UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08394
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Templeton Dragon Fund, Inc.
---------------------------
(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: 12/31
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Date of reporting period: 06/30/08
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Item 1. Reports to Stockholders.
(GRAPHIC)
JUNE 30, 2008
SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION
INTERNATIONAL
TEMPLETON DRAGON FUND, INC.
(FRANKLIN TEMPLETON INVESTMENTS (R) LOGO)
Franklin - TEMPLETON - Mutual Series
Semiannual Report
Templeton Dragon Fund, Inc.
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Dragon Fund seeks long-term
capital appreciation by investing at least 45% of its total assets in equity
securities of "China companies," as defined in the Fund's prospectus.
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 6/30/08
China 55.7%
Hong Kong 27.9%
Taiwan 13.4%
Cambodia 0.4%
Singapore 0.2%
Short-Term Investments & Other Net Assets 2.4%
Dear Shareholder:
This semiannual report for Templeton Dragon Fund covers the period ended June
30, 2008.
PERFORMANCE OVERVIEW
Templeton Dragon Fund had cumulative total returns of -19.49% in market price
terms and -17.22% in net asset value terms for the six months under review. You
can find the Fund's long-term performance data in the Performance Summary on
page 6.
ECONOMIC AND MARKET OVERVIEW
Chinese equities gave back some of last year's strong gains in the first half of
2008. Concerns of a U.S. recession, coupled with China's implementation of
monetary tightening measures and high inflation, pressured stock markets to end
the reporting period with a decline. Several major natural disasters also
negatively affected market sentiment, including the worst snowstorms in more
than 50 years in the central and southern regions, a major earthquake in Sichuan
province and rainstorms in the southern parts of the country. The economic
impact from these calamities, however, did not derail China's robust engine.
China's economy grew a strong 10.6% year-over-year in the first quarter of 2008
despite slower export growth.(1) With inflation at relatively high levels, the
central bank maintained a tightening policy throughout the reporting period.
Foreign direct investment increased 45% to US$52.4 billion in the first six
months of the year compared with the same period in 2007, reflecting
(1.) Source: National Bureau of Statistics, China.
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 | Semiannual Report
foreign investors' confidence in China's future.(2) Politically, President Hu
Jintao and Premier Wen Jiabao were re-elected for another five-year term by the
National People's Congress in March.
Gross domestic product growth in Hong Kong accelerated to 7.1% year-over-year in
the first quarter of 2008.(3) Strong domestic demand, especially private
consumption, was a key driver of growth. Unemployment remained low at 3.3%,
while inflation rose to 6.1% year-over-year in June.(3)
Taiwan outperformed its regional counterparts on expectations that its incoming
president would be able to form closer economic ties with mainland China.
President Ma Ying-Jeou's plans included relaxing investment restrictions in the
mainland for Taiwanese companies and normalizing cross-strait relations with
China. Taiwan and China concluded their first official talks since 1999 in June
and resumed direct charter flights between Taipei and Beijing.
INVESTMENT STRATEGY
Our investment strategy employs a fundamental, value-oriented, long-term
approach. In selecting companies for investment, we will consider overall growth
prospects, competitive positions in export markets, technologies, research and
development, productivity, labor costs, raw material costs and sources.
Additional considerations include profit margins, returns on investment, capital
resources, government regulation, management and other factors in comparison to
other companies around the world that we believe are comparable.
Our approach to selecting investments emphasizes fundamental company-by-company
analysis (rather than broader analyses of specific industries or sectors of the
economy), to construct an "action list" from which we make our buy decisions.
Although we will consider historical value measures, the primary factor in
selecting securities for investment by the Fund will be the company's current
price relative to its long-term earnings potential.
MANAGER'S DISCUSSION
For the six months under review, the Fund's investments in the energy,
telecommunication services and capital goods sectors had a negative impact on
(2.) Source: Ministry of Commerce, China.
(3.) Source: Census and Statistics Department, Hong Kong.
