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: 12/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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DECEMBER 31, 2005
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ANNUAL REPORT AND SHAREHOLDER INFORMATION INTERNATIONAL
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TEMPLETON DRAGON FUND, INC.
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE
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.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
CONTENTS
IMPORTANT NOTICE TO
SHAREHOLDERS .............................................................. 1
ANNUAL REPORT
Templeton Dragon Fund, Inc. ............................................... 2
Performance Summary ....................................................... 7
Financial Highlights and Statement of Investments ......................... 9
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 17
Report of Independent Registered Public
Accounting Firm ........................................................... 25
Annual Meeting of Shareholders ............................................ 26
Dividend Reinvestment and Cash Purchase Plan .............................. 27
Tax Designation ........................................................... 29
Board Members and Officers ................................................ 31
Shareholder Information ................................................... 38
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IMPORTANT NOTICE TO SHAREHOLDERS
CHANGE IN NON-FUNDAMENTAL INVESTMENT POLICY
On December 1, 2005, the Fund's Board of Directors approved a change in
non-fundamental investment policy to permit investment of up to 15% of the
Fund's assets in a single issuer. The Fund formerly had a non-fundamental
operating policy that permitted the Fund's Investment Manager to invest up to
10% of the Fund's assets in a single issuer.
Management believes that this change is in the best interests of the Fund and
its shareholders because it gives the Fund greater investment flexibility to
pursue its investment objective of capital appreciation in light of current
market conditions.
Enabling the Fund to invest a greater portion of its assets in a single issuer,
and thus potentially fewer issuers, involves potential risks, including the risk
that changes in the value of a single issuer's securities may have a greater
effect on the Fund's performance and share price.
REPURCHASE PROGRAM
In December 2004, the Board of Directors of the Fund authorized management to
re-implement the Fund's open-market share repurchase program, which was
originally implemented in October 1997. The Fund's Board of Directors had
discontinued the open-market share repurchase program in May 2002, in connection
with the Fund's previously conducted tender offers. Under the program, the Fund
may purchase, from time to time, shares of the Fund's common stock in
open-market transactions, at the discretion of the Fund's Investment Manager.
Not part of the annual report | 1
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.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/05
China 37.7%
Hong Kong 33.3%
Taiwan 22.6%
U.K 3.4%
South Korea 2.2%
Short-Term Investments & Other Net Assets 0.8%
Dear Shareholder:
This annual report for Templeton Dragon Fund covers the fiscal year ended
December 31, 2005.
PERFORMANCE OVERVIEW
Templeton Dragon Fund posted cumulative total returns of +14.08% in market price
terms and +21.20% in net asset value terms for the year under review. You can
find the Fund's long-term performance data in the Performance Summary beginning
on page 7.
ECONOMIC AND MARKET OVERVIEW
Economic growth was strong in the region where the Fund invests. As a result of
a new and more detailed economic survey, the Chinese government raised its 2004
gross domestic product (GDP) estimate by US$284 billion to almost US$2 trillion
in November, an increase of about 17%.(1) Based on this revision, China moved
ahead of Italy to become the world's sixth largest economy. Despite China's
strong economic growth, inflation remained benign, averaging 1.8% for the
12-month period.(1) Although the yuan appreciated against the U.S. dollar by
2.5% since the beginning of the year, China's trade sector experienced robust
growth, with the trade surplus surging 333% to US$90.8 billion in the first 11
months of 2005 compared with the same period in 2004 (year-over-year).(2)
Foreign direct investment (FDI) into China totaled US$53.1
(1) Source: National Bureau of Statistics, China.
(2) Sources: IDC/Exshare; Customs General Administration, China.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 10.
2 | Annual Report
billion in the same period, down 1.9% year-over-year.(1) However, pledged FDI
was up 24.0% year-over-year to US$167 billion, indicating strong investment
flows into China from foreign investors.(1)
Hong Kong reported favorable economic data during the period. Third quarter
2005 GDP growth was 8.2% year-over-year, bringing growth for the first nine
months of the year to 7.2%.(3) Key drivers included strong exports and domestic
demand. The government expects the economy to expand 7% for the entire year.(3)
Unemployment was on a downward trend, ending November at 5.3%.(3) Inflation
remained relatively mild, increasing 1.7% year-over-year in November.(3) This
led the government to lower its 2005 inflation forecast to 1.2% from 1.5%,
ending nearly six years of deflation.(3) Property prices came under pressure as
investors remained cautious in view of rising interest rates. Politics came to
the forefront during the year with the resignation of Tung Chee-Hwa as chief
executive. He was replaced by Donald Tsang.
In Taiwan, a rebound in exports supported third quarter 2005 GDP expansion to
an annualized 4.4%, an acceleration from the revised annualized 3.0% recorded
in the second quarter.(4) Exports rose 7.1% year-over-year during the quarter,
compared to 6.1% in the preceding quarter.(5) Private consumption also
supported the economic recovery, increasing 3.7%, higher than the 3.0% recorded
in the second quarter.(4) Inflation remained under control as the central bank
maintained a tightening policy, gradually increasing interest rates to reverse
the island's negative real interest rates. The government forecast inflation to
increase 2.3% in 2005 and 1.3% in 2006.(4) Politically, the ruling democratic
progressive party lost significant support to the opposition party Kuomintang
(KMT) in local elections.
Although equity markets in the greater China region started 2005 on a weak
note, market sentiment turned positive in the latter part of the year with the
Morgan Stanley Capital International (MSCI) China Index returning +19.77% in
U.S. dollar terms.(6) China continued to attract new funds, making 2005 a
record year for new equity issuance. Although the Hong Kong stock market was
adversely affected by rising interest rates for most of the period, investors
seemed to react favorably to robust economic growth, falling unemployment and
news of a possible halt to interest rate hikes in the U.S.
(3) Source: Census and Statistics Department, Hong Kong.
(4) Source: Directorate General of Budget, Accounting and Statistics, Taiwan.
(5) Source: Ministry of Finance, Taiwan.
