UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08394
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TEMPLETON DRAGON FUND, INC.
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
DECEMBER 31, 2009
ANNUAL REPORT
(GRAPHIC)
INTERNATIONAL
TEMPLETON DRAGON FUND, INC.
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
ANNUAL REPORT
Templeton Dragon Fund, Inc. ............................................... 1
Performance Summary ....................................................... 5
Important Notice to Shareholders .......................................... 6
Financial Highlights and Statement of Investments ......................... 7
Financial Statements ...................................................... 12
Notes to Financial Statements ............................................. 15
Report of Independent Registered Public Accounting Firm ................... 22
Annual Meeting of Shareholders ............................................ 23
Dividend Reinvestment and Cash Purchase Plan .............................. 24
Tax Designation ........................................................... 27
Board Members and Officers ................................................ 29
Shareholder Information ................................................... 34
Annual 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 12/31/09
(BAR CHART)
China 62.6%
Hong Kong 25.7%
Taiwan 10.7%
Cambodia 0.2%
U.S. 0.1%
Singapore 0.1%
Short-Term Investments & Other Net Assets 0.6%
Dear Shareholder:
We are pleased to bring you Templeton Dragon Fund's annual report for the fiscal
year ended December 31, 2009.
PERFORMANCE OVERVIEW
Templeton Dragon Fund delivered cumulative total returns of +63.60% in market
price terms and +58.85% in net asset value terms for the 12 months under review.
You can find the Fund's long-term performance data in the Performance Summary on
page 5.
ECONOMIC AND MARKET OVERVIEW
After falling dramatically at the end of 2008, equity markets in the greater
China region experienced a tremendous surge in 2009 and the Morgan Stanley
Capital International (MSCI) Golden Dragon Index ended the reporting period with
a +67.12% total return in U.S. dollar terms.(1) The substantial rally
(1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
MSCI Golden Dragon Index is an aggregate of the MSCI Hong Kong Index, the
MSCI China Free Index and the MSCI Taiwan@65% Index. The MSCI Taiwan Index
has an inclusion weight at 65% of its market capitalization in the MSCI
index series.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 8.
Annual Report | 1
was a result of many factors but most significantly the rapid increase in money
supply and liquidity supplied by governments globally to prevent an economic
depression.
Despite the global downturn's severity, China reported encouraging economic data
in 2009. Largely due to government stimulus measures and robust bank lending,
China's gross domestic product (GDP) growth accelerated 10.7% year-over-year in
the fourth quarter compared to 9.1% in the third quarter.(2) For 2009, the
economy grew 8.7% year-over-year.(2) The country's foreign exchange reserves
also continued to grow and totaled US$2.4 trillion at the end of December, which
gave China the largest reserves in the world.(3) In the trade sector, exports
steadily improved during the reporting period and resumed growth at 18% in
December, which made China the world's top exporter in 2009.(4) Imports jumped
56% during the same month due to healthy consumer demand and raw materials
imports.(4) Aimed at improving relations with its global trading partners, China
signed a number of agreements with the European Union, Russia, Brazil and Taiwan
in 2009.
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.
(2.) Source: National Bureau of Statistics, China.
(3.) Source: The People's Bank of China.
(4.) Source: Ministry of Foreign Trade and Economic Cooperation, China.
2 | Annual Report
TOP 10 HOLDINGS
12/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
------------------------ ----------
Dairy Farm International Holdings Ltd. 15.9%
FOOD & STAPLES RETAILING, HONG KONG
Sinopec (China Petroleum and
Chemical Corp.), H 8.0%
OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 5.8%
OIL, GAS & CONSUMABLE FUELS, CHINA
CNOOC Ltd. 5.6%
OIL, GAS & CONSUMABLE FUELS, CHINA
China Mobile Ltd. 4.9%
WIRELESS TELECOMMUNICATION SERVICES,
CHINA
China Construction Bank Corp., H 3.5%
COMMERCIAL BANKS, CHINA
China Shenhua Energy Co. Ltd., H 3.3%
OIL, GAS & CONSUMABLE FUELS, CHINA
Yanzhou Coal Mining Co. Ltd., H 3.1%
OIL, GAS & CONSUMABLE FUELS, CHINA
Shanghai Industrial Holdings Ltd. 3.1%
INDUSTRIAL CONGLOMERATES, CHINA
TSMC (Taiwan Semiconductor Manufacturing Co. Ltd.) 3.0%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
MANAGER'S DISCUSSION
During the year under review, among the most significant contributors to the
Fund's absolute performance were Dairy Farm International Holdings, Sinopec
(China Petroleum and Chemical) and Dongfeng Motor. Dairy Farm operates
supermarkets, hypermarkets (department store and supermarket) as well as
convenience, home furnishing, and health and beauty stores in Asia, and it
benefited from the region's growing consumer demand for basic necessities and
discretionary items. We trimmed the Fund's position in Dairy Farm by period-end
to better diversify risk.
In addition, the Chinese government's fuel price increases served the country's
largest integrated energy company Sinopec well. With China's strong economic
recovery, rising fuel demand also improved Sinopec's prospects. Dongfeng Motor
is the country's third-largest automaker in partnership with foreign automakers
Honda Motor, Nissan Motor and PSA Peugeot-Citroen. Lower raw material costs
early in 2009 and government stimulus measures in boosting car sales supported
Dongfeng Motor and the automobile market, which the government encouraged to
expand both organically and through acquisitions.
In contrast, some of the largest detractors from Fund performance included China
Mobile, Hopewell Holdings and Datang International Power Generation. Shares of
China Mobile, the country's market leader in wireless telecommunication
services, ended the year with a small decline, as investors switched from
defensive holdings to momentum-driven stocks in a rising market, and we reduced
the Fund's position by period-end. Over the longer term, however, we believe the
Fund's investment is well positioned to benefit from the region's recovery.
Another detractor was Hopewell Holdings, a real estate and infrastructure
development company. Its stock posted a minor gain in value but lagged its
regional peers during the reporting period. Concerns of higher costs resulting
from rising coal prices weighed on shares of Datang International Power
Generation, a major Chinese independent power producer. Consistent with our
strategy, we used this opportunity to increase the Fund's position in Datang due
to our assessment of the company's positive outlook and strong market position.
