UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08788
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
----------------------------------------------------
(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
---------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
---------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
Date of fiscal year end: 3/31
Date of reporting period: 3/31/07
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
MARCH 31, 2007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT INTERNATIONAL
- --------------------------------------------------------------------------------
TEMPLETON RUSSIA AND
EAST EUROPEAN FUND, INC.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the annual report
Contents
ANNUAL REPORT
Templeton Russia and East European Fund, Inc. ............................. 1
Performance Summary ....................................................... 6
Financial Highlights and Statement of Investments ......................... 7
Financial Statements ...................................................... 10
Notes to Financial Statements ............................................. 13
Report of Independent Registered Public Accounting Firm ................... 20
Tax Designation ........................................................... 21
Annual Meeting of Shareholders ............................................ 23
Dividend Reinvestment and Cash Purchase Plan .............................. 24
Board Members and Officers ................................................ 27
Shareholder Information ................................................... 33
- --------------------------------------------------------------------------------
Annual Report
Templeton Russia and East European Fund, Inc.
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Russia and East European Fund
seeks long-term capital appreciation. Under normal market conditions, the Fund
invests at least 80% of its net assets in investments that are tied economically
to Russia or East European countries.
Dear Shareholder:
We are pleased to bring you Templeton Russia and East European Fund's annual
report for the fiscal year ended March 31, 2007.
PERFORMANCE OVERVIEW
Templeton Russia and East European Fund posted cumulative total returns of
+14.07% in market price terms and +40.80% based on change in net asset value for
the 12 months ended March 31, 2007. In comparison, the Morgan Stanley Capital
International (MSCI) Russia Index posted a +17.83% cumulative total return, and
the MSCI Emerging Markets (EM) Eastern European Index posted a +21.18%
cumulative total return in U.S. dollars for the same period. 1 In line with our
long-term investment strategy, we are pleased with our long-term results. For
the 10-year period ended March 31, 2007, the Fund delivered cumulative total
returns of +423.77% in market price terms and +460.48% in net asset value terms,
compared with the +413.44% and +261.90% cumulative total returns of the MSCI
Russia Index and the MSCI
1. Source: Standard & Poor's Micropal. The MSCI Russia Index is market
capitalization-weighted and measures total returns of equity securities in
Russia. The MSCI EM Eastern European Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in Eastern European emerging markets. The indexes are
unmanaged and include reinvested dividends. One cannot invest directly in
an index, nor is an index representative of the Fund's portfolio. Past
performance does not guarantee future results.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 8.
Annual Report | 1
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 3/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Metals & Mining 20.6%
Diversified Telecommunication Services 18.9%
Oil, Gas & Consumable Fuels 16.8%
Commercial Banks 14.9%
Electric Utilities 14.0%
Pharmaceuticals 4.7%
Wireless Telecommunication Services 2.6%
Energy Equipment & Services 2.0%
Real Estate 1.1%
Other 2.0%
Short-Term Investments & Other Net Assets 2.4%
EM Eastern European Index over the same period. 2 Please note that index
performance information is provided for reference. We do not attempt to track
the indexes but rather undertake investments on the basis of fundamental
research. You can find the Fund's performance data in the Performance Summary on
page 6.
ECONOMIC AND MARKET OVERVIEW
Russia's gross domestic product growth was 6.7% in 2006, mainly due to the
robust construction, investment and trade sectors. 3 The country also reported
strong economic data in early 2007, with notable growth in retail trade, fixed
capital investment and real wages. Exports and imports grew at double-digit
rates during 2006, resulting in a US$139.2 billion surplus, while fixed capital
investment and the construction sector expanded 14%. 4 The country significantly
reduced its foreign debt with its loan repayment to the Paris Club, an
organization of international creditors that provides debt relief to countries
in need. Efforts to bring the country more in line with its international peers
accelerated as Russia removed currency controls on the ruble, which allowed the
currency to become fully convertible into other currencies.
Highlighting Russia's growing social and economic importance globally, the
country entered into numerous trade and business cooperation agreements during
the reporting period with such international partners as India and Indonesia. In
addition, Russia and the U.S. signed a bilateral agreement for Russia's
accession into the World Trade Organization, overcoming the last major hurdle in
the country's bid to join the trade bloc. In February 2007, Russian President
Vladmir Putin traveled to the Middle East where he met political and business
leaders in Saudi Arabia and Qatar.
Eastern European markets experienced robust performances during the year under
review as a favorable economic environment, European Union convergence and
significant liquidity drove equity prices higher. Russia's stock market recorded
double-digit gains as investor confidence remained high largely due to elevated
commodity prices, as well as the country's strong economic growth and increasing
regional and global importance. Although
2. Source: Standard & Poor's Micropal. As of 3/31/07, the Fund's 10-year
average annual total returns were +18.01% based on market price and
+18.81% based on net asset value, compared with the +17.77% and +13.73%
average annual total returns of the MSCI Russia Index and the MSCI EM
Eastern European Index for the same period. The indexes are unmanaged and
include reinvested dividends. One cannot invest directly in an index, nor
is an index representative of the Fund's portfolio. Past performance does
not guarantee future results.
3. Source: Federal State Statistics Service, Russia.
4. Source: Central Bank of the Russian Federation.
2 | Annual Report
Hungary did not perform as well as other Eastern European countries in local
currency terms, its stock market posted higher U.S. dollar returns as its
currency, the forint, appreciated versus the dollar.
INVESTMENT STRATEGY
Our investment strategy employs a company-specific, value-oriented, long-term
approach. We focus on the market price of a company's securities relative to our
evaluation of the company's long-term earnings, asset value and cash flow
potential. As we look for investments, we consider specific companies in the
context of their sector and country. We perform in-depth research to construct
an Action List from which we construct the portfolio. Our emphasis is on value
and not on attempting to match or beat an index. During our analysis, we also
consider a company's position in its sector, the economic framework and
political environment.
MANAGER'S DISCUSSION
During the fiscal year under review, the Fund's performance, relative to the
MSCI EM Eastern European Index, benefited from overweighted positions in Russian
companies Sberbank and Unified Energy Systems. Another contributor was the
Fund's position in Croatian pharmaceutical company Pliva (sold by period-end),
which is not part of the index. Conversely, the Fund's overweighted exposure to
Russia's Cherepovets Mk Severstal and holding in Hungary's Egis, which is not
part of the index, hindered relative results as both stocks underperformed the
index during the period. A lack of exposure to Russian wireless
telecommunications provider Vimpelcom (Vimpel-Communications) also hurt relative
returns, as the company's stock outperformed the index. The Fund held shares in
Severstal, one of Russia's largest iron and steel producers, because in our
analysis the shares traded at attractive valuations. We held shares in Egis, a
leading Hungarian generic pharmaceutical company, because the company has strong
fundamentals and we think it could benefit from growing demand for drugs in
Central and Eastern Europe. We chose not to hold shares in Vimpelcom due to what
we believed were the stock's expensive valuations and the availability of more
attractively valued peers in the region.