Semiannual Report | 3
TOP 10 HOLDINGS
6/30/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
---------------------------------------- ----------
Dairy Farm International Holdings Ltd. 14.7%
FOOD & STAPLES RETAILING, HONG KONG
China Mobile Ltd. 10.3%
WIRELESS TELECOMMUNICATION SERVICES,
CHINA
Sinopec (China Petroleum and
Chemical Corp.), H 8.4%
OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 6.9%
OIL, GAS & CONSUMABLE FUELS, CHINA
CNOOC Ltd. 6.0%
OIL, GAS & CONSUMABLE FUELS, CHINA
China Construction Bank Corp., H 4.8%
COMMERCIAL BANKS, CHINA
Cheung Kong Infrastructure Holdings Ltd. 4.3%
ELECTRIC UTILITIES, HONG KONG
Asustek Computer Inc. 3.3%
COMPUTERS & PERIPHERALS, TAIWAN
TSMC (Taiwan Semiconductor
Manufacturing Co. Ltd.) 3.2%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
Bank of China Ltd., H 2.3%
COMMERCIAL BANKS, CHINA
absolute performance, as regional stocks in these sectors experienced
substantial corrections.(4) The most significant detractors were Sinopec (China
Petroleum and Chemical), the country's largest integrated energy company, China
Mobile, China's dominant mobile services provider, and PetroChina, the country's
largest oil and gas company in terms of reserves. Over the longer term, however,
we believed the Fund's investments in these sectors were well positioned to
benefit from developments in the region.
On the other hand, top contributors to Fund performance included Dairy Farm
International Holdings, which operates supermarkets, hypermarkets (department
store and supermarket) as well as convenience, home furnishing and health and
beauty stores in Asia, Cheung Kong Infrastructure, a diversified infrastructure
company in Hong Kong, and TSMC (Taiwan Semiconductor Manufacturing), the world's
biggest independent integrated circuit foundry. Our investments in the food and
staples retailing industry also had a positive impact on Fund returns.
During the reporting period, we increased the Fund's investments in Hong Kong
and Shenzhen B shares based on what we considered attractive valuations.(5) We
also made purchases in semiconductors, automobile manufacturing, and packaged
foods and meats companies.(6) Key buys included the aforementioned TSMC, Shin Zu
Shing, Taiwan's largest hinge manufacturer, and Hopewell Holdings, a major
conglomerate in Hong Kong with interests in infrastructure, property,
hospitality and construction.
(4.) The energy sector comprises oil, gas and consumable fuels in the SOI. The
telecommunication services sector comprises diversified telecommunication
services and wireless telecommunication services in the SOI. The capital
goods sector comprises electrical equipment, industrial conglomerates and
machinery in the SOI.
(5.) "Shenzhen B" denotes shares of China-incorporated, Shenzhen-listed
companies that are traded in Hong Kong dollars.
(6.) The semiconductors industry is part of semiconductors and semiconductor
equipment in the SOI. The automobile manufacturing industry is part of
automobiles in the SOI. The packaged foods and meats industry is part of
food products in the SOI.
4 | Semiannual Report
Conversely, we made select sales in Hong Kong-listed China H and Red Chip shares
as well as in Taiwan to focus on stocks we considered relatively more
attractively valued within our investment universe.(7) We sold some positions as
stocks reached sale price targets. As a result, the Fund's exposure to
electrical components and equipment, diversified banking, and telecommunication
services companies was reduced.(8) Major sales included China Telecom, the
country's leading integrated telecommunication services provider, Phoenixtec
Power, a leading uninterruptible power supply (UPS) systems designer and
manufacturer in Taiwan, and China Mobile. In addition, we reduced the Fund's
holding in China Construction Bank and added to Bank of China due to what we
considered attractive valuations in the banks sector.
Thank you for your continued participation in Templeton Dragon 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.
(7.) "China H" denotes shares of China-incorporated, Hong Kong-listed companies
with most businesses in China. "Red Chip" denotes shares of Hong
Kong-listed companies with significant exposure to China. China H and Red
Chip shares are traded on the Hong Kong Stock Exchange.
(8.) The electrical components and equipment industry is part of electrical
equipment in the SOI. The diversified banking industry is part of
commercial banks in the SOI.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 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.
Semiannual Report | 5
Performance Summary as of 6/30/08
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 taxes that a shareholder would pay on Fund dividends,
capital gain distributions, if any, or any unrealized gains on the sale of Fund
shares.
PRICE INFORMATION
SYMBOL: TDF CHANGE 6/30/08 12/31/07
----------- ------ ------- --------
Net Asset Value (NAV) -$5.98 $28.75 $34.73
Market Price (NYSE) -$6.03 $24.91 $30.94
PERFORMANCE
6-MONTH 1-YEAR 5-YEAR 10-YEAR
------- ------ ------- --------
Cumulative Total Return(1)
Based on change in NAV(2) -17.22% -1.70% +231.41% +480.19%
Based on change in market price(3) -19.49% +0.91% +200.93% +544.93%
Average Annual Total Return(1)
Based on change in NAV(2) -17.22% -1.70% +27.07% +19.22%
Based on change in market price(3) -19.49% +0.91% +24.64% +20.49%
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 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. ALSO, AS A NONDIVERSIFIED INVESTMENT COMPANY INVESTING IN
"CHINA COMPANIES," THE FUND MAY INVEST IN A RELATIVELY SMALL NUMBER OF ISSUERS
AND, AS A RESULT, BE SUBJECT TO A 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. Six-month
return 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.