During the review period, we increased the Fund's holdings in coal and
consumable fuels, diversified banking, and Internet software and services
companies due to attractive fundamentals in our view. We also made select
purchases in life and health insurance, steel, and oil and gas exploration and
Annual Report | 3
production companies. We believe these companies are well positioned to benefit
from growing Chinese consumer demand as well as higher commodity prices. Among
our key purchases were Yanzhou Coal Mining, one of China's largest coal
exporters, BOC Hong Kong, the city's premier commercial banking group, and China
Life Insurance, the country's leading life insurance company.
Conversely, we sold some stocks from wireless telecommunication services,
automobile manufacturing, and tire and rubber companies. These sales allowed the
Fund to focus on stocks we deemed to be relatively more attractively valued
within our investment universe. We also sold some stocks as they reached their
sale price targets. Major sales included CIMC (China International Marine
Containers), a transportation equipment maker, and Cheng Shin Rubber Industry,
Taiwan's largest tire manufacturer.
Thank you for your continued participation in Templeton Dragon Fund. We look
forward to serving your future investment needs.
(PHOTO OF MARK MOBIUS)
Sincerely,
/s/ Mark Mobius
Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2009, 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.
4 | Annual Report
Performance Summary as of 12/31/09
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 AND DISTRIBUTION INFORMATION
SYMBOL: TDF CHANGE 12/31/09 12/31/08
----------- ------- -------- --------
Net Asset Value (NAV) +$10.06 $28.85 $18.79
Market Price (NYSE) +$9.99 $27.25 $17.26
DISTRIBUTIONS (1/1/09-12/31/09)
Dividend Income $0.5451
Short-Term Capital Gain $0.0072
Long-Term Capital Gain $0.3705
TOTAL $0.9228
PERFORMANCE
1-YEAR 5-YEAR 10-YEAR
------- ------- --------
Cumulative Total Return(1)
Based on change in NAV(2) +58.85% +115.22% +320.41%
Based on change in market price(3) +63.60% +123.80% +463.32%
Average Annual Total Return(1)
Based on change in NAV(2) +58.85% +16.57% +15.44%
Based on change in market price(3) +63.60% +17.48% +18.87%
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.
(2.) Assumes reinvestment of distributions based on net asset value.
(3.) Assumes reinvestment of distributions based on the dividend reinvestment
and cash purchase plan.
Annual Report | 5
Important Notice to Shareholders
SHARE REPURCHASE PROGRAM
The Fund's Board previously authorized management to implement an open-market
share repurchase program pursuant to which the Fund may purchase Fund shares,
from time to time, in open-market transactions, at the discretion of management.
This authorization remains in effect.
6 | Annual Report
Templeton Dragon Fund, Inc.
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2009 2008 2007 2006 2005
---------- -------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 18.79 $ 34.73 $ 26.95 $ 21.80 $ 18.70
---------- -------- ---------- ---------- --------
Income from investment operations:
Net investment income(a) ...................... 0.32 0.55 0.58 0.38 0.59
Net realized and unrealized gains (losses) .... 10.67 (14.80) 10.44 7.12 3.28
---------- -------- ---------- ---------- --------
Total from investment operations ................. 10.99 (14.25) 11.02 7.50 3.87
---------- -------- ---------- ---------- --------
Less distributions from:
Net investment income ......................... (0.55) (0.58) (0.33) (0.37) (0.41)
Net realized gains ............................ (0.38) (1.11) (2.91) (1.98) (0.36)
---------- -------- ---------- ---------- --------
Total distributions .............................. (0.93) (1.69) (3.24) (2.35) (0.77)
---------- -------- ---------- ---------- --------
Net asset value, end of year ..................... $ 28.85 $ 18.79 $ 34.73 $ 26.95 $ 21.80
========== ======== ========== ========== ========
Market value, end of year(b) ..................... $ 27.25 $ 17.26 $ 30.94 $ 26.26 $ 19.18
========== ======== ========== ========== ========
Total return (based on market value per share) ... 63.60% (39.68)% 31.69% 49.56% 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses(c) ...................................... 1.50% 1.51% 1.47% 1.49% 1.52%
Net investment income ............................ 1.34% 2.05% 1.85% 1.61% 2.92%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $1,092,713 $711,753 $1,315,377 $1,017,910 $823,243
Portfolio turnover rate .......................... 12.29% 7.90% 15.66% 18.83% 8.84%
(a) Based on average daily shares outstanding.
(b) Based on the last sale on the New York Stock Exchange.
(c) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 7
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
COUNTRY SHARES/UNITS VALUE
------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 99.4%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H .................................... China 5,999,000 $ 1,578,338
--------------
AUTO COMPONENTS 1.8%
Cheng Shin Rubber Industry Co. Ltd. .................. Taiwan 8,419,108 19,343,684
--------------
AUTOMOBILES 4.1%
Chongqing Changan Automobile Co. Ltd., B ............. China 5,829,502 5,931,977
Denway Motors Ltd. ................................... China 6,256,000 3,985,793
Dongfeng Motor Corp., H .............................. China 18,312,000 26,403,931
Great Wall Motor Co. Ltd., H ......................... China 2,382,538 2,974,447
Jiangling Motors Corp. Ltd., B ....................... China 3,163,420 5,418,086
--------------
44,714,234
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BEVERAGES 0.4%
Yantai Changyu Pioneer Wine Co. Ltd., B .............. China 538,490 4,789,927
--------------
CHEMICALS 0.1%
(a, b) Yingde Gases Group Co. Ltd., 144A .................... Hong Kong 1,273,500 1,312,311
--------------
COMMERCIAL BANKS 9.4%
Bank of China Ltd., H ................................ China 40,014,000 21,674,659
(a) Bank of China Ltd., H, 144A .......................... China 9,420,000 5,102,596
BOC Hong Kong (Holdings) Ltd. ........................ China 4,570,500 10,374,505
China Construction Bank Corp., H ..................... China 44,293,000 38,102,365
(a, b) China Minsheng Banking Corp. Ltd., 144A .............. China 3,862,500 4,343,862
Industrial and Commercial Bank of China Ltd., H ...... China 27,510,000 22,849,014
--------------
102,447,001
--------------
COMMUNICATIONS EQUIPMENT 0.7%
D-Link Corp. ......................................... Taiwan 1,908,360 2,010,370
ZTE Corp., H ......................................... China 830,158 5,139,170
--------------
7,149,540
--------------
COMPUTERS & PERIPHERALS 3.9%
Advantech Co. Ltd. ................................... Taiwan 1,822,628 4,090,800
Asustek Computer Inc. ................................ Taiwan 14,685,817 28,370,850