At the sector level, the Fund's stock selection within the banks sector and
underweighted exposure to the energy sector helped relative performance during
the
Annual Report | 3
TOP 10 EQUITY HOLDINGS
3/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Unified Energy Systems 14.0%
ELECTRIC UTILITIES, RUSSIA
- --------------------------------------------------------------------------------
Sberbank RF 13.8%
COMMERCIAL BANKS, RUSSIA
- --------------------------------------------------------------------------------
LUKOIL, ADR 9.9%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
- --------------------------------------------------------------------------------
Mining and Metallurgical Co.
Norilsk Nickel 7.9%
METALS & MINING, RUSSIA
- --------------------------------------------------------------------------------
VolgaTelecom, ord. & ADR 7.5%
DIVERSIFIED TELECOMMUNICATION
SERVICES, RUSSIA
- --------------------------------------------------------------------------------
Cherepovets Mk Severstal 6.2%
METALS & MINING, RUSSIA
- --------------------------------------------------------------------------------
Sibirtelecom 5.0%
DIVERSIFIED TELECOMMUNICATION
SERVICES, RUSSIA
- --------------------------------------------------------------------------------
Egis Nyrt 4.1%
PHARMACEUTICALS, HUNGARY
- --------------------------------------------------------------------------------
Chelyabinsk Pipe Works 3.4%
METALS & MINING, RUSSIA
- --------------------------------------------------------------------------------
Gazprom, ord. & ADR 3.4%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
- --------------------------------------------------------------------------------
year under review. 5 Overweighted exposure to the utilities sector further aided
performance relative to the index. 6 Underweighted energy sector positions
Surgutneftegaz (sold by period-end), LUKOIL and Tatneft helped relative returns
as an oil price correction during the period contributed to these companies'
stocks underperforming the index. On the downside, overweighted exposure to the
pharmaceuticals sector hindered relative performance as the sector
underperformed the index during the period. In addition, the Fund's
telecommunication services sector exposure hurt overall relative results largely
due to stock selection. 7
The Fund eliminated several holdings to raise funds for dividend and capital
gain distributions as well as to focus on stocks in our investment universe we
believed were more attractively valued. These sales allowed us to realign the
portfolio during the fiscal year as we sought to position it to benefit from
regional developments, consistent with our strategy. We added seven Russian
stocks to the Fund during the period, with the largest investment in Open
Investments, a Moscow-based real estate development and management company, and
Chelyabinsk Zinc Plant, a leading Russian zinc producer. Other purchases
included Integra Group Holdings, an independent provider of onshore oilfield
services, and OAO TMK, a major manufacturer of pipe products for the global oil
and gas industry. We also added Evraz Group, one of the world's largest steel
producers, Veropharm, a leading Russian pharmaceuticals manufacturer, and
Cherkizovo Group, a principal integrated meat producer with dominant market
shares in its key business areas. We also purchased shares of Austria-based
C.A.T. oil, a leading oilfield services provider in Russia and Kazakhstan
specializing in well productivity enhancement.
During the fiscal year, the Fund eliminated its only Croatian and Swedish
holdings. We sold Croatian pharmaceutical company Pliva after the company's
stock price far exceeded our sell limit during a takeover battle, and Sweden's
Oriflame Cosmetics, which has business operations in Central and Eastern Europe.
Other sales during the period included stocks that reached our sell price
targets: Hungary's BorsodChem, one of the country's largest listed industrial
companies, and Russian companies AvtoVAZ, the country's biggest auto
manufacturer, JSC Mashinostroitelniy Zavod, an electric utility, and
Surgutneftegaz, a major integrated oil and gas company.
5. The banks sector comprises commercial banks in the SOI. The energy sector
comprises oil, gas and consumable fuels in the SOI.
6. The utilities sector comprises electric utilities, and independent power
producers and energy traders in the SOI.
7. The telecommunication services sector comprises diversified
telecommunication services and wireless telecommunication services in the
SOI.
4 | Annual Report
Thank you for your continued participation in Templeton Russia and East European
Fund. We look forward to serving your future investment needs.
Sincerely,
[PHOTO OMITTED]
/s/ Mark Mobius
Mark Mobius
President and Chief Executive Officer - Investment Management
Templeton Russia and East European Fund, Inc.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 5
Performance Summary as of 3/31/07
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. Total
returns do not reflect any sales charges paid at inception or brokerage
commissions paid on secondary market purchases. The performance table does not
reflect any taxes that a shareholder would pay on Fund distributions or the sale
of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
SYMBOL: TRF CHANGE 3/31/07 3/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.56 $67.48 $60.92
- --------------------------------------------------------------------------------
Market Price (NYSE) -$5.65 $70.41 $76.06
- --------------------------------------------------------------------------------
DISTRIBUTIONS (4/1/06-3/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.9445
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.3049
- --------------------------------------------------------------------------------
Long-Term Capital Gain $12.8471
- --------------------------------------------------------------------------------
TOTAL $14.0965
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 1
- --------------------------------------------------------------------------------
Based on change in NAV 2 +40.80% +489.41% +460.48%
- --------------------------------------------------------------------------------
Based on change in market price 3 +14.07% +375.41% +423.77%
- --------------------------------------------------------------------------------
Average Annual Total Return 1
- --------------------------------------------------------------------------------
Based on change in NAV 2 +40.80% +42.59% +18.81%
- --------------------------------------------------------------------------------
Based on change in market price 3 +14.07% +36.59% +18.01%
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING INCLUDING CURRENCY
VOLATILITY, ECONOMIC INSTABILITY AND SOCIAL AND POLITICAL DEVELOPMENTS 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 AND EAST EUROPEAN SECURITIES
INVOLVE SIGNIFICANT ADDITIONAL 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 AND EAST
EUROPEAN ECONOMIC SYSTEMS, DELAYS IN SETTLING PORTFOLIO TRANSACTIONS AND RISK OF
LOSS ARISING OUT OF THE SYSTEM OF SHARE REGISTRATION AND CUSTODY USED IN RUSSIA
AND EAST EUROPEAN COUNTRIES. ALSO, AS A NONDIVERSIFIED INVESTMENT COMPANY
INVESTING IN RUSSIA AND EAST EUROPEAN COUNTRIES, 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.
1. Total return calculations represent the cumulative and average annual
changes in value of an investment over the periods indicated.
2. Assumes reinvestment of distributions based on net asset value.
3. Assumes reinvestment of distributions based on the dividend reinvestment
and cash purchase plan.
6 | Annual Report
Templeton Russia and East European Fund, Inc.