6 | Semiannual Report
Templeton Dragon Fund, Inc.
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2008 -----------------------------------------------------------
(UNAUDITED) 2007 2006 2005 2004 2003
------------- ---------- ---------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 34.73 $ 26.95 $ 21.80 $ 18.70 $ 16.62 $ 9.73
---------- ---------- ---------- -------- -------- --------
Income from investment operations:
Net investment income(a) ..................... 0.25 0.58 0.38 0.59 0.25 0.56
Net realized and unrealized gains (losses) ... (6.23) 10.44 7.12 3.28 2.39 6.75
---------- ---------- ---------- -------- -------- --------
Total from investment operations ................ (5.98) 11.02 7.50 3.87 2.64 7.31
---------- ---------- ---------- -------- -------- --------
Less distributions from:
Net investment income ........................ -- (0.33) (0.37) (0.41) (0.16) (0.56)
Net realized gains ........................... -- (2.91) (1.98) (0.36) (0.40) --
---------- ---------- ---------- -------- -------- --------
Total distributions ............................. -- (3.24) (2.35) (0.77) (0.56) (0.56)
---------- ---------- ---------- -------- -------- --------
Repurchase of shares ............................ -- -- -- -- -- 0.14
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period .................. $ 28.75 $ 34.73 $ 26.95 $ 21.80 $ 18.70 $ 16.62
========== ========== ========== ======== ======== ========
Market value, end of period(b) .................. $ 24.91 $ 30.94 $ 26.26 $ 19.18 $ 17.47 $ 17.99
========== ========== ========== ======== ======== ========
Total return (based on market value
per share)(c) ................................ (19.49)% 31.69% 49.56% 14.08% 0.36% 108.44%
RATIOS TO AVERAGE NET ASSETS(d)
Expenses ........................................ 1.50%(e) 1.47%(e) 1.49%(e) 1.52%(e) 1.52%(e) 1.64%(f)
Net investment income ........................... 1.64% 1.85% 1.61% 2.92% 1.45% 4.57%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $1,088,808 $1,315,377 $1,017,910 $823,243 $706,138 $626,959
Portfolio turnover rate ......................... 3.12% 15.66% 18.83% 8.84% 19.42% 29.91%
(a) Based on average daily shares outstanding.
(b) Based on the last sale on the New York Stock Exchange.
(c) Total return is not annualized for periods less than one year.
(d) Ratios are annualized for periods less than one year.
(e) Benefit of expense reduction rounds to less than 0.01%.
(f) Ratio of expenses to average net assets, excluding payments by affiliate,
was 1.78%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 7
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
COUNTRY SHARES/UNITS VALUE
--------- ------------ -------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 97.6%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H ............................................ China 4,063,000 $ 1,000,475
-------------
AUTO COMPONENTS 1.8%
Cheng Shin Rubber Industry Co. Ltd. .......................... Taiwan 11,111,391 15,027,266
Norstar Founders Group Ltd. .................................. Hong Kong 13,376,000 3,551,036
(a) Zhejiang Glass Co. Ltd., H ................................... China 1,401,000 1,024,169
-------------
19,602,471
-------------
AUTOMOBILES 1.2%
Chongqing Changan Automobile Co. Ltd., B ..................... China 2,326,500 874,237
Dongfeng Motor Corp., H ...................................... China 27,354,000 10,945,459
Great Wall Motor Co. Ltd., H ................................. China 2,496,000 1,654,984
-------------
13,474,680
-------------
COMMERCIAL BANKS 9.0%
Bank of China Ltd., H ........................................ China 56,321,000 25,064,462
China Construction Bank Corp., H ............................. China 64,506,000 51,953,917
(b) Industrial and Commercial Bank of China, H, 144A ............. China 31,104,000 21,261,896
-------------
98,280,275
-------------
COMMUNICATIONS EQUIPMENT 0.5%
D-Link Corp. ................................................. Taiwan 1,524,240 2,058,901
ZTE Corp., H ................................................. China 683,200 3,277,012
-------------
5,335,913
-------------
COMPUTERS & PERIPHERALS 4.8%
Acer Inc. .................................................... Taiwan 3,636,360 7,164,179
Advantech Co. Ltd. ........................................... Taiwan 1,727,219 4,438,542
Asustek Computer Inc. ........................................ Taiwan 13,327,755 36,268,987
Lite-On IT Corp. ............................................. Taiwan 6,175,720 4,170,997
-------------
52,042,705
-------------
DISTRIBUTORS 1.8%
China Resources Enterprise Ltd. .............................. Hong Kong 5,818,000 16,602,071
Dah Chong Hong Holdings Ltd. ................................. Hong Kong 11,893,520 3,218,484
(b) Dah Chong Hong Holdings Ltd., 144A ........................... Hong Kong 550,000 148,835
