UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8874
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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)
MURRAY L. SIMPSON, 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: 6/30/03
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ITEM 1. REPORTS TO STOCKHOLDERS.
Semi
Annual
Report
[GRAPHIC OMITTED]
JUNE 30, 2003
TEMPLETON DRAGON FUND, INC.
[LOGO OMITTED]
FRANKLIN (R) TEMPLETON(R)
INVESTMENTS
[PHOTO OMITTED]
MARK MOBIUS, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER - INVESTMENT MANAGEMENT
TEMPLETON DRAGON FUND, INC.
Mark Mobius has been living in emerging market countries since earning his Ph.D.
in economics and political science at Massachusetts Institute of Technology in
1964. During his extensive travels, he has acquired a thorough knowledge of
business practices and customs unique to developing nations.
Not part of the semiannual report
IMPORTANT NOTICE TO SHAREHOLDERS
TENDER OFFER. On April 24, 2003, the Fund commenced a tender offer for up to
6,656,425 shares, or 15%, of the Fund's outstanding shares at a price per share
equal to 92.5% of net asset value per share as of May 22, 2003, the expiration
date of the tender offer. A total of 13,861,221.1833 shares were properly
tendered and not withdrawn on the expiration date for the tender offer and the
final date for withdrawals. In accordance with the terms of the tender offer,
6,656,425 shares were accepted by the Fund for a purchase price of $9.97 per
share. Because more than 15% of the Fund's outstanding shares were tendered, the
number of shares accepted for payment by the Fund was pro-rated based on the
total number of shares properly tendered by each shareholder.
CONTENTS
IMPORTANT NOTICE
TO SHAREHOLDERS .................... 1
----------------------------------------
SEMIANNUAL REPORT
Templeton Dragon Fund .............. 2
Performance Summary ................ 7
Financial Highlights &
Statement of Investments ........... 8
Financial Statements ............... 12
Notes to
Financial Statements ............... 15
Not part of the semiannual report
SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
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YOUR FUND'S GOAL: TEMPLETON DRAGON FUND SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING AT LEAST 45% OF ITS TOTAL ASSETS IN THE EQUITY SECURITIES OF "CHINA
COMPANIES," AS DEFINED IN THE FUND'S PROSPECTUS.
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We are pleased to bring you this semiannual report for Templeton Dragon Fund
covering the period ended June 30, 2003. During the six months under review,
China's and India's economies recorded healthy gross domestic product (GDP)
expansion rates. Recent data showed some strong gains as China's GDP grew 8.9%
annualized in April, after growing 9.9% annualized in the first quarter of 2003.
1 May 2003 exports and imports surged 37.3% and 40.9% over May 2002, resulting
in a trade surplus of US$2.2 billion, while May's industrial output rose 13.7%
over May 2002. 2 Foreign direct investment inflows slowed in April and May due,
in part, to the effects of China's battle with severe acute respiratory syndrome
(SARS); however, a solid 48% overall gain was tallied for the first five months
of 2003. 3 In efforts to help China's economy maintain its momentum, the
government announced tax relief measures aimed at supporting businesses impacted
by SARS outbreaks. Standard & Poor's, an independent credit rating agency,
revised its outlook on China's long-term foreign-currency sovereign debt to
positive from stable in April.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
6/30/03
Hong Kong 44.1%
China 34.5%
Taiwan 15.9%
Singapore 1.5%
Short-Term Investments & Other Net Assets 4.0%
1. Sources: Financial Times Information; National Bureau of Statistics, China.
2. Source: Customs Statistics China.
3. Source: Ministry of Commerce, China.
The dollar value, number of shares or principal amount, and complete legal
titles of all portfolio holdings are listed in the Fund's Statement of
Investments (SOI). The SOI begins on page 10.
2 SEMIANNUAL REPORT
Hong Kong's GDP grew 4.5% annualized in first quarter 2003 compared with first
quarter 2002, following a revised 5.1% annualized expansion in the preceding
quarter. However, the government reduced its growth forecast for 2003 to 1.5%
from 3.0% largely due to the SARS outbreak in the second quarter. Retail sales
also suffered during the six-month period, decreasing 15.2% in April compared
with April 2002. 4 As could be expected, the negatively impacted tourism and
service sectors contributed to a rise in unemployment. Positively, Hong Kong
ranked as the world's fourth most competitive small economy, up from tenth last
year, according to the World Competitiveness Yearbook 2003, an international
survey of business and economic efficiency. Additionally, China and Hong Kong
signed a free-trade agreement at the end of June, an indication of China opening
its economy to international competition.
In Taiwan, domestic demand weakened, and first quarter 2003 GDP grew an
annualized 3.2%, compared with 4.2% annualized in 2002's fourth quarter.