(6) Source: Standard & Poor's Micropal. The MSCI China Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in China. The index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
Annual Report | 3
TOP 10 HOLDINGS
12/31/05
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Dairy Farm International Holdings Ltd. 17.5%
FOOD & STAPLES RETAILING, HONG KONG
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China Mobile (Hong Kong) Ltd. 8.0%
WIRELESS TELECOMMUNICATION
SERVICES, CHINA
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China Petroleum & Chemical Corp., H 6.2%
OIL, GAS & CONSUMABLE FUELS, CHINA
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PetroChina Co. Ltd., H,
common & restricted 4.9%
OIL, GAS & CONSUMABLE FUELS, CHINA
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Cheung Kong Infrastructure Holdings Ltd. 4.2%
ELECTRIC UTILITIES, HONG KONG
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Acer Inc. 4.0%
COMPUTERS & PERIPHERALS, TAIWAN
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HSBC Holdings PLC 3.4%
COMMERCIAL BANKS, U.K.
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Cheung Kong (Holdings) Ltd. 3.2%
REAL ESTATE, HONG KONG
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China Construction Bank, H,
common & restricted 3.2%
COMMERCIAL BANKS, CHINA
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Hang Lung Group Ltd. 3.2%
REAL ESTATE, HONG KONG
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The Taiwan market had a volatile year as poor political sentiment, slow economic
growth in the first half of the year and a scare in the credit card business
affected the banking sector. However, apparently attracted by cheap valuations
and conclusion of the local elections, investors returned in the last quarter of
the year, which allowed the Taiwan market to end the period in positive
territory.
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, profit
margins, returns on investment, capital resources, government regulation,
management and other factors in comparison to other companies around the world
that we believe are comparable.
Our approach to selecting investments emphasizes fundamental company-by-company
analysis (rather than broader analyses of specific industries or sectors of the
economy), to construct an "action list" from which we make our buy decisions.
Although we will consider historical value measures, the primary factor in
selecting securities for investment by the Fund will be the company's current
price relative to its long-term earnings potential.
MANAGER'S DISCUSSION
In the year under review, our stock selection generally helped the Fund's
performance relative to the MSCI China Index, as we held many stocks that were
not part of the index. The Fund's overweighted positions in the food and
staples retailing (not in the index) and technology hardware and equipment
industries were among the largest contributors to relative performance.(7)
Stock selection in the semiconductors and semiconductor equipment industry and
an underweighted allocation to the transportation sector further supported
performance.(8) Within the food and staples retailing and technology hardware
and equipment industries, our positions in Dairy Farm International Holdings
and Acer, which are not in the index, as well as no exposure to ZTE, had the
greatest positive impact. Dairy Farm operates supermarkets, drug stores,
convenience stores and restaurants in Asia. The stock performed extremely well
mainly due to greater private consumption in the region.
(7) The technology hardware and equipment sector comprises communications
equipment, computers and peripherals, electronic equipment and
instruments, office electronics, and semiconductors and semiconductor
equipment in the SOI.
(8) The transportation sector comprises air freight and logistics, airlines,
and transportation infrastructure in the SOI.
4 | Annual Report
In the semiconductors and semiconductor equipment industry, the Fund's holdings
in Taiwanese semiconductor companies, Siliconware Precision Industries and
Taiwan Semiconductor Manufacturing, as well as Samsung Electronics in South
Korea, were significant performance contributors on an absolute basis, as well
as relative to the index. These stocks performed well and are not index
components. The Fund's lack of exposure to transportation sector stocks such as
Guangshen Railway, China Shipping Development and China Southern Airlines helped
Fund performance relative to the index since those stocks underperformed.
The largest negative impact on relative performance resulted from the Fund's
underweighted exposure to the energy and telecommunication services sectors as
well as an overweighted position in commercial banks.(9) Stocks that hurt
relative performance the most included underweighted positions in PetroChina,
China Mobile and no holding in CNOOC. We increased the Fund's investments in
PetroChina and China Mobile during the reporting period, but did not invest in
CNOOC. We sought to increase the Fund's energy sector allocation via what we
considered the better valued PetroChina. The Fund's position in HSBC Holdings,
which is not in the index, caused the greatest negative impact in the
commercial banks sector. HSBC has a large international presence, and we
believe it is in a position to benefit from the growing global demand for
banking services in the long term.
During the reporting period, the Fund's largest investments were in China H
shares (Hong Kong-listed Chinese companies). Key purchases included China
Construction Bank, one of the country's largest commercial banks; PetroChina, a
dominant player in the oil, gas and consumable fuels industry; and Air China,
the national flag carrier. Elsewhere, the Fund made selective investments in
South Korea and the U.K. These included LG, a prominent multi-holding company
with a broad product line that ranges from basic chemicals to LCD televisions.
The LG brand is fast becoming a household name in China. We also added shares of
HSBC Holdings, one of the largest banking and financial services organizations
in the world.
On the other hand, we reduced the Fund's exposure to selective Hong Kong and
Taiwanese companies. Major partial sales included Hang Lung Group, a Hong Kong
real estate company; Delta Electronics, a leading Taiwanese elec-
(9) The energy sector comprises electric utilities; independent power
producers and energy traders; and oil, gas and consumable fuels in the
SOI. The telecommunication services sector comprises diversified
telecommunication services and wireless telecommunication services.
Annual Report | 5
tronic equipment manufacturer; and The Hongkong and Shanghai Hotels, the owner
and operator of seven hotels including the prestigious Peninsula Hotel in Hong
Kong. One of the Fund's largest sales was Henderson China Holdings as a result
of its privatization by the parent company, Henderson Land. The company is
involved in property development and property investment in China.
Thank you for your continued participation in Templeton Dragon Fund. We look
forward to serving your future investment needs.
Sincerely,
[PHOTO OMMITED] /s/ Mark Mobius
Mark Mobius
President and Chief Executive Officer -
Investment Management
Templeton Dragon Fund, Inc.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2005, 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.
6 | Annual Report
PERFORMANCE SUMMARY AS OF 12/31/05
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 any taxes that a shareholder
would pay on Fund dividends, capital gain distributions, if any, or realized
gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
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SYMBOL: TDF CHANGE 12/31/05 12/31/04
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Net Asset Value (NAV) +$3.10 $21.80 $18.70
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Market Price (NYSE) +$1.71 $19.18 $17.47
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DISTRIBUTIONS (1/1/05-12/31/05)
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Dividend Income $0.4054
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Short-Term Capital Gain $0.0816
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Long-Term Capital Gain $0.2801
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TOTAL $0.7671
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Templeton Dragon Fund, Inc., paid distributions derived from long-term capital
gains totaling 28.01 cents ($0.2801) per share to shareholders who owned Fund
shares in April and December 2005. The Fund designates such distributions as
capital gain dividends per Internal Revenue Code Section 852(b)(3)(C).
