Global equity markets started 2012 strongly as investor optimism about global economic growth toward the end of 2011 carried over into early 2012. However, market exuberance faded after February as global economic indicators, particularly China’s, weakened and concerns rose again about Europe’s ongoing sovereign debt crisis. A sharp global stock sell-off in May and early June erased earlier gains made by Greater China stocks, as measured by the MSCI Golden Dragon Index, which tracks stock market performance in China, Taiwan and Hong Kong.

Equity prices globally rebounded beginning in June, with investors responding initially to significant monetary and fiscal stimulus from countries globally, and later, to evidence that stimulus measures were beginning to gain traction. China’s monetary policy measures included interest rate cuts and easing of restrictions on the yuan foreign exchange trade. Fiscal measures included the resumption of a number of infrastructure projects that were shelved in 2011. The once-a-decade change in China’s top leadership took place in November as expected by many observers, with policy anticipated to remain focused on measures to boost the share of private consumption in the national GDP and make China’s economy more consumer driven.

Greater China stocks generated strong gains over the course of 2012, with all countries in the region posting positive returns. For the 12 months ended December 31, 2012, the region recorded a +22.65% total return as measured by the MSCI Golden Dragon Index.² The region performed in line with its Asia peers excluding Japan as measured by the +22.70% total return of the MSCI All Country Asia ex Japan Index, but outperformed the +16.80% total return of global developed and emerging market stocks as measured by the MSCI All Country World Index.² Among the countries comprising the Greater China market, Hong Kong was the strongest, followed by China and Taiwan.

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, and raw material costs and sources. Additional considerations include profit margins, returns on investment, capital resources, government regulation, management and other factors in comparison to other companies around the world that we believe are comparable.

2. Source: © 2013 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

2 | Annual Report

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.

Performance Overview

Templeton Dragon Fund posted cumulative total returns of +18.07% in market price terms and +17.66% in net asset value terms for the 12 months under review. You can find the Fund’s long-term performance data in the Performance Summary on page 6.

Manager’s Discussion

During the 12 months under review, major contributors to the Fund’s absolute performance included Dairy Farm International Holdings, a Hong Kong-based pan-Asian retailer whose core businesses consist of supermarkets, hypermarkets (department store and grocery market), health and beauty stores, convenience stores and home furnishing stores; CNOOC, one of China’s largest offshore oil and natural gas exploration and production companies; and Sinopec (China Petroleum and Chemical), one of China’s largest integrated energy companies. Dairy Farm’s major businesses continued to do well, supporting the company’s share price. We believe rising personal income, greater consumer demand and the company’s exposure to Asia’s high growth markets should continue to support earnings growth. CNOOC’s share price benefited from a strong crude oil price recovery in the second half of the year and the company’s deal to acquire Canada-based global energy company Nexen. In our long-term view, CNOOC could continue to benefit from China’s ongoing industrialization and rising energy demand, as well as the long-term uptrend in commodity prices. Sinopec’s shares are attractively valued, in our analysis, given the long-term increase in oil demand we consider likely as emerging market economies continue to grow. In addition, returns on the company’s refining operations could potentially improve should China liberalize its energy markets.

In contrast, key detractors from absolute performance included Yanzhou Coal Mining, one of China’s largest coal producers; Dongfeng Motor Group, one of China’s leading automakers, which manufactures cars and commercial vehicles through its own brands and joint ventures, notably with Japanese automakers Nissan and Honda; and HTC, a smartphone and tablet manufacturer in Taiwan. Yanzhou’s share price declined along with those of many coal companies as coal prices remained weak because of global economic concerns and fears that low natural gas prices could negatively affect coal markets. In our

Annual Report | 3

opinion at period-end, these concerns were overblown and discounted in recent prices. We believe Yanzhou’s longer term prospects remain strong as industrial development in emerging market countries sparks power demand. Dongfeng’s shares were pressured by indications that weak short-term car demand was leading to rising inventories of unsold cars and increased price competition. Anti-Japanese protests in September prompted by a territorial dispute between China and Japan also threatened to affect demand for Japanese branded vehicles. In the longer term, we believe Dongfeng will benefit from rising Chinese car demand and industry consolidation. HTC’s uncertain outlook resulting from intensifying competition, margin pressure and disappointing execution on developing its own brand led us to sell our HTC position during the reporting period.

During the year, we increased the Fund’s investments in the shares of paper products, construction materials, steel-related and brewing companies. Key purchases included additional shares of Nine Dragons Paper Holdings, a Chinese company that is Asia’s biggest containerboard paper manufacturer, and Shougang Fushan Resources Group, one of China’s largest metallurgical coal producers in production capacity terms and whose clients include some of the country’s leading iron and steel producers. We also initiated investment in China National Building Material, one of the country’s leading manufacturers of cement and other building materials.

Conversely, we made selective sales in Hong Kong, Taiwan and China via Hong Kong-listed China H and Red Chip shares to raise funds for dividend payments and be better positioned in stocks we considered more attractively valued within our investment universe.³ Additionally, we sold shares of certain companies that reached their target prices during the period. We sold shares largely of electric power, food retail, and casinos and gaming companies. Key sales included shares in Dairy Farm International Holdings and in NagaCorp, the only licensed casino operator in Cambodia’s capital of Phnom Penh, as well as elimination of the Fund’s position in Datang International Power, an independent power producer in China.

3. “China H” denotes shares of China-incorporated, Hong Kong Stock Exchange-listed companies with most businesses in China. “Red Chip” denotes shares of Hong Kong Stock Exchange-listed companies with significant exposure to China.