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
YEAR ENDED MARCH 31,
2007 2006 2005 2004 2003
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 60.92 $ 40.59 $ 39.89 $ 22.11 $ 21.60
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .................. (0.24) (0.26) (0.01) 0.15 (0.07)
Net realized and unrealized gains (losses) ...... 20.90 29.51 4.28 21.86 0.68
-----------------------------------------------------------------------------
Total from investment operations ................... 20.66 29.25 4.27 22.01 0.61
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.95) -- -- (0.22) --
Net realized gains .............................. (13.15) (8.92) (3.57) (4.01) (0.10)
-----------------------------------------------------------------------------
Total distributions ................................ (14.10) (8.92) (3.57) (4.23) (0.10)
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 67.48 $ 60.92 $ 40.59 $ 39.89 $ 22.11
-----------------------------------------------------------------------------
Market value, end of year b ........................ $ 70.41 $ 76.06 $ 39.30 $ 45.65 $ 20.54
=============================================================================
Total return (based on market value per share) ..... 14.07% 130.61% (5.15)% 150.26% (23.87)%
RATIOS TO AVERAGE NET ASSETS
Expenses before expense reduction ............... 1.85% 1.84% 1.80% 1.84% 2.02%
Expenses net of expense reduction ............... 1.84% 1.84% 1.80% 1.84% 2.02%
Net investment income (loss) .................... (0.39)% (0.55)% (0.02)% 0.47% (0.33)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 368,832 $ 330,324 $ 218,577 $ 214,166 $ 118,724
Portfolio turnover rate ............................ 8.36% 15.73% 7.65% 18.76% 7.85%
a Based on average daily shares outstanding.
b Based on the last sale on the New York Stock Exchange.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 7
Templeton Russia and East European Fund, Inc.
STATEMENT OF INVESTMENTS, MARCH 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.6%
COMMERCIAL BANKS 14.9%
Promstroibank St. Petersburg .......................................... Russia 2,878,200 $ 4,288,518
Sberbank RF ........................................................... Russia 14,231 50,733,515
---------------
55,022,033
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES 18.9%
Sibirtelecom .......................................................... Russia 146,940,180 18,514,463
Southern Telecommunications Co. ....................................... Russia 63,812,635 12,028,682
Telekomunikacja Polska SA ............................................. Poland 603,200 4,977,874
Uralsvyazinform ....................................................... Russia 99,690,000 6,554,618
VolgaTelecom .......................................................... Russia 3,685,789 22,630,744
VolgaTelecom, ADR ..................................................... Russia 407,000 4,997,960
---------------
69,704,341
---------------
ELECTRIC UTILITIES 14.0%
Unified Energy Systems ................................................ Russia 38,090,429 51,612,531
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 0.8%
a,b Integra Group Holdings, GDR, Reg S .................................... Russia 149,700 2,871,246
---------------
ENERGY EQUIPMENT & SERVICES 2.0%
a,c C.A.T. oil AG, 144A ................................................... Austria 138,000 4,310,592
a,c OAO TMK, 144A ......................................................... Russia 393,550 3,286,142
---------------
7,596,734
---------------
FOOD & STAPLES RETAILING 0.2%
a,c Cherkizovo Group OJSC, GDR, 144A ...................................... Russia 65,000 858,000
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 0.6%
a JSC Mashinostroitelniy Zavod .......................................... Russia 4,240 2,077,600
---------------
MACHINERY 0.4%
Saturn Research & Production Association .............................. Russia 14,385,900 1,499,730
---------------
METALS & MINING 20.6%
a Chelyabinsk Pipe Works ................................................ Russia 3,180,000 12,720,000
a Chelyabinsk Zinc Plant ................................................ Russia 27,800 3,579,250
Cherepovets Mk Severstal .............................................. Russia 1,655,300 22,760,375
b Evraz Group SA, GDR, Reg S (London Exchange) .......................... Russia 78,000 2,619,240
Mining and Metallurgical Co. Norilsk Nickel ........................... Russia 158,300 29,293,415
a Polyus Gold ........................................................... Russia 102,052 4,929,112
---------------
75,901,392
---------------
OIL, GAS & CONSUMABLE FUELS 16.8%
Gazprom ............................................................... Russia 524,000 5,475,800
Gazprom, ADR .......................................................... Russia 165,500 6,917,900
JSC Salavatnefteorgsintez ............................................. Russia 129,000 9,288,000
LUKOIL, ADR ........................................................... Russia 423,800 36,658,700
Tatneft ............................................................... Russia 752,700 3,537,690
---------------
61,878,090
---------------
8 | Annual Report
Templeton Russia and East European Fund, Inc.
STATEMENT OF INVESTMENTS, MARCH 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS 4.7%
Egis Nyrt ............................................................. Hungary 132,771 $ 15,163,511
a Veropharm ............................................................. Russia 55,000 2,227,500
---------------
17,391,011
---------------
REAL ESTATE 1.1%
a Open Investments ...................................................... Russia 16,000 4,176,000
---------------
WIRELESS TELECOMMUNICATION SERVICES 2.6%
Mobile Telesystems, ADR ............................................... Russia 169,900 9,507,604
---------------
TOTAL COMMON STOCKS (COST $88,041,574) ................................ 360,096,312
---------------
SHORT TERM INVESTMENT (COST $9,385,606) 2.6%
MONEY MARKET FUND 2.6%
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .. United States 9,385,606 9,385,606
---------------
TOTAL INVESTMENTS (COST $97,427,180) 100.2% ........................... 369,481,918
OTHER ASSETS, LESS LIABILITIES (0.2)% ................................. (650,078)
---------------
NET ASSETS 100.0% ..................................................... $ 368,831,840
===============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
GDR - Global Depository Receipt
a Non-income producing for the twelve months ended March 31, 2007.
b Security was purchased pursuant to Regulation S under the Securities Act
of 1933, which exempts from registration securities offered and sold
outside of the United States. Such a security cannot be sold in the United
States without either an effective registration statement filed pursuant
to the Securities Act of 1933, or pursuant to an exemption from
registration. These securities have been deemed liquid under guidelines
approved by the Fund's Board of Directors. At March 31, 2007, the value of
these securities was $5,490,486, representing 1.49% of net assets.
c Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At March 31, 2007,
the aggregate value of these securities was $8,454,734, representing 2.29%
of net assets.