PERFORMANCE
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1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return(1)
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Based on change in NAV +21.20% +181.35% +212.87%
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Based on change in market price +14.08% +238.35% +199.45%
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Average Annual Total Return(1)
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Based on change in NAV +21.20% + 22.99% + 12.08%
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Based on change in market price +14.08% + 27.61% + 11.59%
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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.
Annual Report | 7
PERFORMANCE SUMMARY (CONTINUED)
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.
8 | Annual Report
TEMPLETON DRAGON FUND, INC.
FINANCIAL HIGHLIGHTS
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YEAR ENDED DECEMBER 31,
2005 2004 2003 2002 2001
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........... $ 18.70 $ 16.62 $ 9.73 $ 8.82 $ 9.91
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Income from investment operations:
Net investment income(a) .................... 0.59 0.25 0.56 0.17 0.25
Net realized and unrealized gains (losses) .. 3.28 2.39 6.75 0.81 (0.37)
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Total from investment operations ............. 3.87 2.64 7.31 0.98 (0.12)
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Capital share repurchases .................... -- -- 0.14 0.10 0.01
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Less distributions from:
Net investment income ....................... (0.41) (0.16) (0.56) (0.17) (0.23)
Net realized gains .......................... (0.36) (0.40) -- -- --
Tax return of capital ....................... -- -- -- -- (0.75)
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Total distributions .......................... (0.77) (0.56) (0.56) (0.17) (0.98)
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Net asset value, end of year ................. $ 21.80 $ 18.70 $ 16.62 $ 9.73 $ 8.82
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Market value, end of year(b) ................. $ 19.18 $ 17.47 $ 17.99 $ 8.92 $ 7.49
=============================================================
Total return (based on market value per share) 14.08% 0.36% 108.44% 21.22% 16.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............. $823,243 $706,138 $626,959 $431,779 $429,889
Ratios to average net assets:
Expenses .................................... 1.52% 1.52% 1.64%(c) 1.62% 1.54%
Net investment income ....................... 2.92% 1.45% 4.57% 1.80% 2.58%
Portfolio turnover rate ...................... 8.84% 19.42% 29.91% 15.75% 70.94%
(a) Based on average daily shares outstanding.
(b) Based on the last sale on the New York Stock Exchange.
(c) Ratio of expenses to average net assets, excluding payments by affiliate
were 1.78%.
Annual Report | See notes to financial statements. | 9
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
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COUNTRY SHARES VALUE
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COMMON STOCKS 99.2%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H ......................... China 3,017,000 $ 1,225,687
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AIRLINES 0.3%
(a) Air China Ltd., H ......................... China 7,486,000 2,389,565
(a),(b)Air China Ltd., H, 144A ................... China 1,364,000 435,395
-----------
2,824,960
-----------
AUTO COMPONENTS 1.1%
Cheng Shin Rubber Industry Co. Ltd. ....... Taiwan 10,208,938 9,018,909
-----------
AUTOMOBILES 0.1%
Chongqing Changan Automobile Co. Ltd., B .. China 3,095,370 874,280
-----------
CAPITAL MARKETS 1.0%
Yuanta Core Pacific Securities Co. ........ Taiwan 11,818,290 8,226,522
-----------
COMMERCIAL BANKS 9.5%
(a)China Construction Bank, H ................ China 11,115,000 3,870,500
(a),(b)China Construction Bank, H, 144A .......... China 64,023,000 22,294,287
Chinatrust Financial Holding Co. Ltd. ..... Taiwan 7,988,050 6,326,879
HSBC Holdings PLC ......................... United Kingdom 1,764,585 28,333,860
Mega Financial Holding Co. Ltd. ........... Taiwan 27,217,000 17,701,642
-----------
78,527,168
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COMMUNICATIONS EQUIPMENT 0.5%
D-Link Corp. .............................. Taiwan 3,277,239 3,753,802
-----------
COMPUTERS & PERIPHERALS 7.2%
Acer Inc. ................................. Taiwan 12,965,943 32,586,182
Advantech Co. Ltd. ........................ Taiwan 2,570,514 7,282,464
Asustek Computer Inc. ..................... Taiwan 3,171,863 9,759,133
LITE-ON IT Corp. .......................... Taiwan 956,000 1,252,281
Lite-On Technology Corp. .................. Taiwan 5,891,622 8,031,623
-----------
58,911,683
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CONSTRUCTION MATERIALS 0.2%
Anhui Conch Cement Co. Ltd., H ............ China 1,306,000 1,608,572
China Resources Cement .................... China 872,000 136,080
-----------
1,744,652
-----------
DISTRIBUTORS 3.2%
China Resources Enterprise Ltd. ........... China 12,628,000 22,556,834
Test-Rite International Co. Ltd. .......... Taiwan 5,227,963 3,822,251
-----------
26,379,085
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES 0.5%
China Telecom Corp. Ltd., H ............... China 10,278,000 3,777,872
-----------
ELECTRIC UTILITIES 4.2%
Cheung Kong Infrastructure Holdings Ltd. .. Hong Kong 11,060,000 34,804,769
-----------
ELECTRICAL EQUIPMENT 0.5%
Phoenixtec Power Co. Ltd. ................. Taiwan 3,632,945 3,962,025
-----------
10 | Annual Report