Fortunately, private consumption rose in the first quarter, and unemployment
fell to its lowest level since July 2001 to 4.9% in April after fewer layoffs
and factory closures. 5 Exports rose in May largely due to strong demand from
China, contributing to the 8.1% increase for the first five months of the year,
while imports rose 12.8% during the same period. 6
In efforts to attract foreign investors to Taiwan's financial markets, the
Securities and Futures Commission and the Taiwan Central Bank eased the
qualifications and application process of
4. Source: Census & Statistics Department, Hong Kong.
5. Source: Directorate General of Budget, Taiwan.
6. Source: Ministry of Finance, Taiwan.
SEMIANNUAL REPORT 3
TOP 10 HOLDINGS
6/30/03
COMPANY
SECTOR/INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
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Dairy Farm
International Holdings Ltd. 11.4%
FOOD & DRUG
RETAILING, HONG KONG
China Petroleum &
Chemical Corp., H 8.1%
OIL & GAS, CHINA
Cheung Kong Infrastructure
Holdings Ltd. 4.9%
CONSTRUCTION MATERIALS,
HONG KONG
China Merchants
Holdings International
Co. Ltd. 4.6%
INDUSTRIAL CONGLOMERATES,
HONG KONG
Hang Lung Group Ltd. 3.8%
REAL ESTATE, HONG KONG
PetroChina Co. Ltd., H 3.4%
OIL & GAS, CHINA
China Mobile
(Hong Kong) Ltd. 3.2%
WIRELESS TELECOMMUNICATION
SERVICES, CHINA
Beijing Datang Power
Generation Co. Ltd., H 3.2%
ELECTRIC UTILITIES, CHINA
Hong Kong & Shanghai
Hotels, Ltd. 2.9%
HOTELS, RESTAURANTS & LEISURE,
HONG KONG
Citic Pacific Ltd. 2.7%
INDUSTRIAL CONGLOMERATES,
HONG KONG
its Qualified Foreign Institutional Investor program by eliminating the
investment experience requirement and relaxing the minimum investment size.
For the six months ended June 30, 2003, Templeton Dragon Fund delivered a
+25.76% cumulative total return in market price terms and +19.82% in net asset
value terms, as shown in the Performance Summary on page 7.
In May, we completed a tender offer and bought back a total 6,656,425 shares of
the Fund's common stock. We funded the purchase largely by decreasing certain
stock holdings that we believed were less attractively valued. During the
six-month period, war in Iraq and fear of SARS brought significant price
movements to many financial markets. These developments coupled with changes in
fundamentals with some companies held by the Fund were some of the major factors
behind the portfolio changes.
During the period, we reduced our exposure to China H shares (Hong Kong-listed
Chinese companies), as we found some valuations growing expensive, in our view.
Key sales included Tsingtao Brewery, Zhejiang Expressway, Angang New Steel and
Jiangsu Expressway. These sales also reduced the Fund's transportation
infrastructure exposure. The Fund still held 27.7% of total net assets in China
H shares as of June 30, 2003. Other notable sales included Hong Kong's Dairy
Farm, as gains were realized, and Red Chip shares (Hong Kong-listed companies
with significant exposure to China) in Cosco Pacific and China Pharmaceutical,
which were sold at a loss. On an individual stock level, key contributors to the
Fund's performance during the six-month period were Sinopec, China's
4 SEMIANNUAL REPORT
second-largest oil company, and Tsingtao Brewery, China's largest brewery.
We increased the Fund's exposure to Taiwan by purchasing stocks trading at
valuations we believed to be attractive. Key purchases and contributors to Fund
performance included Delta Electronics, the world's largest power supplies
producer; Asustek, the world's largest manufacturer of motherboards; Advantech,
Taiwan's largest industrial computers producer; and Sunplus Technology, a
Taiwanese integrated circuit company.
As we searched for what were, in our view, undervalued stocks during the period,
we invested in the Shenzhen B market in China by purchasing Guangdong Electric
Power, the largest listed power generation group in Guangdong province. Key
Singapore investments included Singapore Airlines and Singapore Press,
purchased, in part, for its dominant market position.
Within the Fund's top 10 holdings, Petrochina, Beijing Datang, Citic Pacific and
Hong Kong & Shanghai Hotels replaced TCL, Tsingtao Brewery, Zhejiang Expressway
and Jiangsu Expressway during the reporting period. As of June 30, 2003, the
Fund's top three sectors were oil and gas, food and drug retailing, and
industrial conglomerates. We believe in the region's potential for economic
business growth over the long term. Thus, we will continue to search for
investments we believe are well positioned for the long term.
Of course, investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
For example, Hong Kong's equity market has increased 339.54% in the last 15
SEMIANNUAL REPORT 5
years, but has suffered 7 quarterly declines of more than 15% each during that
time. 7 Investing in emerging markets, particularly "China companies," also
entails special considerations, including risks related to market and currency
volatility, adverse economic, social and political developments, and the
markets' relatively small size and lesser liquidity. Also, as a non-diversified
investment company, the Fund may invest in a relatively small number of issuers,
which could result in a greater risk of loss.
Thank you for investing in Templeton Dragon Fund. We appreciate your confidence
and welcome your comments.
/S/Mark Mobius
Mark Mobius
President and Chief Executive Officer -
Investment Management
Templeton Dragon Fund, Inc.
7. Source: Standard & Poor's Micropal. Based on quarterly total return change
over 15 years ended 6/30/03. Market return is measured in U.S. dollars and
includes reinvested dividends. The Morgan Stanley Capital International Hong
Kong Index is market capitalization-weighted and measures total returns of
equity securities in Hong Kong.
--------------------------------------------------------------------------------
This discussion reflects our analysis, opinions and portfolio holdings as of
June 30, 2003, the end of the reporting period. Our strategies and the Fund's
portfolio composition will change depending on 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.
