INTERNATIONAL Templeton Russia and East European Fund Inc · 2017-06-24 · ended September 30,...

Templeton Russia and East European Fund, Inc.

SEPTEMBER 30, 2011

SEMIANNUAL REPORT

I NTE RNAT IONAL

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

Not part of the semiannual report

Franklin Templeton InvestmentsGain From Our Perspective®

Franklin Templeton’s distinct multi-manager structure combines thespecialized expertise of three world-class investment management groups—Franklin, Templeton and Mutual Series.

Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success.

Franklin. Founded in 1947, Franklin is a recognized leader in fixed income investingand also brings expertise in growth- and value-style U.S. equity investing.

Templeton. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry’s oldest global fund. Today, withoffices in over 25 countries, Templeton offers investors a truly global perspective.

Mutual Series. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities.

Because our management groups work independently and adhere to differentinvestment approaches, Franklin, Templeton and Mutual Series funds typicallyhave distinct portfolios. That’s why our funds can be used to build trulydiversified allocation plans covering every major asset class.

At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable,accurate and personal service that has helped us become one of the most trustednames in financial services.

TRUE DIVERSIFICATION

RELIABILITY YOU CAN TRUST

SPECIALIZED EXPERTISE

Semiannual Report | 1

ContentsSemiannual Report

Templeton Russia and East European Fund, Inc. . . . . 1

Performance Summary . . . . . . 5

Important Notice to Shareholders . . . . . . . . . . . . . . 6

Financial Highlights and Statement of Investments . . . . 7

Financial Statements . . . . . . . 11

Notes to Financial Statements . . . . . . . . . . . . . . . 14

Annual Meeting of Shareholders . . . . . . . . . . . . . . 22

Dividend Reinvestment and Cash Purchase Plan . . . . . . . . 23

Shareholder Information . . . . . 26

Dear Shareholder:

This semiannual report for Templeton Russia and East European Fund coversthe period ended September 30, 2011.

Economic and Market Overview

Russia’s economy expanded at the fastest rate in three years, with gross domesticproduct growing 5.1% year over year in the third quarter, compared with 3.4%year over year in the second quarter of 2011.1 Domestic demand drove retailsales growth, largely compensating for stagnant industrial production growthdue to lower export demand. Inflation showed signs of moderation, decliningfrom the 2011 year-to-date high of 9.6% year over year in April to 7.2% inSeptember, the lowest level thus far in 2011.1 This allowed Russia’s central bankto adopt a neutral monetary policy in the latter part of the reporting period.

Equity markets in Eastern Europe suffered steep losses during the six-monthreporting period, due to their proximity to their western counterparts ratherthan a significant deterioration in their economies. The MSCI Emerging MarketsEastern Europe Index, which tracks Eastern European stock performance, hada -33.55% total return in U.S. dollar (USD) terms during the six months

1. Source: Federal State Statistics Service, Russia.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’sStatement of Investments (SOI). The SOI begins on page 8.

Semiannual 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.

ended September 30, 2011.2 The region’s stock prices were largely range boundduring the first four months of the period, but the prolonged eurozone debtcrisis and absence of a comprehensive solution led markets to fall sharply inthe final two months of the period. U.S. fiscal and growth concerns furthercompounded investor anxiety.

The resulting high volatility and increased market uncertainty also gave investorsreasons to lock in profits from 2009 and 2010. For example, the MSCI RussiaIndex, which tracks Russian stock performance, delivered a +144.66% totalreturn in USD terms during those years.2 Lower commodity prices and a weakerruble also contributed to the correction. As a result, the MSCI Russia Indexhad a -34.66% total return in USD terms for the six-month reporting period.2

Investment Strategy

Our investment strategy employs a company-specific, value-oriented, long-termapproach. We focus on the market price of a company’s securities relative toour evaluation of the company’s long-term earnings, asset value and cash flowpotential. As we look for investments, we consider specific companies in thecontext of their sector and country. We perform in-depth research to constructan Action List from which we construct the portfolio. Our emphasis is onvalue and not attempting to match or beat an index. During our analysis, wealso consider a company’s position in its sector, the economic framework andpolitical environment.

Performance Overview

Templeton Russia and East European Fund had cumulative total returns of -38.61% based on market price and -37.00% based on net asset value for thesix months ended September 30, 2011. In line with our long-term investmentstrategy, we are pleased with our long-term results. For the 10-year periodended September 30, 2011, the Fund delivered cumulative total returns of+532.48% in market price terms and +500.93% in net asset value terms. Youcan find more of the Fund’s performance data in the Performance Summary on page 5.

2 | Semiannual Report

2. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. Past performance is no guarantee of future results. The index is unmanaged and includes reinvesteddividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

Portfolio BreakdownBased on Total Net Assets as of 9/30/11

Beverages

Media

Short-Term Investments & Other Net Assets

Commercial Banks

Metals & Mining

Food Products

Road & Rail

Oil, Gas & Consumable Fuels

Pharmaceuticals

Other

Energy Equipment & Services

Chemicals

Wireless Telecommunication Services

20.8%

13.7%

3.8%

3.2%

3.5%

3.7%

4.1%

6.8%

7.3%

7.9%

8.0%

8.5%

8.7%


Manager’s Discussion

Major detractors from the Fund’s absolute performance during the six monthsended September 30, 2011, included two of Russia’s major steel producers,Severstal (Cherepovets Mk Severstal) and Mechel, as well as the country’slargest bank, Sberbank (Savings Bank of Russia). A commodity price correctionand global growth concerns caused Severstal’s and Mechel’s share prices todecline. In our view, both companies are well positioned to benefit from thepossible longer-term commodity price uptrend due to their integrated businessmodels (both companies own iron ore and coking coal deposits), strong marketpositions and continuing steel demand. Investor concerns about the eurozonedebt crisis and global economic growth caused Sberbank’s share price to fall inthe period’s final two months, along with many global financial stocks. In thelong term, however, Sberbank could benefit from what we believe will be astrong economic recovery in Russia as well as growing regional and domesticdemand for financial and banking services. In our analysis, the company’s valuations remained attractive.

