SEMI ANNUAL REPORT
TEMPLETON RUSSIA FUND, INC.
SEPTEMBER 30, 1998
[LOGO(R) FRANKLIN(R) TEMPLETON(R)]
PAGE
[PICTURE J. MARK MOBIUS]
J. MARK MOBIUS, Ph.D.
President
Templeton Russia Fund, Inc.
Dr. Mobius, a German citizen, has been living in emerging market countries
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 business practices and customs unique to
developing nations.
[SEAL CELEBRATING OVER 50 YEARS]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
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 the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
PAGE
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ...................................................... 1
Performance Summary ..................................................... 6
Financial Highlights & Statement of Investments ......................... 8
Financial Statements .................................................... 11
Notes to Financial Statements ........................................... 14
</TABLE>
[FUND CATEGORY PYRAMID]
You will find a complete listing of the Fund's portfolio holdings, including the
dollar value and number of shares or principal amount, beginning on page 9 of
this report.
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Objective: Templeton Russia Fund seeks long-term capital
appreciation by investing primarily in equity securities of "Russia companies,"
as defined in the Fund's prospectus.
- --------------------------------------------------------------------------------
Dear Shareholder:
This semiannual report for Templeton Russia Fund covers the six months ended
September 30, 1998. During the period, Russian equity prices dropped
precipitously as the nation's economy suffered a major meltdown. One of the main
causes of this crisis was the confused and confiscatory tax system making it
impossible for the government to collect taxes effectively. Although President
Boris Yeltsin had recommitted his government to tax reform, all tax amendments,
except for a 5% sales tax, were rejected by the Russian Duma (parliament). In
mid-August, the Russian central bank announced it would lower the limit of the
ruble's allowable trading band, effectively devaluing the currency by 50%. This
prompted panic selling of the ruble for hard currency, forcing the government to
suspend currency trading temporarily. By the end of August, the value of the
ruble had sunk on the black market from about 6 rubles per U.S. dollar before
the devaluation to
PAGE
approximately 20 rubles per U.S. dollar. Although the currency recovered
somewhat in early September, an announcement by the government that it would
print money to pay wages owed to workers for many months sent the ruble into a
renewed decline. As of September 30, one U.S. dollar was worth approximately 16
rubles.
At the same time as the devaluation announcement, the Russian government
announced a 90-day moratorium on the repayment of foreign debt and a ban on the
trading of domestic debt instruments (GKOs). Subsequently, and without lenders'
approval, the government restructured the US$32 billion GKO market, and much of
the principal due in the near term was transformed into long-term bonds. Because
these restructured bonds were estimated to be worth only a fraction of the
original GKOs, some of the world's top banks threatened a freeze of Russian
assets held in an effort to force a revised solution. As of September 30, the
plan was still subject to revision and negotiations between the banks and the
government were being planned.
Within this environment, the Fund posted a -73.74% six-month cumulative total
return in market-price terms, and -75.84% in terms of net asset value, as shown
in the Performance Summary on page 6.
During the six months under review, the Fund's exposure to equities decreased
from 73.9% to 41.9% of total net assets. Among the Fund's largest holdings at
the end of the period were Unified Energy Systems, which owns positions in
several utility companies, and Mosenergo, Moscow's primary electricity provider.
In our opinion, the situation in Russia borders on grave. The ruble crisis could
cause a renewal of hyperinflation, which was originally tamed over four years
ago.
INDUSTRY DISTRIBUTION
Based on Total Net Assets
9/30/98
[PIE CHART]
<TABLE>
<S> <C>
Utilities Electrical & Gas .................................. 13.5%
Telecommunications .......................................... 8.0%
Energy Sources .............................................. 5.8%
Building Materials & Components ............................ 4.2%
Merchandising ............................................... 2.6%
Transportation .............................................. 2.1%
Other Industries ............................................ 7.5%
Short-Term Investments & Other Net Assets ................... 56.3%
</TABLE>
2
PAGE
Domestic leadership is doing little to stem mounting panic within Russia's
borders or allay foreign investors' increasingly negative sentiment concerning
emerging markets. After firing Prime Minister Kiriyenko on the day of the ruble
devaluation, Yeltsin temporarily appointed former Prime Minister Viktor
Chernomyrdin to his old post. The Duma twice rejected Chernomyrdin, but accepted
Yevgeny Primakov, who had been minister of foreign affairs. Primakov appointed
Aleksandr Shokhin, a free-market reformer, and Yuri Maslyukov, a Communist and
former chief of central planning, as deputy prime ministers. Aleksandr Shokhin,
however, resigned in apparent disgust over the lack of financial planning.
