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
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TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 3/31
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Date of reporting period: 3/31/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
CONTENTS
IMPORTANT NOTICE TO SHAREHOLDERS .......................................... 1
ANNUAL REPORT
Templeton Russia and East European Fund, Inc. ............................. 2
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 ............................................ 22
Dividend Reinvestment and Cash Purchase Plan .............................. 23
Board Members and Officers ............................................... 26
Shareholder Information ................................................... 32
IMPORTANT NOTICE TO SHAREHOLDERS
EXCHANGE-TRADED FUNDS
The Fund may invest up to 10% of its total assets in shares of exchange-traded
funds (ETFs) for the purpose of short-term cash management. The Fund will use
ETFs when the investment manager determines that the Fund will benefit from
market exposure when there is excess cash in the Fund and the investment manager
is not able to invest in a single stock fast enough because either the stock is
not liquid enough to accommodate a large purchase or the Fund would cause
excessive market impact in trying to invest cash in a single stock immediately
(referred to as "equitizing cash"). This strategy can allow the investment
manager to be more selective in the securities it buys for the Fund and the
prices paid because the investment manager is not forced to buy stocks at any
price just to get market exposure. The Fund may also use ETFs to provide the
Fund with liquidity during volatile markets without having to hold
underperforming cash.
An investment in an ETF generally represents the same risks as an investment in
a conventional fund (i.e., an investment company that is not exchange-traded).
The price of an ETF can fluctuate and the Fund could lose money investing in an
ETF if the prices of the securities owned by the ETF go down. In addition, ETFs
are subject to certain other risks that do not apply to conventional funds, such
as the risk that the market price of the ETF's shares may trade at a discount to
their net asset value; the risk that an active market for an ETF's shares may
not develop or be maintained; or the risk that an ETF's shares could be delisted
from an exchange or that trading may be halted for various reasons.
Most ETFs are investment companies. Therefore, the Fund's purchases of ETFs are
subject to limitations on investments in other investment companies under
section 12(d)(1) of the 1940 Act, unless exemptions from those limitations are
available pursuant to the SEC's current rules, exemptions and interpretations
under the 1940 Act.
SHARE REPURCHASE PROGRAM
The Fund's Board previously authorized management to implement an open-market
share repurchase program pursuant to which the Fund may purchase Fund shares,
from time to time, in open-market transactions, at the discretion of management.
This authorization remains in effect.
Not part of the annual report | 1
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:
This annual report for Templeton Russia and East European Fund covers the fiscal
year ended March 31, 2008.
PERFORMANCE OVERVIEW
Templeton Russia and East European Fund had cumulative total returns of -6.78%
in market price terms and +3.85% based on change in net asset value for the 12
months ended March 31, 2008. In line with our long-term investment strategy, we
are pleased with our long-term results. For the 10-year period ended March 31,
2008, the Fund delivered cumulative total returns of +298.39% in market price
terms and +468.67% in net asset value terms. You can find more of the Fund's
performance data in the Performance Summary on page 6.
ECONOMIC AND MARKET OVERVIEW
Despite renewed fears of a U.S. recession and global credit concerns, Eastern
European equities, supported by strong domestic currencies, ended the 12-month
reporting period with positive returns. Russia performed in line with its
regional peers and posted double-digit returns for the period. Investor
confidence remained driven by Russia's strong economic environment and high
commodity prices for the country's exports.
In Russia, gross domestic product (GDP) growth rose to 8.1% in 2007, which was
higher than the initial estimate, and construction, manufacturing, and wholesale
and retail sales sectors contributed significantly.(1) The country's Economy
Ministry also upgraded its GDP growth forecasts for 2008 and 2009 to 7.1% and
6.3% in March.1 In addition, investment remained robust in 2007 with foreign
direct investment (FDI) inflows totaling US$47 billion, compared to US$26
billion in 2006 and US$13 billion in 2005.(2)
- ----------
1. Source: Federal State Statistics Service, Russia.
2. Source: The Central Bank of the Russian Federation.
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.
2 | Annual Report
International rating agency Standard & Poor's raised its outlook on its BBB+
sovereign credit rating for Russia to positive from neutral due to the country's
growing foreign exchange reserves and fiscal surpluses.(3) Inflationary
pressures, however, remained a concern for the central bank as inflation in
February rose to 12.7% year-over-year as a result of higher food prices.(1) This
led the central bank to raise interest rates and reserve requirements on
liabilities in 2008.