During the six months under review, key contributors to absolute performancewere Polyus Gold International (formerly known as KazakhGold Group,Kazakhstan’s dominant gold mining company, which we sold during the period)and VSMPO-AVISMA, the world’s largest integrated manufacturer of titaniumproducts. VSMPO is a major supplier to Airbus and Boeing and also manufac-tures aluminum, magnesium and nickel alloys and steel products. The company’sstock price rose sharply during the first half of the reporting period, but lowercommodity prices, slowing global economic growth and general weakness inthe metals market led the company’s stock price to correct in the second half,trimming the stock’s gains during the period. VSMPO’s dominant market posi-tion and long-term contracts with leading customers, as well as global demandgrowth for aircraft, could benefit the company in the long term.

The Fund added four new companies to the portfolio during the six-monthperiod. These were Russian companies Norilsk Nickel (Mining andMetallurgical Co. Norilsk Nickel), one of the world’s leading producers ofnickel, O’Key Group, one of Russia’s leading food retailers, and Phosagro, a leading global producer of phosphate-based fertilizers and phosphate rock,as well as one of Kazakhstan’s biggest oil and gas companies, KazMunaiGasExploration Production. As a result of these new purchases, the Fund’s holdings increased in diversified metals and mining, agricultural chemicals,and food retail companies.

Top 10 Equity Holdings9/30/11

Company % of TotalSector/Industry, Country Net Assets

Severstal (Cherepovets Mk Severstal) 10.1%Metals & Mining, Russia

Sberbank RF 8.5%Commercial Banks, Russia

Globaltrans Investment PLC, GDR, Reg S 7.9%Road & Rail, Russia

Norilsk Nickel (Mining and

Metallurgical Co. Norilsk Nickel) 6.1%Metals & Mining, Russia

MHP SA, GDR & 144A 5.3%Food Products, Ukraine

Phosagro OAO, GDR 4.8%Chemicals, Russia

Veropharm 4.7%Pharmaceuticals, Russia

Mechel OAO 4.4%Metals & Mining, Russia

Synergy Co. 3.7%Beverages, Russia

Agroton Public Ltd. 3.4%Food Products, Ukraine


Conversely, the Fund undertook selective sales to switch into what we consid-ered more attractively valued stocks in our investment universe. The Fund soldits position in the aforementioned KazakhGold, and reduced its positions inRosneft Oil, one of Russia’s largest crude oil producers, Gazprom, the world’slargest gas producer, and Uralkali, a major Russian potash fertilizer producer.These selective sales during the reporting period reduced the Fund’s investmentsin gold and integrated oil and gas companies.

Thank you for your continued participation in Templeton Russia and EastEuropean Fund. We look forward to serving your future investment needs.

Sincerely,

Mark MobiusExecutive ChairmanTempleton Emerging Markets Group

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2011, the endof the reporting period. The way we implement our main investment strategies and the resulting portfolio holdingsmay change depending on factors such as market and economic conditions. These opinions may not be relied uponas investment advice or an offer for a particular security. The information is not a complete analysis of everyaspect of any market, country, industry, security or the Fund. Statements of fact are from sources consideredreliable, 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 ourinvestment management philosophy.


Performance Summary as of 9/30/11

Price Information

Symbol: TRF Change 9/30/11 3/31/11

Net Asset Value (NAV) -$9.02 $15.36 $24.38

Market Price (NYSE) -$9.25 $14.71 $23.96

Performance

6-Month 1-Year 5-Year 10-Year

Cumulative Total Return1

Based on change in NAV2 -37.00% -25.17% -20.70% +500.93%

Based on change in market price3 -38.61% -24.26% -38.26% +532.48%

Average Annual Total Return1

Based on change in NAV2 -37.00% -25.17% -4.53% +19.64

Based on change in market price3 -38.61% -24.26% -9.20% +20.26

Performance data represent past performance, which does not guarantee future results. Investment return and principalvalue 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 ofcountries where the Fund invests. Emerging markets involve heightened risks related to the same factors, in addition to those associated withtheir relatively small size and lesser liquidity. Investments in Russian and East European securities involve significant additional risks, includingpolitical and social uncertainty (for example, regional conflicts and risk of war), currency exchange rate volatility, pervasiveness of corruptionand 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 investingin Russia and East European countries, the Fund may invest in a relatively small number of issuers and, as a result, be subject to greater riskof loss with respect to its portfolio securities. The Fund is actively managed but there is no guarantee that the manager’s investment decisionswill produce the desired results.

1. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Six-monthreturn has not been annualized.

2. Assumes reinvestment of distributions based on net asset value.

3. Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’sportfolio, adjusted for operating expenses. Capital gain distributions are net profits realized fromthe sale of portfolio securities. Total return reflects reinvestment of the Fund’s dividends and capitalgain distributions, if any, and any unrealized gains or losses. Total returns do not reflect any salescharges paid at inception or brokerage commissions paid on secondary market purchases. Theperformance 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.


Share Repurchase Program

The Fund’s Board previously authorized management to implement an open-market share repurchase program pursuant to which the Fund may purchaseFund shares, from time to time, in open-market transactions, at the discretionof management. This authorization remains in effect.