Ongoing problems filling the rest of the cabinet positions may indicate a lack
of direction at the upper echelons of government.
Though extremely cloudy, Russia's future, as always, remains in the hands of the
Russians. Amendments to the GKO restructuring could be a step forward, possibly
rewarded by a return of international assistance. However, the extent to which
Russia is willing to accommodate foreign investors remains in question. Along
with debt restructuring, a reworking of the entire financial system will
probably be required to repair damage done to Russia's credibility. Foreign and
minority shareholders need to be protected, and greater transparency of
corporate dealings will be required to woo back foreign investors. If these
steps are undertaken, we could see a resumption of Russian economic growth.
However, we have adopted a cautious approach, with just over half of the Fund's
assets in cash as of September 30, 1998. When economic changes take place, we
will resume our acquisition of stocks we consider bargains as we seek to make
the most of the recovery.
TOP 10 HOLDINGS 9/30/98
<TABLE>
<CAPTION>
% OF
COMPANY, INDUSTRY NET ASSETS
- ---------------------------------------------------------------------
<S> <C>
Unified Energy Systems, Utilities Electrical & Gas . 7.4%
Rostelecom, Telecommunications ..................... 4.2%
Alfa Cement Holding, Building Materials & Components 4.0%
Mosenergo, Utilities Electrical & Gas .............. 3.5%
Krasnoyarsk Aluminum Plant, Metals & Mining ........ 2.6%
Red October, Food & Household Products ............. 2.6%
Vimpel Communications, ADR, Telecommunications ..... 2.5%
GUM Trade House, Merchandising ..................... 2.1%
Purneftegaz, Energy Sources ........................ 1.8%
Lukoil Holdings, Energy Sources .................... 1.7%
</TABLE>
3
PAGE
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.
Please remember this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
We thank you for your continued support and interest in Templeton Russia Fund.
/s/ J. Mark Mobius
- --------------------------------
J. Mark Mobius, Ph.D.
President
Templeton Russia Fund, Inc.
4
PAGE
IMPORTANT NOTICE TO SHAREHOLDERS
INTRODUCTION OF THE EURO. On January 1, 1999, the European Monetary Union (EMU)
plans to introduce a new single currency, the Euro, which will replace the
national currency for participating member countries. If the Fund holds
investments in countries with currencies replaced by the Euro, the investment
process, including trading, foreign exchange, payments, settlements, cash
accounts, custody and accounting will be impacted.
The process to establish the Euro may result in market volatility. It is not
possible to predict the impact of the Euro on the business or financial
condition of European issuers or on the Fund. The transition and the elimination
of currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. To the extent the Fund
holds non-U.S. dollar (Euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the U.S.
dollar.
Franklin Resources, Inc. has created an interdepartmental team to handle all
Euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While there can be no assurance that the Fund will not be adversely
affected, the manager and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Euro issue.
THE YEAR 2000 ISSUE. The Fund's business operations use a worldwide network of
computer systems. Many of them have date fields that use two digits to represent
the date and these systems must be replaced or modified, so that they can
distinguish the year 1900 from the year 2000 (commonly referred to as the Year
2000 bug).
When the year 2000 arrives, the Fund's operations could be affected if the
computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the Fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The Fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker/dealers or foreign markets are not ready for
the year 2000.
The Fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to get ready for Year
2000. Of course, the Fund's ability to reduce the effects of Year 2000 issues is
also very much dependent upon the efforts of third parties.
In evaluating current and potential portfolio positions, Year 2000 is one of the
factors that the Fund's manager takes into consideration. It will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside the U.S., and in particular in emerging
markets, may not be required to make the level of disclosure regarding Year 2000
readiness that is required in the U.S. Like with many other matters, the
manager, of course, cannot audit each portfolio company and its major suppliers,
and so cannot verify their Year 2000 readiness. If the value of a Fund
investment is adversely affected by a Year 2000 problem, the net asset value of
the Fund will be affected as well.
5
PAGE
PERFORMANCE SUMMARY
In market-price terms, Templeton Russia Fund posted a -73.74% cumulative total
return for the six-month period ended September 30, 1998. Based on the change in
net asset value (in contrast to market price), the Fund posted a -75.84%
cumulative total return for the same period. Both total return figures assume
reinvestment of all distributions, in accordance with the dividend reinvestment
and cash purchase plan.