Politically, as widely expected, First Deputy Prime Minister Dmitry Medvedev won
the presidential elections by an overwhelming majority on March 2, 2008.
Medvedev confirmed that his administration would continue the policies set by
President Putin's government. Putin also indicated that he would assume the
prime minister role after his term ended.
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 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
Key Fund holdings that contributed significantly to absolute performance during
the 12 months under review were Norilsk Nickel (Mining and Metallurgical Co.
Norilsk Nickel), the world's largest nickel and palladium producer, Severstal
(Cherepovets Mk Severstal), a key steel producer in Russia, and ENRC (Eurasian
Natural Resources), a leading diversified natural resources group, which was
bought and sold during the period because it reached our sale target. From a
sector perspective, the Fund's exposure to the materials sector, which included
the top three contributors, had the largest contribution to performance during
the period.(4)
- ------------
3. This does not indicate Standard & Poor's rating of the Fund.
4. The materials sector comprises metals and mining in the SOI.
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 3/31/08
Metals & Mining 28.5%
Oil, Gas & Consumable Fuels 16.1%
Diversified Telecommunication Services 15.3%
Commercial Banks 13.4%
Pharmaceuticals 5.3%
Energy Equipment & Services 4.2%
Real Estate 2.1%
Food Products 2.1%
Other 0.9%
Short-Term Investments & Other Net Assets 12.1%
Annual Report | 3
TOP 10 EQUITY HOLDINGS
3/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
Norilsk Nickel
(Mining and Metallurgical Co.
Norilsk Nickel) 13.5%
METALS & MINING, RUSSIA
Sberbank RF (Savings Bank of Russia) 13.4%
COMMERCIAL BANKS, RUSSIA
Severstal (Cherepovets Mk Severstal) 11.3%
METALS & MINING, RUSSIA
LUKOIL, ADR 10.9%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
VolgaTelecom, ord. & ADR 6.8%
DIVERSIFIED TELECOMMUNICATION SERVICES,
RUSSIA
Gazprom, ord. & ADR 5.2%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
Egis Nyrt 4.3%
PHARMACEUTICALS, HUNGARY
Sibirtelecom 4.3%
DIVERSIFIED TELECOMMUNICATION SERVICES,
RUSSIA
Southern Telecommunications Co. 3.2%
DIVERSIFIED TELECOMMUNICATION SERVICES,
RUSSIA
OAO TMK, 144A & GDR 3.0%
ENERGY EQUIPMENT & SERVICES, RUSSIA
Conversely, the largest detractors from Fund performance included Sberbank
(Savings Bank of Russia), the country's largest bank, and leading integrated
telecommunication services providers, VolgaTelecom and Sibirtelecom. The
telecommunication services and banks sectors had the largest negative impact on
Fund performance at the sector level.(5) We remained confident in these
companies' prospects due to their strong fundamentals and the potential for
restructuring in the telecommunications industry, as well as Russia's growing
retail and commercial banking sectors.
It is also important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar goes up compared with a
foreign currency, an investment traded in that foreign currency will go down in
value because it will be worth fewer U.S. dollars. This can have a negative
effect on Fund performance. Conversely, when the U.S. dollar weakens in relation
to a foreign currency, an investment traded in that foreign currency will
increase in value, which can contribute to Fund performance. For the 12 months
ended March 31, 2008, the U.S. dollar declined in value relative to most
non-U.S. currencies. As a result, the Fund's performance was positively affected
by the portfolio's predominant investment in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.
During the reporting period, we sold select stocks as they reached sale price
targets. These sales allowed us to raise funds for income and capital gains
distributions, and enabled us to focus on what we considered more attractively
valued stocks in our investment universe. We sold a significant portion of the
Fund's holding in Russian utility UES (Unified Energy Systems), while completely
divesting from Chelyabinsk Pipe Works, a steel pipe producer, JSC
Salavatnefteorgsintez, an oil refining and petrochemical complex, and Mobile
TeleSystems, a major mobile telecommunication services provider. We also sold
the Fund's position in integrated telecommunication services provider TPSA
(Telekomunikacja Polska), which eliminated our exposure to Poland.
Continuing the search for undervalued stocks trading at what we considered
attractive valuations, the Fund initiated positions in two Russian firms: VSMPO
(Vsmpo-Avisma), one of the world's largest integrated titanium products
manufacturers, and South-Ural Nickel Factory, one of Russia's leading nickel
producers. We believed that both companies could continue to benefit from high
commodity prices and growing global demand for metals. The Fund also initiated
exposure to Kazakhstan via the purchase of Alliance Bank, whose
- ------------
5. The telecommunication services sector comprises diversified telecommunication
services in the SOI. The banks sector comprises commercial banks in the SOI.