Important Notice to Shareholders

Templeton Russia and East European Fund, Inc.Financial Highlights

Six Months EndedSeptember 30, 2011 Year Ended March 31,

(unaudited) 2011 2010 2009 2008 2007

Per share operating performance(for a share outstanding throughout the period)

Net asset value, beginning of period . . . . . . . . . $24.38 $20.75 $ 7.48 $60.37 $67.48 $60.92

Income from investment operations:

Net investment income (loss)a . . . . . . . . . . . . . 0.08 (0.11) (0.08) 0.23 (0.11) (0.24)

Net realized and unrealized gains (losses) . . . . (9.10) 3.85 13.35 (43.91) 2.90 20.90

Total from investment operations . . . . . . . . . . . . (9.02) 3.74 13.27 (43.68) 2.79 20.66

Less distributions from:

Net investment income . . . . . . . . . . . . . . . . . — — — (0.24) (0.50) (0.95)

Net realized gains . . . . . . . . . . . . . . . . . . . . . — (0.11) — (8.95) (9.40) (13.15)

Tax return of capital . . . . . . . . . . . . . . . . . . . . — — — (0.02) — —

Total distributions . . . . . . . . . . . . . . . . . . . . . . — (0.11) — (9.21) (9.90) (14.10)

Net asset value, end of period . . . . . . . . . . . . . . $15.36 $24.38 $20.75 $ 7.48 $60.37 $67.48

Market value, end of periodb . . . . . . . . . . . . . . . $14.71 $23.96 $20.44 $ 8.90 $57.15 $70.41

Total return (based on market value per share)c . . . (38.61)% 17.76% 129.66% (65.07)% (6.78)% 14.07%

Ratios to average net assetsd

Expenses before expense reduction . . . . . . . . . . 1.58% 1.79% 1.80% 1.82% 1.73% 1.85%

Expenses net of expense reduction . . . . . . . . . . 1.58% 1.79%e 1.80% 1.82% 1.73% 1.84%

Net investment income (loss) . . . . . . . . . . . . . . 0.71% (0.55)% (0.55)% 0.69% (0.17)% (0.39)%

Supplemental data

Net assets, end of period (000’s) . . . . . . . . . . . $88,230 $140,055 $119,216 $42,953 $331,860 $368,832

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . 2.21% 10.81% 19.14% 30.83% 10.26% 8.36%

aBased on average daily shares outstanding.bBased on the last sale on the New York Stock Exchange.cTotal return is not annualized for periods less than one year.dRatios are annualized for periods less than one year.eNet of a one-time 0.04% affiliated fee waiver, the ratio of expenses net of expense reduction was 1.75%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 7


Templeton Russia and East European Fund, Inc.Statement of Investments, September 30, 2011 (unaudited)


Country Shares Value

Common Stocks 84.2%Beverages 3.7%

aSynergy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 184,334 $ 3,275,865

Chemicals 6.8%a,bPhosagro OAO, GDR, 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 352,800 4,215,960

cUralkali, GDR, Reg S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 50,950 1,757,520

5,973,480

Commercial Banks 8.5%Sberbank RF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 3,460,833 7,487,304

Electric Utilities 0.4%aFifth Power Generation Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 6,500,001 375,173

Energy Equipment & Services 1.4%a,c Integra Group Holdings, GDR, Reg S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 182,000 292,656

OAO TMK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 319,195 723,659OAO TMK, GDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 26,161 238,523

1,254,838

Food & Staples Retailing 1.1%cO’Key Group SA, GDR, Reg S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 154,205 985,756

Food Products 8.7%aAgroton Public Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine 361,070 2,966,393aMHP SA, GDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine 303,950 3,737,065

a,bMHP SA, GDR, 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine 76,380 939,092

7,642,550

Independent Power Producers & Energy Traders 1.4%aOGK-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 17,330,000 1,079,238aTGC-5 JSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 517,838,822 141,344

1,220,582

IT Services 0.9%aArmada OAO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 89,775 837,256

Media 3.2%CTC Media Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 314,279 2,797,083

Metals & Mining 20.8%Cherepovets Mk Severstal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 858,370 8,868,410Mechel OAO, ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 383,105 3,903,840Mining and Metallurgical Co. Norilsk Nickel . . . . . . . . . . . . . . . . . . . . . . . . . Russia 24,930 5,348,905VSMPO-AVISMA Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 1,400 197,784

18,318,939


Templeton Russia and East European Fund, Inc.Statement of Investments, September 30, 2011 (unaudited) (continued)

Country Shares Value

Common Stocks (continued)Oil, Gas & Consumable Fuels 8.0%Gazprom, ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 249,600 $ 2,383,680KazMunaiGas Exploration Production, GDR . . . . . . . . . . . . . . . . . . . . . . . . . . Kazakhstan 50,000 732,750Kuzbasskaya Toplivnaya Kompaniya OAO . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 125,000 624,561

dLUKOIL Holdings, ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 48,350 2,426,686Rosneft Oil Co., GDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 152,750 897,024

7,064,701

Pharmaceuticals 7.3%Egis Nyrt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hungary 34,331 2,306,628Veropharm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 159,412 4,123,540

6,430,168

Road & Rail 7.9%cGlobaltrans Investment PLC, GDR, Reg S . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 504,250 6,978,820

Wireless Telecommunication Services 4.1%Mobile TeleSystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 150,600 810,367

a,cOrascom Telecom Holding SAE, GDR, Reg S . . . . . . . . . . . . . . . . . . . . . . . . . Egypt 170,000 465,885VimpelCom Ltd., ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia 244,100 2,326,273

3,602,525

Total Common Stocks (Cost $69,032,577) . . . . . . . . . . . . . . . . . . . 74,245,040

Principal Amount*

Convertible Bonds (Cost $2,000,000) 2.1%Energy Equipment & Services 2.1%

cTMK Bonds SA, cvt., senior bond, Reg S, 5.25%, 2/11/15 . . . . . . . . . . . . . . Russia 2,000,000 1,880,000

Total Investments before Short Term Investments (Cost $71,032,577) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,125,040

Shares

Short Term Investments (Cost $12,090,598) 13.7%Money Market Funds 13.7%

a,e Institutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . United States 12,090,598 12,090,598

Total Investments (Cost $83,123,175) 100.0% . . . . . . . . . . . . . . . 88,215,638Other Assets, less Liabilities 0.0%† . . . . . . . . . . . . . . . . . . . . . . . . . 14,771

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,230,409

10 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Templeton Russia and East European Fund, Inc.Statement of Investments, September 30, 2011 (unaudited) (continued)

See Abbreviations on page 21.