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (CONTINUED)
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COUNTRY SHARES VALUE
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COMMON STOCKS (CONTINUED)
ELECTRONIC EQUIPMENT & INSTRUMENTS 2.1%
Delta Electronics Inc. ................................... Taiwan 8,502,970 $ 17,432,558
------------
FOOD & STAPLES RETAILING 17.5%
Dairy Farm International Holdings Ltd. ................... Hong Kong 39,811,578 144,117,912
------------
FOOD PRODUCTS 1.0%
Uni-President Enterprises Corp. .......................... Taiwan 16,612,030 7,894,465
------------
HOTELS RESTAURANTS & LEISURE 2.2%
The Hongkong and Shanghai Hotels Ltd. .................... Hong Kong 16,490,838 18,078,211
------------
HOUSEHOLD DURABLES 0.9%
TCL Multimedia Technology Holdings Ltd. .................. China 48,960,000 7,072,179
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 3.3%
Datang International Power Generation Co. Ltd., H ........ China 26,502,000 19,482,618
Guangdong Electric Power Development Co. Ltd., B ......... China 11,270,600 4,564,261
Huadian Power International Corp. Ltd., H ................ China 8,404,000 2,146,076
Huaneng Power International, Inc., H ..................... China 1,454,000 956,375
------------
27,149,330
------------
INDUSTRIAL CONGLOMERATES 5.2%
CITIC Pacific Ltd. ....................................... China 7,081,000 19,589,155
(a)LG Corp. ................................................. South Korea 355,170 11,139,823
Shanghai Industrial Holdings Ltd. ........................ China 5,816,000 12,114,088
------------
42,843,066
------------
IT SERVICES 0.3%
Travelsky Technology Ltd., H ............................. China 2,837,000 2,616,129
------------
LEISURE EQUIPMENT & PRODUCTS 0.4%
Premier Image Technology Corp. ........................... Taiwan 2,363,850 3,172,059
------------
MACHINERY 1.7%
China International Marine Containers (Group), Co. Ltd., B China 12,791,872 10,311,170
Yungtay Engineering Co. Ltd. ............................. Taiwan 5,686,000 3,663,470
------------
13,974,640
------------
METALS & MINING 0.1%
Aluminum Corp. of China Ltd., H .......................... China 1,028,000 782,238
(b)China Oriental Group Co. Ltd., 144A ...................... China 392,000 95,047
------------
877,285
------------
OFFICE ELECTRONICS 0.1%
Kinpo Electronics Inc. ................................... Taiwan 1,526,700 648,789
-----------
OIL, GAS & CONSUMABLE FUELS 11.1%
China Petroleum & Chemical Corp., H ...................... China 103,150,000 51,218,136
PetroChina Co. Ltd., H ................................... China 40,050,000 32,799,714
(b)PetroChina Co. Ltd., H, 144A ............................. China 9,200,000 7,534,516
-----------
91,552,366
-----------
Annual Report | 11
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (CONTINUED)
--------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
REAL ESTATE 8.8%
Cheung Kong (Holdings) Ltd. ..................... Hong Kong 2,575,000 $ 26,418,687
(a)GZI REIT, Reg S ................................. Hong Kong 1,710,000 760,867
Hang Lung Group Ltd. ............................ Hong Kong 12,296,042 26,087,055
Henderson Investment Ltd. ....................... Hong Kong 7,485,000 13,321,855
Hongkong Land Holdings Ltd. ..................... Hong Kong 1,904,000 5,978,560
------------
72,567,024
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.9%
Elan Microelectronics Corp. ..................... Taiwan 2,059,491 900,300
Faraday Technology Corp. ........................ Taiwan 471,162 832,480
Samsung Electronics Co. Ltd. .................... South Korea 10,780 7,051,136
Siliconware Precision Industries Co. Ltd. ....... Taiwan 2,233,489 3,133,205
Sunplus Technology Co. Ltd. ..................... Taiwan 6,575,395 8,332,793
Taiwan Semiconductor Manufacturing Co. Ltd. ..... Taiwan 10,645,921 20,269,297
------------
40,519,211
------------
TEXTILES APPAREL & LUXURY GOODS 0.6%
Tack Fat Group International Ltd. ............... Hong Kong 26,080,000 2,623,590
Tainan Enterprises Co. Ltd. ..................... Taiwan 1,864,460 2,175,341
------------
4,798,931
------------
TRANSPORTATION INFRASTRUCTURE 1.9%
China Merchants Holdings (International) Co. Ltd. China 2,586,691 5,621,319
Cosco Pacific Ltd. .............................. China 3,354,000 6,142,501
Hainan Meilan International Airport Co. Ltd., H . China 2,994,000 1,592,831
Hopewell Holdings Ltd. .......................... Hong Kong 936,000 2,347,952
------------
15,704,603
------------
WIRELESS TELECOMMUNICATION SERVICES 8.7%
China Mobile (Hong Kong) Ltd. ................... China 13,876,000 65,678,642
Taiwan Mobile Co. Ltd. .......................... Taiwan 7,047,764 6,161,815
------------
71,840,457
------------
TOTAL COMMON STOCKS (COST $469,593,050) .......... 816,890,629
------------
12 | Annual Report
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (CONTINUED)
-----------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (COST $28,441,259) 3.5%
MONEY FUND 3.5%
(c)Franklin Institutional Fiduciary Trust Money Market Portfolio United States 28,441,259 $ 28,441,259
-------------
TOTAL INVESTMENTS (COST $498,034,309) 102.7% ................. 845,331,888
OTHER ASSETS, LESS LIABILITIES (2.7)% ........................ (22,088,831)
-------------
NET ASSETS 100.0% ............................................ $823,243,057
=============
SELECTED PORTFOLIO ABBREVIATIONS
REIT - Real Estate Investment Trust
(a) Non-income producing.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At December 31,
2005, the aggregate value of these securities was $30,359,245,
representing 3.69% of net assets.
(c) See Note 7 regarding investments in Franklin Institutional Fiduciary Trust
Money Market Portfolio.