4 | Annual Report
dominant presence in the country's retail loans segment coupled with strong
economic growth could drive earnings. The Fund also established positions in
Ukraine via purchases of KDD Group, a leading real estate investment and
development group, and Kernel Holding, a major agricultural company. We believed
KDD Group could benefit from growing Ukrainian demand for residential, retail
and office space, while rising prices for soft commodities could lead to higher
earnings for Kernel Holding. Ukraine's favorable economic environment also
benefited both companies. In addition, we added to existing Russian holdings in
OAO TMK, one of the world's leading value-added pipe products manufacturers for
the oil and gas industry, and Gazprom, the largest global gas producer.
Thank you for your continued participation in Templeton Russia and East European
Fund. We look forward to serving your future investment needs.
Sincerely,
[PHOTO OF MARK MOBIUS]
/s/ Mark Mobius
Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2008, 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 3/31/08
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 dividends, capital gain
distributions, if any, or any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: TRF CHANGE 3/31/08 3/31/07
Net Asset Value (NAV) -$ 7.11 $ 60.37 $ 67.48
Market Price (NYSE) -$ 13.26 $ 57.15 $ 70.41
DISTRIBUTIONS (4/1/07 - 3/31/08)
Dividend Income $ 0.5019
Short-Term Capital Gain $ 0.0590
Long-Term Capital Gain $ 9.3378
TOTAL $ 9.8987
PERFORMANCE
1-YEAR 5-YEAR 10-YEAR
Cumulative Total Return(1)
Based on change in NAV(2) +3.85% +495.16% +468.67%
Based on change in market price(3) -6.78% +482.12% +298.39%
Average Annual Total Return(1)
Based on change in NAV(2) +3.85% +42.84% +18.98%
Based on change in market price(3) -6.78% +42.21% +14.50%
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,
2008 2007 2006 2005 2004
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 67.48 $ 60.92 $ 40.59 $ 39.89 $ 22.11
---------- ---------- ----------- ---------- -----------
Income from investment operations:
Net investment income (loss)(a)............... (0.11) (0.24) (0.26) (0.01) 0.15
Net realized and unrealized gains (losses).... 2.90 20.90 29.51 4.28 21.86
---------- ---------- ----------- ---------- -----------
Total from investment operations ................ 2.79 20.66 29.25 4.27 22.01
---------- ---------- ----------- ---------- -----------
Less distributions from:
Net investment income ........................ (0.50) (0.95) -- -- (0.22)
Net realized gains ........................... (9.40) (13.15) (8.92) (3.57) (4.01)
---------- ---------- ----------- ---------- -----------
Total distributions ............................. (9.90) (14.10) (8.92) (3.57) (4.23)
---------- ---------- ----------- ---------- -----------
Net asset value, end of year .................... $ 60.37 $ 67.48 $ 60.92 $ 40.59 $ 39.89
---------- ---------- ----------- ---------- -----------
Market value, end of year(b)..................... $ 57.15 $ 70.41 $ 76.06 $ 39.30 $ 45.65
========== ========== =========== ========== ===========
Total return (based on market value per share)... (6.78)% 14.07% 130.61% (5.15)% 150.26%
RATIOS TO AVERAGE NET ASSETS
Expenses before expense reduction ............... 1.73% 1.85% 1.84% 1.80% 1.84%
Expenses net of expense reduction ............... 1.73% 1.84% 1.84% 1.80% 1.84%
Net investment income (loss) .................... (0.17)% (0.39)% (0.55)% (0.02)% 0.47%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 331,860 $ 368,832 $ 330,324 $ 218,577 $ 214,166
Portfolio turnover rate ......................... 10.26% 8.36% 15.73% 7.65% 18.76%
- ----------
(a) Based on average daily shares outstanding.