During the reporting period, the Fund's closing market price on the New York
Stock Exchange decreased $28.375 per share, from $36.625 on March 31, 1998, to
$8.25 on September 30, 1998, while the net asset value decreased $22.05 per
share, from $28.02 to $5.97.
Shareholders received per-share distributions of $2.69 in long-term capital
gains. 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.
Past performance is not predictive of future results.
6
PAGE
TEMPLETON RUSSIA FUND
Periods ended 9/30/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (6/15/95)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in net asset value -83.57% -38.16% -44.26%
Based on change in market price -80.25% -30.49% -27.30%
Average Annual Total Return(2)
Based on change in net asset value -83.57% -14.79% -16.25%
Based on change in market price -80.25% -11.41% -9.22%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
All calculations assume reinvestment of distributions, either at net asset value
or at market price on the reinvestment date, in accordance with the dividend
reinvestment and cash purchase plan and do not reflect any sales charges paid at
inception or brokerage commissions paid on secondary market purchases.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. 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. Also, as a non-diversified
investment company investing in Russia, the Fund may invest in a relatively
small number of issuers, and, as a result, be subject to greater risk of loss
with respect to its portfolio securities. You may have a gain or loss when you
sell your shares.
From October 1, 1995, through June 30, 1996, the Fund's Investment Manager
agreed to reduce its fee by one-half. If the Investment Manager had not taken
this action, the Fund's total return since inception would have been lower.
Past performance is not predictive of future results.
7
PAGE
TEMPLETON RUSSIA FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1998 ------------------------------------
(UNAUDITED) 1998 1997 1996+
------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period....................... $28.02 $30.88 $11.30 $14.10
------------------------------------------------------------
Income from investment operations:
Net investment income (loss).............................. .04 (.32) (.15) .15
Net realized and unrealized gains (losses)................ (19.40) 1.41 20.49 (2.78)
------------------------------------------------------------
Total from investment operations........................... (19.36) 1.09 20.34 (2.63)
------------------------------------------------------------
Underwriting expenses deducted from capital................ -- -- -- (.10)
------------------------------------------------------------
Less distributions from:
Net investment income..................................... -- -- (.09) (.07)
Net realized gains........................................ (2.67) (3.95) (.67) --
In excess of net realized gains........................... (.02) -- -- --
------------------------------------------------------------
Total distributions........................................ (2.69) (3.95) (.76) (.07)
------------------------------------------------------------
Net asset value, end of period............................. $5.97 $28.02 $30.88 $11.30
============================================================
Total Return*
Based on market value per share........................... (73.74)% 22.26% 147.08% (8.73)%
Based on net asset value per share........................ (75.84)% 1.60% 181.92% (19.47)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).......................... $32,301 $150,102 $164,157 $59,942
Ratios to average net assets:
Expenses.................................................. 2.04%** 1.99% 2.36% 2.00%**
Net investment income (loss).............................. .49%** (.93)% (.72)% 1.54%**
Portfolio turnover rate.................................... 3.04% 10.92% 18.86% .50%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period June 15, 1995 (commencement of operations) to March 31, 1996.
See Notes to Financial Statements.
8
PAGE
TEMPLETON RUSSIA FUND, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 39.8%
AEROSPACE & MILITARY TECHNOLOGY
*Perm Motor................................................. Russia 690,000 $ 9,384
-----------
AUTOMOBILES .4%
*Kamaz...................................................... Russia 778,138 130,105
-----------
BUILDING MATERIALS & COMPONENTS 4.0%
+*Alfa Cement Holding....................................... Russia 370,000 1,295,296
-----------
ENERGY SOURCES 5.4%
*JSC Chernogorneft.......................................... Russia 269,000 430,400
Lukoil-Holdings............................................. Russia 101,000 282,800
Lukoil-Holdings, ADR........................................ Russia 23,000 257,600
Orenburgneft................................................ Russia 137,185 13,910
*Purneftegaz................................................ Russia 1,300,365 594,397
*Tomskneft.................................................. Russia 313,895 165,266
-----------
1,744,373
-----------
FOOD & HOUSEHOLD PRODUCTS 2.6%
Red October................................................. Russia 174,000 826,500
-----------
MACHINERY & ENGINEERING .7%
Uralmash Zavody............................................. Russia 179,114 221,976
-----------
MERCHANDISING 2.5%