-------------
19,969,390
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DIVERSIFIED TELECOMMUNICATION SERVICES 1.5%
China Netcom Group Corp. (Hong Kong) Ltd. .................... China 1,456,000 3,968,066
China Telecom Corp. Ltd., H .................................. China 23,174,000 12,601,591
-------------
16,569,657
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ELECTRIC UTILITIES 4.3%
Cheung Kong Infrastructure Holdings Ltd. ..................... Hong Kong 11,060,000 46,808,811
-------------
ELECTRICAL EQUIPMENT 0.1%
BYD Co. Ltd., H .............................................. China 1,107,700 1,420,629
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.3%
AU Optronics Corp. ........................................... Taiwan 7,710,845 12,117,659
Yorkey Optical International Cayman Ltd. ..................... China 9,987,000 2,100,572
-------------
14,218,231
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8 | Semiannual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
--------- ------------ -------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
FOOD & STAPLES RETAILING 14.7%
(c) Beijing Jingkelong Supermarket Chain Group Co. Ltd., H ....... China 1,223,000 $ 799,936
Dairy Farm International Holdings Ltd. ....................... Hong Kong 32,976,078 159,604,217
-------------
160,404,153
-------------
FOOD PRODUCTS 0.9%
China Foods Ltd. ............................................. China 6,936,000 3,202,360
China Huiyuan Juice Group Ltd. ............................... China 806,000 506,512
China Mengniu Dairy Co. Ltd. ................................. China 583,000 1,652,416
People's Food Holdings Ltd. .................................. China 3,031,000 2,294,777
Uni-President Enterprises Corp. .............................. Taiwan 1,229,231 1,478,171
Xiwang Sugar Holdings Co. Ltd. ............................... Hong Kong 3,638,000 1,236,423
-------------
10,370,659
-------------
HOTELS, RESTAURANTS & LEISURE 0.4%
NagaCorp Ltd. ................................................ Cambodia 17,265,000 4,716,336
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.4%
Datang International Power Generation Co. Ltd., H ............ China 29,806,000 17,698,776
Guangdong Electric Power Development Co. Ltd., B ............. China 10,224,960 4,707,763
Huadian Power International Corp. Ltd., H .................... China 8,404,000 2,220,301
Huaneng Power International Inc., H .......................... China 1,454,000 1,008,835
-------------
25,635,675
-------------
INDUSTRIAL CONGLOMERATES 4.1%
Citic Pacific Ltd. ........................................... Hong Kong 6,638,000 24,475,617
Shanghai Industrial Holdings Ltd. ............................ China 6,850,000 20,117,990
-------------
44,593,607
-------------
INSURANCE 0.2%
China Life Insurance Co. Ltd., H ............................. China 523,000 1,831,146
-------------
IT SERVICES 0.3%
Travelsky Technology Ltd., H ................................. China 5,087,000 3,346,861
-------------
MACHINERY 1.7%
China Infrastructure Machinery Holdings Ltd. ................. Hong Kong 2,433,000 2,262,240
China International Marine Containers (Group) Co. Ltd., B .... China 11,778,895 14,049,020
Shin Zu Shing Co. Ltd. ....................................... Taiwan 494,000 2,612,164
-------------
18,923,424
-------------
MARINE 0.1%
(a) Sinotrans Shipping Ltd. ...................................... Hong Kong 2,026,000 1,036,742
-------------
MEDIA 0.2%
Next Media Ltd. .............................................. Hong Kong 614,000 235,450
(b) Next Media Ltd., 144A ........................................ Hong Kong 4,974,000 1,907,372
-------------
2,142,822
-------------
METALS & MINING 0.1%
Aluminum Corp. of China Ltd., H .............................. China 952,000 1,097,628
-------------
OIL, GAS & CONSUMABLE FUELS 25.0%
(b) China Coal Energy Co., H, 144A ............................... China 891,000 1,558,657
China Petroleum and Chemical Corp., H ........................ China 97,904,000 91,660,419
China Shenhua Energy Co. Ltd., H ............................. China 6,125,500 24,039,283
Semiannual Report | 9
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
--------- ------------ -------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
CNOOC Ltd. .................................................... China 38,185,000 $ 65,720,953
PetroChina Co. Ltd., H ........................................ China 57,624,000 74,642,009
Yanzhou Coal Mining Co. Ltd., H ............................... China 7,984,000 14,847,286
-------------
272,468,607
-------------
PAPER & FOREST PRODUCTS 0.1%
Nine Dragons Paper Holdings Ltd. .............................. China 1,308,000 1,019,929
-------------
PHARMACEUTICALS 0.1%
Tong Ren Tang Technologies Co. Ltd., H ........................ China 679,000 921,327
-------------
REAL ESTATE 1.4%