†Rounds to less than 0.1% of net assets.*The principal amount is stated in U.S. dollars unless otherwise indicated.aNon-income producing.bSecurity 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 ina 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 September 30,2011, the aggregate value of these securities was $5,155,052, representing 5.84% of net assets.cSecurity 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 asecurity 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 regis-tration. These securities have been deemed liquid under guidelines approved by the Fund’s Board of Directors. At September 30, 2011, the aggregate value of these securities was$12,360,637, representing 14.01% of net assets.dAt September 30, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading this security for a limited orextended period of time due to ownership limits and/or potential possession of material non-public information.eSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.


Templeton Russia and East European Fund, Inc.Financial Statements

Statement of Assets and LiabilitiesSeptember 30, 2011 (unaudited)

Assets:Investments in securities:

Cost - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,032,577Cost - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,090,598

Total cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $83,123,175

Value - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,125,040Value - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,090,598

Total value of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,215,638Receivables from dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,894Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,667

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,429,199

Liabilities:Payables:

Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,676Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,206Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,968Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,431Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,288

Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,221

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,790

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $88,230,409

Net assets consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $83,661,611Distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (236,824)Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,092,463Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286,841)

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $88,230,409

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,745,174

Net asset value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.36

12 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Templeton Russia and East European Fund, Inc.Financial Statements (continued)

Statement of Operationsfor the six months ended September 30, 2011 (unaudited)

Investment income:Dividends (net of foreign taxes of $183,279) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,379,027Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500

Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,431,527

Expenses:Management fees (Note 3a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687,164Administrative fees (Note 3b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,762Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,116Custodian fees (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,772Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,921Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,044Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,332Directors’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,458Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,478

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987,047

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,480

Realized and unrealized gains (losses):Net realized gain (loss) from:

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,105Foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,578)

Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,527

Net change in unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,779,608)

Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,269,081)

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(51,824,601)


Templeton Russia and East European Fund, Inc.Financial Statements (continued)

Statements of Changes in Net Assets

Six Months Ended September 30, 2011 Year Ended

(unaudited) March 31, 2011Increase (decrease) in net assets:

Operations:Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 444,480 $ (666,981)Net realized gain (loss) from investments and foreign currency transactions . . . . . . . . . . 510,527 32,863Net change in unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . (52,779,608) 22,076,773

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . (51,824,601) 21,442,655

Distributions to shareholders from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (603,243)

Net increase (decrease) in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,824,601) 20,839,412

Net assets:Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,055,010 119,215,598

End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,230,409 $140,055,010

Distributions in excess of net investment income included in net assets end of period . . . . . . $ (236,824) $ (681,304)


Templeton Russia and East European Fund, Inc.Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Russia and East European Fund, Inc. (Fund) is registered under the InvestmentCompany Act of 1940, as amended, (1940 Act) as a closed-end investment company.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily.Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants on the measurement date. Under proceduresapproved by the Fund’s Board of Directors, the Fund may utilize independent pricing services,quotations from securities and financial instrument dealers, and other market sources to deter-mine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valuedat the last quoted sale price or the official closing price of the day, respectively. Foreign equitysecurities are valued as of the close of trading on the foreign stock exchange on which the secu-rity is primarily traded, or the NYSE, whichever is earlier. The value is then converted into itsU.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the daythat the value of the security is determined. Over-the-counter securities are valued within therange of the most recent quoted bid and ask prices. Securities that trade in multiple markets oron multiple exchanges are valued according to the broadest and most representative market.Certain equity securities are valued based upon fundamental characteristics or relationships tosimilar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange.The Fund’s pricing services use multiple valuation techniques to determine fair value. In instanceswhere sufficient market activity exists, the pricing services may utilize a market-based approachthrough which quotes from market makers are used to determine fair value. In instances wheresufficient market activity may not exist or is limited, the pricing services also utilize proprietaryvaluation models which may consider market characteristics such as benchmark yield curves,option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timingof principal repayments, underlying collateral, and other unique security features in order toestimate the relevant cash flows, which are then discounted to calculate the fair value.

The Fund has procedures to determine the fair value of securities and other financial instrumentsfor which market prices are not readily available or which may not be reliably priced. Underthese procedures, the Fund primarily employs a market-based approach which may use relatedor comparable assets or liabilities, recent transactions, market multiples, book values, and otherrelevant information for the investment to determine the fair value of the investment. The Fundmay also use an income-based valuation approach in which the anticipated future cash flows of


Templeton Russia and East European Fund, Inc.Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

the investment are discounted to calculate fair value. Discounts may also be applied due to thenature or duration of any restrictions on the disposition of the investments. Due to the inherentuncertainty of valuations of such investments, the fair values may differ significantly from thevalues that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may becompleted before the daily close of business on the NYSE. Occasionally, events occur betweenthe time at which trading in a foreign security is completed and the close of the NYSE that mightcall into question the reliability of the value of a portfolio security held by the Fund. As a result,differences may arise between the value of the Fund’s portfolio securities as determined at theforeign market close and the latest indications of value at the close of the NYSE. In order tominimize the potential for these differences, the investment manager monitors price movementsfollowing the close of trading in foreign stock markets through a series of country specific mar-ket proxies (such as baskets of American Depositary Receipts, futures contracts and exchangetraded funds). These price movements are measured against established trigger thresholds foreach specific market proxy to assist in determining if an event has occurred that may call intoquestion the reliability of the values of the foreign securities held by the Fund. If such an eventoccurs, the securities may be valued using fair value procedures, which may include the use ofindependent pricing services. At September 30, 2011, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translatedinto U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the dateof valuation. The Fund may enter into foreign currency exchange contracts to facilitate transac-tions denominated in a foreign currency. Purchases and sales of securities, income and expenseitems denominated in foreign currencies are translated into U.S. dollars at the exchange rate ineffect on the transaction date. Portfolio securities and assets and liabilities denominated in foreigncurrencies contain risks that those currencies will decline in value relative to the U.S. dollar.Occasionally, events may impact the availability or reliability of foreign exchange rates used toconvert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will bevalued 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 changesin market prices on securities held. Such changes are included in net realized and unrealized gainor loss from investments on the Statement of Operations.




b. Foreign Currency Translation (continued)