(b) Based on the last sale on NYSE Euronext (formerly 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, 2008
COUNTRY SHARES VALUE
COMMON STOCKS 87.9%
COMMERCIAL BANKS 13.4%
Sberbank RF ........................................ Russia 14,231,000 $ 44,543,030
------------
DIVERSIFIED FINANCIAL SERVICES 0.2%
(a,b)Alliance Bank JSC, GDR, 144A .................. Kazakhstan 158,000 845,300
------------
DIVERSIFIED TELECOMMUNICATION SERVICES 15.3%
Sibirtelecom ....................................... Russia 146,940,180 14,326,668
Southern Telecommunications Co. .................... Russia 63,812,635 10,529,085
Uralsvyazinform .................................... Russia 59,201,000 3,108,052
VolgaTelecom ....................................... Russia 3,681,235 18,590,237
VolgaTelecom, ADR .................................. Russia 407,000 4,110,700
------------
50,664,742
------------
ELECTRIC UTILITIES 0.1%
(a)Unified Energy Systems .......................... Russia 438,764 455,876
------------
ENERGY EQUIPMENT & SERVICES 4.2%
(a,b)C.A.T. oil AG, 144A ........................... Austria 138,000 2,341,408
(a,c)Integra Group Holdings, GDR, Reg S ............ Russia 149,700 1,651,191
(b)OAO TMK, 144A ................................... Russia 393,550 3,187,755
OAO TMK, GDR ....................................... Russia 210,000 6,808,200
------------
13,988,554
------------
FOOD PRODUCTS 2.1%
(a,b)Cherkizovo Group OJSC, GDR, 144A .............. Russia 65,000 1,010,750
(a)Kernel Holding SA ............................... Luxembourg 362,000 5,839,365
------------
6,850,115
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 0.1%
TGC-5 JSC .......................................... Russia 517,838,821 427,217
------------
MACHINERY 0.5%
(a)JSC Mashinostroitelniy Zavod .................... Russia 4,240 1,537,000
------------
METALS & MINING 28.5%
(a)Chelyabinsk Zinc Plant .......................... Russia 278,000 2,863,400
Cherepovets Mk Severstal ........................... Russia 1,655,300 37,492,545
Mining and Metallurgical Co. Norilsk Nickel ........ Russia 158,300 44,878,050
Polyus Gold ........................................ Russia 102,052 5,459,782
Vsmpo-Avisma Corp. ................................. Russia 11,730 2,661,760
aSouth-Ural Nickel Factory ......................... Russia 1,100 1,238,050
------------
94,593,587
------------
OIL, GAS & CONSUMABLE FUELS 16.1%
Gazprom OAO ........................................ Russia 524,000 6,644,320
Gazprom OAO, ADR ................................... Russia 210,500 10,661,825
LUKOIL, ADR ........................................ Russia 423,800 36,033,595
------------
53,339,740
------------
8 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2008 (CONTINUED)
COUNTRY SHARES VALUE
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS 5.3%
Egis Nyrt .......................................... Hungary 132,771 $ 14,351,666
(a)Veropharm ....................................... Russia 55,000 3,107,500
------------
17,459,166
------------
REAL ESTATE 2.1%
(a,b)KDD Group NV 144A ............................. Netherlands 802,580 2,803,187
(a)Open Investments ................................ Russia 18,950 4,187,950
------------
6,991,137
------------
TOTAL COMMON STOCKS (COST $85,809,150) ............. 291,695,464
------------
SHORT TERM INVESTMENT (COST $40,799,536) 12.3%
MONEY MARKET FUND 12.3%
(d)Franklin Institutional Fiduciary Trust Money
Market Portfolio, 2.50%............................. United States 40,799,536 40,799,536
------------
TOTAL INVESTMENTS (COST $126,608,686) 100.2% ....... 332,495,000
OTHER ASSETS, LESS LIABILITIES (0.2)% .............. (635,259)
------------
NET ASSETS 100.0% .................................. $331,859,741
============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
GDR - Global Depository Receipt
- ----------
(a) Non-income producing for the twelve months ended March 31, 2008.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At March 31, 2008,
the aggregate value of these securities was $10,188,400, representing
3.07% of net assets.
(c) 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, 2008, the value of
this security was $1,651,191, representing 0.50% of net assets.