d See Note 7 regarding investments in Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield
at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 9
Templeton Russia and East European Fund, Inc.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2007
Assets:
Investments in securities:
Cost - Unaffiliated issuers .................................................. $ 88,041,574
Cost - Sweep Money Fund (Note 7) ............................................. 9,385,606
-------------
Total cost of investments .................................................... $ 97,427,180
=============
Value - Unaffiliated issuers ................................................. $ 360,096,312
Value - Sweep Money Fund (Note 7) ............................................ 9,385,606
-------------
Total value of investments ................................................... 369,481,918
Receivables:
Dividends ....................................................................... 111,736
-------------
Total assets .............................................................. 369,593,654
-------------
Liabilities:
Payables:
Affiliates ................................................................... 446,536
Accrued expenses and other liabilities .......................................... 315,278
-------------
Total liabilities ......................................................... 761,814
-------------
Net assets, at value ................................................... $ 368,831,840
=============
Net assets consist of:
Paid-in capital ................................................................. $ 81,088,839
Net investment income (loss) .................................................... (5,767,080)
Net unrealized appreciation (depreciation) ...................................... 272,054,738
Accumulated net realized gain (loss) ............................................ 21,455,343
-------------
Net assets, at value ................................................... $ 368,831,840
=============
Shares outstanding ................................................................. 5,466,177
=============
Net asset value per share .......................................................... $ 67.48
=============
10 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Templeton Russia and East European Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended March 31, 2007
Investment income:
Dividends: (net of foreign taxes of $534,694)
Dividends - Unaffiliated issuers ............................................. $ 4,385,336
Sweep Money Fund (Note 7) .................................................... 408,703
-------------
Total investment income ................................................... 4,794,039
-------------
Expenses:
Management fees (Note 3a) ....................................................... 4,098,958
Administrative fees (Note 3b) ................................................... 825,607
Transfer agent fees ............................................................. 51,722
Custodian fees (Note 4) ......................................................... 932,307
Reports to shareholders ......................................................... 36,982
Registration and filing fees .................................................... 23,769
Professional fees ............................................................... 106,857
Directors' fees and expenses .................................................... 27,203
Other ........................................................................... 9,495
-------------
Total expenses ............................................................ 6,112,900
Expense reductions (Note 4) ............................................... (22,293)
-------------
Net expenses ........................................................... 6,090,607
-------------
Net investment income (loss) ........................................ (1,296,568)
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................................................. 66,034,544
Foreign currency transactions ................................................ (77,107)
-------------
Net realized gain (loss) ............................................ 65,957,437
-------------
Net change in unrealized appreciation (depreciation) on investments ............. 47,594,128
-------------
Net realized and unrealized gain (loss) ............................................ 113,551,565
-------------
Net increase (decrease) in net assets resulting from operations .................... $ 112,254,997
=============
Annual Report |
The accompanying notes are an integral part of these financial statements. | 11
Templeton Russia and East European Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------
YEAR ENDED MARCH 31,
-------------------------------
2007 2006
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............................................................... $ (1,296,568) $ (1,389,528)
Net realized gain (loss) from investments and foreign currency transactions ................ 65,957,437 61,461,318
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies .................................. 47,594,128 98,013,193
-------------------------------
Net increase (decrease) in net assets resulting from operations ......................... 112,254,997 158,084,983
-------------------------------
Distributions to shareholders from:
Net investment income ...................................................................... (5,138,264) --
Net realized gains ......................................................................... (71,453,671) (48,114,433)
-------------------------------
Total distributions to shareholders ........................................................ (76,591,935) (48,114,433)
-------------------------------
Capital share transactions: (Note 2) .......................................................... 2,844,805 1,776,766
-------------------------------
Net increase (decrease) in net assets ................................................... 38,507,867 111,747,316
Net assets:
Beginning of year ............................................................................. 330,323,973 218,576,657
-------------------------------
End of year ................................................................................... $ 368,831,840 $ 330,323,973
===============================
Net investment income (loss) included in net assets:
End of year ................................................................................... $ (5,767,080) $ --
===============================
12 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Russia and East European Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940, as amended, (the 1940 Act) as a non-diversified,
closed-end investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Fund's Board of Directors.
Annual Report | 13
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Directors.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
14 | Annual Report
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. Currently, the Fund expects the
risk of loss to be remote.
2. CAPITAL STOCK
At March 31, 2007, there were 100 million shares authorized ($0.01 par value).
During the years ended March 31, 2007, and March 31, 2006, 44,233 and 36,299
shares were issued for $2,844,805 and $1,776,766 from reinvested distributions,
respectively.
The Fund's Board of Directors previously authorized an open-market share
repurchase program pursuant to which the Fund may purchase, from time to time,
Fund shares in open-market transactions, at the discretion of management.
Effective December 6, 2006, the Board of Directors discontinued the share
repurchase program. Through March 31, 2007, the Fund had repurchased a total of
50,000 shares. During the years ended March 31, 2006 and March 31, 2007, there
were no shares repurchased.
Annual Report | 15
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:
- --------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- --------------------------------------------------------------------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
During the year ended March 31, 2007, the Fund paid an administrative fee to FT
Services of 0.25% per year of the average weekly net assets, of which 0.20% was
paid to Princeton Administrators, L.P. for sub-administrative services.
Effective April 1, 2007, the Fund pays an administrative fee of 0.20% per year
to FT Services and Princeton Administrators, L.P. no longer provides
sub-administrative services to the Fund.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended March 31, 2007, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At March 31, 2007, the Fund deferred realized currency losses of
$11,425.
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
passive foreign investment company shares.
16 | Annual Report
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
passive foreign investment company shares.
The tax character of distributions paid during the years ended March 31, 2007
and 2006, was as follows:
-------------------------
2007 2006
-------------------------
Distributions paid from:
Ordinary income .............. $ 6,628,382 $ 363,286
Long term capital gain ....... 69,963,553 47,751,147
-------------------------
$76,591,935 $48,114,433
=========================
At March 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), and undistributed long term capital gains for income tax
purposes were as follows:
Cost of investments ............................................. $103,194,260
============
Unrealized appreciation ......................................... $267,103,959
Unrealized depreciation ......................................... (816,301)
------------
Net unrealized appreciation (depreciation) ...................... $266,287,658
============
Distributable earnings - Undistributed long term capital gains .. $ 21,466,768
============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended March 31, 2007, aggregated $27,034,659 and $108,765,771,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers, Inc. (an affiliate of the investment manager). Management
fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in
an amount not to exceed the management and administrative fees paid by the Sweep
Money Fund.
8. CONCENTRATION OF RISK
Investing in equity securities of Russian and East European companies may
include 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 such countries' underdeveloped systems of securities registration and
transfer.
Annual Report | 17
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Fund did not participate in that
settlement.
The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
18 | Annual Report
Templeton Russia and East European Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Fund is
currently evaluating the impact, if any, of applying the various provisions of
FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
Annual Report | 19
Templeton Russia and East European Fund, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON RUSSIA AND EAST EUROPEAN
FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Russia and East European
Fund, Inc. (the "Fund") at March 31, 2007, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 2007 by correspondence with the
custodian provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
May 18, 2007
20 | Annual Report
Templeton Russia and East European Fund, Inc.
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $62,978,363 as a long
term capital gain dividend for the fiscal year ended March 31, 2007.
Under Section 871(k)(2)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $1,355,313 as a short
term capital gain dividend for purposes of the tax imposed under Section
871(a)(1)(A) of the Code for the fiscal year ended March 31, 2007.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $4,680,621 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended March
31, 2007. In January 2008, shareholders will receive Form 1099-DIV which will
include their share of qualified dividends distributed during the calendar year
2007. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
At March 31, 2007, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the Fund on these investments. As shown in the table
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on June 5, 2007, to treat their proportionate share of
foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.
The following table provides a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund shareholders of record.