GUM Trade House............................................. Russia 2,127,220 670,074
Tsum Trade House............................................ Russia 1,396,400 146,622
-----------
816,696
-----------
METALS & MINING 4.0%
Krasnoyarsk Aluminum Plant.................................. Russia 209,548 838,192
Norilsk Nickel.............................................. Russia 800,482 456,275
-----------
1,294,467
-----------
TELECOMMUNICATIONS 6.4%
Rostelekom.................................................. Russia 2,514,400 779,464
Rostelekom, ADR............................................. Russia 203,930 407,860
*St. Petersburg International Telephone..................... Russia 119,940 28,018
Vimpel Communications, ADR.................................. Russia 156,350 820,838
-----------
2,036,180
-----------
TRANSPORTATION 1.6%
Aeroflot.................................................... Russia 18,900 255,150
*Murmansk Sea Shipping...................................... Russia 21,800 1,931
*Novorosissk Sea Shipping................................... Russia 780,000 70,200
Primorsk Sea Shipping....................................... Russia 444,300 197,358
*Tyumen Aviatrans........................................... Russia 530,000 5,565
-----------
530,204
-----------
</TABLE>
9
PAGE
TEMPLETON RUSSIA FUND, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 12.2%
Cheliabenergo............................................... Russia 1,075,400 $ 38,714
Irkutskenergo............................................... Russia 21,310,300 383,586
Mosenergo................................................... Russia 128,190,000 1,025,520
Mosenergo, ADR.............................................. Russia 93,110 93,110
Unified Energy Systems...................................... Russia 118,891,150 2,211,375
Unified Eneregy Systems, GDR................................ Russia 100,000 186,000
-----------
3,938,305
-----------
TOTAL COMMON STOCKS (COST $48,946,483)...................... 12,843,486
-----------
PREFERRED STOCKS 2.1%
*Arkhangelsk Telecom, pfd. ................................. Russia 7,789,000 202,514
Norilsk Nickel, pfd. ....................................... Russia 20,000 17,150
Novorosissk Sea Shipping., pfd. ............................ Russia 11,551,000 139,767
Rostelekom, pfd. ........................................... Russia 1,527,400 179,469
*Saint Petersburg City Telephone Network, pfd., A........... Russia 156,000 22,620
*St. Petersburg MMT, pfd. .................................. Russia 110,100 22,890
Uralmash Zavody, pfd. ...................................... Russia 400,000 116,000
-----------
TOTAL PREFERRED STOCKS (COST $8,224,452).................... 700,410
-----------
<CAPTION>
PRINCIPAL
AMOUNT**
------------
<S> <C> <C> <C>
BONDS (COST $1,194,214) 1.8%
Russian Federation, 9.25%, 11/27/01, Reg S.................. Russia $ 2,000,000 579,000
-----------
SHORT TERM INVESTMENTS 57.4%
Den Danske Bank AG, 5.6875%, 10/01/98, Time Deposit......... United States 527,000 527,000
Fannie Mae, 5.41% to 5.56% with maturities to 12/15/98...... United States 6,500,000 6,498,898
Federal Farm Credit Bank, 5.48% to 5.53% with maturities to
12/01/98.................................................. United States 6,900,000 6,901,678
U.S. Treasury Bills, 5.09% to 5.11% with maturities to
12/10/98.................................................. United States 4,633,000 4,599,576
-----------
TOTAL SHORT TERM INVESTMENTS (COST $18,511,654)............. 18,527,152
-----------
TOTAL INVESTMENTS (COST $76,876,803) 101.1%................. 32,650,048
OTHER ASSETS, LESS LIABILITIES (1.1%)....................... (349,040)
-----------
TOTAL NET ASSETS 100.0%..................................... $32,301,008
-----------
-----------
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
+The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in affiliated companies at September
30, 1998 were $1,295,296.
See Notes to Financial Statements.
10
PAGE
TEMPLETON RUSSIA FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $76,876,803)..... $ 32,650,048
Cash....................................................... 4,983
Dividends and interest receivable.......................... 570,750
Organization costs......................................... 37,033
------------
Total assets.......................................... 33,262,814
------------
Liabilities:
Payables:
Investment securities purchased........................... 796,604
To affiliates............................................. 39,323
Accrued expenses........................................... 125,879
------------
Total liabilities..................................... 961,806
------------
Net assets, at value........................................ $ 32,301,008
------------
------------
Net assets consist of:
Undistributed net investment income........................ $ 227,259
Net unrealized depreciation................................ (44,226,755)
Accumulated net realized loss.............................. (94,380)
Capital shares............................................. 76,394,884
------------
Net assets, at value........................................ $ 32,301,008
------------
------------
Net asset value per share ($32,301,008 / 5,407,737 shares
outstanding).............................................. $5.97
------------
------------
</TABLE>
See Notes to Financial Statements.