(d) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
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, 2008
Assets:
Investments in securities:
Cost - Unaffiliated issuers ...................... $ 85,809,150
Cost - Sweep Money Fund (Note 7) ................. 40,799,536
-------------
Total cost of investments ........................ $ 126,608,686
=============
Value - Unaffiliated issuers ..................... 291,695,464
Value - Sweep Money Fund (Note 7) ................ 40,799,536
-------------
Total value of investments ....................... 332,495,000
-------------
Total assets .................................. 332,495,000
-------------
Liabilities:
Payables:
Affiliates ....................................... 416,881
Accrued expenses and other liabilities ............. 218,378
-------------
Total liabilities ............................. 635,259
-------------
Net assets, at value ........................ $ 331,859,741
=============
Net assets consist of:
Paid-in capital .................................... $ 83,223,437
Distributions in excess of net investment income.... (6,549,126)
Net unrealized appreciation (depreciation) ......... 205,886,314
Accumulated net realized gain (loss) ............... 49,299,116
-------------
Net assets, at value ........................ $ 331,859,741
=============
Shares outstanding .................................... 5,497,179
=============
Net asset value per share ............................. $ 60.37
=============
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, 2008
<Table>
Investment income:
Dividends: (net of foreign taxes of $592,377)
Unaffiliated issuers ............................................ $ 4,691,543
Sweep Money Fund (Note 7) ....................................... 890,608
------------
Total investment income ...................................... 5,582,151
------------
Expenses:
Management fees (Note 3a) ......................................... 4,415,664
Administrative fees (Note 3b) ..................................... 718,080
Transfer agent fees ............................................... 51,026
Custodian fees (Note 4) ........................................... 808,019
Reports to shareholders ........................................... 48,822
Professional fees ................................................. 96,203
Directors' fees and expenses ...................................... 38,100
Other ............................................................. 33,950
------------
Total expenses ............................................... 6,209,864
Expense reductions (Note 4) .................................. (3,020)
------------
Net expenses ............................................ 6,206,844
------------
Net investment income (loss) .......................... (624,693)
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................................... 81,769,268
Foreign currency transactions ................................... 106,401
------------
Net realized gain (loss) .............................. 81,875,669
------------
Net change in unrealized appreciation (depreciation) on investments (66,168,424)
------------
Net realized and unrealized gain (loss) ............................. 15,707,245
============
Net increase (decrease) in net assets resulting from operations ...... $ 15,082,552
============
</Table>
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
<Table>
<Caption>
YEAR ENDED MARCH 31,
2008 2007
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ...................................... $ (624,693) $ (1,296,568)
Net realized gain (loss) from investments and foreign
currency transactions ............................................. 81,875,669 65,957,437
Net change in unrealized appreciation (depreciation) on
investments ....................................................... (66,168,424) 47,594,128
-------------- --------------
Net increase (decrease) in net assets resulting from
operations ..................................................... 15,082,552 112,254,997
-------------- --------------
Distributions to shareholders from:
Net investment income ............................................. (2,750,279) (5,138,264)
Net realized gains ................................................ (51,438,970) (71,453,671)
-------------- --------------
Total distributions to shareholders ............................... (54,189,249) (76,591,935)
-------------- --------------
Capital share transactions: (Note 2) ................................ 2,134,598 2,844,805
-------------- --------------
Net increase (decrease) in net assets .......................... (36,972,099) 38,507,867
Net assets:
Beginning of year ................................................... 368,831,840 330,323,973
-------------- --------------
End of year ......................................................... $ 331,859,741 $ 368,831,840
============== ==============
Distributions in excess of net investment income included in net assets:
End of year ......................................................... $ (6,549,126) $ (5,767,080)
============== ==============
</Table>
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. (Fund) is registered under the
Investment Company Act of 1940, as amended, (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 at a future 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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of March 31, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
14 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES (CONTINUED)
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.
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 of
America. 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, 2008, there were 100 million shares authorized ($0.01 par value).
Transactions in the Fund's shares were as follows:
<Table>
<Caption>
YEAR ENDED MARCH 31,
2008 2007
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
Shares issued for reinvestment of
distributions ................... 31,002 $ 2,134,598 44,233 $ 2,844,805
</Table>
Annual Report | 15
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
In December 2007, the Fund's Board of Directors authorized management to
re-implement the Fund's open-market share repurchase program. Under the program,
the Fund may purchase, from time to time, fund shares in open-market
transactions, at the discretion of management. This authorization remains in
effect. During the years ended March 31, 2007 and March 31, 2008, there were no
shares repurchased.
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:
<Table>
<Caption>
SUBSIDIARY AFFILIATION
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
</Table>
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund as follows:
<Table>
<Caption>
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
</Table>
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.20% per year of the
average weekly net assets of 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, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
16 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The tax character of distributions paid during the years ended March 31, 2008
and 2007, was as follows:
<Table>
<Caption>
2008 2007
Distributions paid from:
Ordinary income .......... $ 3,073,586 $ 6,628,382
Long term capital gain.... 51,115,663 69,963,553
------------- ---------------
$ 54,189,249 $ 76,591,935
============= ===============
</Table>
At March 31, 2008, the cost of investments, net unrealized appreciation
(depreciation), and undistributed long term capital gains for income tax
purposes were as follows:
<Table>
Cost of investments ......................... $ 133,588,576
=============
Unrealized appreciation ..................... $ 204,643,820
Unrealized depreciation ..................... (5,737,396)
-------------
Net unrealized appreciation (depreciation)... $ 198,906,424
=============
Undistributed ordinary income ............... $ 3,385,802
Undistributed long term capital gains ....... 46,344,077
-------------
Distributable earnings ...................... $ 49,729,879
=============
</Table>
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.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended March 31, 2008, aggregated $34,229,524 and $118,231,216,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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.