--------------------------------------------------------------------------------
6 SEMIANNUAL REPORT
PERFORMANCE SUMMARY AS OF 6/30/03
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 THE FUND'S DIVIDEND INCOME, CAPITAL GAIN
DISTRIBUTIONS, IF ANY, AND ANY UNREALIZED GAINS OR LOSSES. ALL TOTAL RETURNS
INCLUDE REINVESTED DISTRIBUTIONS ACCORDING TO THE TERMS SPECIFIED IN THE FUND'S
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN AND DO NOT REFLECT ANY SALES
CHARGES PAID AT INCEPTION OR BROKERAGE COMMISSIONS PAID ON SECONDARY MARKET
PURCHASES. THE PERFORMANCE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE SALE OF FUND SHARES.
PRICE AND DISTRIBUTION INFORMATION
CHANGE 6/30/03 12/31/02
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Net Asset Value (NAV) +$1.91 $11.64 $9.73
Market Price (NYSE) +$2.28 $11.20 $8.92
DISTRIBUTIONS (1/1/03-6/30/03)
Dividend Income $0.1856
PERFORMANCE
COMMENCEMENT
OF OPERATIONS
6-MONTH 1-YEAR 5-YEAR (9/20/94)
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Cumulative Total Return 1
Based on change in NAV +19.82% +14.99% +91.91% +62.82%
Based on change in market price +25.76% +23.84% +114.31% +47.26%
Average Annual Total Return 1
Based on change in NAV +19.82% +14.99% +13.93% +5.71%
Based on change in market price +25.76% +23.84% +16.47% +4.51%
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated. Six-month returns have not
been annualized.
For more current performance figures, call Franklin Templeton Investments
at 1-800/342-5236.
SEMIANNUAL REPORT 7
Ongoing market volatility can significantly affect short-term performance; more
recent returns may differ from those shown. Since markets can go down as well as
up, investment return and principal value will fluctuate with market conditions,
currency volatility, economic instability and social and political developments
of countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. Also, as a non-diversified
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. You may have a gain or
loss when you sell your shares.
Past performance does not guarantee future results.
TEMPLETON DRAGON FUND, INC.
Financial Highlights
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31,
JUNE 30, 2003 -------------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998 E 1998
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......... $9.73 $8.82 $9.91 $12.75 $10.00 $13.58 $18.25
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Income from investment operations:
Net investment income a ..................... .18 .17 .25 .12 .31 .25 .37
Net realized and unrealized gains (losses) .. 1.61 .81 (.37) (2.01) 3.58 (3.29) (3.58)
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Total from investment operations ............. 1.79 .98 (.12) (1.89) 3.89 (3.04) (3.21)
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Capital share repurchases .................... .14 .10 .01 .22 -- .03 --
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Less distributions from:
Net investment income ....................... (0.02) (.17) (.23) (1.17) (.32) (.27) (.35)
Net realized gains .......................... -- -- -- -- -- -- (1.11)
Tax return of capital ....................... -- -- (.75) -- (.82) (.30) --
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Total distributions .......................... (0.02) (.17) (.98) (1.17) (1.14) (.57) (1.46)
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Net asset value, end of period ............... $11.64 $9.73 $8.82 $9.91 $12.75 $10.00 $13.58
============================================================================
Market value, end of period b ................ $11.200 $8.920 $7.490 $7.250 $9.813 $7.375 $11.375
============================================================================
Total return (based on market value
per share) c ................................ 25.76% 21.22% 16.95% (15.31)% 50.11% (30.08)% (11.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............ $439,209 $431,779 $429,889 $485,091 $673,869 $528,464 $733,533
Ratios to average net assets:
Expenses .................................... 1.73% d 1.62% 1.54% 1.56% 1.59% 1.59% d 1.53%
Expenses, excluding waiver and payments
by affiliate (Note 8) ....................... 2.15% d -- -- -- -- -- --
Net investment income ....................... 3.49% d 1.80% 2.58% 1.04% 2.80% 3.21% d 2.14%
Portfolio turnover rate ...................... 11.83% 15.75% 70.94% 132.74% 66.60% 39.92% 13.59%
a Based on average weighted shares outstanding effective year ended December 31,
1999.
b Based on the last sale on the New York Stock Exchange.
c Total return is not annualized for periods less than one year.
d Annualized.
e For the period April 1, 1998 to December 31, 1998. Prior to this period, the
Fund's fiscal year end was March 31.