11
PAGE
TEMPLETON RUSSIA FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $53,677)
Dividends.................................................. $304,172
Interest................................................... 871,612
--------
Total investment income............................... $ 1,175,784
Expenses:
Management fees (Note 4)................................... 578,943
Administrative fees (Note 4)............................... 115,787
Transfer agent fees........................................ 17,592
Custodian fees............................................. 125,346
Reports to shareholders.................................... 15,541
Registration and filing fees............................... 8,181
Professional fees.......................................... 62,407
Directors' fees and expenses............................... 10,813
Amortization of organization costs......................... 10,773
Other...................................................... 3,142
--------
Total expenses........................................ 948,525
-------------
Net investment income........................... 227,259
-------------
Realized and unrealized losses:
Net realized loss from Investments......................... (94,135)
Net unrealized depreciation on investments................. (104,536,313)
-------------
Net realized and unrealized loss............................ (104,630,448)
-------------
Net decrease in net assets resulting from operations........ $(104,403,189)
-------------
-------------
</TABLE>
See Notes to Financial Statements.
12
PAGE
TEMPLETON RUSSIA FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss).............................. $ 227,259 $ (1,730,289)
Net realized gain (loss) from investments................. (94,135) 24,476,482
Net unrealized depreciation on investments................ (104,536,313) (17,201,438)
---------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (104,403,189) 5,544,755
Distributions to shareholders from:
Net realized gains........................................ (14,316,588) (21,010,197)
In excess of net realized gains........................... (94,380) --
Capital share transactions (Note 3)........................ 1,013,535 1,410,481
---------------------------------------
Net decrease in net assets.............................. (117,800,622) (14,054,961)
Net assets:
Beginning of period........................................ 150,101,630 164,156,591
---------------------------------------
End of period.............................................. $ 32,301,008 $150,101,630
=======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 227,259 $ --
=======================================
</TABLE>
See Notes to Financial Statements.
13
PAGE
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Russia Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a closed-end, non-diversified investment company. 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. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
14
PAGE
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. ORGANIZATION COSTS:
Organization costs are amortized on a straight line basis over five years.
f. 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. CAPITAL STOCK
At September 30, 1998, there were 100,000,000 shares authorized ($.01 par
value). During the six months ended September 30, 1998 and for the year ended
March 31, 1998, shares were issued from reinvested distributions amounting to
50,500 shares ($1,013,535) and 41,559 shares ($1,410,481), respectively.
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Asset
Management Limited (TAML), and Franklin Templeton Services, Inc. (FT Services),
the Fund's investment manager and administrative manager, respectively.
The Fund pays monthly an investment management fee to TAML of 1.25% per year of
the average weekly net assets of the Fund. The Fund pays an administrative fee
to FT Services of 0.25% per year of the average weekly net assets of the Fund,
of which 0.20% is paid to Princeton Administrators, L.P., an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, for sub-administrative
services.
15
PAGE
TEMPLETON RUSSIA FUND, INC.
Notes to Financial Statements (unaudited) (continued)
5. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At September 30, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 15,498
Unrealized depreciation..................................... (44,242,253)
------------
Net unrealized depreciation................................. $(44,226,755)
============
</TABLE>
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended September 30, 1998 aggregated $9,696,053 and $1,875,601,
respectively.
16
PAGE
TEMPLETON RUSSIA FUND, INC.
Annual Meeting of Shareholders, September 29, 1998
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on September 29, 1998. The
purpose of the meeting was to elect six Directors of the Fund; to ratify the
selection of McGladrey & Pullen, LLP, as the Fund's independent auditors for the
fiscal year ending March 31, 1999; and in their discretion, to authorize the
proxyholders to vote upon such other matters that may legally come before the
meeting or any adjournment of the meeting. At the meeting, the following persons
were elected by the shareholders to serve as Directors of the Fund: Frank J.
Crothers, Martin L. Flanagan, John Wm. Galbraith, Andrew H. Hines, Jr., Edith E.