Cheung Kong (Holdings) Ltd. ................................... Hong Kong 1,105,000 14,894,418
-------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 0.2%
Soho China Ltd. ............................................... China 2,873,500 1,566,241
(b) Soho China Ltd., 144A ......................................... China 764,000 416,429
-------------
1,982,670
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.8%
MediaTek Inc. ................................................. Taiwan 380,000 4,381,774
Novatek Microelectronics Corp. Ltd. ........................... Taiwan 2,848,673 8,277,698
(a) Semiconductor Manufacturing International Corp. ............... China 30,520,000 1,741,819
Sunplus Technology Co. Ltd. ................................... Taiwan 3,628,419 3,514,497
Taiwan Semiconductor Manufacturing Co. Ltd. ................... Taiwan 16,213,914 34,721,590
-------------
52,637,378
-------------
SPECIALTY RETAIL 0.1%
I.T. Ltd. ..................................................... Hong Kong 1,152,000 286,624
Sa Sa International Holdings Ltd. ............................. Hong Kong 882,000 400,434
-------------
687,058
-------------
TEXTILES, APPAREL & LUXURY GOODS 0.4%
Tack Fat Group International Ltd. ............................. Hong Kong 19,824,000 1,449,188
Tainan Enterprises Co. Ltd. ................................... Taiwan 1,657,443 1,766,490
Weiqiao Textile Co. Ltd., H .................................. China 801,000 623,562
-------------
3,839,240
-------------
TRANSPORTATION INFRASTRUCTURE 2.9%
Cosco Pacific Ltd. ............................................ China 3,354,000 5,497,338
Hopewell Holdings Ltd. ........................................ Hong Kong 6,568,000 23,333,047
(b) Rickmers Maritime, 144A ....................................... Singapore 2,904,000 2,412,084
-------------
31,242,469
-------------
WIRELESS TELECOMMUNICATION SERVICES 11.1%
China Mobile Ltd. ............................................. China 8,366,000 112,444,363
Taiwan Mobile Co. Ltd. ........................................ Taiwan 4,294,831 7,994,529
-------------
120,438,892
-------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $529,985,676) ........................................ 1,062,954,278
-------------
10 | Semiannual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ --------------
SHORT TERM INVESTMENT (COST $21,517,945) 2.0%
MONEY MARKET FUND 2.0%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17%.... United States 21,517,945 $ 21,517,945
--------------
TOTAL INVESTMENTS (COST $ 551,503,621) 99.6%............................ 1,084,472,223
OTHER ASSETS, LESS LIABILITIES 0.4%..................................... 4,335,363
--------------
NET ASSETS 100.0%....................................................... $1,088,807,586
==============
(a) Non-income producing for the twelve months ended June 30, 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 June 30, 2008, the
aggregate value of these securities was $27,705,273, representing 2.54% of
net assets.
(c) A portion or all of the security purchased on a delayed delivery basis.
See Note 1(c).
(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.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 11
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............. $ 529,985,676
Cost - Sweep Money Fund (Note 7) ......... 21,517,945
--------------
Total cost of investments ................ $ 551,503,621
--------------
Value - Unaffiliated issuers ............. $1,062,954,278
Value - Sweep Money Fund (Note 7) ........ 21,517,945
--------------
Total value of investments ............... 1,084,472,223
Cash ........................................ 2,139,981
Foreign currency, at value (cost $ 22,452)... 22,470
Receivables:
Investment securities sold ............... 691,750
Dividends ................................ 2,957,460
--------------
Total assets .......................... 1,090,283,884
--------------
Liabilities:
Payables:
Investment securities purchased .......... 21,078
Affiliates ............................... 1,310,272
Custodian fees ........................... 125,752
Accrued expenses and other liabilities ...... 19,196
--------------
Total liabilities ..................... 1,476,298
--------------
Net assets, at value ............... $1,088,807,586
==============
Net assets consist of:
Paid-in capital ............................. $ 458,954,780
Undistributed net investment income ......... 31,508,863
Net unrealized appreciation (depreciation)... 532,971,892
Accumulated net realized gain (loss) ........ 65,372,051
==============
Net assets, at value ............... $1,088,807,586
==============
Shares outstanding .......................... 37,873,327
==============
Net asset value per share ................... $ 28.75
==============
The accompanying notes are an integral part of these financial statements.