8 SEMIANNUAL REPORT See notes to financial statements.
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, JUNE 30, 2003 (UNAUDITED)
COUNTRY SHARES VALUE
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COMMON STOCKS 96.0%
AIRLINES 1.9%
Cathay Pacific Airways Ltd. .......................... Hong Kong 2,129,000 $ 2,866,641
Singapore Airlines Ltd. .............................. Singapore 931,000 5,498,240
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8,364,881
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AUTOMOBILES 1.7%
Qingling Motors Co. Ltd., H .......................... China 48,813,496 7,511,550
-------------------
BEVERAGES .3%
Tsingtao Brewery Co. Ltd., H ......................... China 1,298,000 940,441
a Yantai North Andre Juice Co. Ltd. .................... China 591,000 272,834
-------------------
1,213,275
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CHEMICALS 2.4%
a,b Sinopec Beijing Yanhua Petrochemical Co. Ltd., H ..... China 68,083,887 9,341,928
Sinopec Shanghai Petrochemical Co. Ltd., H ........... China 5,466,000 1,065,422
-------------------
10,407,350
-------------------
COMMERCIAL BANKS 3.0%
Chinatrust Financial Holding Co. ..................... Taiwan 5,680,000 4,578,792
a Sinopac Holdings ..................................... Taiwan 23,218,423 8,486,364
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13,065,156
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COMPUTERS & PERIPHERALS 4.8%
Advantech Co. Ltd. ................................... Taiwan 2,399,000 3,465,761
Asustek Computer Inc. ................................ Taiwan 4,259,000 10,767,481
CMC Magnetics Corp. .................................. Taiwan 3,286,000 2,449,546
Compal Electronics Inc. .............................. Taiwan 1,294,000 1,734,805
Legend Group Ltd. .................................... Hong Kong 7,604,000 2,535,268
-------------------
20,952,861
-------------------
CONSTRUCTION MATERIALS 4.9%
Cheung Kong Infrastructure Holdings Ltd. ............. Hong Kong 11,180,000 21,648,468
-------------------
DISTRIBUTORS 1.7%
China Resources Enterprise Ltd. ...................... Hong Kong 8,720,000 7,547,944
-------------------
DIVERSIFIED FINANCIAL SERVICES 1.1%
Yuanta Core Pacific Securities Co. ................... Taiwan 8,844,445 4,625,382
-------------------
DIVERSIFIED TELECOMMUNICATION SERVICES .7%
Asia Satellite Telecommunications Holdings Ltd. ...... Hong Kong 620,000 1,021,652
China Telecom Corp. Ltd. ............................. China 9,120,000 2,093,420
-------------------
3,115,072
-------------------
ELECTRIC UTILITIES 5.6%
Beijing Datang Power Generation Co. Ltd., H .......... China 32,020,000 14,063,400
Guangdong Electric Power Development Co. Ltd., B ..... China 1,896,600 1,077,427
Huaneng Power International Inc., H .................. China 8,374,000 9,557,215
-------------------
24,698,042
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SEMIANNUAL REPORT 9
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, JUNE 30, 2003 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE
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COMMON STOCKS (CONT.)
ELECTRICAL EQUIPMENT 1.4%
Phoenixtec Power Co. Ltd. ............................. Taiwan 7,189,000 $ 6,044,493
-------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.7%
Delta Electronics Inc. ................................ Taiwan 6,112,050 7,258,170
-------------------
FOOD & DRUG RETAILING 11.4%
Dairy Farm International Holdings Ltd. ................ Hong Kong 39,911,478 49,889,347
-------------------
FOOD PRODUCTS 1.3%
People's Food Holdings Ltd. ........................... China 1,620,000 883,135
UNI-President Enterprises Corp. ....................... Taiwan 16,069,030 4,944,674
-------------------
5,827,809
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HEALTH CARE EQUIPMENT & SUPPLIES .1%
Microlife Corp. ....................................... Taiwan 293,000 546,042
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HOTELS RESTAURANTS & LEISURE 3.0%
China Travel International Investment Hong Kong Ltd. .. Hong Kong 2,600,000 396,761
Hong Kong & Shanghai Hotels Ltd. ...................... Hong Kong 28,129,000 12,715,160
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13,111,921
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HOUSEHOLD DURABLES 3.5%
TCL International Holdings Inc. ....................... China 53,614,000 11,344,114
Tsann Kuen Enterprise Co. Ltd. ........................ Taiwan 3,194,000 4,106,703
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15,450,817
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INDUSTRIAL CONGLOMERATES 9.7%
Beijing Enterprises Holdings Ltd. ..................... Hong Kong 3,082,000 2,588,704
China Merchants Holdings
International Co. Ltd. ............................... Hong Kong 22,860,000 20,373,678
Citic Pacific Ltd. .................................... Hong Kong 6,496,000 11,870,508
Hutchison Whampoa Ltd. ................................ Hong Kong 622,000 3,788,719
Shanghai Industrial Holdings Ltd. ..................... Hong Kong 2,904,000 4,096,356
-------------------
42,717,965
-------------------
IT SERVICES .3%
Travelsky Technology Ltd., H .......................... China 2,211,000 1,488,526
-------------------
MARINE 1.5%
China Shipping Development Co. Ltd., H ................ China 18,870,000 6,714,958
-------------------
MEDIA .3%
Singapore Press Holdings Ltd. ......................... Singapore 107,000 1,111,925
Television Broadcasts Ltd. ............................ Hong Kong 92,000 329,745
-------------------
1,441,670
-------------------
METALS & MINING .2%
Yanzhou Coal Mining Co. Ltd., H ....................... China 1,728,000 803,267
-------------------
OFFICE ELECTRONICS .3%
Kinpo Electronics Inc. ................................ Taiwan 2,554,200 1,247,211
-------------------
10 SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, JUNE 30, 2003 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
OIL & GAS 11.5%
China Petroleum & Chemical Corp., H ............. China 148,606,000 $ 35,635,789
PetroChina Co. Ltd., H .......................... China 49,408,000 14,889,275
-------------------
50,525,064
-------------------
REAL ESTATE 8.3%
a Beijing Capital Land Ltd., H .................... China 1,920,000 357,008