LITE-ON IT Corp. ..................................... Taiwan 6,625,560 6,648,343
Lite-On Technology Corp. ............................. Taiwan 629,835 946,032
Simplo Technology Co. Ltd. ........................... Taiwan 380,000 2,256,955
--------------
42,312,980
--------------
CONSTRUCTION MATERIALS 0.2%
Asia Cement China Holdings Corp. ..................... China 3,337,500 2,001,544
--------------
DISTRIBUTORS 2.7%
China Resources Enterprise Ltd. ...................... Hong Kong 5,818,000 21,272,463
Dah Chong Hong Holdings Ltd. ......................... Hong Kong 20,186,520 8,591,449
--------------
29,863,912
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES 0.9%
China Telecom Corp. Ltd., H .......................... China 10,694,000 4,468,648
China Unicom (Hong Kong) Ltd. ........................ China 4,430,752 5,874,374
--------------
10,343,022
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8 | Annual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ELECTRIC UTILITIES 2.7%
Cheung Kong Infrastructure Holdings Ltd. ............. Hong Kong 7,814,000 $ 29,779,808
--------------
ELECTRICAL EQUIPMENT 0.3%
Dongfang Electric Co. Ltd., H ........................ China 570,000 3,058,153
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 0.6%
(b) China Security & Surveillance Technology Inc. ........ United States 202,800 1,549,392
Hon Hai Precision Industry Co. Ltd. .................. Taiwan 970,000 4,593,779
--------------
6,143,171
--------------
FOOD & STAPLES RETAILING 16.1%
Beijing Jingkelong Co. Ltd., H ....................... China 3,229,447 2,632,306
Dairy Farm International Holdings Ltd. ............... Hong Kong 29,016,778 173,810,500
--------------
176,442,806
--------------
FOOD PRODUCTS 3.0%
China Foods Ltd. ..................................... China 16,200,000 14,541,703
China Yurun Food Group Ltd. .......................... China 1,084,000 3,215,497
People's Food Holdings Ltd. .......................... China 3,574,000 1,589,292
(a, b) Shenguan Holdings Group Ltd., 144A ................... China 7,362,000 6,703,344
Uni-President China Holdings Ltd. .................... Taiwan 2,340,000 1,723,229
Uni-President Enterprises Corp. ...................... Taiwan 1,347,482 1,661,712
(b) Xiwang Sugar Holdings Co. Ltd. ....................... Hong Kong 9,341,681 3,289,112
--------------
32,723,889
--------------
HOTELS, RESTAURANTS & LEISURE 0.2%
NagaCorp Ltd. ........................................ Cambodia 18,008,875 1,997,451
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.0%
(a, b) China Longyuan Power Group Corp., 144A ............... China 957,000 1,239,186
Datang International Power Generation Co. Ltd., H .... China 34,992,000 15,118,356
Guangdong Electric Power Development Co. Ltd., B ..... China 7,651,867 4,539,586
Huaneng Power International Inc., H .................. China 1,454,000 823,228
--------------
21,720,356
--------------
INDUSTRIAL CONGLOMERATES 3.1%
Shanghai Industrial Holdings Ltd. .................... China 6,539,000 33,438,404
--------------
INSURANCE 2.3%
China Life Insurance Co. Ltd., H ..................... China 5,086,000 25,155,487
--------------
INTERNET SOFTWARE & SERVICES 0.6%
(b) Sohu.com Inc. ........................................ China 107,800 6,174,784
--------------
IT SERVICES 0.5%
Travelsky Technology Ltd., H ......................... China 5,629,706 5,685,105
--------------
LEISURE EQUIPMENT & PRODUCTS 0.2%
Yorkey Optical International Cayman Ltd. ............. China 11,491,000 2,356,383
--------------
Annual Report | 9
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
MACHINERY 0.9%
Lonking Holdings Ltd. ................................ China 10,809,000 $ 7,513,898
(a, b) Sany Heavy Equipment International Holdings Co.
Ltd., 144A ........................................ China 476,000 602,236
Shanghai Prime Machinery Co. Ltd., H ................. China 500,000 95,438
Shin Zu Shing Co. Ltd. ............................... Taiwan 420,504 2,096,605
--------------
10,308,177
--------------
MARINE 0.4%
China Shipping Development Co. Ltd., H ............... China 1,550,000 2,330,887
Sinotrans Shipping Ltd. .............................. Hong Kong 5,341,000 2,479,797
--------------
4,810,684
--------------
MEDIA 0.1%
(b) Next Media Ltd. ...................................... Hong Kong 5,588,000 749,516
--------------
METALS & MINING 0.7%
Angang Steel Co. Ltd., H ............................. China 3,276,000 7,233,336
(b) China Zhongwang Holdings Ltd. ........................ China 857,600 690,177
--------------
7,923,513
--------------
OIL, GAS & CONSUMABLE FUELS 26.5%
China Coal Energy Co., H ............................. China 3,237,000 5,944,888
China Petroleum and Chemical Corp., H ................ China 97,904,000 87,250,814
China Shenhua Energy Co. Ltd., H ..................... China 7,424,000 36,384,178
CNOOC Ltd. ........................................... China 38,862,000 61,147,117
(b) Inner Mongolia Yitai Coal Co. Ltd., B ................ China 163,900 1,417,571
PetroChina Co. Ltd., H ............................... China 52,788,000 63,451,534
Yanzhou Coal Mining Co. Ltd., H ...................... China 15,172,000 33,577,714
--------------
289,173,816
--------------
PHARMACEUTICALS 0.1%
Tong Ren Tang Technologies Co. Ltd., H ............... China 713,000 1,285,546
--------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 3.9%
Agile Property Holdings Ltd. ......................... China 852,000 1,252,666
Cheung Kong (Holdings) Ltd. .......................... Hong Kong 933,000 12,069,064
Hopewell Holdings Ltd. ............................... Hong Kong 7,088,000 22,945,020
Soho China Ltd. ...................................... China 12,384,000 6,708,127
--------------
42,974,877
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.9%
MediaTek Inc. ........................................ Taiwan 540,567 9,429,083
Taiwan Semiconductor Manufacturing Co. Ltd. .......... Taiwan 16,377,136 33,020,484
--------------
42,449,567
--------------
SOFTWARE 0.7%
Kingdee International Software Group Co. Ltd., fgn. .. Hong Kong 12,774,000 2,866,600
(b) Shanda Interactive Entertainment Ltd., ADR ........... China 80,200 4,219,322
--------------
7,085,922
--------------
SPECIALTY RETAIL 0.2%
(b) I.T Ltd. ............................................. Hong Kong 9,303,993 1,811,913
--------------
10 | Annual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
TEXTILES, APPAREL & LUXURY GOODS 0.3%
Anta Sports Products Ltd. ............................ China 1,547,000 $ 2,298,443
Weiqiao Textile Co. Ltd., H .......................... China 1,545,500 1,060,405
--------------
3,358,848
--------------
TRANSPORTATION INFRASTRUCTURE 0.9%
Cosco Pacific Ltd. ................................... China 6,792,906 8,699,532
Rickmers Maritime (Trust Units) ...................... Singapore 2,904,000 774,813
--------------
9,474,345