Annual Report | See notes to financial statements. | 13
TEMPLETON DRAGON FUND, INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................. $469,593,050
Cost - Sweep Money Fund (Note 7) ......................... 28,441,259
------------
Total cost of investments ................................ $498,034,309
============
Value - Unaffiliated issuers ............................. $816,890,629
Value - Sweep Money Fund (Note 7) ........................ 28,441,259
------------
Total value of investments ............................... 845,331,888
Foreign currency, at value (cost $748,436) ................ 751,426
Receivables:
Investment securities sold ............................... 1,581,080
------------
Total assets ....................................... 847,664,394
------------
Liabilities:
Payables:
Investment securities purchased .......................... 88,543
Affiliates ............................................... 996,661
Distributions to shareholders ............................ 23,122,864
Accrued expenses and other liabilities .................... 213,269
------------
Total liabilities .................................. 24,421,337
------------
Net assets, at value ............................ $823,243,057
============
Net assets consist of:
Paid-in capital ........................................... $456,113,758
Undistributed net investment income ....................... 12,000,536
Net unrealized appreciation (depreciation) ................ 347,304,249
Accumulated net realized gain (loss) ...................... 7,824,514
============
Net assets, at value ............................ $823,243,057
============
Shares outstanding ......................................... 37,770,115
============
Net asset value per share .................................. $21.80
============
14 | See notes to financial statements. | Annual Report
TEMPLETON DRAGON FUND, INC.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended December 31, 2005
Investment income:
Dividends:
Unaffiliated issuers (net of foreign taxes of $1,835,875) ............. $ 33,091,372
Sweep Money Fund (Note 7) ............................................. 664,777
Interest (net of foreign taxes of $24) ................................. 116
--------------
Total investment income ......................................... 33,756,265
--------------
Expenses:
Management fees (Note 3a) .............................................. 9,393,849
Administrative fees (Note 3b) .......................................... 1,149,121
Transfer agent fees .................................................... 168,100
Custodian fees (Note 4) ................................................ 510,685
Reports to shareholders ................................................ 91,250
Registration and filing fees ........................................... 35,200
Professional fees ...................................................... 159,032
Directors' fees and expenses ........................................... 35,550
Other .................................................................. 24,700
--------------
Total expenses .................................................. 11,567,487
Expense reductions (Note 4) ..................................... (2,206)
--------------
Net expenses ................................................. 11,565,281
--------------
Net investment income ..................................... 22,190,984
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................... 24,668,635
Foreign currency transactions ......................................... (189,800)
--------------
Net realized gain (loss) ..................................... 24,478,835
--------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................... 99,403,734
Translation of assets and liabilities denominated in foreign currencies 4,815
--------------
Net change in unrealized appreciation (depreciation) ......... 99,408,549
--------------
Net realized and unrealized gain (loss) ................................. 123,887,384
--------------
Net increase (decrease) in net assets resulting from operations ......... $ 146,078,368
==============
Annual Report | See notes to financial statements. | 15
TEMPLETON DRAGON FUND, INC.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
2005 2004
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 22,190,984 $ 9,481,435
Net realized gain (loss) from investments and foreign currency transactions .......... 24,478,835 58,934,673
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ........................... 99,408,549 31,086,303
-------------------------------
Net increase (decrease) in net assets resulting from operations ................ 146,078,368 99,502,411
-------------------------------
Distributions to shareholders from:
Net investment income ................................................................ (15,312,005) (6,171,637)
Net realized gains ................................................................... (13,661,451) (15,009,844)
-------------------------------
Total distributions to shareholders ................................................... (28,973,456) (21,181,481)
-------------------------------
Capital share transactions (Note 2) ................................................... -- 857,852
-------------------------------
Net increase (decrease) in net assets .......................................... 117,104,912 79,178,782
Net assets:
Beginning of year ..................................................................... 706,138,145 626,959,363
-------------------------------
End of year ........................................................................... $ 823,243,057 $ 706,138,145
===============================
Undistributed net investment income included in net assets:
End of year ........................................................................... $ 12,000,536 $ 5,308,792
===============================
16 | See notes to financial statements. | Annual Report
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end investment company.
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 on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. 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 | 17
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. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Directors.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
continue to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
Foreign securities held by the Funds may be subject to foreign taxation. Foreign
taxes, if any, are recorded based on the tax regulations and rates that exist in
the foreign markets in which the Fund invests.
18 | Annual Report
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with generally accepted accounting principles. These differences may
be permanent or temporary. Permanent differences are reclassified among capital
accounts to reflect their tax character. These reclassifications have no impact
on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
2. CAPITAL STOCK
In December 2004, the Board of Directors of the Fund authorized management to
re-implement the Fund's open-market share repurchase program. Originally
implemented in October 1997, the Fund's Board of Directors had discontinued the
open-market share repurchase program in May 2002, in connection with the Fund's
previously conducted tender offers. Under the program, the Fund may purchase,
from time to time, shares of the Fund's common stock in open-market
transactions, at the discretion of the Fund's investment manager.
Annual Report | 19
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
At December 31, 2005, there were 100 million shares authorized ($0.01 par
value). During the year ended December 31, 2004, 50,373 shares were issued for
$857,852 from reinvested distributions. During the year ended December 31, 2005,
there were no share transactions; all reinvested distributions were satisfied
with previously issued shares purchased in the open market.
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
Fund's average weekly net assets, of which 0.10% is paid to Nomura Asset
Management U.S.A. Inc., for sub-administrative 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, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
20 | Annual Report
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At December 31, 2005, the Fund deferred realized currency losses of
$2,565.
The tax character of distributions paid during the years ended December 31, 2005
and 2004, was as follows:
-------------------------
2005 2004
-------------------------
Distributions paid from:
Ordinary income .......... $18,394,047 $ 6,171,637
Long term capital gain ... 10,579,409 15,009,844
-------------------------
$28,973,456 $21,181,481
=========================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
At December 31, 2005, 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 ...................... $ 498,948,196
==============
Unrealized appreciation .................. $ 359,038,159
Unrealized depreciation .................. (12,654,467)
--------------
Net unrealized appreciation (depreciation) $ 346,383,692
--------------
Undistributed ordinary income ............ $ 12,095,657
Undistributed long term capital gains .... 8,645,845
--------------
Distributable earnings ................... $ 20,741,502
==============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2005, aggregated $69,102,126 and $64,853,103,
respectively.
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 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 | 21
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. PREVIOUS LITIGATION
Pursuant to a settlement agreement which was announced on March 20, 2003,
between the Fund and Harvard College, a former shareholder of the Fund, Harvard
Management Company, Inc. ("Harvard Management"), which is an investment advisor
to Harvard College, and Steven Alperin, an officer of Harvard Management at the
time (referred to collectively as "Harvard"), the Fund agreed to take, and the
Board approved, the following actions, among other actions, which have already
been carried out.
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 port- folio securities and available
cash. Subject to certain conditions, the settlement required 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 has also been required under the set- tlement 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.
o ADDITIONAL CASH TENDER OFFERS--If the SEC did not issue the
exemptive order for in-kind tender offers by March 26, 2004, the
settlement provided that the Fund could, but was 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 did not conduct these tender offers, Harvard would be
relieved of its obligation to refrain from making shareholder
proposals and taking other actions with respect to the Fund. The
exemptive application was not received by March 26, 2004 and the
Fund did not conduct any tender offers for the period ended December
31, 2005.
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.
22 | Annual Report
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. PREVIOUS LITIGATION (CONTINUED)
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, Inc., 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.
10. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop a plan for distribution of the
respective settlement monies. The CAGO approved the distribution plan under the
CAGO Settlement and, in accordance with the terms and conditions of that
settlement, the monies were disbursed to the relevant funds. The Fund did not
participate in the CAGO Settlement. The SEC has not yet approved the
distribution plan pertaining to the December 13, 2004 SEC Order. When approved,
disbursements of settlement monies will be made promptly to the relevant funds,
in accordance with the terms and conditions of that order. The IDC continues to
develop the plan of distribution under the August 2, 2004 SEC Order that
resolved the SEC's market timing investigation.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
Annual Report | 23
TEMPLETON DRAGON FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intends to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
24 | Annual Report
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, 2005, 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, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 10, 2006
Annual Report | 25
TEMPLETON DRAGON FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS, MAY 20, 2005
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Boulevard, Fort Lauderdale, Florida on May 20, 2005. 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: Harris J. Aston, Frank J Crothers, S. Joseph Fortunato and Constantine D.