Cheung Kong Holdings Ltd. ....................... Hong Kong 989,000 5,948,090
Hang Lung Group Ltd. ............................ Hong Kong 20,415,000 16,623,847
Henderson China Holdings Ltd. ................... Hong Kong 9,215,000 3,574,614
Henderson Investment Ltd. ....................... Hong Kong 9,677,000 9,307,015
Henderson Land Development Co. Ltd. ............. Hong Kong 248,000 712,374
-------------------
36,522,948
-------------------
ROAD & RAIL 1.5%
Guangshen Railway Co. Ltd., H ................... China 27,326,000 4,870,788
MTR Corp. Ltd. .................................. Hong Kong 1,627,850 1,868,297
-------------------
6,739,085
-------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 1.5%
Sunplus Technology Co. Ltd. ..................... Taiwan 4,989,000 6,486,709
-------------------
TEXTILES APPAREL & LUXURY GOODS .4%
Tainan Enterprises Co. Ltd. ..................... Taiwan 1,468,000 1,764,484
-------------------
TRANSPORTATION INFRASTRUCTURE 5.5%
Cosco Pacific Ltd. .............................. Hong Kong 8,914,000 9,373,351
Jiangsu Expressway Co. Ltd., H .................. China 29,410,000 11,125,652
Zhejiang Expressway Co. Ltd., H ................. China 8,470,000 3,502,850
-------------------
24,001,853
WIRELESS TELECOMMUNICATION SERVICES 4.5%
China Mobile (Hong Kong) Ltd. ................... China 5,988,000 14,128,890
Smartone Telecommunications
Holdings Ltd. .................................. Hong Kong 3,777,000 4,310,676
a Taiwan Cellular Corp. ........................... Taiwan 1,991,120 1,444,008
-------------------
19,883,574
-------------------
TOTAL COMMON STOCKS (COST $382,448,302) ......... 421,615,894
-------------------
SHORT TERM INVESTMENTS (COST $15,833,098) 3.6%
c Franklin Institutional Fiduciary Trust Money
Market Portfolio ............................... United States 15,833,098 15,833,098
-------------------
TOTAL INVESTMENTS (COST $398,281,400) 99.6% ..... 437,448,992
OTHER ASSETS, LESS LIABILITIES .4% .............. 1,759,770
-------------------
NET ASSETS 100.0% ............................... $ 439,208,762
===================
a Non-income producing.
b See Note 6 regarding Holdings of 5% Voting Securities.
c See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
SEMIANNUAL REPORT 11
TEMPLETON DRAGON FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................ $389,270,325
Cost - Non-controlled affiliated issuers ............... 9,011,075
============
Value - Unaffiliated issuers ........................... 428,107,064
Value - Non-controlled affiliated issuers .............. 9,341,928
Cash .................................................... 245
Receivables:
Investment securities sold ............................. 808,842
Affiliates ............................................. 850,000
Dividends and interest ................................. 3,718,674
------------
Total assets ....................................... 442,826,753
------------
Liabilities:
Payables:
Investment securities purchased ........................ 1,591,795
Affiliates ............................................. 511,707
Other liabilities ....................................... 1,514,489
------------
Total liabilities .................................. 3,617,991
------------
Net assets, at value ..................................... $439,208,762
============
Net assets consist of:
Undistributed net investment income ..................... $ 7,665,874
Net unrealized appreciation (depreciation) .............. 39,167,464
Accumulated net realized gain (loss) .................... (62,848,849)
Capital shares .......................................... 455,224,273
------------
Net assets, at value ..................................... $439,208,762
============
Net asset value per share ($439,208,762 /
37,719,742 shares outstanding) ........................... $11.64
============
12 SEMIANNUAL REPORT See notes to financial statements.
TEMPLETON DRAGON FUND, INC.
Financial Statements (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
Investment Income:
(net of foreign taxes of $190,575)
Dividends ....................................................... $11,743,633
Interest ........................................................ 245
-----------
Total investment income ........................................ 11,743,878
-----------
Expenses:
Management fees (Note 3) ........................................ 2,739,468
Administrative fees (Note 3) .................................... 337,211
Transfer agent fees ............................................. 102,200
Custodian fees .................................................. 93,400
Reports to shareholders ......................................... 264,439
Registration and filing fees .................................... 37,300
Professional fees ............................................... 1,224,100
Directors' fees and expenses .................................... 28,800
Other ........................................................... 5,800
-----------
Total expenses ................................................. 4,832,718
-----------
Expenses waived/paid by affiliate (Note 3) .................... (950,000)
-----------
Net expenses ................................................. 3,882,718
-----------
Net investment income ...................................... 7,861,160
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffilaited issuers .......................................... 47,923,104
Non-controlled affiliated issuers (Note 6) .................... (9,545,858)
Foreign currency transactions .................................. (89,230)
-----------
Net realized gain (loss) ................................... 38,288,016
Net unrealized appreciation
(depreciation) on:
Investments .................................................... 28,509,618
Translation of assets and liabilities denominated
in foreign currencies ......................................... (128)
-----------
Net unrealized appreciation (depreciation) ................. 28,509,490
-----------
Net realized and unrealized gain (loss) .......................... 66,797,506
-----------
Net increase (decrease) in net assets resulting from operations .. $74,658,666
===========
SEMIANNUAL REPORT 13
See notes to financial statements.
TEMPLETON DRAGON FUND, INC.