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains orlosses realized between the trade and settlement dates on securities transactions and the differencebetween 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 gainsand losses arise from changes in foreign exchange rates on foreign denominated assets and liabilitiesother than investments in securities held at the end of the reporting period.

c. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal RevenueCode. The Fund intends to distribute to shareholders substantially all of its taxable income andnet realized gains to relieve it from federal income and excise taxes. As a result, no provision forU.S. federal income taxes is required. The Fund files U.S. income tax returns as well as tax returnsin certain other jurisdictions. The Fund records a provision for taxes in its financial statementsincluding penalties and interest, if any, for a tax position taken on a tax return (or expected tobe taken) when it fails to meet the more likely than not (a greater than 50% probability) thresh-old and based on the technical merits, the tax position may not be sustained upon examinationby the tax authorities. As of September 30, 2011, and for all open tax years the Fund has deter-mined that no additional provision for income tax is required in the Fund’s financial statements.Open tax years are those that remain subject to examination and are based on each tax jurisdic-tion statute of limitation.

The Fund may be subject to foreign taxation related to income received, capital gains on the saleof securities and certain foreign currency transactions in the foreign jurisdictions in which itinvests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist inthe foreign markets in which the Fund invests. When a capital gain tax is determined to applythe Fund records an estimated deferred tax liability for unrealized gains on these securities in anamount that would be payable if the securities were disposed of on the valuation date.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-actions are determined on a specific identification basis. Interest income and estimated expensesare accrued daily. Amortization of premium and accretion of discount on debt securities areincluded in interest income. Dividend income is recorded on the ex-dividend date except thatcertain dividends from foreign securities are recognized as soon as the Fund is notified of theex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and aredetermined according to income tax regulations (tax basis). Distributable earnings determined ona tax basis may differ from earnings recorded in accordance with accounting principles generallyaccepted in the United States of America. These differences may be permanent or temporary.




d. Security Transactions, Investment Income, Expenses and Distributions (continued)

Permanent differences are reclassified among capital accounts to reflect their tax character. Thesereclassifications have no impact on net assets or the results of operations. Temporary differencesare not reclassified, as they may reverse in subsequent periods.

e. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally acceptedin the United States of America requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities at the date of the financial statements andthe amounts of income and expenses during the reporting period. Actual results could differfrom those estimates.

f. Guarantees and Indemnifications

Under the Fund’s organizational documents, its officers and directors are indemnified by the Fundagainst 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 containgeneral indemnification clauses. The Fund’s maximum exposure under these arrangements isunknown as this would involve future claims that may be made against the Fund that have notyet occurred. Currently, the Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At September 30, 2011, there were 100 million shares authorized ($0.01 par value). During theyear ended March 31, 2011 and the period ended September 30, 2011, there were no shares issued;all reinvested distributions were satisfied with previously issued shares purchased in the open market.

The Fund’s Board of Directors previously authorized an open-market share repurchase programpursuant to which the Fund may purchase, from time to time, Fund shares in open-markettransactions, at the discretion of management. This authorization remains in effect. During theyear ended March 31, 2011 and the period ended September 30, 2011, there were no sharesrepurchased.

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referredto as Franklin Templeton Investments. Certain officers and directors of the Fund are also officersand/or directors of the following subsidiaries:

Subsidiary AffiliationTempleton Asset Management Ltd. (TAML) Investment managerFranklin Templeton Services, LLC (FT Services) Administrative manager



3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees

Effective May 1, 2011, the Fund pays an investment management fee to TAML based on theaverage weekly net assets of the Fund as follows:

Annualized Fee Rate Net Assets

1.100% Up to and including $1 billion1.050% Over $1 billion, up to and including $5 billion1.000% Over $5 billion, up to and including $10 billion0.950% Over $10 billion, up to and including $15 billion0.900% Over $15 billion, up to and including $20 billion0.850% In excess of $20 billion

Prior to May 1, 2011, the Fund paid fees to TAML based on the average weekly net assets ofthe Fund as follows:

Annualized Fee Rate Net Assets

1.250% Up to and including $1 billion1.200% Over $1 billion, up to and including $5 billion1.150% Over $5 billion, up to and including $10 billion1.100% Over $10 billion, up to and including $15 billion1.050% Over $15 billion, up to and including $20 billion1.000% In excess of $20 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.20% per year of the average weekly netassets of the Fund.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a resultof uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses.During the period ended September 30, 2011, there were no credits.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. AtMarch 31, 2011, the Fund had capital loss carryforwards of $88,755 expiring in 2019.

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permit-ted to carry forward capital losses incurred in taxable years beginning after December 22, 2010for an unlimited period. Post-enactment capital loss carryforwards will retain their character as



5. INCOME TAXES (continued)

either short-term or long-term capital losses rather than being considered short-term as underprevious law. Any post-enactment capital losses generated will be required to be utilized prior tothe losses incurred in pre-enactment tax years.

At September 30, 2011, the cost of investments and net unrealized appreciation (depreciation)for income tax purposes were as follows:

Cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,513,093

Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,698,809Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,996,264)Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . $ 3,702,545

Differences between income and/or capital gains as determined on a book basis and a tax basisare primarily due to differing treatments of foreign currency transactions.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period endedSeptember 30, 2011, aggregated $13,611,123 and $2,413,227, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep MoneyFund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of theinvestment manager). Management fees paid by the Fund are reduced on assets invested in theSweep Money Fund, in an amount not to exceed the management and administrative fees paidby the Sweep Money Fund.

8. CONCENTRATION OF RISK

Investing in equity securities of Russian companies may include certain risks not typically associ-ated 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 lossfrom Russia’s underdeveloped systems of securities registration and transfer. At September 30,2011, the Fund had 73.6% of its net assets invested in Russia.



9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained fromindependent sources (observable inputs) and the Fund’s own market assumptions (unobservableinputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities,interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associatedwith investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policyof recognizing the transfers as of the date of the underlying event which caused the movement.Additionally, at September 30, 2011, due to market events, the Fund employed fair valueprocedures to value a portion of its holdings. Such procedures resulted in temporary transfer ofsecurities valued at $39,166,427 from Level 1 to Level 2 within the fair value hierarchy.