Annual Report | 17
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Russia's underdeveloped systems of securities registration and transfer.
9. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the U.S. 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 May 9, 2008, the SEC approved a final plan of distribution for the Company's
market timing settlement. Distribution, disbursements of settlement monies will
be made promptly to individuals who were shareholders of the designated funds
during the relevant period, 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.
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 Funds, it is
committed to making the Funds or their shareholders whole, as appropriate.
18 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (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.
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The Fund is currently
evaluating the impact, if any, of applying the various provisions of SFAS 161.
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, 2008, 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, 2008 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
May 20, 2008
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 $75,992,972 as a long
term capital gain dividend for the fiscal year ended March 31, 2008.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $3,278,345 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, 2008.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $5,268,676 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended March
31, 2008. In January 2009, shareholders will receive Form 1099-DIV which will
include their share of qualified dividends distributed during the calendar year
2008. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $453,222 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended March 31, 2008.
Annual Report | 21
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 24, 2007
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 East Broward Boulevard, Fort Lauderdale, Florida, on August 24, 2007 for the
purpose of electing five Directors of the Fund. At the meeting, the following
persons were elected by the shareholders to serve as Directors of the Fund:
Edith E. Holiday, Charles B. Johnson, Gregory E. Johnson, Frank A. Olson and
Robert E. Wade.* No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
Proposal: The election of five (5) Directors:
% OF % OF
SHARES SHARES
% OF PRESENT % OF PRESENT
OUTSTANDING AND OUTSTANDING AND
TERM EXPIRING 2010 FOR SHARES VOTING WITHHELD SHARES VOTING
- ------------------- --------- ----------- ------- -------- ----------- -------
Edith E. Holiday....... 4,313,775 78.72% 97.05% 131,329 2.40% 2.95%
Charles B. Johnson..... 4,373,837 79.82% 98.40% 71,267 1.30% 1.60%
Gregory E. Johnson..... 4,375,302 79.84% 98.43% 69,802 1.27% 1.57%
Frank A. Olson......... 4,370,729 79.76% 98.33% 74,375 1.36% 1.67%
Robert E. Wade......... 4,353,381 79.44% 97.94% 91,723 1.67% 2.06%
- -----------
* Harris J. Ashton, Frank J. Crothers, David W. Niemiec, Larry D. Thompson and
Constantine D. Tseretopoulos are Directors of the Fund who are currently
serving and whose terms of office continued after the Annual Meeting of
Shareholders.
22 | Annual Report
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 BNY Mellon Shareowner Services, P.O. Box 358035,
Pittsburgh, PA 15252-8035, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify 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 NYSE Euronext (formerly 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 NYSE Euronext 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 BNY Mellon Shareowner Services,
P.O. Box 358035, Pittsburgh, PA 15252-8035. 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.
Annual Report | 23
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
To enroll in the service, access your account online by going to
https://vault.bnymellon.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.
24 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-800-416-5585
www.bnymellon.com
SHAREHOLDER INFORMATION
Shares of Templeton Russia and East European Fund, Inc. are traded on NYSE
Euronext (formerly 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 NYSE Euronext 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 BNY Mellon
Shareowner Services' web site at https://vault.bnymellon.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.
Annual Report | 25
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 143 Bar-S Foods (meat packing company).
500 East Broward Blvd.
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).
- -----------------------------------------------------------------------------------------------------------------------
ANN TORRE BATES (1958) Director Since 28 SLM Corporation (Sallie Mae) and
500 East Broward Blvd. January 2008 Allied Capital Corporation
Suite 2100 (financial services).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Independent strategic and financial consultant; and FORMERLY, Executive Vice President and Chief Financial Officer,
NHP Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc.
(until 1995).
- -----------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (1944) Director Since 1998 21 Fortis, Inc. (utility holding
500 East Broward Blvd. company), Nuinsco Resources Limited
Suite 2100 (mineral exploration), Royal
Fort Lauderdale, FL 33394-3091 Fidelity Merchant Bank & Trust
Limited (financial services), C.A.