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE, 30, 2003 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2002
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................... $ 7,861,160 $ 8,191,719
Net realized gain (loss) from investments and
foreign currency transactions ......................................... 38,288,016 3,663,821
Net unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies ............ 28,509,490 39,095,638
-----------------------------------
Net increase (decrease) in net assets
resulting from operations ......................................... 74,658,666 50,951,178
Distributions to shareholders from net investment income ................. (665,642) (7,570,574)
Capital share transactions (Note 2) ...................................... (66,563,325) (41,490,771)
-----------------------------------
Net increase (decrease) in net assets ............................... 7,429,699 1,889,833
Net assets:
Beginning of period ...................................................... 431,779,063 429,889,230
------------------------------------
End of period ............................................................ $439,208,762 $431,779,063
====================================
Undistributed net investment income included in net assets:
End of period ............................................................ $ 7,665,874 $ 470,356
====================================
14 SEMIANNUAL REPORT See notes to financial statements.
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (the Fund), is registered under the Investment
Company Act of 1940 as a closed-end, non-diversified investment company. The
Fund seeks long-term capital appreciation by investing at least 45% of its total
assets in the equity securities of "China companies," as defined in the Fund's
prospectus.
On May 29, 2002, the Fund's shareholders approved an Agreement and Plan of
Reorganization (the "Plan") that provides for the reorganization of the Fund
from a Maryland corporation to a Delaware statutory trust. The completion of the
reorganization is pending guidance from the National Tax Agency in Japan
relating to the tax treatment of the Plan under Japanese laws with respect to
the Fund's Japanese shareholders. If and when the reorganization is completed,
the Delaware statutory trust will be the successor to the Fund. The following
summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
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.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses are included
in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
SEMIANNUAL REPORT 15
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expense during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liability 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. However, based on experience, the Fund expects the
risk of loss to be remote.
2. CAPITAL STOCK
On October 18, 1997, the Board of Directors of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund may
purchase, from time to time, up to 5.4 million shares of the Fund's common stock
in open-market transactions, at the discretion of management (approximately 10%
of the shares outstanding at the time the program was initially implemented). In
May 2000, the Board of Directors removed the 10% limitation on share repurchases
in order to give management greater flexibility to engage in an aggressive share
repurchase program. Effective May 10, 2002, the Board of Directors discontinued
the repurchase program.
At June 30, 2003, there were 100 million shares authorized ($.01 par value).
16 SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (CONTINUED)
2. CAPITAL STOCK (CONT.)
On July 11, 2002 and May 22, 2003, the Fund purchased and retired certain
amounts of its outstanding common stock. The Fund incurred tender costs, which
were charged to additional paid-in-capital. Tender offer transactions were as
follows:
MAY 22, 2003* JULY 11, 2002
--------------------------------
Shares repurchased and retired ......... 6,656,425 4,364,926
Purchase price ......................... $9.97 $9.45
Percentage of net asset value .......... 92.5% 90%
Tender costs incurred .................. $198,768 $242,221
*See Note 8 regarding Recent Litigation
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers or directors of Templeton Asset
Management Ltd. (TAML) and Franklin Templeton Services, LLC (FT Services), the
Fund's investment manager and administrative manager, respectively.
The Fund pays an investment management fee to TAML of 1.25% per year of the
average weekly net assets of the Fund. The Fund pays FT Services an
administrative fee of 0.15% per year of the Fund's average weekly net assets, of
which 0.10% is paid to Nomura Asset Management, Inc.
4. INCOME TAXES
At June 30, 2003, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ..................................... $400,183,135
--------------
Unrealized appreciation ................................. 86,222,591
Unrealized depreciation ................................. (48,956,734)
--------------
Net unrealized appreciation (depreciation) .............. $ 37,265,857
==============
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
At December 31, 2002, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
2006 ................................. $ 992,610
2007 ................................. 49,694,430
2009 ................................. 47,221,414
------------
$97,908,454
============
SEMIANNUAL REPORT 17
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 2003 aggregated $48,094,409 and $110,338,496,
respectively.
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" to include
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at June 30,
2003 were as shown below.
REALIZED
NUMBER OF NUMBER OF CAPITAL
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME GAINS/(LOSSES)
NAME OF ISSUER DEC. 31, 2002 ADDITIONS REDUCTIONS JUNE 30, 2003 JUNE 30, 2003 1/1/03-6/30/03 1/1/03-6/30/03
-------------------------------------------------------------------------------------------------------------------------------
NON-CONTROLLED AFFILIATES
Angang New Steel
Company Ltd., H ......... 58,332,000 -- (58,332,000) -- * -- $ (967,791)
Sinopec Beijing Yanhua
Petrochemical
Co. Ltd., H ............. 72,215,887 -- (4,132,000) 68,083,887 $9,341,928 -- (97,687)
Tsingtao Brewery Co.
Ltd., H ................. 39,944,000 -- (38,646,000) 1,298,000 * -- (8,480,380)
------------------------------------------------
TOTAL NON-CONTROLLED AFFILIATES $9,341,928 $-- $(9,545,858)
================================================
*As of June 30, 2003 no longer an affiliate.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers Inc. (an affiliate of the Fund's 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 fees paid by the Sweep
Money Fund. The Fund earned $208,566 of dividend income from investments in the
Sweep Money Fund for the period ended June 30, 2003.