Record Date: 6/05/2007
- --------------------------------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Croatia ....................... $0.0020 $0.0034 $0.0000
Hungary ....................... 0.0000 0.0032 0.0032
Poland ........................ 0.0147 0.0078 0.0078
Russia ........................ 0.0811 0.0549 0.0549
Sweden ........................ 0.0000 0.0024 0.0024
------------------------------------------------
TOTAL ......................... $0.0978 $0.0717 $0.0683
------------------------------------------------
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate) or as a tax
deduction.
Annual Report | 21
Templeton Russia and East European Fund, Inc.
TAX DESIGNATION (UNAUDITED) (CONTINUED)
Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income. 1
Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund. 1
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2007. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2007 individual income
tax returns.
1 Qualified dividends are taxed at a maximum rate of 15% (5% for those in
the 10% and 15% income tax brackets). In determining the amount of foreign
tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may
be required to the foreign tax credit limitation calculation to reflect
the rate differential applicable to such dividend income. The rules
however permit certain individuals to elect not to apply the rate
differential adjustments for capital gains and/or dividends for any
taxable year. Please consult your tax advisor and the instructions to Form
1116 for more information.
22 | Annual Report
Templeton Russia and East European Fund, Inc.
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 25, 2006
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 East Broward Boulevard, Fort Lauderdale, Florida, on August 25, 2006 for the
purpose of electing six Directors of the Fund. At the meeting, the following
persons were elected by the shareholders to serve as Directors of the Fund:
Harmon E. Burns, Frank J. Crothers, Gordon S. Macklin, David W. Niemiec, Larry
D. Thompson and Robert E. Wade.* Prior to March 31, 2007, Gordon S. Macklin and
Hermon E. Burns ceased to be Directors of the Fund. No other business was
transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
Proposal: The election of six (6) Directors:
- ------------------------------------------------------------------------------------------------
% OF % OF
SHARES SHARES
% OF PRESENT % OF PRESENT
OUTSTANDING AND OUTSTANDING AND
TERM EXPIRING 2009 FOR SHARES VOTING WITHHELD SHARES VOTING
- ------------------------------------------------------------------------------------------------
Harmon E. Burns ............. 4,527,642 83.23 98.81 54,444 1.00 1.19
Frank J. Crothers ........... 4,528,588 83.24 98.83 53,498 0.98 1.17
Gordon S. Macklin ........... 4,524,144 83.16 98.74 57,942 1.07 1.26
David W. Niemiec ............ 4,528,232 83.24 98.82 53,854 0.99 1.18
TERM EXPIRING 2008
Larry D. Thompson ........... 4,531,184 83.29 98.89 50,902 0.94 1.11
TERM EXPIRING 2007
Robert E. Wade .............. 4,531,384 83.29 98.89 50,702 0.93 1.11
* Harris J. Ashton, S. Joseph Fortunato, Edith E. Holiday, Charles B.
Johnson, Frank A. Olson and Constantine D. Tseretopoulos are Directors of
the Fund whose terms of office continued after the Annual Meeting of
Shareholders.
Annual Report | 23
Templeton Russia and East European 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 Mellon 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 Bank, N.A. (the "Plan Administrator"), at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice within ten 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.
The automatic reinvestment of dividends and/or capital gains does not relieve
the participant of any income tax that may be payable on dividends or
distributions.
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. The Plan
Administrator's fees for a sale of shares through the Plan are $15.00 per
transaction plus a $0.12 per share trading fee.
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Administrator sent to Mellon 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 Administrator; or, if the participant wishes,
the Plan Administrator will sell the participant's shares and send the proceeds,
less a service charge of $15.00 and less trading fees of $0.12 per share, to the
participant.
DIRECT DEPOSIT SERVICE FOR REGISTERED SHAREHOLDERS
Cash distributions can now be electronically credited to a checking or savings
account at any financial institution that participates in the Automated Clearing
House ("ACH") system. The Direct Deposit service is provided for registered
shareholders at no charge.
24 | Annual Report
Templeton Russia and East European Fund, Inc.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
To enroll in the service, access your account online by going to
www.melloninvestor.com/isd or dial 1-800-416-5585 (toll free) and follow the
instructions. Direct Deposit will begin with the next scheduled distribution
payment date following enrollment in the service.
Annual Report | 25
Templeton Russia and East European Fund, Inc.
TRANSFER AGENT
Mellon Investor Services LLC
480 Washington Boulevard
Jersey City, NJ 07310
1-800-416-5585
www.melloninvestor.com
SHAREHOLDER INFORMATION
Shares of Templeton Russia and East European Fund, Inc. are traded 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. Registered shareholders can now access their Fund account
on-line with INVESTOR SERVICEDIRECT(R). For information go to Mellon Investor
Services' web site at https://vault.melloninvestor.com/isd and follow the
instructions.
The daily closing net asset value as of the previous business day may be
obtained when available 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). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
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 and East
European Fund, Inc., 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL
33733-8030.
26 | Annual Report
Templeton Russia and East European Fund, Inc.
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves a three-year term that continues until that person's
successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
HARRIS J. ASHTON (1932) Director Since 1994 142 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ---------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (1944) Director Since 1998 19 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holding Ltd.; Director and Vice Chairman, Caribbean Utilities Co. Ltd; Director, Provo Power Company
Ltd.; director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power Ltd.
(1977-2003).
- ---------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 1996 142 Director, Hess Corporation
500 East Broward Blvd. (formerly, Amerada Hess
Suite 2100 Corporation) (exploration and
Fort Lauderdale, FL 33394-3091 refining of oil and gas), H.J.
Heinz Company (processed foods and
allied products), RTI International
Metals, Inc. (manufacture and
distribution of titanium),
Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary
of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Report | 27
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
DAVID W. NIEMIEC (1949) Director Since 2005 19 Director, Emeritus Corporation
500 East Broward Blvd. (assisted living) and OSI
Suite 2100 Pharmaceuticals, Inc.
Fort Lauderdale, FL 33394-3091 (pharmaceutical products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); Director, various private companies; and FORMERLY, Managing Director, Saratoga
Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc.
(investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
- ---------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Director Since 2003 141 Director, Hess Corporation
500 East Broward Blvd. (formerly, Amerada Hess
Suite 2100 Corporation) (exploration and
Fort Lauderdale, FL 33394-3091 refining of oil and gas) and
Sentient Jet (private jet service);
and FORMERLY, Director, Becton
Dickinson and Company (medical
technology), Cooper Industries
Inc., (electrical products and
tools and hardware), Health Net,
Inc. (formerly, Foundation Health)
(integrated managed care), The
Hertz Corporation (car rental),
Pacific Southwest Airlines, The RCA
Corporation, Unicom (formerly,
Commonwealth Edison), UAL
Corporation (airlines) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation.
- ---------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since 2005 140 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (1997-2001); Senior Fellow of The Brookings
Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S.
Department of Justice (2001-2003).
- ---------------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. TSERETOPOULOS Director Since 1997 19 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
- ---------------------------------------------------------------------------------------------------------------------------------
28 | Annual Report
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
ROBERT E. WADE (1946) Director Since 2006 32 Director, El Oro and Exploration
500 East Broward Blvd. Co., p.l.c. (investments) and ARC
Suite 2100 Wireless Solutions, Inc. (wireless
Fort Lauderdale, FL 33394-3091 components and network products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Practicing attorney.