Tseretopoulos.* No other business was transacted at the meeting.
The results of the voting at the Annual meeting are as follows:
The election of four (4) Directors:
-------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
TERM EXPIRING 2008: FOR SHARES SHARES WITHHELD SHARES SHARES
-------------------------------------------------------------------------------------------------------
Harris J. Aston 32,024,179.7486 84.79% 97.75% 738,218,5057 1.95% 2.25%
Frank J. Crothers 32,090,123.7486 84.96% 97.95% 672,274.5057 1.78% 2.05%
S. Joseph Fortunato 32,051,973.7486 84.86% 97.83% 710,424.5057 1.88% 2.17%
Constantine D.
Tseretopoulos 32,073,358.7486 84.92% 97.90% 689,039.5057 1.82% 2.10%
* Edith E. Holiday, Charles B. Johnson, Gordon S. Macklin and Frank A. Olson
are Directors of the Fund who are currently serving and whose terms of
office continued after the Annual Meeting of Shareholders.
26 | Annual Report
TEMPLETON DRAGON FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with
the following features:
If shares of the Fund are held in the shareholder's name, the shareholder will
automatically be a participant in the Plan (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 Bank, N.A. (the "Plan Administrator") at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice within 10 business days before the record date for 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
Administrator, in any amounts of at least $100, up to a maximum of $5,000 per
month, for the purchase of Fund shares for his or her account. These payments
shall be made by check or money order payable to "Mellon Bank, N.A." and sent to
Mellon Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attention:
Templeton Dragon Fund, Inc. The Plan Administrator shall apply such payments
(less a $5.00 service charge and less a pro rata share of trading fees) to
purchases of the Fund's shares in 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.
Annual Report | 27
TEMPLETON DRAGON FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Administrator 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 Administrator; or, if the participant
wishes, the Plan Administrator will sell the participant's shares and send the
proceeds, less a service charge and less trading fees. The fees for the sale of
shares through the Plan are $15.00 per transaction plus a $0.12 per share
trading fee.
28 | 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 $18,688,502 as a
capital gain dividend for the fiscal year ended December 31, 2005.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $4,002,972 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2005. In January 2006, shareholders will receive Form 1099-DIV
which will include their share of qualified dividends distributed during the
calendar year 2005. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $658,662 as interest-related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended December 31, 2005.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $3,177,162 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, 2005.
At December 31, 2005, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends 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 as allowed, pursuant to Section 853 of the Code. This designation
will allow shareholders of record on December 30, 2005, 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, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund to shareholders of record.
Record Date: 12/30/2005
--------------------------------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
--------------------------------------------------------------------------------
China .............. 0.0000 0.1363 0.0726
Hong Kong .......... 0.0000 0.3635 0.0000
South Korea ........ 0.0002 0.0010 0.0010
Taiwan ............. 0.0484 0.1418 0.0000
--------------------------------------------------
TOTAL .............. $0.0486 $0.6426 $0.0736
==================================================
Annual Report | 29
TEMPLETON DRAGON FUND, INC.
TAX DESIGNATION (UNAUDITED) (CONTINUED)
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)
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2005. 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 2005 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 brackets). 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.
30 | 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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Director Since 1994 140 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
FORMERLY, Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
---------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (1944) Director Since 1998 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holdings Ltd.; Director and Vice Chairman, Caribbean Utilities Co. Ltd.; Director, Provo Power Company
Ltd.; director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power Ltd.
---------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Director Since 1994 141 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
---------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 1996 136 Director, Amerada Hess Corporation
500 East Broward Blvd. (exploration and refining of oil and
Suite 2100 gas), H.J. Heinz Company (processed
Fort Lauderdale, FL 33394-3091 foods and allied products), RTI
International Metals, Inc. (manufac-
ture 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 Assistant to the President of the United States and Secretary of the
FORMERLY, 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 | 31
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Director Since 1994 140 Director, Martek Biosciences
500 East Broward Blvd. Corporation, MedImmune, Inc.
Suite 2100 (biotechnology), and Overstock.com
Fort Lauderdale, FL 33394-3091 (Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding compa-
ny) (1987-2004) and Spacehab, Inc.
(aerospace services) (1994-2003).
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
FORMERLY, Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking)
(1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987).
---------------------------------------------------------------------------------------------------------------------------------
DAVID W. NIEMIEC (1949) Director Since October 17 Director, Emeritus Corporation
500 East Broward Blvd. 2005 (assisted living).
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); Director, various private companies; and FORMERLY, Managing Director, Saratoga
Partners (1998-2001); Managing Director, 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 101 Director, White Mountains Insurance
500 East Broward Blvd. Group, Ltd. (holding company),
Suite 2100 Amerada Hess Corporation (exploration
Fort Lauderdale, FL 33394-3091 and refining of oil and gas) and
Sentient Jet (private jet service);
and FORMERLY, Director, Becton Dickinson
and Company (medical technology),
Cooper Industries, Inc. (electrical
products and tools and hardware), Health
Net, Inc. (formerly, Foundation
Health) (integrated managed care),
The Hertz Corporation, Pacific Southwest
Airlines, The RCA Corporation, Unicom
(formerly, Commonwealth Edison) and
UAL Corporation (airlines).
---------------------------------------------------------------------------------------------------------------------------------
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).
---------------------------------------------------------------------------------------------------------------------------------
32 | Annual Report
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since October 16 None
500 East Broward Blvd. 2005
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 (1997-2001); Senior Fellow of the Brookings
Institute (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 20 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).
---------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and 140 None
One Franklin Parkway Chairman of Vice President
San Mateo, CA 94403-1906 the Board since 1994 and
and Vice Chairman of the
President Board since 1995
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be,
of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton
Investments.
---------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) Vice Since 1996 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, 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 45 of the investment companies in Franklin
Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
Annual Report | 33
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
---------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (1964) Vice Since 2001 Not Applicable Not Applicable
P.O. Box N-7759 President
Lyford Cay, Nassau, Bahamas
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; officer of 14 of the investment companies in Franklin Templeton
Investments.
---------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the
investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
---------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC,
Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and
Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47
of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court
(District of Massachusetts) (until 1979).