12 | Semiannual Report
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended June 30, 2008 (unaudited)
Investment income:
Dividends:
Unaffiliated issuers ................................ $ 18,201,262
Sweep Money Fund (Note 7) ........................... 125,228
-------------
Total investment income .......................... 18,326,490
-------------
Expenses:
Management fees (Note 3a) .............................. 7,294,794
Administrative fees (Note 3b) .......................... 882,739
Transfer agent fees .................................... 56,701
Custodian fees (Note 4) ................................ 284,923
Reports to shareholders ................................ 40,065
Registration and filing fees ........................... 19,971
Professional fees ...................................... 89,639
Directors' fees and expenses ........................... 45,654
Other .................................................. 17,100
-------------
Total expenses ................................... 8,731,586
Expense reductions (Note 4) ...................... (2,108)
-------------
Net expenses .................................. 8,729,478
-------------
Net investment income ...................... 9,597,012
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ......................................... 23,496,513
Foreign currency transactions ....................... 21,195
-------------
Net realized gain (loss) ...................... 23,517,708
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ......................................... (259,686,871)
Translation of assets and liabilities denominated in
foreign currencies ............................... 2,514
-------------
Net change in unrealized appreciation
(depreciation) ............................. (259,684,357)
-------------
Net realized and unrealized gain (loss) ................... (236,166,649)
-------------
Net increase (decrease) in net assets resulting from
operations ............................................. $(226,569,637)
=============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 13
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007
---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 9,597,012 $ 21,951,375
Net realized gain (loss) from investments and foreign currency transactions .......... 23,517,708 118,772,230
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies .......................... (259,684,357) 276,726,468
-------------- --------------
Net increase (decrease) in net assets resulting from operations ................ (226,569,637) 417,450,073
-------------- --------------
Distributions to shareholders from:
Net investment income ................................................................ -- (12,645,904)
Net realized gains ................................................................... -- (110,120,527)
-------------- --------------
Total distributions to shareholders ..................................................... -- (122,766,431)
-------------- --------------
Capital share transactions: (Note 2) .................................................... -- 2,783,627
-------------- --------------
Net increase (decrease) in net assets .......................................... (226,569,637) 297,467,269
Net assets:
Beginning of period ..................................................................... 1,315,377,223 1,017,909,954
-------------- --------------
End of period ........................................................................... $1,088,807,586 $1,315,377,223
============== ==============
Undistributed net investment income included in net assets:
End of period ........................................................................... $ 31,508,863 $ 21,911,851
============== ==============
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Dragon 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.
Semiannual Report | 15
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
D. 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.
16 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of June 30, 2008, and has determined
that no provision for income tax is required in the Fund's financial statements.
F. 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.
G. 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.
H. 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.
Semiannual Report | 17
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. CAPITAL STOCK
At June 30, 2008, there were 100 million shares authorized ($0.01 par value).
Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31, 2007
---------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------- ------- ----------
Shares issued for reinvestments of distributions... -- -- 103,212 $2,783,627
The Fund's Board of Directors previously authorized an open-market share
repurchase program pursuant to which the Fund may purchase, from time to time,
Fund shares in open-market transactions, at the discretion of management. This
authorization remains in effect. During the period ended June 30, 2008 and the
year ended December 31, 2007, there were no share repurchases.
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
---------- ----------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on average weekly net
assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
------------------- -------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.15% per year of the
average weekly net assets, of which 0.10% is paid to Nomura Asset Management
U.S.A. Inc., for sub-administrative services.
18 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 period ended June 30, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At December 31, 2007, the Fund deferred realized currency losses of
$59,705.
At June 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments.......................... $551,648,674
------------
Unrealized appreciation...................... $571,353,296
Unrealized depreciation...................... (38,529,747)
------------
Net unrealized appreciation (depreciation)... $532,823,549
============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended June 30, 2008, aggregated $36,622,278 and $56,653,516,
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.
Semiannual Report | 19
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
9. REORGANIZATION TO A DELAWARE STATUTORY TRUST
On May 29, 2002, the Board of Directors approved an Agreement and Plan of
Reorganization (Agreement) whereby the Fund would be reorganized and its
domicile changed from a Maryland corporation to a Delaware statutory trust. The
completion of the reorganization is pending guidance from the National Tax
Agency in Japan relating to the tax treatment of the Plan under Japanese laws
with respect to the Fund's Japanese shareholders. If and when the reorganization
is completed, the Delaware statutory trust will be the successor to the Fund.
10. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Fund has determined that
the implementation of SFAS 157 did not have a material impact on the Fund's
financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). 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 associated with investing in those securities.
As of June 30, 2008, all of the Funds' investments in securities carried at fair
value were in Level 1 inputs.
20 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS
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.
Semiannual Report | 21
Templeton Dragon Fund, Inc.
ANNUAL MEETING OF SHAREHOLDERS, MAY 30, 2008
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Fort Lauderdale, Florida on May 30, 2008. The purpose of
the meeting was to elect four Directors of the Fund and to consider the approval
or rejection of a shareholder proposal to request that the Board of Directors
consider approving, and submitting for shareholder approval at a future
shareholder meeting, a proposal to convert the Fund from a closed-end fund to an
open-end fund. At the meeting, the following persons were elected by the
shareholders to serve as Directors of the Fund: Harris J. Ashton, Ann Torre
Bates, Frank J. Crothers and Constantine D. Tseretopoulos.* Shareholders voted
to reject the proposal to request that the Board of Directors consider
approving, and submitting for shareholder approval at a future shareholder
meeting, a proposal to convert the Fund from a closed-end fund to an open-end
fund. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
Proposal 1 - The election of four Directors:
% OF % OF SHARES % OF % OF SHARES
OUTSTANDING PRESENT OUTSTANDING PRESENT
TERM EXPIRING 2011 FOR SHARES AND VOTING WITHHELD SHARES AND VOTING
-------------------------------- ---------- ----------- ----------- --------- ----------- -----------
Harris J. Ashton ............... 32,250,538 85.15% 96.67% 1,109,860 2.93% 3.33%
Frank J. Crothers .............. 32,264,767 85.19% 96.72% 1,095,631 2.89% 3.28%
Constantine D. Tseretopoulos ... 32,274,885 85.22% 96.75% 1,085,513 2.87% 3.25%
TERM EXPIRING 2009
Ann Torre Bates ................ 32,284,244 85.24% 96.77% 1,076,154 2.84% 3.23%
Proposal 2 - The rejection of a shareholder proposal to request that the Board
of Directors consider approving, and submitting for shareholder approval at a
future shareholder meeting, a proposal to convert the Fund from a closed-end
fund to an open-end fund:
% OF % OF SHARES
SHARES OUTSTANDING PRESENT
VOTED SHARES AND VOTING
---------- ----------- -----------
For ................ 6,856,747 18.10% 42.03%
Against ............ 9,458,807 24.97% 57.97%
Abstain ............ 315,071 0.83% N/A
Broker Non-Votes ... 21,242,699 56.09% N/A
Note: Due to rounding, totals may not necessarily agree with the arithmetic sum
of the figures.
* Edith E. Holiday, Charles B. Johnson, Gregory E. Johnson, David W. Niemiec,
Frank A. Olson, Larry D. Thompson 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.
22 | Semiannual Report
Templeton Dragon 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.
Shareholders holding their shares through Japan Securities Depository Center,
Inc., will not be enrolled in the Plan unless certain conditions are met and
they elect to participate. If 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
Mellon Bank, N.A. (the "Plan Administrator") at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice within 10 business days before the record date for a
distribution.
Whenever the Fund declares dividends in either cash or common stock of the Fund,
if the market price is equal to or exceeds net asset value at the valuation
date, the participant will receive the dividends entirely in stock at a price
equal to the net asset value, but not less than 95% of the then current market
price of the Fund's shares. If the market price is lower than net asset value or
if dividends and/or capital gains distributions are payable only in cash, the
participant will receive shares purchased on the New York Stock Exchange or
otherwise on the open market.
A participant has the option of submitting additional payments to the Plan
Administrator, in any amounts of at least $100, up to a maximum of $5,000 per
month, for the purchase of Fund shares for his or her account. These payments
shall be made by check or money order payable to "Mellon Bank, N.A." and sent to
BNY Mellon Shareowner Services, P.O. Box 382009, Pittsburgh, PA 15250-8009,
Attention: Templeton Dragon Fund, Inc. The Plan Administrator shall apply such
payments (less a $5.00 service charge and less a pro rata share of trading fees)
to purchases of the Fund's shares on the open market.
Whenever shares are purchased on the New York Stock Exchange or otherwise on the
open market, each participant will pay a pro rata portion of trading fees.
Trading fees will be deducted from amounts to be invested.
The automatic reinvestment of dividends and/or capital gains does not relieve
the participant of any income tax which may be payable on dividends or
distributions.
Semiannual Report | 23
Templeton Dragon Fund, Inc.
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. To enroll in the service, access your account online
by going to www.melloninvestor.com/isd or dial 1-800-416-5585 (toll free) and
follow the instructions. Direct Deposit will begin with the next scheduled
distribution payment date following enrollment in the service.