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------
**CHARLES B. JOHNSON (1933) Director, Director and Vice 142 None
One Franklin Parkway Chairman of President since
San Mateo, CA 94403-1906 the Board and 1994 and Chairman
Vice President of the Board
since 1995
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since December 90 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited;
President, Templeton Worldwide, Inc.; Vice President and Director, Franklin Advisers, Inc.; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 30 of the investment companies
in Franklin Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance Compliance since
2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Report | 29
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
JEFFREY A. EVERETT (1964) Vice President Since 2001 Not Applicable Not Applicable
PO Box N-7759
Lyford Cay, Nassau, Bahamas
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; and officer of 14 of the investment companies in Franklin Templeton
Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; Vice President, Templeton Global Advisors Limited; and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director,
Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ---------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
30 | Annual Report
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin Templeton Services, LLC; and officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
MARK MOBIUS (1936) President and President since Not Applicable Not Applicable
17th Floor, Chief Executive 1994 and Chief
The Chater House Officer - Executive
8 Connaught Road Investment Officer -
Central Hong Kong Management Investment
Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; and officer
and/or director, as the case may be, of some of the subsidiaries of Franklin Resources, Inc. and of six of the investment
companies in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited (investment
manager of Taiwan R.O.C. Fund) (1986-1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
- ---------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President
and Assistant Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust
International of the South; and officer of 14 of the investment companies in Franklin Templeton Investments.
- ---------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 16 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ---------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Report | 31
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ----------------- ----------------------- -----------------------------------
GALEN VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1999-2004).
- ---------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the registered
investment companies comprising the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager. Gregory E.
Johnson is considered to be an interested person of the Fund under the
federal securities laws due to his position as officer and director of
Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
Note 3: Prior to March 31, 2007, Harmon E. Burns, S. Joseph Fortunato and Gordon
S. Macklin ceased to be a director of the Fund.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF DIRECTORS
HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT
COMMITTEE AND HAS DESIGNATED EACH OF FRANK A. OLSON AND DAVID W. NIEMIEC AS AN
AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS. OLSON AND
NIEMIEC QUALIFY AS SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND
AND EXPERIENCE. MR. OLSON HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2003. HE CURRENTLY SERVES AS CHAIRMAN EMERITUS OF THE HERTZ CORPORATION
AND WAS FORMERLY ITS CHAIRMAN OF THE BOARD FROM 1980 TO 2000 AND ITS CHIEF
EXECUTIVE OFFICER FROM 1977 TO 1999. MR. OLSON IS ALSO A DIRECTOR AND AUDIT
COMMITTEE MEMBER OF HESS CORPORATION (FORMERLY, AMERADA HESS CORPORATION), A
FORMER DIRECTOR AND AUDIT COMMITTEE MEMBER OF WHITE MOUNTAINS INSURANCE GROUP,
LTD., AND FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF UAL
CORPORATION. MR. NIEMIEC HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2005 CURRENTLY SERVES AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY
ITS MANAGING DIRECTOR FROM 1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS
CORPORATION, OSI PHARMACEUTICALS, INC., AND VARIOUS PRIVATE COMPANIES, AND WAS
FORMERLY MANAGING DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS
VICE CHAIRMAN FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF
DILLON, READ & CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD
OF DIRECTORS BELIEVES THAT MR. OLSON AND MR. NIEMIEC HAVE EACH ACQUIRED AN
UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL
STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE
ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING
FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF
ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MESSRS. OLSON AND NIEMIEC ARE
INDEPENDENT DIRECTORS AS THAT TERM IS DEFINED UNDER THE LISTING STANDARDS
APPLICABLE TO THE FUND.
32 | Annual Report
Templeton Russia and East European Fund, Inc.
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 27, 2007, the Board of Directors ("Board"), including
a majority of non-interested or independent Directors, approved renewal of the
investment management agreement for Templeton Russia and East European Fund,
Inc. ("Fund"). In reaching this decision, the Board took into account
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the annual renewal review
process. Information furnished and discussed throughout the year included
reports on the Fund, the share price premium or discount to net asset value, the
results of investment performance and related financial information for the
Fund, as well as periodic reports on legal, compliance, pricing, brokerage
commissions and execution and other services provided by the Investment Manager
("Manager") and its affiliates. Information furnished specifically in connection
with the renewal process included a report prepared by Lipper, Inc. ("Lipper"),
an independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper report compared the Fund's investment
performance and expenses with those of other funds deemed comparable to the Fund
as selected by Lipper. The Fund profitability analysis report discussed the
profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant, and a three-year expense analysis
with an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Fund by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale.
In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Directors, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed below, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. Favorable consideration was given to
Annual Report | 33
Templeton Russia and East European Fund, Inc.
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of the
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of the level of a portfolio manager's bonus
compensation was the relative investment performance of the funds he or she
managed and that a portion of such bonus was required to be invested in a
pre-designated list of funds within such person's fund management area so as to
be aligned with the interests of Fund shareholders.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement renewal.
The Lipper report prepared for the Fund showed its investment performance within
a Lipper performance universe consisting of the Fund and six other funds
constituting all non-leveraged closed-end emerging markets funds as selected by
Lipper. Such report considers total return on a net asset value basis without
regard to market discounts or premiums to accurately reflect investment
performance. Performance was shown during 2006 as well as for previous years
ended December 31, 2006. The Lipper report showed that the Fund's total return
during 2006 was the second-highest of the funds within the performance universe,
and on an annualized basis during each of the previous three-, five- and
ten-year periods was the highest within such universe. The Board was satisfied
with such performance.
COMPARATIVE EXPENSES. Consideration was given to a Lipper report analysis of the
management fees and total expense ratios of the Fund compared with an expense
group consisting of the Fund and 10 other funds selected by Lipper as its
appropriate Lipper expense group. Prior to making such comparison, the Board
relied upon a survey showing that the scope of services covered under the Fund's
investment management agreement was similar to those provided by fund managers
to other fund groups. In reviewing comparative costs, emphasis was given to the
Fund's contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expense ratio of the Fund in comparison with those of such
expense group. The Lipper contractual investment management fee analysis
considers administrative fees to be part of management fees and the results of
such expense comparisons showed the Fund's contractual investment management fee
to be the highest in its expense group, but that the Fund's actual expense ratio
was at the median for such expense group. The Board found such expenses to be
acceptable in view of the Fund's performance.
34 | Annual Report
Templeton Russia and East European Fund, Inc.