Bancorp Inc. (financial services),
Victory Nickel Inc. (mineral
exploration), ABACO Markets Limited
(retail distributors) and Belize
Electricity Limited (electric
utility).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holdings Ltd.; Director and Vice Chairman, Caribbean Utilities Company, Ltd.; Director,
Provo Power Company Ltd.; director of various other business and nonprofit organizations; and FORMERLY, Chairman,
Atlantic Equipment & Power Ltd. (1977-2003).
- -----------------------------------------------------------------------------------------------------------------------
26 | 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
- ------------------------------ ----------- ---------------- ----------------------- -------------------------------------
EDITH E. HOLIDAY (1952) Lead Lead Independent 143 Hess Corporation (exploration and
500 East Broward Blvd. Independent Director since refining of oil and gas), H.J. Heinz
Suite 2100 Director December 2007 Company (processed foods and allied
Fort Lauderdale, FL 33394-3091 and Director products), RTI International Metals,
since 1996 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).
- -----------------------------------------------------------------------------------------------------------------------
DAVID W. NIEMIEC (1949) Director Since 2005 21 Emeritus Corporation (assisted
500 East Broward Blvd. living) and OSI Pharmaceuticals,
Suite 2100 Inc. (pharmaceutical products).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); 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 143 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas) and
Suite 2100 Sentient Jet (private jet
Fort Lauderdale, FL 33394-3091 service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (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 (airlines).
- -----------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since 2005 143 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. (credit card provider) (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).
- -----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------ ----------- ---------------- ----------------------- -------------------------------------
CONSTANTINE D. TSERETOPOULOS Director Since 1997 21 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).
- -----------------------------------------------------------------------------------------------------------------------
ROBERT E. WADE (1946) Director Since 2006 35 El Oro and Exploration Co., p.l.c.
500 East Broward Blvd. (investments) and ARC Wireless
Suite 2100 Solutions, Inc. (wireless components
Fort Lauderdale, FL 33394-3091 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 143 None
One Franklin Parkway Chairman of Vice President
San Mateo, CA 94403-1906 the Board since 1994 and
and Vice Chairman of the
President 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 42 of the invest- ment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Director Since 2006 94 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director,
Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------ -------------- ---------------- ----------------------- ----------------------------------
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).
- -----------------------------------------------------------------------------------------------------------------------
LAURA F. FERGERSON (1962) Chief Since Not Applicable Not Applicable
One Franklin Parkway Financial February 2008
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most
of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- -----------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. February 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
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.
- -----------------------------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
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 President since Not Applicable Not Applicable
17th Floor, and Chief 1994 and Chief
The Chater House Executive Executive
8 Connaught Road Officer - Officer -
Central, Hong Kong Investment Investment
Management 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 other subsidiaries of Franklin Resources, Inc. and of six of the investment
companies in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited (investment
manager of Taiwan R.O.C. Fund) (1986- 1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
- ----------------------------------------------------------------------------------------------------------------------------------
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 18 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).
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Senior Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President February 2008
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc.
and 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.
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 HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF ANN TORRE BATES AND DAVID W. NIEMIEC AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MS. BATES AND MR. NIEMIEC QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MS. BATES HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE JANUARY 2008.
SHE CURRENTLY SERVES AS A DIRECTOR OF SLM CORPORATION AND ALLIED CAPITAL
CORPORATION AND WAS FORMERLY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER OF NHP INCORPORATED AND VICE PRESIDENT AND TREASURER OF US AIRWAYS, INC.
MR. NIEMIEC HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005,
CURRENTLY SERVES AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY ITS
MANAGING DIRECTOR FROM 1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS
CORPORATION AND OSI PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS
FORMERLY MANAGING DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS
VICE CHAIRMAN FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF
DILLON, READ & CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD
BELIEVES THAT MS. BATES 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. MS. BATES AND MR. NIEMIEC ARE INDEPENDENT BOARD MEMBERS AS
THAT TERM IS DEFINED UNDER THE APPLICABLE U.S. SECURITIES AND EXCHANGE
COMMISSION RULES AND RELEASES OR THE LISTING STANDARDS APPLICABLE TO THE FUND.
Annual Report | 31
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, 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 management's continuous
efforts and expenditures in establishing back-up systems and recovery procedures
to function
32 | Annual Report
TEMPLETON RUSSIA AND EAST EUROPEAN FUND, INC.