--------------
WIRELESS TELECOMMUNICATION SERVICES 4.9%
China Mobile Ltd. .................................... China 5,676,000 53,328,940
Taiwan Mobile Co. Ltd. ............................... Taiwan 337,831 658,976
--------------
53,987,916
--------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $495,971,248) ............................... 1,085,926,930
--------------
SHORT TERM INVESTMENTS (COST $7,233,770) 0.6%
MONEY MARKET FUNDS 0.6%
(c) Institutional Fiduciary Trust Money Market Portfolio,
0.00% ............................................. United States 7,233,770 7,233,770
--------------
TOTAL INVESTMENTS (COST $503,205,018) 100.0% ......... 1,093,160,700
OTHER ASSETS, LESS LIABILITIES 0.0%(d) ............... (448,098)
--------------
NET ASSETS 100.0% $1,092,712,602
==============
See Abbreviations on page 21.
(a) 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 December 31, 2009,
the aggregate value of these securities was $19,303,535, representing 1.77%
of net assets.
(b) Non-income producing.
(c) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(d) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
Annual Report | 11
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2009
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................. $ 495,971,248
Cost - Sweep Money Fund (Note 7) ........................ 7,233,770
--------------
Total cost of investments ............................... $ 503,205,018
==============
Value - Unaffiliated issuers ............................ $1,085,926,930
Value - Sweep Money Fund (Note 7) ....................... 7,233,770
--------------
Total value of investments .............................. 1,093,160,700
Receivables:
Investment securities sold .............................. 1,085,432
Dividends ............................................... 59,695
--------------
Total assets ......................................... 1,094,305,827
--------------
Liabilities:
Payables:
Affiliates .............................................. 1,277,702
Custodian fees .......................................... 112,677
Professional fees ....................................... 143,594
Accrued expenses and other liabilities ..................... 59,252
--------------
Total liabilities .................................... 1,593,225
--------------
Net assets, at value .............................. $1,092,712,602
==============
Net assets consist of:
Paid-in capital ............................................ $ 458,954,780
Undistributed net investment income ........................ 12,293,354
Net unrealized appreciation (depreciation) ................. 589,965,304
Accumulated net realized gain (loss) ....................... 31,499,164
--------------
Net assets, at value .............................. $1,092,712,602
==============
Shares outstanding ......................................... 37,873,327
--------------
Net asset value per share .................................. $ 28.85
==============
The accompanying notes are an integral part of these financial statements.
12 | Annual Report
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended December 31, 2009
Investment income:
Dividends: (net of foreign taxes of $2,324,753)
Unaffiliated issuers .................................... $ 25,897,921
Sweep Money Fund (Note 7) ............................... 5,670
------------
Total investment income .............................. 25,903,591
------------
Expenses:
Management fees (Note 3a) .................................. 11,363,321
Administrative fees (Note 3b) .............................. 1,368,542
Transfer agent fees ........................................ 166,709
Custodian fees (Note 4) .................................... 399,880
Reports to shareholders .................................... 68,966
Registration and filing fees ............................... 35,186
Professional fees .......................................... 160,718
Directors' fees and expenses ............................... 92,103
Other ...................................................... 38,559
------------
Total expenses ....................................... 13,693,984
Expense reductions (Note 4) .......................... (128)
------------
Net expenses ...................................... 13,693,856
------------
Net investment income .......................... 12,209,735
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................. 33,052,670
Foreign currency transactions ........................... 100,116
------------
Net realized gain (loss) ....................... 33,152,786
------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ 370,536,533
Translation of other assets and liabilities denominated
in foreign currencies ................................... 9,622
------------
Net change in unrealized appreciation
(depreciation) ............................... 370,546,155
------------
Net realized and unrealized gain (loss) ....................... 403,698,941
------------
Net increase (decrease) in net assets resulting from
operations ................................................. $415,908,676
============
The accompanying notes are an integral part of these financial statements.
Annual Report | 13
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-------------------------------
2009 2008
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 12,209,735 $ 20,796,224
Net realized gain (loss) from investments and
foreign currency transactions ............ 33,152,786 12,792,710
Net change in unrealized appreciation
(depreciation) on investments and
translation of other assets and liabilities
denominated in foreign currencies ........ 370,546,155 (573,237,100)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations ............. 415,908,676 (539,648,166)
-------------- --------------
Distributions to shareholders from:
Net investment income ....................... (20,644,751) (21,913,507)
Net realized gains .......................... (14,304,756) (42,062,117)
-------------- --------------
Total distributions to shareholders ............ (34,949,507) (63,975,624)
-------------- --------------
Net increase (decrease) in net assets .... 380,959,169 (603,623,790)
Net assets:
Beginning of year .............................. 711,753,433 1,315,377,223
-------------- --------------
End of year .................................... $1,092,712,602 $ 711,753,433
============== ==============
Undistributed net investment income included in
net assets:
End of year .................................... $ 12,293,354 $ 20,640,217
============== ==============
The accompanying notes are an integral part of these financial statements.
14 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
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 closed-end investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds are valued at the closing net asset value.