The following is a summary of the inputs used as of September 30, 2011, in valuing the Fund’sassets and liabilities carried at fair value:

Level 1 Level 2 Level 3 TotalAssets:

Investments in Securities:Equity Investments:a

Beverages . . . . . . . . . . . . . . . . . . . . . . . $ — $ 3,275,865 $— $ 3,275,865Chemicals . . . . . . . . . . . . . . . . . . . . . . . 1,757,520 4,215,960 — 5,973,480Commercial Banks . . . . . . . . . . . . . . . . . — 7,487,304 — 7,487,304Electric Utilities . . . . . . . . . . . . . . . . . . . — 375,173 — 375,173Energy Equipment & Services . . . . . . . . . 531,179 723,659 — 1,254,838Food Products . . . . . . . . . . . . . . . . . . . . 3,737,065 3,905,485 — 7,642,550Independent Power Producers & Energy

Traders . . . . . . . . . . . . . . . . . . . . . . . . — 1,220,582 — 1,220,582IT Services . . . . . . . . . . . . . . . . . . . . . . — 837,256 — 837,256Metals & Mining . . . . . . . . . . . . . . . . . . 3,903,840 14,415,099 — 18,318,939Oil, Gas & Consumable Fuels . . . . . . . . . 6,440,140 624,561 — 7,064,701Pharmaceuticals . . . . . . . . . . . . . . . . . . — 6,430,168 — 6,430,168Wireless Telecommunication Services . . . . 2,792,158 810,367 — 3,602,525Other Equity Investmentsb . . . . . . . . . . . . 10,761,659 — — 10,761,659

Convertible Bonds . . . . . . . . . . . . . . . . . . — 1,880,000 — 1,880,000Short Term Investments . . . . . . . . . . . . . . 12,090,598 — — 12,090,598

Total Investments in Securities . . . . . . . $42,014,159 $46,201,479 $— $88,215,638

aIncludes common stocks.bFor detailed categories, see the accompanying Statement of Investments.



10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting StandardsUpdate (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to AchieveCommon Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Theamendments in the ASU will improve the comparability of fair value measurements presentedand disclosed in financial statements prepared in accordance with U.S. GAAP (GenerallyAccepted Accounting Principles) and IFRS (International Financial Reporting Standards) andinclude new guidance for certain fair value measurement principles and disclosure requirements.The ASU is effective for interim and annual periods beginning after December 15, 2011. TheFund is currently reviewing the requirements and believe the adoption of this ASU will not havea material impact on the financial statements.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements anddetermined that no events have occurred that require disclosure.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary ReceiptGDR - Global Depositary Receipt


Templeton Russia and East European Fund, Inc.Annual Meeting of Shareholders, August 19, 2011 (unaudited)

The Annual Meeting of Shareholders of the Fund was held at the Fund’s offices, 300 S.E. 2ndStreet, Fort Lauderdale, Florida, on August 19, 2011. The purpose of the meeting was to electfour Directors of the Fund and to ratify the selection of PricewaterhouseCoopers LLP as theindependent registered public accounting firm for the Fund for the fiscal year ending March 31,2012. At the meeting, the following persons were elected by the shareholders to serve asDirectors of the Fund: Harris J. Ashton, J. Michael Luttig, Larry D. Thompson and ConstantineD. Tseretopoulos.* Shareholders also ratified the selection of PricewaterhouseCoopers LLP asthe independent registered public accounting firm for the Fund for the fiscal year endingMarch 31, 2012. No other business was transacted at the meeting.

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

1. The election of four Directors:

% of % of Shares Shares

% of Present % of PresentOutstanding and Outstanding and

Term Expiring 2014 For Shares Voting Withheld Shares Voting

Harris J. Ashton . . . . . . . . . . . . . 3,492,014 60.78% 88.49% 454,262 7.91% 11.51%J. Michael Luttig . . . . . . . . . . . . 3,495,674 60.85% 88.58% 450,602 7.84% 11.42%Larry D. Thompson . . . . . . . . . . . 3,495,297 60.84% 88.57% 450,979 7.85% 11.43%Constantine D. Tseretopoulos . . . . 3,490,784 60.76% 88.46% 455,492 7.93% 11.54%

2. The ratification of the selection of PricewaterhouseCoopers LLP as the independent registeredpublic accounting firm for the Fund for the fiscal year ending March 31, 2012:

% of Shares% of Present

Shares Outstanding andVoted Shares Voting

For . . . . . . . . . . . . . . . . . . . . . . . 3,885,443 67.63% 98.46%Against . . . . . . . . . . . . . . . . . . . . 38,258 0.67% 0.97%Abstain . . . . . . . . . . . . . . . . . . . . 22,575 0.39% 0.57%Total . . . . . . . . . . . . . . . . . . . . . . 3,946,276 68.69% 100.00%

*Ann Torre Bates, Frank J. Crothers, Edith E. Holiday, Charles B. Johnson, Gregory E. Johnson, David W. Niemiec, Frank A. Olson and Robert E. Wade are Directors of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders.


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 followingfeatures:

If shares of the Fund are held in the shareholder’s name, the shareholder will automatically be aparticipant in the Plan unless he elects to withdraw. If the shares are registered in the name of abroker-dealer or other nominee (i.e., in “street name”), the broker-dealer or nominee will electto participate in the Plan on the shareholder’s behalf unless the shareholder instructs them other-wise, or unless the reinvestment service is not provided by the broker-dealer or nominee.

Participants should contact BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA15252-8015, to receive the Plan brochure.

To receive dividends or distributions in cash, the shareholder must notify The Bank of New YorkMellon (the “Plan Administrator”) at the address above or the institution in whose name the sharesare held. The Plan Administrator must receive written notice ten business days before the record datefor the distribution.