Holiday, and Charles B. Johnson.* Shareholders ratified the selection of
McGladrey & Pullen, LLP, to serve as the Fund's independent auditors for the
fiscal year ending March 31, 1999. No other business was transacted at the
meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of six (6) Directors:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2000: FOR SHARES WITHHELD SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Crothers........................................... 3,288,558 60.81% 44,660 0.83%
TERM EXPIRING 2001:
- ------------------
Martin L. Flanagan.......................................... 3,287,390 60.79% 45,828 0.85%
John Wm. Galbraith.......................................... 3,290,079 60.84% 43,139 0.80%
Andrew H. Hines, Jr. ....................................... 3,285,771 60.76% 47,447 0.88%
Edith E. Holiday............................................ 3,289,927 60.84% 43,291 0.80%
Charles B. Johnson.......................................... 3,291,233 60.86% 41,985 0.78%
</TABLE>
2. The ratification of the selection of McGladrey & Pullen, LLP, as independent
auditors for the Fund for the fiscal year ending March 31, 1999:
<TABLE>
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3,299,474 61.01% 16,535 0.31% 17,208 0.32% 1 0.00%
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, Harmon E. Burns, S. Joseph Fortunato,
Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps, and Constantine D.
Tseretopoulos are Directors of the Fund who are currently serving and whose
terms of office continued after the Annual Meeting of Shareholders.
17
PAGE
TEMPLETON RUSSIA FUND, INC.
Dividend Reinvestment and Cash Purchase Plan
The Fund offers a Dividend Reinvestment and Cash Purchase 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 ChaseMellon Shareholder Services, Investor Services,
P.O. Box 3338, South Hackensack, NJ 07606-1938, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify
Mellon Securities Trust Company ("the Plan Agent") at the address above or the
institution in whose name the shares are held. The Plan Agent 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 at the valuation
date, the participant will receive the dividends entirely in stock at a price
equal to the 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 or
if dividends and/or capital gains distributions are payable only in cash, the
participant will receive shares purchased on the New York Stock Exchange or
otherwise on the open market.
A participant has the option of submitting additional payments to the Plan
Agent, in any amounts of at least $100, up to a maximum of $5,000 per month, for
the purchase of Fund shares for his or her account. These payments shall be made
by check or money order payable to "Mellon Securities Trust Co." and sent to
ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009,
Pittsburgh, PA 15250-8009, Attn: Templeton Russia Fund, Inc. The Plan Agent
shall apply such payments (less a $5.00 service charge and less a pro rata share
of trading fees) to purchases of Fund shares in the open market.
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 participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Agent sent to ChaseMellon Shareholder Services,
Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938. Upon
withdrawal, the participant will receive, without charge, stock certificates
issued in the participant's name for all full shares held by the Plan Agent; or,
if the participant wishes, the Plan Agent will sell the participant's shares and
send the proceeds, less a service charge of $5.00 and less trading fees.
Whenever shares are purchased on the New York Stock Exchange or otherwise on the
open market, each participant will pay a pro rata portion of trading fees.
Trading fees will be deducted from amounts to be invested.
18
PAGE
TEMPLETON RUSSIA FUND, INC.
TRANSFER AGENT
ChaseMellon Shareholder Services
450 West 33rd Street
New York, NY 10001
1-800/416-5585
SHAREHOLDER INFORMATION
Shares of Templeton Russia Fund, Inc. are traded daily on the New York Stock
Exchange under the symbol "TRF." Information about the net asset value and the
market price is published each Monday in the Wall Street Journal, weekly in
Barron's and each Saturday in The New York Times and other newspapers. Daily
market prices for the Fund's shares are published in the New York Stock Exchange
Composite Transactions section of newspapers.
For current information about distributions and shareholder accounts, call
1-800-416-5585.
The daily closing net asset value may be obtained when available on a two
business day delay basis by calling Franklin Templeton Fund Information after 7
a.m. Pacific Time any business day at 1-800-DIAL BEN(R) (1-800-342-5236).
Shareholders not receiving copies of the Reports to Shareholders because their
shares are registered in the name
of a broker or a custodian can request that they be added to the Fund's mailing
list, by writing Templeton Russia Fund, Inc., 100 Fountain Parkway, P.O. Box
33030, St. Petersburg, FL 33733-8030.
19
This page intentionally left blank.
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending 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
Mutual Discovery 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
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Templeton Americas Government Securities Fund
GROWTH
Franklin Biotechnology Discovery Fund
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
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 Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
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 Bond Fund
Franklin Floating Rate Trust
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
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)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**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. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates. 09/98
PAGE
TEMPLETON RUSSIA FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
ChaseMellon Shareholder Services
450 West 33rd Street
New York, New York 10001
1-800/416-5585
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of investments made for the Fund may go
down as well as up, and that the Investment Manager may make errors in selecting
securities for the Fund's portfolio. 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 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.
TLTRF S98 11/98 [RECYCLE LOGO] Printed on recycled paper