Foreign equity 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 equity 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 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 based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, matrix pricing, discounts from market prices of similar securities,
or discounts applied due to the nature and duration of restrictions on the
disposition of the securities. Due to the inherent uncertainty of valuations of
such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the Fund. The investment manager monitors price movements following the
close of trading in foreign stock markets through a series of country specific
market proxies (such as baskets of American Depository Receipts, futures
contracts and exchange traded funds). These price movements are measured against
established trigger thresholds for each specific market proxy to assist in
determining if an event has occurred. If such an event occurs, the securities
may be valued using fair value procedures, which may include the use of
independent pricing services. All security valuation procedures are approved by
the Fund's Board of Directors.
Annual Report | 15
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. The Fund may enter
into foreign currency exchange contracts to facilitate transactions denominated
in a foreign currency. 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. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of December 31, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend 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.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Estimated expenses are accrued daily. Dividend income is recorded on the
ex-dividend date except that certain dividends from foreign
16 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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.
E. 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.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. Currently, the Fund expects the
risk of loss to be remote.
2. CAPITAL STOCK
At December 31, 2009, there were 100 million shares authorized ($0.01 par
value). During the year ended December 31, 2009 and the year ended December 31,
2008 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 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 year ended December 31, 2009 and
year ended December 31, 2008, there were no shares repurchased.
Annual Report | 17
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
---------- ----------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
------------------- -------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.15% per year of the
average weekly net assets, of which 0.10% was paid to Nomura Asset Management
U.S.A Inc., for sub-administrative services. On May 19, 2009, the Fund's Board
of Directors approved the termination of its sub-administrative agreement with
Nomura. Effective August 1, 2009, all administration fees are retained by FT
Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended December 31, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
18 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The tax character of distributions paid during the years ended December 31, 2009
and 2008, was as follows:
2009 2008
----------- -----------
Distributions paid from:
Ordinary income............ $20,917,439 $24,060,925
Long term capital gain..... 14,032,068 39,914,699
----------- -----------
$34,949,507 $63,975,624
=========== ===========
At December 31, 2009, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ......................... $506,255,822
============
Unrealized appreciation ..................... $601,891,970
Unrealized depreciation ..................... (14,987,092)
------------
Net unrealized appreciation (depreciation) .. $586,904,878
============
Undistributed ordinary income ............... $ 14,599,196
Undistributed long term capital gains ....... 32,244,125
------------
Distributable earnings ...................... $ 46,843,321
============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and corporate
actions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions and corporate actions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2009, aggregated $110,144,403 and $130,934,135,
respectively.
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Institutional Fiduciary Trust Money Market Portfolio
(Sweep Money Fund), an open-end investment company managed by Franklin Advisers,
Inc. (an affiliate of the investment manager). Management fees paid by the Fund
are reduced on assets invested in the Sweep Money Fund, in an amount not to
exceed the management and administrative fees paid by the Sweep Money Fund.
Annual Report | 19
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (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 22, 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 was 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. As of December 31, 2009, such
guidance had not been received and the Board approved the termination of the
Agreement and the proposed reorganization will not proceed.
10. FAIR VALUE MEASUREMENTS
The Fund follows 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.
At December 31, 2009, all of the Fund's investments in securities carried at
fair value were in Level 1 inputs. For detailed industry descriptions, see the
accompanying Statement of Investments.
At December 31, 2009, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining fair value, is as
follows:
NET CHANGE IN
BALANCE AT UNREALIZED TRANSFER
BEGINNING OF NET REALIZED APPRECIATION NET PURCHASES IN (OUT) OF BALANCE AT
YEAR GAIN (LOSS) (DEPRECIATION) (SALES) LEVEL 3 END OF YEAR
------------ ------------ -------------- ------------- ----------- -----------
ASSETS
Automobiles .. $952,764 $-- $-- $-- $(952,764) $--
-------- --- --- --- --------- ---
TOTAL ........ $952,764 $-- $-- $-- $(952,764) $--
======== === === === ========= ===
20 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES
(TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6
enhances and clarifies existing fair value measurement disclosure requirements
and is effective for interim and annual periods beginning after December 15,
2009. The Fund is currently evaluating the impact, if any, of applying the
provisions of ASU No. 2010-6.
12. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through February 16, 2010, the issuance
date of the financial statements and determined that no events have occurred
that require disclosure.
ABBREVIATIONS
PORTFOLIO
ADR - American Depository Receipts
Annual Report | 21
Templeton Dragon Fund, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON DRAGON FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Dragon Fund, Inc. (the
"Fund") at December 31, 2009, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2009 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 16, 2010
22 | Annual Report
Templeton Dragon Fund, Inc.
ANNUAL MEETING OF SHAREHOLDERS, MAY 29, 2009
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Fort Lauderdale, Florida, on May 29, 2009. The purpose of
the meeting was to elect four Directors of the Fund. At the meeting, the
following persons were elected by the shareholders to serve as Directors of the
Fund: Ann Torre Bates, David W. Niemiec, Frank A. Olson and Robert E. Wade.* No
other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
The election of four Directors:
% OF % OF SHARES % OF % OF SHARES
OUTSTANDING PRESENT OUTSTANDING PRESENT
TERM EXPIRING 2012 FOR SHARES AND VOTING WITHHELD SHARES AND VOTING
------------------ ---------- ----------- ----------- --------- ----------- -----------
Ann Torre Bates ..... 26,931,523 71.11% 80.32% 6,599,612 17.43% 19.68%
David W. Niemiec .... 26,970,210 71.21% 80.43% 6,560,925 17.32% 19.57%
Frank A. Olson ...... 26,829,292 70.84% 80.01% 6,701,843 17.70% 19.99%
Robert E. Wade ...... 27,041,501 71.40% 80.65% 6,489,634 17.14% 19.35%
* Charles B. Johnson, Gregory E. Johnson, Harris J. Ashton, Frank J.
Crothers, Edith E. Holiday, J. Michael Luttig (appointed effective December
1, 2009), Larry D. Thompson and Constantine D. Tseretopoulos are Directors
of the Fund who are currently serving and whose terms of office continued
after the Annual Meeting of Shareholders.
Annual Report | 23
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. 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 358015,
Pittsburgh, PA 15252-8015, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify The
Bank of New York Mellon (the "Plan Administrator") at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice ten business days before the record date for a
distribution.
Whenever the Fund declares dividends in either cash or shares 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 new shares 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
can be made by check or money order payable to The Bank of New York Mellon and
sent to BNY Mellon Shareowner Services, P.O. Box 382009, Pittsburgh, PA
15250-8009, Attention: Templeton Dragon Fund, Inc. The Plan Administrator will
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.