---------------------------------------------------------------------------------------------------------------------------------
34 | Annual Report
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice Since 1996 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, 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 45
of the investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (1940) Vice Since 1994 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin Templeton Distributors, Inc.; Senior Vice
President, Franklin Templeton Services, LLC; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 32
of the investment companies in Franklin Templeton Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
---------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (1937) Vice Since 2002 Not Applicable Not Applicable
600 Fifth Avenue President
Rockefeller Center - AML
New York, NY 10020-2302 Compliance
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, Franklin Templeton
Institutional Suisse S.A., Arch Chemicals, Inc. and Lingnan Foundation; and 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.
---------------------------------------------------------------------------------------------------------------------------------
MARK MOBIUS (1936) President President since Not Applicable Not Applicable
17th Floor, The Chater House and Chief 1994 and Chief
8 Connaught Road Executive Executive
Central Hong Kong Officer - Officer -
Investment Investment
Management Management
since 2002
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; Executive Vice
President and Director, Templeton Global Advisors Limited; and officer and/or director, as the case may be, of some of the
subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin Templeton Investments; and FORMERLY,
President, International Investment Trust Company Limited (investment manager of Taiwan R.O.C. Fund) (1986-1987); and Director,
Vickers da Costa, Hong Kong (1983-1986).
---------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel and Assistant Secretary, Franklin Resources, Inc.; Vice President and Assistant Secretary, Templeton
Investment Counsel, LLC and Fiduciary Trust International of the South; officer of 14 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Assistant General Counsel, The Prudential Insurance Company of America (1997-2001).
---------------------------------------------------------------------------------------------------------------------------------
Annual Report | 35
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 16 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
---------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 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).
---------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
---------------------------------------------------------------------------------------------------------------------------------
* 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 adviser or
affiliated investment advisers.
** Charles B. Johnson is considered to be 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 adviser.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
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 OF DIRECTORS
HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT
COMMITTEE AND HAS DESIGNATED EACH OF FRANK A. OLSON AND DAVID W. NIEMIEC AS AN
AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS. OLSON AND
NIEMIEC QUALIFY AS SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND
AND EXPERIENCE. MR. OLSON HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2003. HE CURRENTLY SERVES AS CHAIRMAN EMERITUS OF THE HERTZ CORPORATION
AND WAS FORMERLY ITS CHAIRMAN OF THE BOARD FROM 1980 TO 2000 AND ITS CHIEF
EXECUTIVE OFFICER FROM 1977 TO 1999. MR. OLSON IS ALSO A DIRECTOR AND AUDIT
COMMITTEE MEMBER OF AMERADA HESS CORPORATION AND WHITE MOUNTAINS INSURANCE
GROUP, LTD., AND A FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF UAL
CORPORATION. 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 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 OF DIRECTORS BELIEVES THAT
MR. OLSON 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. MESSRS. OLSON AND NIEMIEC ARE INDEPENDENT DIRECTORS 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.
36 | Annual Report
TEMPLETON DRAGON FUND, INC.
TRANSFER AGENT
Mellon Investor Services LLC
480 Washington Boulevard
Jersey City, NJ 07310
1-800-416-5585
www.melloninvestor.com
SHAREHOLDER INFORMATION
Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange
under the symbol "TDF". The Fund's shares are also listed and traded in Japan
on the Osaka Securities Exchange. 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 Mellon Investor
Services' web site at http://www.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.
Annual Report | 37
TEMPLETON DRAGON FUND, INC.
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration
and Chief Financial Officer and Chief Accounting Officer are required by the
rules of the U.S. Securities and Exchange Commission to provide certain
certifications with respect to the Fund's Form N-CSR and Form N-CSRS (which
include the Fund's annual and semiannual reports to shareholders) that are
filed semiannually with the Commission. The Fund has filed such certifications
with its Form N-CSRS for the six months ended June 30, 2005. Additionally, the
Fund expects to file, on or about February 28, 2006, such certifications with
its Form N-CSR for the year ended December 31, 2005.
38 | Annual Report
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LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) 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.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II(1)
VALUE
Franklin Balance Sheet Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4)
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(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust(8)
(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(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) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/05
Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON 100 Fountain Parkway
INVESTMENTS P.O. Box 33030
St. Petersburg, FL 33733-8030
ANNUAL REPORT AND SHAREHOLDER INFORMATION
TEMPLETON DRAGON FUND , INC.
INVESTMENT MANAGER
Templeton Asset Management Ltd.
TRANSFER AGENT
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
Toll free number: 1-800-416-5585
Hearing Impaired phone number: 1-800-231-5469
Foreign Shareholders phone number: 201-680-6578
www.melloninvestor.com/isd
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 A2005 02/06
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 experts are David W. Niemiec and Frank A.
Olson and they are "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 $46,955 for the fiscal year ended December 31, 2005 and $43,500 for the
fiscal year ended December 31, 2004.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
The aggregate 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
were $0 for the fiscal year ended December 31, 2005 and $48,579 for the fiscal
year ended December 31, 2004. The services for which these fees were paid
included attestation services.
(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 $22,571 for the fiscal year ended
December 31, 2005 and $0 for the fiscal year ended December 31, 2004. 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, 2005
and $441 for the fiscal year ended December 31, 2004. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $289 for the fiscal year ended December 31,
2005 and $159,559 for the fiscal year ended December 31, 2004. The services for
which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be
provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be
provided to the registrant by the auditors to the registrant's investment
adviser or to any entity that controls, is controlled by or is under common
control with the registrant's investment adviser and that provides ongoing
services to the registrant where the non-audit services relate directly to the
operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $22,860 for the fiscal year ended December 31, 2005 and $208,579
for the fiscal year ended December 31, 2004.
(h) The registrant's audit committee of the board of trustees 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: Frank J. Crothers, David W. Niemiec, Frank
A. Olson and Constantine D. Tseretopoulos
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of directors of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Templeton Asset Management Ltd in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), 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 ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. All conflicts are resolved
in the interests of the manager's clients. In situations where the manager
perceives a material conflict of interest, the manager may: disclose the
conflict to the Fund's board of directors; defer to the voting recommendation of
the Fund's board of directors, ISS, Glass Lewis or those of another independent
third party provider of proxy services; or take such other action in good faith
(in consultation with counsel) which would protect the interests of the Fund and
its shareholders.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
evaluates plans on a case-by-case basis by considering several factors to
determine whether the plan is fair and reasonable, including the ISS
quantitative model utilized to assess such plans and/or the Glass Lewis
evaluation of the plans. The manager will generally oppose plans that have the
potential to be excessively dilutive, and will almost always oppose plans that
are structured to allow the repricing of underwater options, or plans that have
an automatic share replenishment "evergreen" feature. The manager will generally
support employee stock option plans in which the purchase price is at least 85%
of fair market value, and when potential dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign proxies. 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. The manager may abstain from voting
under certain circumstances or vote against items such as "Other Business" when
the manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954/847-2268 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 and reflect the twelve-month period beginning
July 1, 2004, and ending June 30, 2005.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT.
