
MARCH 31, 1997
[FRANKLIN TEMPLETON 50 YEAR LOGO]
[FRANKLIN TEMPLETON LOGO]