24 | Semiannual Report
Templeton Dragon Fund, Inc.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-800-416-5585
www.bnymellon.com
DIRECT REGISTRATION
If you are a registered shareholder of the Fund, purchases of shares of the Fund
can be electronically credited 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 book entry transactions, to
electronically move book-entry shares between broker-dealers, transfer agents
and DRS eligible issuers, and eliminates the possibility of lost certificates.
For additional information, please contact BNY Mellon Shareowner Services at
1-800-416-5585.
SHAREHOLDER INFORMATION
Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange
under the symbol TDF. The Fund's shares are also listed and traded in Japan on
the Osaka Securities Exchange Co., Ltd. Information about the net asset value
and the market price is published each Monday in the WALL STREET JOURNAL, weekly
in BARRON'S and each Saturday in THE NEW YORK TIMES and other newspapers. Daily
market prices for the Fund's shares are published in the New York Stock Exchange
Composite Transactions section of newspapers.
For current information about distributions and shareholder accounts, call
1-800-416-5585. Registered shareholders can now access their Fund account
on-line with INVESTOR SERVICE DIRECT(R). For information go to BNY Mellon
Shareowner Services' web site at http://www.mellonin-vestor.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 Dragon Fund, Inc.,
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
Semiannual Report | 25
Templeton Dragon 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 Dragon 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 investment performance
reports on the Fund, information on its share price discount to net asset value,
and other related financial information, 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 later, 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
26 | Semiannual Report
Templeton Dragon Fund, Inc.
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
procedures to function in the event of a natural disaster, it being noted that
such systems and procedures had functioned smoothly during the Florida
hurricanes and blackouts experienced in recent years. Among other factors taken
into account by the Board were the Manager's best execution trading policies,
including a favorable report by an independent portfolio trading analytical
firm. Consideration was also given to the experience of the Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of the level of a portfolio manager's bonus
compensation was the relative investment performance of the funds he or she
managed and that a portion of such bonus was required to be invested in a
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 report furnished for the agreement renewal.
The Lipper report prepared for the Fund showed its investment performance during
2007 and the previous 10 years ended December 31, 2007, in comparison with a
four-fund performance universe consisting of the Fund and all other
non-leveraged closed-end Pacific region 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. The Lipper
report showed the Fund's total return for 2007 was the highest in such Lipper
performance universe, and its total return on an annualized basis was also the
highest in such universe during each of the previous three-, five- and 10-year
periods. The Board was satisfied with such performance.
COMPARATIVE EXPENSES. Consideration was given to a Lipper report analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of seven 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 rate in comparison with the contractual investment
management fee rate 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 management effective 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 rate
to be the highest in its Lipper expense group, but that the Fund's actual total
expense rate was within nine basis points of the median for such expense group.
The Board found such expenses to be acceptable in light of the Fund's investment
performance and the quality and experience of the Fund's portfolio managers and
research staff.
Semiannual Report | 27
Templeton Dragon 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. The Board noted at the end of 2007 the
Fund's net assets were slightly in excess of $1.3 billion and that it had
previously added a breakpoint to the Fund's investment advisory fee at the $1
billion level.
28 | Semiannual Report
Templeton Dragon Fund, Inc.
SHAREHOLDER INFORMATION (CONTINUED)
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Fund uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Fund's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at 1-954/527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the U.S. Securities and Exchange Commission to provide certain certifications
with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's
annual and semiannual reports to shareholders) that are filed semiannually with
the Commission. The Fund has filed such certifications with its Form N-CSR for
the year ended December 31, 2007. Additionally, the Fund expects to file, on or
about August 31, 2008, such certifications with its Form N-CSRS for the six
months ended June 30, 2008.
Semiannual Report | 29
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(FRANKLIN TEMPLETON INVESTMENTS (R) LOGO) 100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION
TEMPLETON DRAGON FUND, INC.
INVESTMENT MANAGER
Templeton Asset Management Ltd.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Toll free number: 1-800-416-5585
Hearing Impaired phone number: 1-800-231-5469
Foreign Shareholders phone number: 201-680-6578
www.bnymellon.com
Investors should be aware that the value of investments made for the Fund may go
down as well as up. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. The Fund and its investors are not protected from
such losses by the investment manager. Therefore, investors who cannot accept
this risk should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
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 and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants
Members of the Audit Committee are: Frank J. Crothers, David W. Niemiec, Ann
Torre Bates 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. N/A
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 Dragon Fund, Inc.
By /s/GALEN G. VETTER
---------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date August 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 August 27, 2008
By /s/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date August 27, 2008