18 SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (CONTINUED)
8. RECENT LITIGATION
On January 29, 2003, the Fund, together with Templeton China World Fund, Inc.
("China Fund"), another closed-end management investment company in Franklin
Templeton Investments, and TAML, the investment adviser to the Fund and China
Fund, filed a complaint in the United States District Court for the District of
Maryland, Northern Division, against Harvard College, Harvard Management
Company, Inc. ("Harvard Management"), which is an investment advisor to Harvard
College, and Steven Alperin, an officer of Harvard Management (referred to
collectively as "Harvard"). The complaint alleged that Harvard violated several
provisions of the Federal securities laws and the rules of the SEC related to
Harvard's ownership of Fund shares and actions as a shareholder. On February 7,
2003, Harvard counterclaimed, alleging that the Fund, China Fund, TAML and each
fund's directors violated certain provisions of the Federal securities laws and
SEC rules. Harvard also asserted counterclaims of breach of fiduciary duty under
Maryland state law against TAML and each fund's directors. On March 20, 2003,
the parties announced a settlement that resulted in, among other things, the
dismissal of their litigation claims against each other and the withdrawal of
shareholder proposals submitted by Harvard College for the Fund's 2003 Annual
Shareholders' Meeting (the "Meeting").
DISMISSAL OF LAWSUIT. Pursuant to the Settlement Agreement between the Fund and
Harvard, the complaint brought by the Fund, China Fund and TAML against Harvard,
as well as the counterclaims brought by Harvard against the Fund, China Fund,
each fund's directors and TAML were dismissed without prejudice. The parties
have also entered into covenants not to sue each other with respect to the
claims that were made or could have been made in the litigation absent a breach
of the settlement agreements.
SHAREHOLDER PROPOSALS. As part of the settlement, Harvard College has agreed to
withdraw all of its shareholder proposals for the Meeting.
TENDER OFFERS. The Fund announced that as part of its settlement with Harvard,
it has agreed to take, and the Board approved, the following actions:
o APRIL 2003 CASH TENDER OFFER--The Fund agreed to commence a cash tender
offer, which was required to be commenced on or prior to April 30, 2003, for
15% of the Fund's outstanding shares at 92.5% of net asset value per share as
of the date the offer expires. Previously, the Board had approved an April
2003 cash tender offer for not less than 10% of the Fund's outstanding shares
at not less than 90% of net asset value per share. On April 24, 2003, the
Fund commenced a tender offer for up to 6,656,425 shares, or 15%, of the
Fund's outstanding shares at a price per share equal to 92.5% of net asset
value per share as of May 22, 2003, the expiration date of the tender offer.
In accordance with the terms of the tender offer, 6,656,425 shares were
accepted by the Fund for a purchase price of $9.97 per share.
o IN-KIND TENDER OFFERS--The Fund has applied to the SEC for an exemptive order
allowing the Fund to make occasional, non-periodic tender offers, each for up
to 20% of the Fund's outstanding shares at a price equal to 95% of net asset
value per share as of the date the offer expires, to be paid entirely in kind
through a pro rata distribution of marketable portfolio securities and
available cash. Subject to certain conditions, the settlement requires the
Fund to commence such an in-kind tender offer for 20% of the Fund's shares
within three months after obtaining the SEC exemption. The Fund may also be
required under the settlement to conduct, on substantially identical terms,
up to two additional in-kind tender offers under certain circumstances. There
is no assurance that the SEC will issue the exemptive order, nor is it
possible to predict the date when an exemptive order might be granted.
SEMIANNUAL REPORT 19
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (CONTINUED)
8. RECENT LITIGATION (CONT.)
o ADDITIONAL CASH TENDER OFFERS--If the SEC does not issue the exemptive order
for in-kind tender offers by March 26, 2004, the settlement provides that the
Fund may, but is not obligated to, conduct an additional cash tender offer,
and possibly later follow-on cash tender offers, each for 15% of the Fund's
outstanding shares at a price of 92.5% of net asset value per share as of the
date the offer expires. Under certain circumstances, if the Fund does not
conduct these tender offers, Harvard will be relieved of its obligation to
refrain from making shareholder proposals and taking other actions with
respect to the Fund.
Harvard announced that it intends to tender all of the shares it then owns into
each tender offer described above that is commenced.
The Settlement Agreement provides that the Fund will not be obligated to
commence in-kind tender offers or additional cash tender offers under certain
circumstances or conditions. These relate to, among other things, the number of
shares tendered by shareholders into preceding tender offers as well as the
beneficial ownership percentages of the Fund's shareholders.
STANDSTILL. As part of the settlement, Harvard agreed not to submit any
proposals for consideration by shareholders of the Fund, or any other closed-end
fund or similar investment vehicle managed by TAML or its affiliates, or for
consideration by shareholders of Franklin Resources, nor to encourage others to
do so, for a period of four years. Harvard also has agreed not at any time to
acquire additional shares of the Fund or any other closed-end fund or similar
investment vehicle managed by TAML or its affiliates.
FEES, COSTS AND EXPENSES. The Fund agreed that TAML shall be responsible for the
legal fees and expenses incurred by the Fund and its directors with respect to
the Settlement Agreement and the litigation. The Fund agreed that TAML shall
also be responsible for the legal fees and expenses incurred by the Fund through
March 20, 2003, with respect to its proxy contest relating to the Meeting.