Whenever the Fund declares dividends in either cash or common stock of the Fund, if the marketprice is equal to or exceeds net asset value at the valuation date, the participant will receive thedividends entirely in new shares at a price equal to the net asset value, but not less than 95% ofthe then current market price of the Fund’s shares. If the market price is lower than net assetvalue or if dividends and/or capital gains distributions are payable only in cash, the participantwill receive shares purchased on the New York Stock Exchange or otherwise on the open market.

A participant has the option of submitting additional cash payments to the Plan Administrator, inany amounts of at least $100 each, up to a maximum of $5,000 per month, for the purchase ofFund shares for his or her account. These payments can be made by check or money order payableto The Bank of New York Mellon and sent to BNY Mellon Shareowner Services, P.O. Box 382009,Pittsburgh, PA, 15252-8009, Attention: Templeton Russia and East European Fund, Inc. The PlanAdministrator will apply such payments (less a $5.00 service charge and less a pro rata share oftrading fees) to purchases of Fund shares on the open market.

The automatic reinvestment of dividends and/or capital gains does not relieve the participant ofany income tax that may be payable on dividends or distributions.

Whenever shares are purchased on the New York Stock Exchange or otherwise on the openmarket, each participant will pay a pro rata portion of trading fees. Trading fees will be deductedfrom amounts to be invested. The Plan Administrator’s fee for a sale of shares through the Planis $15.00 per transaction plus a $0.12 per share trading fee.


Templeton Russia and East European Fund, Inc.Dividend Reinvestment and Cash Purchase Plan (continued)

The participant may withdraw from the Plan without penalty at any time by written notice tothe Plan Administrator sent to BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA15252-8015. Upon withdrawal, the participant will receive, without charge, share certificatesissued in the participant’s name for all full shares held by the Plan Administrator; or, if the par-ticipant wishes, the Plan Administrator will sell the participant’s shares and send the proceedsto the participant, less a service charge of $15.00 and less trading fees of $0.12 per share. ThePlan Administrator will convert any fractional shares held at the time of withdrawal to cash at current market price and send a check to the participant for the net proceeds.

Direct Deposit Service for Registered Shareholders

Cash distributions can now be electronically credited to a checking or savings account at anyfinancial institution that participates in the Automated Clearing House (“ACH”) system. TheDirect Deposit service is provided for registered shareholders at no charge. To enroll in the service,access your account online by going to www.bnymellon.com/shareowner/equityaccess or dial800-416-5585 (toll free) and follow the instructions. Direct Deposit will begin with the nextscheduled distribution payment date following enrollment in the service.


Transfer AgentBNY Mellon Shareowner ServicesP.O. Box 358015Pittsburgh, PA 15252-8015800-416-5585www.bnymellon.com/shareowner/equityaccess

Direct RegistrationIf you are a registered shareholder of the Fund, purchases of shares of the Fund can be electronicallycredited to your Fund account at BNY Mellon Shareowner Services through Direct Registration.This service provides shareholders with a convenient way to keep track of shares through bookentry transactions, electronically move book-entry shares between broker-dealers, transfer agentsand DRS eligible issuers, and eliminate the possibility of lost certificates. For additional informa-tion, please contact BNY Mellon Shareowner Services at 800-416-5585.

Shareholder InformationShares of Templeton Russia and East European Fund, Inc. are traded on the New York StockExchange under the symbol “TRF.” Information about the net asset value and the market priceis published each Monday in the Wall Street Journal, weekly in Barron’s and each Saturdayin The New York Times and other newspapers. Daily market prices for the Fund’s shares arepublished in “New York Stock Exchange Composite Transactions” section of newspapers.

For current information about distributions and shareholder accounts, call 800-416-5585.Registered shareholders can now access their Fund account on-line with Investor ServiceDirect®.For information go to BNY Mellon Shareowner Services’ web site atwww.bnymellon.com/shareowner/equityaccess and follow the instructions.

The daily closing net asset value as of the previous business day may be obtained when availableby calling Franklin Templeton Fund Information after 7 a.m. Pacific time any business day at800/DIAL BEN® (800-342-5236). The Fund’s net asset value and dividends are also listed on theNASDAQ Stock Market, Inc.’s Mutual Fund Quotation Service (“NASDAQ MFQS”).

Shareholders not receiving copies of the reports to shareholders because their shares are registeredin the name of a broker or a custodian can request that they be added to the Fund’s mailing listby writing Templeton Russia and East European Fund, Inc., 100 Fountain Parkway, P.O. Box 33030,St. Petersburg, FL 33733-8030.



Templeton Russia and East European Fund, Inc.Shareholder Information

Proxy Voting Policies and Procedures

The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) thatthe Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders mayview the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders mayrequest copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, FortLauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are alsomade available online at franklintempleton.com and posted on the U.S. Securities and ExchangeCommission’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 ExchangeCommission for the first and third quarters for each fiscal year on Form N-Q. Shareholders mayview the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also beviewed and copied at the Commission’s Public Reference Room in Washington, DC. Informationregarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Certifications

The Fund’s Chief Executive Officer – Finance and Administration is required by the New YorkStock Exchange’s Listing Standards to file annually with the Exchange a certification that she is notaware of any violation by the Fund of the Exchange’s Corporate Governance Standards applicableto the Fund. The Fund has filed such certification.

In addition, the Fund’s Chief Executive Officer – Finance and Administration and Chief FinancialOfficer and Chief Accounting Officer are required by the rules of the U.S. Securities and ExchangeCommission 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 filedsemiannually with the Commission. The Fund has filed such certifications with its Form N-CSR forthe year ended March 31, 2011. Additionally, the Fund expects to file, on or about November 30,2011, such certifications with its Form N-CSRS for the six months ended September 30, 2011.

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Franklin Templeton FundsLiterature Request. To receive a summary prospectus and/or prospectus, please call us at (800) DIAL BEN/342-5236 or

visit franklintempleton.com. Investors should carefully consider a fund’s investment goals, risks, charges and expenses

before investing. The prospectus contains this and other information. Please carefully read a prospectus before investing.