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund. Specific attention was given to the methodology followed in allocating
costs to the Fund, it being recognized that allocation methodologies are
inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the cost allocation methodology was consistent with that
followed in profitability report presentations made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
in reference to the profitability analysis. In reviewing and discussing such
analysis, management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary for the type of fund operations
conducted by the Manager and its affiliates may not be fully reflected in the
expenses allocated to each Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, as well as potential benefits resulting
from allocation of fund brokerage and the use of "soft" commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to the Fund was not excessive in view of the nature,
quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether the Manager realizes
economies of scale as the Fund grows larger and the extent to which any such
benefit is shared with the Fund and its shareholders. The Board believed that a
Manager's ability to realize economies of scale and the sharing of such benefit
is a more relevant consideration in the case of an open-end fund whose size
increases as a result of the continuous sale of its shares. A closed-end
investment company such as the Fund does not continuously offer shares and
growth following its initial public offering will primarily result from market
appreciation, which benefits its shareholders. While believing economies of
scale to be less of a factor in the context of a closed-end fund, the Board
believes at some point an increase in size may lead to economies of scale that
should be shared with the Fund and its shareholders and intends to monitor
future growth of the Fund accordingly.
Annual Report | 35
Templeton Russia and East European Fund, Inc.
SHAREHOLDER INFORMATION (CONTINUED)
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the U.S. Securities and Exchange Commission to provide certain certifications
with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's
annual and semiannual reports to shareholders) that are filed semiannually with
the Commission. The Fund has filed such certifications with its Form N-CSRS for
the six months ended September 30, 2006. Additionally, the Fund expects to file,
on or about May 30, 2007, such certifications with its Form N-CSR for the year
ended March 31, 2007.
36 | Annual Report
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Blue Chip Fund 1
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama Michigan 7
Arizona Minnesota 7
California 8 Missouri
Colorado New Jersey
Connecticut New York 8
Florida 8 North Carolina
Georgia Ohio 7
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 7 Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders and select retirement
plans.
3. The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy
remained the same.
6. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
7. Portfolio of insured municipal securities.
8. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/07 Not part of the annual report
[LOGO](R) 100 Fountain Parkway
FRANKLIN TEMPLETON P.O. Box 33030
INVESTMENTS St. Petersburg, FL 33733-8030
ANNUAL REPORT
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
INVESTMENT MANAGER
Templeton Asset Management Ltd.
TRANSFER AGENT
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
Toll free number: 1-800/416-5585
Hearing Impaired phone number: 1-800/231-5469
Foreign Shareholders phone number: 201/680-6578
www.melloninvestor.com/isd
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. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. The Fund and its investors are not protected from
such losses by the investment manager. Therefore, investors who cannot accept
this risk should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
TLTRF A2007 05/07
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a
copy of its code of ethics that applies to its principal executive
officers and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial experts are David W. Niemiec and Frank
A. Olson, they are "independent" as defined under the relevant
Securities and Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $74,654 for the fiscal year ended March 31 2007 and $85,488 for the fiscal
year ended March 31 2006.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning were $4,350 for the fiscal year ended March 31 2007 and
$0 for the fiscal year ended March 31 2006. The services for which these fees
were paid included tax compliance and advice.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $49,961 for the fiscal year ended
March 31 2007 and $4,955 for the fiscal year ended March 31 2006. The services
for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $189 for the fiscal year ended March 31 2007
and $0 for the fiscal year ended March 31 2006. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $175,672 for the fiscal year ended March 31
2007 and $652 for the fiscal year ended March 31 2006. The services for which
these fees were paid included seminars and review of materials provided to the
fund Board in connection with the investment management contract renewal
process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be
provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be
provided to the registrant by the auditors to the registrant's investment
adviser or to any entity that controls, is controlled by or is under common
control with the registrant's investment adviser and that provides ongoing
services to the registrant where the non-audit services relate directly to the
operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $230,172 for the fiscal year ended March 31 2007 and $5,607 for
the fiscal year ended March 31 2006.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Frank J. Crothers, David W. Niemiec,
Frank A. Olson and Constantine D. Tseretopoulos
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of directors of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Templeton Asset Management, Ltd. in accordance with the Proxy Voting Policies
and Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), an unaffiliated third party corporate governance
research service that provides in-depth analyses of shareholder meeting agendas,
vote recommendations, recordkeeping and vote disclosure services. In addition,
the manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. Efforts are made to resolve
all conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client, broker
and vendor lists, information periodically gathered from directors and officers,
and information derived from other sources, including public filings. In
situations where a material conflict of interest is identified, the Proxy Group
will refer the matter, along with the recommended course of action by the
manager to an interdepartmental Proxy Review Committee (which may include
portfolio managers and/or research analysts employed by the manager), for
evaluation and voting instructions. The Proxy Review Committee may defer to the
voting recommendation of ISS, Glass Lewis or those of another independent third
party provider of proxy services; or send the proxy directly to the Fund with a
recommendation regarding the vote for approval. Where the Proxy Review Committee
refers a matter to the Fund, it may rely upon the instructions of a
representative of the Fund, such as the board of trustees or a committee of the
board.
The recommendation of management on any issue is a factor, which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
believes that executive compensation should be directly linked to the
performance of the company. The manager evaluates plans on a case-by-case basis
by considering several factors to determine whether the plan is fair and
reasonable, including the ISS quantitative model utilized to assess such plans
and/or the Glass Lewis evaluation of the plans. The manager will generally
oppose plans that have the potential to be excessively dilutive, and will almost
always oppose plans that are structured to allow the repricing of underwater
options, or plans that have an automatic share replenishment "evergreen"
feature. The manager will generally support employee stock option plans in which
the purchase price is at least 85% of fair market value, and when potential
dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign issuers. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954-527-7678 or by sending a written
request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite
1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's
proxy voting records are available online at franklintempleton.com and posted on
the SEC website at www.sec.gov and reflect the 12-month period beginning July 1,
2005, and ending June 30, 2006.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANY
AND AFFILIATED PURCHASERS.
(a)(1) As of June 5, 2007, the portfolio managers of the Fund are as follows:
MARK MOBIUS, PH.D, MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT, LTD.
Dr. Mobius has been a manager of the Fund since inception. He has primary
responsibility for the investments of the Fund. He has final authority over all
aspects of the Fund's investment portfolio, including but not limited to,
purchases and sales of individual securities, portfolio risk assessment, and the
management of daily cash balances in accordance with anticipated management
requirements. The degree to which he may perform these functions, and the nature
of these functions, may change from time to time. He joined Franklin Templeton
Investments in 1987.
DENNIS LIM, DIRECTOR OF TEMPLETON ASSET MANAGEMENT, LTD.
Based in Singapore, Mr. Lim has been a manager of the Fund since 2000, providing
research and advice on the purchases and sales of individual securities, and
portfolio risk assessment. He joined Franklin Templeton Investments in 1990.
TOM WU, DIRECTOR OF TEMPLETON ASSET MANAGEMENT, LTD.
Based in Hong Kong, Mr. Wu has been a manager of the Fund since inception,
providing research and advice on the purchases and sales of individual
securities, and portfolio risk assessment. He joined Franklin Templeton
Investments in 1987.
(a)(2) This section reflects information about the portfolio managers as of the
fiscal year ended March 31, 2007.