20 SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
Annual Meeting of Shareholders, May 29, 2003
An Annual Meeting of Shareholders of the Fund was held at the Tower Club, 28th
Floor, Union Planters Bank Building, 100 South East 3rd Avenue, Fort Lauderdale,
Florida, on May 29, 2003. The purpose of the meeting was to elect three
Directors of the Fund. At the meeting held on May 29, 2003, the following
persons were elected by the shareholders to serve as Directors of the Fund:
Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps.* No other business was
transacted at the meeting.
The results of the voting at the meeting are as follows:
Proposal 1. The election of three (3) Directors:
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
TERM EXPIRING 2006 FOR SHARES SHARES WITHHELD SHARES SHARES
---------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Betty P. Krahmer ..... 40,415,163 91.07% 98.05% 802,238 1.81% 1.95%
Gordon S. Macklin .... 40,402,652 91.05% 98.02% 814,749 1.84% 1.98%
Fred R. Millsaps ..... 40,251,905 90.71% 97.66% 965,496 2.18% 2.34%
* Harris J. Ashton, Frank J. Crothers, S. Joseph Fortunato, Andrew H. Hines,
Jr., Edith E. Holiday, Frank A. Olson and Constantine D. Tseretopoulos
currently serve as Independent Directors and Nicholas F. Brady, Martin L.
Flanagan and Charles B. Johnson currently serve as Interested Directors.
Their terms of office continued after the Annual Meeting of Shareholders.
SEMIANNUAL REPORT 21
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 (other than shareholders holding
their shares through Japan Securities Clearing Corporation, who will not be
enrolled in the Plan unless certain conditions are met and they elect to
participate), unless he elects to withdraw. If the shares are registered in the
name of a broker-dealer or other nominee (i.e., in "street name"), the
broker-dealer or nominee will elect to participate in the Plan on the
shareholder's behalf unless the shareholder instructs them otherwise, or unless
the reinvestment service is not provided by the broker-dealer or nominee.
Participants should contact Mellon Investor Services LLC, P.O. Box 3338, South
Hackensack, NJ 07606-1938, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify
Mellon Securities Trust Company (the "Plan Agent") at the address above or the
institution in whose name the shares are held. The Plan Agent must receive
written notice within 10 business days before the record date for the
distribution.
Whenever the Fund declares dividends in either cash or common stock of the Fund,
if the market price is equal to or exceeds net asset value at the valuation
date, the participant will receive the dividends entirely in stock at a price
equal to the net asset value, but not less than 95% of the then current market
price of the Fund's shares. If the market price is lower than net asset value or
if dividends and/or capital gains distributions are payable only in cash, the
participant will receive shares purchased on the New York Stock Exchange or
otherwise on the open market.
A participant has the option of submitting additional payments to the Plan
Agent, in any amounts of at least $100, up to a maximum of $5,000 per month, for
the purchase of Fund shares for his or her account. These payments shall be made
by check or money order payable to "Mellon Securities Trust Company" and sent to
Mellon Investor Services LLC, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn:
Templeton Dragon Fund, Inc. The Plan Agent shall apply such payments (less a
$5.00 service charge and less a pro rata share of trading fees) to purchases of
the Fund's shares in the open market.
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.
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Agent sent to Mellon Investor Services LLC, P.O. Box
3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will
receive, without charge, stock certificates issued in the participant's name for
all full shares held by the Plan Agent; or, if the participant wishes, the Plan
Agent will sell the participant's shares and send the proceeds, less a service
charge of $5.00 and less trading fees.
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.
22 SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
1-800/416-5585
www.melloninvestor.com
SHAREHOLDER INFORMATION
Shares of Templeton Dragon Fund, Inc. are traded daily on the New York Stock
Exchange under the symbol "TDF". The Fund's shares are also listed and traded in
Japan on the Osaka Securities Exchange. 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 DIRECTSM. For information go to Mellon Investor
Services' web site at https://vault.melloninvestor.com/isd and follow the
instructions.
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 7
a.m. pacific time any business day at 1-800/DIAL BEN(R) (1-800/342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
Shareholders not receiving copies of the reports to shareholders because their
shares are registered in the name of a broker or a custodian can request that
they be added to the Fund's mailing list by writing Templeton Dragon Fund, Inc.,
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
SEMIANNUAL REPORT 23
[LOGO OMITTED]
FRANKLIN (R) TEMPLETON(R)
INVESTMENTS
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
SEMIANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660
1-800/416-5585
www.melloninvestor.com
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of investments made for the Fund may go
down as well as up. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. The Fund and its investors are not protected from
such losses by the Investment Manager. Therefore, investors who cannot accept
this risk should not invest in the 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 S2003 08/03
ITEM 2. CODE OF ETHICS. N/A
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. N/A
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. 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 10. EXHIBITS.
(A) N/A
(B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION,
AND BRUCE S. ROSENBERG, CHIEF FINANCIAL OFFICER
(B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION,
AND BRUCE S. ROSENBERG, CHIEF FINANCIAL OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON DRAGON FUND, INC.
By /s/JIMMY D. GAMBILL
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/JIMMY D. GAMBILL
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August 31, 2003
By /s/BRUCE S. ROSENBERG
-----------------------------
Bruce S. Rosenberg
Chief Financial Officer
Date: August 31, 2003