To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service

departments. These calls can be identified by the presence of a regular beeping tone.

VALUEFranklin All Cap Value FundFranklin Balance Sheet Investment FundFranklin Large Cap Value FundFranklin MicroCap Value Fund1

Franklin MidCap Value FundFranklin Small Cap Value FundMutual Beacon FundMutual Quest FundMutual Recovery Fund2

Mutual Shares Fund

BLENDFranklin Focused Core Equity FundFranklin Large Cap Equity FundFranklin Rising Dividends Fund

GROWTHFranklin DynaTech FundFranklin Flex Cap Growth FundFranklin Growth FundFranklin Growth Opportunities FundFranklin Small Cap Growth FundFranklin Small-Mid Cap Growth Fund

SECTORFranklin Biotechnology Discovery FundFranklin Global Real Estate FundFranklin Gold & Precious Metals FundFranklin Natural Resources FundFranklin Real Estate Securities FundFranklin Utilities FundMutual Financial Services Fund

GLOBALFranklin World Perspectives FundMutual Global Discovery FundTempleton Global Opportunities TrustTempleton Global Smaller Companies FundTempleton Growth FundTempleton World Fund

1. The fund is closed to new investors. Existing shareholders and select retirement plans cancontinue adding to their accounts.2. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; thereis no daily redemption. However, each quarter, pending board approval, the fund will authorizethe repurchase of 5%–25% of the outstanding number of shares. Investors may tender all ora portion of their shares during the tender period.3. Effective 7/1/11, Templeton Income Fund changed its name to Templeton Global BalancedFund. Additionally, the fund changed its goal and pricing structure. Under normalcircumstances, the fund will invest: at least 25% of its assets in fixed income senior securities

and at least 25% of its assets in equity securities; at least 40% of its assets in non-U.S.investments; and in issuers located in at least three different countries (including the U.S.).4. An investment in the fund is neither insured nor guaranteed by the U.S. government or byany other entity or institution.5. For investors subject to the alternative minimum tax, a small portion of fund dividends maybe taxable. Distributions of capital gains are generally taxable.6. The fund invests primarily in insured municipal securities.7. The funds of the Franklin Templeton Variable Insurance Products Trust are generally availableonly through insurance company variable contracts.

AlabamaArizonaCalifornia (4 funds)ColoradoConnecticutFloridaGeorgiaKentuckyLouisianaMarylandMassachusettsMichigan

MinnesotaMissouriNew JerseyNew York (2 funds)North CarolinaOhioOregonPennsylvaniaTennesseeVirginia

INSURANCE FUNDSFranklin Templeton Variable Insurance Products Trust7

10/11 Not part of the semiannual report

INTERNATIONALFranklin India Growth FundFranklin International Growth FundFranklin International Small Cap Growth FundMutual European FundMutual International FundTempleton Asian Growth FundTempleton BRIC FundTempleton China World FundTempleton Developing Markets TrustTempleton Emerging Markets Small Cap FundTempleton Foreign FundTempleton Foreign Smaller Companies FundTempleton Frontier Markets Fund

HYBRIDFranklin Balanced FundFranklin Convertible Securities FundFranklin Equity Income FundFranklin Income FundTempleton Emerging Markets Balanced FundTempleton Global Balanced Fund3

ASSET ALLOCATIONFranklin Templeton Corefolio® Allocation FundFranklin Templeton Founding Funds Allocation FundFranklin Templeton Conservative Allocation FundFranklin Templeton Growth Allocation FundFranklin Templeton Moderate Allocation FundFranklin Templeton 2015 Retirement Target FundFranklin Templeton 2025 Retirement Target FundFranklin Templeton 2035 Retirement Target FundFranklin Templeton 2045 Retirement Target FundFranklin Templeton Global Allocation Fund

FIXED INCOMEFranklin Adjustable U.S. Government Securities Fund4

Franklin Floating Rate Daily Access FundFranklin High Income Fund

Franklin Limited Maturity U.S. GovernmentSecurities Fund4

Franklin Low Duration Total Return FundFranklin Real Return FundFranklin Strategic Income FundFranklin Strategic Mortgage PortfolioFranklin Templeton Hard Currency FundFranklin Total Return FundFranklin U.S. Government Securities Fund4

Templeton Global Bond FundTempleton Global Total Return FundTempleton International Bond Fund

TAX-FREE INCOME5

NationalDouble Tax-Free Income FundFederal Tax-Free Income FundHigh Yield Tax-Free Income FundInsured Tax-Free Income Fund6

Limited-/ Intermediate-TermCalifornia Intermediate-Term Tax-Free Income FundFederal Intermediate-Term Tax-Free Income FundFederal Limited-Term Tax-Free Income FundNew York Intermediate-Term Tax-Free Income Fund

State-Specific

© 2011 Franklin Templeton Investments. All rights reserved. TLTRF S 11/11

Semiannual Report


Investment ManagerTempleton Asset Management Ltd.

Transfer AgentBNY Mellon Shareowner ServicesP.O. Box 358015Pittsburgh, PA 15252-8015Toll free number: (800) 416-5585Hearing Impaired phone number: (800) 231-5469Foreign Shareholders phone number: (201) 680-6578www.bnymellon.com/shareowner/equityaccess

Fund Information(800) DIAL BEN®/342-5236

VALUE BLEND GROWTH SECTOR GLOBAL I NTERNAT IONAL HYBRID ASSET ALLOCAT ION F IXED INCOME TAX-FREE INCOME

Investors should be aware that the value of investments made for the Fund may go down as well as up. Like anyinvestment in securities, the value of the Fund’s portfolio will be subject to the risk of loss from market, currency,economic, political and other factors. The Fund and its investors are not protected from such losses by theinvestment manager. Therefore, investors who cannot accept this risk should not invest in shares of the Fund.

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

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INTERNATIONAL Templeton Russia and East European Fund Inc · 2017-06-24 · ended September 30,...

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Transcript of INTERNATIONAL Templeton Russia and East European Fund Inc · 2017-06-24 · ended September 30,...