The following table shows the number of other accounts managed by each portfolio
manager and the total assets in the accounts managed within each category:
- --------------------------------------------------------------------------------------------------------
ASSETS ASSETS OF
NUMBER OF OTHER OTHER POOLED ASSETS OF
OF OTHER REGISTERED NUMBER OF INVESTMENTS OTHER
REGISTERED INVESTMENT OTHER POOLED VEHICLES NUMBER OF ACCOUNTS
INVESTMENT COMPANIES INVESTMENT MANAGED OTHERS MANAGED
COMPANIES MANAGED VEHICLES (X $1 ACCOUNTS (X $1
NAME MANAGED (x $1 MILLION) MANAGED/1 MILLION)/1 MANAGED/1 MILLION)/1
- -----------------------------------------------------------------------------------------------------------
Mark Mobius 8 13,134.3 23 17,450.4 5 1,763.6
- -----------------------------------------------------------------------------------------------------------
Dennis Lim 5 11,238.7 4 1,390.4 2 593.7
- -----------------------------------------------------------------------------------------------------------
Tom Wu 5 11,238.7 5 2,521.1 2 593.7
- -----------------------------------------------------------------------------------------------------------
1. The various pooled investment vehicles and accounts listed are managed by a
team of investment professionals. Accordingly, the individual managers listed
would not be solely responsible for managing such listed amounts.
Portfolio managers that provide investment services to the Fund may also provide
services to a variety of other investment products, including other funds,
institutional accounts and private accounts. The advisory fees for some of such
other products and accounts may be different than that charged to the Fund and
may include performance based compensation. This may result in fees that are
higher (or lower) than the advisory fees paid by the Fund. As a matter of
policy, each fund or account is managed solely for the benefit of the beneficial
owners thereof. As discussed below, the separation of the trading execution
function from the portfolio management function and the application of
objectively based trade allocation procedures helps to mitigate potential
conflicts of interest that may arise as a result of the portfolio managers
managing accounts with different advisory fees.
CONFLICTS. The management of multiple funds, including the Fund, and accounts
may also give rise to potential conflicts of interest if the funds and other
accounts have different objectives, benchmarks, time horizons, and fees as the
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. The manager seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment strategies
that are used in connection with the management of the Fund. Accordingly,
portfolio holdings, position sizes, and industry and sector exposures tend to be
similar across similar portfolios, which may minimize the potential for
conflicts of interest. As noted above, the separate management of the trade
execution and valuation functions from the portfolio management process also
helps to reduce potential conflicts of interest. However, securities selected
for funds or accounts other than the Fund may outperform the securities selected
for the Fund. Moreover, if a portfolio manager identifies a limited investment
opportunity that may be suitable for more than one fund or other account, the
Fund may not be able to take full advantage of that opportunity due to an
allocation of that opportunity across all eligible funds and other accounts. The
manager seeks to manage such potential conflicts by using procedures intended to
provide a fair allocation of buy and sell opportunities among funds and other
accounts.
The structure of a portfolio manager's compensation may give rise to potential
conflicts of interest. A portfolio manager's base pay and bonus tend to increase
with additional and more complex responsibilities that include increased assets
under management. As such, there may be an indirect relationship between a
portfolio manager's marketing or sales efforts and his or her bonus.
Finally, the management of personal accounts by a portfolio manager may give
rise to potential conflicts of interest. While the funds and the manager have
adopted a code of ethics which they believe contains provisions reasonably
necessary to prevent a wide range of prohibited activities by portfolio managers
and others with respect to their personal trading activities, there can be no
assurance that the code of ethics addresses all individual conduct that could
result in conflicts of interest.
The manager and the Fund have adopted certain compliance procedures that are
designed to address these, and other, types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION. The manager seeks to maintain a compensation program that is
competitively positioned to attract, retain and motivate top-quality investment
professionals. Portfolio managers receive a base salary, a cash incentive bonus
opportunity, an equity compensation opportunity, and a benefits package.
Portfolio manager compensation is reviewed annually and the level of
compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no financial incentive to favor one fund or
account over another. Each portfolio manager's compensation consists of the
following three elements:
BASE SALARY Each portfolio manager is paid a base salary.
ANNUAL BONUS Annual bonuses are structured to align the interests of
the portfolio manager with those of the Fund's shareholders. Each
portfolio manager is eligible to receive an annual bonus. Bonuses
generally are split between cash (50% to 65%) and restricted shares of
a Franklin Templeton fund which vest over a three-year period (17.5% to
25%) and other mutual fund shares (17.5% to 25%). The deferred
equity-based compensation is intended to build a vested interest of the
portfolio manager in the financial performance of both Franklin
Resources and mutual funds advised by the manager. The bonus plan is
intended to provide a competitive level of annual bonus compensation
that is tied to the portfolio manager achieving consistently strong
investment performance, which aligns the financial incentives of the
portfolio manager and Fund shareholders. The Chief Investment Officer
of the manager and/or other officers of the manager, with
responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining
bonuses under the plan:
o INVESTMENT PERFORMANCE. Primary consideration is given to the
historic investment performance over the 1, 3 and 5 preceding
years of all accounts managed by the portfolio manager. The
pre-tax performance of each fund managed is measured relative to a
relevant peer group and/or applicable benchmark as appropriate.
o NON-INVESTMENT PERFORMANCE. The more qualitative contributions of
a portfolio manager to the manager's business and the investment
management team, including business knowledge, contribution to
team efforts, mentoring of junior staff, and contribution to the
marketing of the Fund, are evaluated in determining the amount of
any bonus award.
o RESEARCH. Where the portfolio management team also has research
responsibilities, each portfolio manager is evaluated on the
number and performance of recommendations over time.
o RESPONSIBILITIES. The characteristics and complexity of funds
managed by the portfolio manager are factored in the manager's
appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION Portfolio managers may
also be awarded restricted shares or units of one or more mutual funds,
and options to purchase common shares of a Franklin Templeton fund.
Awards of such deferred equity-based compensation typically vest over
time, so as to create incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
OWNERSHIP OF FUND SHARES. The manager has a policy of encouraging portfolio
managers to invest in the funds they manage. Exceptions arise when, for example,
a fund is closed to new investors or when tax considerations or jurisdictional
constraints cause such an investment to be inappropriate for the portfolio
manager. The following is the dollar range of Fund shares beneficially owned by
each portfolio manager as of March 31, 2007 (such amounts may change from time
to time):
Dollar Range of Fund
Shares Beneficially
Portfolio Manager Owned
- ---------------------------------------------------
Mark Mobius None
- ---------------------------------------------------
Dennis Lim None
- ---------------------------------------------------
Tom Wu None
- ---------------------------------------------------
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Directors that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
By /s/JIMMY D. GAMBILL
----------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: May 24, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JIMMY D. GAMBILL
----------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: May 24, 2007
By /s/GALEN G. VETTER
----------------------
Galen G. Vetter
Chief Financial Officer
Date: May 24, 2007