24 | Annual Report
Templeton Dragon Fund, Inc.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
A participant may withdraw from the Plan without penalty at any time by written
notice to the Plan Administrator and sent to BNY Mellon Shareowner Services,
P.O. Box 358015, Pittsburgh, PA 15252-8015. Upon withdrawal, the participant
will receive, without charge, share certificates issued in the participant's
name for all full shares held by the Plan Administrator; or, if the participant
wishes, the Plan Administrator will sell the shares and send the proceeds to the
participant, less a service charge of $15.00 and less trading fees of $0.12 per
share. The Plan 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 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 http://vault.bnymellon.com/isd or dial 1-800-416-5585 (toll free)
and follow the instructions. Direct Deposit will begin with the next scheduled
distribution payment date following enrollment in the service.
Annual Report | 25
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 were also listed and traded in Japan on
the Osaka Securities Exchange Co., Ltd. until July 6, 2009. 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://vault.bnymellon.com/isd and follow the
instructions.
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 7
a.m. Pacific time any business day at 1-800/DIAL BEN(R) (1-800-342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
Shareholders not receiving copies of the reports to shareholders because their
shares are registered in the name of a broker or a custodian can request that
they be added to the Fund's mailing list by writing Templeton Dragon Fund, Inc.,
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
26 | Annual Report
Templeton Dragon Fund, Inc.
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $14,032,068 as a long
term capital gain dividend for the fiscal year ended December 31, 2009.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $272,688 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2009.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $5,796,285 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2009. Distributions, including qualified dividend income, paid
during calendar year 2009 will be reported to shareholders on Form 1099-DIV in
January 2010. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
At December 31, 2008, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from income paid to the Fund on these investments. As shown in the table below,
the Fund designates to shareholders the foreign source income and foreign taxes
paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on September 16, 2009, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.
The following table provides a detailed analysis of foreign tax paid, foreign
source income, and foreign qualified dividends as designated by the Fund to
shareholders of record.
RECORD DATE: 9/16/2009
FOREIGN TAX PAID FOREIGN SOURCE INCOME FOREIGN QUALIFIED
CLASS PER SHARE PER SHARE DIVIDENDS PER SHARE
----- ---------------- --------------------- -------------------
Class A .. $0.0476 $0.5932 $0.0961
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or, as a tax
deduction.
Foreign Source Income Per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income.(1)
Foreign Qualified Dividends Per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund.(1)
Annual Report | 27
Templeton Dragon Fund, Inc.
TAX DESIGNATION (UNAUDITED) (CONTINUED)
In January 2010, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2009. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2009 individual income
tax returns.
(1) Qualified dividends are taxed at a maximum rate of 15% (5% for those in the
10% and 15% income tax bracket). In determining the amount of foreign tax
credit that may be applied against the U.S. tax liability of individuals
receiving foreign source qualified dividends, adjustments may be required
to the foreign tax credit limitation calculation to reflect the rate
differential applicable to such dividend income. The rules however permit
certain individuals to elect not to apply the rate differential adjustments
for capital gains and/or dividends for any taxable year. Please consult
your tax advisor and the instructions to Form 1116 for more information.
28 | Annual Report
Templeton Dragon Fund, Inc.
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves a three-year term that continues until that person's
successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
HARRIS J. ASHTON (1932) Director Since 1994 133 Bar-S Foods (meat packing company).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ANN TORRE BATES (1958) Director Since 2008 31 SLM Corporation (Sallie Mae) and
500 East Broward Blvd. Allied Capital Corporation (financial
Suite 2100 services).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Independent strategic and financial consultant; and FORMERLY, Executive Vice President and Chief Financial Officer, NHP
Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).
FRANK J. CROTHERS (1944) Director Since 1998 23 Fortis, Inc. (utility holding company)
500 East Broward Blvd. and AML Foods Limited (retail
Suite 2100 distributors).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Vice Chairman, Caribbean Utilities Company, Ltd. and director of various other private business and nonprofit
organizations.
EDITH E. HOLIDAY (1952) Lead Director since 133 Hess Corporation (exploration and
500 East Broward Blvd. Independent 1996 and Lead refining of oil and gas), H.J. Heinz
Suite 2100 Director Independent Company (processed foods and allied
Fort Lauderdale, FL 33394-3091 Director since products), RTI International Metals,
2007 Inc. (manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
Annual Report | 29
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
J. MICHAEL LUTTIG (1954) Director Since 133 Boeing Capital Corporation (aircraft
500 East Broward Blvd. December 2009 financing).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Counsel, The Boeing Company; and FORMERLY, Federal Appeals
Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
DAVID W. NIEMIEC (1949) Director Since 2005 23 Emeritus Corporation (assisted living)
500 East Broward Blvd. and OSI Pharmaceuticals, Inc.
Suite 2100 (pharmaceutical products).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); and FORMERLY, Managing Director, Saratoga Partners (1998-2001) and SBC
Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997);
and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
FRANK A. OLSON (1932) Director Since 2003 133 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Director Since 2005 141 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow
of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
CONSTANTINE D. TSERETOPOULOS Director Since 1998 23 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
ROBERT E. WADE (1946) Director Since 2006 38 El Oro Ltd. (investments).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney at law.
30 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and 133 None
One Franklin Parkway Chairman of Vice President
San Mateo, CA 94403-1906 the Board and since 1994 and
Vice President Chairman of the
Board since 1995
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
**GREGORY E. JOHNSON (1961) Director Since 2006 89 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; and officer
and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 32 of the
investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President -- AML Compliance
-- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin
Resources, Inc. (1994-2001).
LAURA F. FERGERSON (1962) Chief Executive Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Officer --
San Mateo, CA 94403-1906 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin
Templeton Services, LLC (1997-2003).
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
Annual Report | 31
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the
other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in
Franklin Templeton Investments.
MARK MOBIUS (1936) President and President since Not Applicable Not Applicable
17th Floor, Chater House Chief Executive 1994 and Chief
8 Connaught Road Central Officer -- Executive Officer
Hong Kong Investment -- Investment
Management Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Executive Chairman, Templeton Asset Management Ltd.; and officer
and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment
companies in Franklin Templeton Investments.