(a)(1) As of February 27, 2006, the portfolio managers of the Fund are as
follows:
MARK MOBIUS, PH.D., MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT, LTD.
Dr. Mobius has been a 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, INVESTMENT ANALYST 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 the
fiscal year ended December 31, 2005.
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 7 10,202.5 23 11,638.1 2 863.40
---------------------------------------------------------------------------------------------------------
Eddie Chow 2 1,249.6 3 608.2 N/A N/A
---------------------------------------------------------------------------------------------------------
1. The various pooled investment vehicles and accounts listed are managed by a
team of investment professionals. Accordingly, the individual managers listed
would not be solely responsible for managing such listed amounts.
Portfolio managers that provide investment services to the Fund may also provide
services to a variety of other investment products, including other funds,
institutional accounts and private accounts. The advisory fees for some of such
other products and accounts may be different than that charged to the Fund and
may include performance-based compensation. This may result in fees that are
higher (or lower) than the advisory fees paid by the Fund. As a matter of
policy, each fund or account is managed solely for the benefit of the beneficial
owners thereof. As discussed below, the separation of the trading execution
function from the portfolio management function and the application of
objectively based trade allocation procedures helps 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
manager's 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. The separate management of the trade execution and
valuation functions from the portfolio management process also helps to reduce
potential conflicts of interest. However, securities selected for funds or
accounts other than the Fund may outperform the securities selected for the
Fund. Moreover, if a portfolio manager identifies a limited investment
opportunity that may be suitable for more than one fund or other account, the
Fund may not be able to take full advantage of that opportunity due to an
allocation of that opportunity across all eligible funds and other accounts. The
manager seeks to manage such potential conflicts by using procedures intended to
provide a fair allocation of buy and sell opportunities among funds and other
accounts.
The structure of a portfolio manager's compensation may give rise to potential
conflicts of interest. A portfolio manager's base pay and bonus tend to increase
with additional and more complex responsibilities that include increased assets
under management. As such, there may be an indirect relationship between a
portfolio manager's marketing or sales efforts and his or her bonus.
Finally, the management of personal accounts by a portfolio manager may give
rise to potential conflicts of interest. While the funds and the manager have
adopted a code of ethics, which they believe contains provisions reasonably
necessary to prevent a wide range of prohibited activities by portfolio managers
and others with respect to their personal trading activities, there can be no
assurance that the code of ethics addresses all individual conduct that could
result in conflicts of interest.
The manager and the Fund have adopted certain compliance procedures that are
designed to address these, and other, types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION. The manager seeks to maintain a compensation program that is
competitively positioned to attract, retain and motivate top-quality investment
professionals. Portfolio managers receive a base salary, a cash incentive bonus
opportunity, an equity compensation opportunity, and a benefits package.
Portfolio manager compensation is reviewed annually and the level of
compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no financial incentive to favor one fund or
account over another. Each portfolio manager's compensation consists of the
following three elements:
BASE SALARY Each portfolio manager is paid a base salary.
ANNUAL BONUS Annual bonuses are structured to align the interests of
the portfolio manager with those of the Fund's shareholders. Each
portfolio manager is eligible to receive an annual bonus. Bonuses
generally are split between cash (50% to 65%) and restricted shares of
a Franklin Templeton fund which vest over a three-year period (17.5% to
25%) and other mutual fund shares (17.5% to 25%). The deferred
equity-based compensation is intended to build a vested interest of the
portfolio manager in the financial performance of both Franklin
Resources and mutual funds advised by the manager. The bonus plan is
intended to provide a competitive level of annual bonus compensation
that is tied to the portfolio manager achieving consistently strong
investment performance, which aligns the financial incentives of the
portfolio manager and Fund shareholders. The Chief Investment Officer
of the manager and/or other officers of the manager, with
responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining
bonuses under the plan:
o INVESTMENT PERFORMANCE. Primary consideration is given to
the historic investment performance over the 1, 3 and 5 preceding
years of all accounts managed by the portfolio manager. The
pre-tax performance of each fund managed is measured relative to a
relevant peer group and/or applicable benchmark as appropriate.
o NON-INVESTMENT PERFORMANCE. The more qualitative contributions
of a portfolio manager to the manager's business and the
investment management team, including business knowledge,
contribution to team efforts, mentoring of junior staff, and
contribution to the marketing of the Fund, are evaluated in
determining the amount of any bonus award.
o RESEARCH. Where the portfolio management team also has research
responsibilities, each portfolio manager is evaluated on
the number and performance of recommendations over time.
o RESPONSIBILITIES. The characteristics and complexity of funds
managed by the portfolio manager are factored in the manager's
appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION Portfolio managers may
also be awarded restricted shares or units of one or more mutual funds,
and options to purchase common shares of a Franklin Templeton fund.
Awards of such deferred equity-based compensation typically vest over
time, so as to create incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
OWNERSHIP OF FUND SHARES. The manager has a policy of encouraging portfolio
managers to invest in the funds they manage. Exceptions arise when, for example,
a fund is closed to new investors or when tax considerations or jurisdictional
constraints cause such an investment to be inappropriate for the portfolio
manager. The following is the dollar range of Fund shares beneficially owned by
each portfolio manager as of December 31, 2005 (such amounts may change from
time to time):
--------------------------------------------------------
Dollar Range of Fund Shares
Portfolio Manager Beneficially Owned
--------------------------------------------------------
Mark Mobius None
--------------------------------------------------------
Eddie Chow None
--------------------------------------------------------
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Directors that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes
in the Registrant's internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of their
evaluation in connection with the preparation of this Shareholder Report on Form
N-CSR.
ITEM 12. EXHIBITS.
(A)(1) Code of Ethics
(A) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, 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: February 21, 2006
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: February 21, 2006
By /s/GALEN G. VETTER
-----------------------------
Galen G. Vetter
Chief Financial Officer
Date: February 21, 2006