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
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 predesignated 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 all other 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 2007 as well as for the previous 10 years ended December 31, 2007. The
Lipper report showed that the Fund's total return during 2007 was in the lowest
quintile of its performance universe, but on an annualized basis during each of
the previous three-, five- and 10-year periods was in the highest quintile of
such universe. The Board found such performance to be acceptable, noting that
the Fund's 2007 total return exceeded 20% as shown in such Lipper report.
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 being 44 basis points above the expense
group median and its actual expense ratio to be 37 basis points above the median
for such expense group. The Board found such expenses to be acceptable in view
of the Fund's performance and the quality and experience of the Fund's portfolio
managers and research staff.
Annual Report | 33
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 the 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.
34 | Annual Report
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
NYSE Euronext'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, 2007. Additionally, the Fund expects to file,
on or about May 30, 2008, such certifications with its Form N-CSR for the year
ended March 31, 2008.
Annual Report | 35
This page intentionally left blank.
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 expert is David W. Niemiec he is
"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 $70,087 for the fiscal year ended March 31, 2008 and $90,221 for the fiscal
year ended March 31, 2007.
(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 $0 for the fiscal year ended March 31, 2008 and
$4,350 for the fiscal year ended March 31, 2007. 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 $0 for the fiscal year ended March
31, 2008 and $49,961 for the fiscal year ended March 31, 2007. 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 $0 for the fiscal year ended March 31, 2008
and $189 for the fiscal year ended March 31, 2007. 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 other than
services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year
ended March 31, 2008 and $175,672 for the fiscal year ended March 31, 2007. 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.
(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 $0 for the fiscal year ended March 31, 2008 and $230,172 for the
fiscal year ended March 31, 2007.
(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: Ann Torre Bates, Frank J. Crothers, David W.
Niemiec 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 RiskMetrics Group
(RiskMetrics), 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 RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, 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
may defer to the voting recommendation of RiskMetrics, 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. If
the conflict is not resolved by the Fund, the Proxy Group may 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 RiskMetrics, Glass Lewis or those of another independent third party provider
of proxy services; or send the proxy directly to the Fund. Where the Proxy Group
or 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 directors or
a committee of the board.
Where a material conflict of interest has been identified, but the items on
which the manager's vote recommendations differ from Glass Lewis, RiskMetrics,
or another independent third party provider of proxy services relate
specifically to (1) shareholder proposals regarding social or environmental
issues or political contributions, (2) "Other Business" without describing the
matters that might be considered, or (3) items the manager wishes to vote in
opposition to the recommendations of an issuer's management, the Proxy Group may
defer to the vote recommendations of the manager rather than sending the proxy
directly to the Fund for approval.
To avoid certain potential conflicts of interest, the manager will employ echo
voting, if possible, in the following instances: (1) when the Fund invests in an
underlying fund in reliance on Sections 12(d)(1) of the 1940 Act, or pursuant to
an SEC exemptive order; (2) when the Fund invests uninvested cash in affiliated
money market funds pursuant to an SEC exemptive order ("cash sweep
arrangement"); or (3) when required pursuant to the Fund's governing documents
or applicable law. Echo voting means that the investment manager will vote the
shares in the same proportion as the vote of all of the other holders of the
fund's shares.
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 RiskMetrics 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. The proxy voting records are updated each year
by August 31 to reflect the most recent 12-month period ended June 30.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANY AND
AFFILIATED PURCHASERS.
(a)(1) As of May 30, 2008, 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 portfolio manager of the Fund since inception. He has
primary responsibility for the investments of the Fund, and 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, CO-CHIEF EXECUTIVE OFFICER AND DIRECTOR OF TEMPLETON ASSET
MANAGEMENT LTD.
Based in Singapore, Mr. Lim has been a portfolio 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 portfolio 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, 2008.
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 12,458.2 27 22,970.0 4 1,751.9
- --------------------------------------------------------------------------------------------------------------
Dennis Lim 6 10,401.8 5 1,715.4 1 352.1
- --------------------------------------------------------------------------------------------------------------
Tom Wu 6 10,401.8 4 2,502.5 1 352.1
- --------------------------------------------------------------------------------------------------------------
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 help 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, 2008 (such amounts may change from time
to time):
---------------------------------------------------------------------
DOLLAR RANGE OF FUND SHARES
PORTFOLIO MANAGER BENEFICIALLY 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 Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting 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/GALEN G. VETTER
----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date May 27, 2008
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/GALEN G. VETTER
----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date May 27, 2008
By /s/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date May 27, 2008