MARK H. OTANI (1968) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Fund Accounting Operations, Franklin Templeton Investments; and officer of 14 of the investment companies in
Franklin Templeton Investments.
32 | Annual Report
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
ROBERT C. ROSSELOT (1960) Secretary and Secretary since Not Applicable Not Applicable
500 East Broward Blvd. Vice President 2004 and Vice
Suite 2100 President since
Fort Lauderdale, FL 33394-3091 August 2009
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President
and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of
the South; and officer of 45 of the investment companies in Franklin Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager. Gregory E.
Johnson is considered to be an interested person of the Fund under the
federal securities laws due to his position as an officer and director of
Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF ANN TORRE BATES AND DAVID W. NIEMIEC AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MS. BATES AND MR. NIEMIEC QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MS. BATES HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2008. SHE
CURRENTLY SERVES AS A DIRECTOR OF SLM CORPORATION AND ALLIED CAPITAL CORPORATION
AND WAS FORMERLY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF NHP
INCORPORATED AND VICE PRESIDENT AND TREASURER OF US AIRWAYS, INC. MR. NIEMIEC
HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005, CURRENTLY SERVES
AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY ITS MANAGING DIRECTOR FROM
1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS CORPORATION AND OSI
PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS FORMERLY MANAGING
DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS VICE CHAIRMAN
FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF DILLON, READ
& CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES
THAT MS. BATES AND MR. NIEMIEC HAVE EACH ACQUIRED AN UNDERSTANDING OF GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION
OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND
RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A
BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO
THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND
PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE
FUNCTIONS. MS. BATES AND MR. NIEMIEC ARE INDEPENDENT BOARD MEMBERS AS THAT TERM
IS DEFINED UNDER THE APPLICABLE U.S. SECURITIES AND EXCHANGE COMMISSION RULES
AND RELEASES OR THE LISTING STANDARDS APPLICABLE TO THE FUND.
Annual Report | 33
Templeton Dragon Fund, Inc.
SHAREHOLDER INFORMATION
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 (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 (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 she is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer -- Finance and Administration
and Chief Financial Officer and Chief Accounting Officer are required by the
rules of the U.S. Securities and Exchange Commission to provide certain
certifications with respect to the Fund's Form N-CSR and Form N-CSRS (which
include the Fund's annual and semiannual reports to shareholders) that are filed
semiannually with the Commission. The Fund has filed such certifications with
its Form N-CSRS for the six months ended June 30, 2009. Additionally, the Fund
expects to file, on or about March 1, 2010, such certifications with its Form
N-CSR for the year ended December 31, 2009.
34 | Annual Report
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(9)
Michigan(9)
Minnesota(9)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(9)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(10)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(7.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(9.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(10.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) 100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
ANNUAL REPORT
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: (800) 416-5585
Hearing Impaired phone number: (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.
TLTDF A2009 02/10
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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $40,508 for the fiscal year ended December 31, 2009 and $66,280 for the
fiscal year ended December 31, 2008.
(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4 were $6,000 for
the fiscal year ended December 31, 2009 and $6,000 for the fiscal year ended
December 31, 2008. The services for which these fees were paid included
attestation services.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $2,762 for the fiscal year ended
December 31, 2009 and $4,000 for the fiscal year ended December 31, 2008. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2009
and $930 for the fiscal year ended December 31, 2008. The services for which
these fees were paid include review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year
ended December 31, 2009 and $283,147 for the fiscal year ended December 31,
2008. The services for which these fees were paid include review of materials
provided to the fund Board in connection with the investment management contract
renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be
provided to the Fund by the auditors;
(iii)pre-approval of all non-audit related services to be
provided to the registrant by the auditors to the registrant's investment
adviser or to any entity that controls, is controlled by or is under common
control with the registrant's investment adviser and that provides ongoing
services to the registrant where the non-audit services relate directly to the
operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $8,762 for the fiscal year ended December 31, 2009 and $294,077
for the fiscal year ended December 31, 2008.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Members of the Audit Committee are: Ann Torre Bates, Frank J. Crothers, David W.
Niemiec and Constantine D. Tseretopoulos
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of directors of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Franklin Advisers, Inc. 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. As a matter of policy, the
officers, directors/trustees and employees of 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,
distributor, broker dealer 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 the manager's
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, if any, 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 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 any one of Sections 12(d)(1)(E), (F), or (G) 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 that the manager
considers in determining how proxies should be voted. However, the manager does
not consider recommendations from management to be 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. 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 the 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.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. However, as
with all proxy issues, the manager conducts an independent review of each
anti-takeover proposal. 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. In addition, 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 realizes that a company's financing
decisions have a significant impact on its shareholders, particularly when they
involve the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase. 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 they would 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 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
the manager's proxy voting decisions for international investments. However, the
manager must be 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 (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.
(a)(1) As of February 26, 2009, the portfolio managers of the Fund are as
follows:
MARK MOBIUS, PH.D., EXECUTIVE CHAIRMAN OF TEMPLETON ASSET MANAGEMENT LTD.
Dr. Mobius has been a manager of the Fund since inception. He has overall
authority for supervising the team allocating the investments of the Fund. He
has final responsibility over all aspects of the Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which he may
perform these functions, and the nature of these functions, may change from time
to time. Dr. Mobius joined Franklin Templeton Investments in 1987.
EDDIE CHOW, EXECUTIVE VICE PRESIDENT OF TEMPLETON ASSET MANAGEMENT LTD.
Mr. Chow heads the team with primary responsibility for allocation of
investments for the Fund. He has been working on the Fund since 2000 providing
research and advice on the purchases and sales of individual securities, and
portfolio risk assessment. Mr. Chow joined Franklin Templeton Investments in
1994.
(a)(2) This section reflects information about the portfolio managers as of
December 31, 2009.
The following table shows the number of other accounts managed by each portfolio
manager and the total assets in the accounts managed within each category:
--------------------------------------------------------------------------------------------------------
ASSETS ASSETS OF
NUMBER OF OTHER OTHER POOLED ASSETS OF
OF OTHER REGISTERED NUMBER OF INVESTMENTS OTHER
REGISTERED INVESTMENT OTHER POOLED VEHICLES NUMBER OF ACCOUNTS
INVESTMENT COMPANIES INVESTMENT MANAGED OTHERS MANAGED
COMPANIES MANAGED VEHICLES (X $1 ACCOUNTS (X $1
NAME MANAGED (x $1 MILLION) MANAGED/1 MILLION)/1 MANAGED/1 MILLION)/1
-----------------------------------------------------------------------------------------------------------
Mark Mobius 9 8034.1 32 25748.9 9 2175.2
-----------------------------------------------------------------------------------------------------------
Eddie Chow 1 992.8 2 1367.9 0 N/A
-----------------------------------------------------------------------------------------------------------
1. The various pooled investment vehicles and accounts listed are managed by a
team of investment professionals. Accordingly, the portfolio manager listed
would not be solely responsible for managing such listed amounts.
Portfolio managers that provide investment services to the Fund may also provide
services to a variety of other investment products, including other funds,
institutional accounts and private accounts. The advisory fees for some of such
other products and accounts may be different than that charged to the Fund and
may include performance based compensation. This may result in fees that are
higher (or lower) than the advisory fees paid by the Fund. As a matter of
policy, each fund or account is managed solely for the benefit of the beneficial
owners thereof. As discussed below, the separation of the trading execution
function from the portfolio management function and the application of
objectively based trade allocation procedures help to mitigate potential
conflicts of interest that may arise as a result of the portfolio managers
managing accounts with different advisory fees.
CONFLICTS. The management of multiple funds, including the Fund, and accounts
may also give rise to potential conflicts of interest if the funds and other
accounts have different objectives, benchmarks, time horizons, and fees as the
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. The manager seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment strategies
that are used in connection with the management of the Fund. Accordingly,
portfolio holdings, position sizes, and industry and sector exposures tend to be
similar across similar portfolios, which may minimize the potential for
conflicts of interest. As noted above, the separate management of the trade
execution and valuation functions from the portfolio management process also
helps to reduce potential conflicts of interest. However, securities selected
for funds or accounts other than the Fund may outperform the securities selected
for the Fund. Moreover, if a portfolio manager identifies a limited investment
opportunity that may be suitable for more than one fund or other account, the
Fund may not be able to take full advantage of that opportunity due to an
allocation of that opportunity across all eligible funds and other accounts. The
manager seeks to manage such potential conflicts by using procedures intended to
provide a fair allocation of buy and sell opportunities among funds and other
accounts.
The structure of a portfolio manager's compensation may give rise to potential
conflicts of interest. A portfolio manager's base pay and bonus tend to increase
with additional and more complex responsibilities that include increased assets
under management. As such, there may be an indirect relationship between a
portfolio manager's marketing or sales efforts and his or her bonus.
Finally, the management of personal accounts by a portfolio manager may give
rise to potential conflicts of interest. While the funds and the manager have
adopted a code of ethics which they believe contains provisions reasonably
necessary to prevent a wide range of prohibited activities by portfolio managers
and others with respect to their personal trading activities, there can be no
assurance that the code of ethics addresses all individual conduct that could
result in conflicts of interest.
The manager and the Fund have adopted certain compliance procedures that are
designed to address these, and other, types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION. The manager seeks to maintain a compensation program that is
competitively positioned to attract, retain and motivate top-quality investment
professionals. Portfolio managers receive a base salary, a cash incentive bonus
opportunity, an equity compensation opportunity, and a benefits package.
Portfolio manager compensation is reviewed annually and the level of
compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no financial incentive to favor one fund or
account over another. Each portfolio manager's compensation consists of the
following three elements:
BASE SALARY Each portfolio manager is paid a base salary.
ANNUAL BONUS Annual bonuses are structured to align the interests of
the portfolio manager with those of the Fund's shareholders. Each
portfolio manager is eligible to receive an annual bonus. Bonuses
generally are split between cash (50% to 65%) and restricted shares of
a Franklin Templeton fund which vest over a three-year period (17.5% to
25%) and other mutual fund shares (17.5% to 25%). The deferred
equity-based compensation is intended to build a vested interest of the
portfolio manager in the financial performance of both Franklin
Resources and mutual funds advised by the manager. The bonus plan is
intended to provide a competitive level of annual bonus compensation
that is tied to the portfolio manager achieving consistently strong
investment performance, which aligns the financial incentives of the
portfolio manager and Fund shareholders. The Chief Investment Officer
of the manager and/or other officers of the manager, with
responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining
bonuses under the plan:
o INVESTMENT PERFORMANCE. Primary consideration is given to the historic
investment performance over the 1, 3 and 5 preceding years of all accounts
managed by the portfolio manager. The pre-tax performance of each fund
managed is measured relative to a relevant peer group and/or applicable
benchmark as appropriate.
o NON-INVESTMENT PERFORMANCE. The more qualitative contributions of a
portfolio manager to the manager's business and the investment management
team, including business knowledge, contribution to team efforts, mentoring
of junior staff, and contribution to the marketing of the Fund, are
evaluated in determining the amount of any bonus award.
o RESEARCH. Where the portfolio management team also has research
responsibilities, each portfolio manager is evaluated on the number and
performance of recommendations over time.
o RESPONSIBILITIES. The characteristics and complexity of funds managed by
the portfolio manager are factored in the manager's appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION Portfolio managers may
also be awarded restricted shares or units of one or more mutual funds,
and options to purchase common shares of a Franklin Templeton fund.
Awards of such deferred equity-based compensation typically vest over
time, so as to create incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
OWNERSHIP OF FUND SHARES. The manager has a policy of encouraging portfolio
managers to invest in the funds they manage. Exceptions arise when, for example,
a fund is closed to new investors or when tax considerations or jurisdictional
constraints cause such an investment to be inappropriate for the portfolio
manager. The following is the dollar range of Fund shares beneficially owned by
each portfolio manager (such amounts may change from time to time):
----------------------------------------------------------
Dollar Range of Fund Shares
Portfolio Manager Beneficially Owned
----------------------------------------------------------
Mark Mobius None
----------------------------------------------------------
Eddie Chow None
----------------------------------------------------------
Note: Because the portfolio managers are all foreign nationals, they do not hold
shares in this U.S. registered fund, however they own shares in other similar
Franklin Templeton funds managed by them, registered offshore and appropriate
for foreign nationals.
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, 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/LAURA F. FERGERSON
-------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date February 25, 2010
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/LAURA F. FERGERSON
-------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date February 25, 2010
By /s/MARK H. OTANI
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Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date February 25, 2010