4 | Annual Report

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

Sincerely,

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2012, the end
of the reporting period. The way we implement our main investment strategies and the resulting portfolio hold-
ings 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 con-
sidered 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 under-
stand our investment management philosophy.

Annual Report | 5

Performance Summary as of 12/31/12

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any unrealized gains on the sale of Fund shares.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown.

Endnotes

All investments involve risks, including possible loss of principal. 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. There are special risks associated with investments in
China, Hong Kong and Taiwan, including exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization and
exchange control regulations (including currency blockage), inflation and rapid fluctuations in inflation and interest rates. In addition, investments in
Taiwan could be adversely affected by its political and economic relationship with China. Because the Fund invests its assets primarily in companies in
a specific region, the Fund is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more
broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may
adversely affect the value of securities held by the Fund. 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. The Fund is
actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.

1. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated.
2. Assumes reinvestment of distributions based on net asset value.
3. Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.

6 | Annual Report

Important Notice to Shareholders

Share Repurchase Program

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

Implementation of open market share repurchases pursuant to the Fund’s previously authorized open-market share repurchase program commenced beginning in November 2012.

The open-market share repurchase program is intended to benefit shareholders by enabling the Fund to acquire its own shares at a discount to net asset value, thereby increasing the proportionate interest of remaining shareholders. It is also hoped that the implementation of the open-market share repurchase program will help bring the market price of the Fund’s shares closer to their true net asset value; however, the success of the program cannot be guaranteed. There can be no certainty regarding the impact of share repurchases on the sustainability or size of a discount.

In exercising its discretion to repurchase shares pursuant to the program, the Investment Manager considers any discount in light of the Fund’s performance, portfolio holdings, dividend history and investment objectives and policies. The Investment Manager also considers prevailing market conditions and whether raising and maintaining cash for repurchases would impact the Fund’s ability to take advantage of new investment opportunities, or whether the sale of certain portfolio securities would be undesirable because of liquidity concerns or because the sale might subject the Fund to adverse tax consequences. Management has considered these and other factors and determined it is appropriate to implement Fund repurchases at this time.

Annual Report | 7

8 | The accompanying notes are an integral part of these financial statements. | Annual Report

Templeton Dragon Fund, Inc.

Statement of Investments, December 31, 2012

Annual Report | 9

10 | Annual Report

Annual Report | 11

Templeton Dragon Fund, Inc.

Statement of Investments, December 31, 2012 (continued)

^†Rounds to less than 0.1% of net assets.
^aA portion or all of the security is on loan at December 31, 2012. See Note 1(c).
^bNon-income producing.
^cSecurity has been deemed illiquid because it may not be able to be sold within seven days.
^dSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.
^eSee Note 1(c) regarding securities on loan.
^fThe rate shown is the annualized seven-day yield at period end.

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

Annual Report | The accompanying notes are an integral part of these financial statements. | 13

14 | The accompanying notes are an integral part of these financial statements. | Annual Report

Annual Report | The accompanying notes are an integral part of these financial statements. | 15

Templeton Dragon Fund, Inc.

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Dragon Fund, Inc. (Fund) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as a closed-end investment company.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Fund’s Board of Directors (the Board), the Fund’s administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an 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. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds and non-registered money market funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

16 | Annual Report

Templeton Dragon Fund, Inc.

Notes to Financial Statements (continued)

Trading in securities on foreign securities stock exchanges and OTC markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the VLOC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities 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. At December 31, 2012, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used 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 Board.

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.

Annual Report | 17

Templeton Dragon Fund, Inc.

Notes to Financial Statements (continued)

The Fund participates in an agency based security lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is invested in a non-registered money fund as indicated on the Statement of Investments. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.

d. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

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

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of December 31, 2012, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

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. 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

18 | Annual Report

Templeton Dragon Fund, Inc.

Notes to Financial Statements (continued)

recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassi-fied 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. Currently, the Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At December 31, 2012, there were 100 million shares authorized ($0.01 par value). During the year ended December 31, 2012 and the year ended December 31, 2011 there were no shares issued; all reinvested distributions were satisfied with previously issued shares purchased in the open market.

The Board previously authorized an open-market share repurchase program pursuant to which the Fund may purchase, from time to time, Fund shares in open-market transactions, at the discretion of management. This authorization remains in effect. Since the inception of the program, the Fund had repurchased a total of 5,489,794 shares. Transactions in the Fund’s shares for the years ended December 31, 2012 and 2011, were as follows:

Annual Report | 19

Templeton Dragon Fund, Inc.

Notes to Financial Statements (continued)

9. FAIR VALUE MEASUREMENTS

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

• Level 1 – quoted prices in active markets for identical financial instruments
• Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in deter- mining the fair value of financial instruments)

The inputs or methodology used for valuing financial instruments are not an indication of the risk associated with investing in those financial instruments.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement. Additionally, at December 31, 2012, due to market events, the Fund employed fair value procedures to value a portion of its holdings. Such procedures resulted in a temporary transfer of financial instruments valued at $230,250,991 from Level 1 to Level 2 within the fair value hierarchy.

A summary of inputs used as of December 31, 2012, in valuing the Fund’s assets carried at fair value, is as follows:

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 investments at the end of the year.

22 | Annual Report

Templeton Dragon Fund, Inc.

Notes to Financial Statements (continued)

10. NEW ACCOUNTING PRONOUNCEMENTS

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in the ASU enhance disclosures about offsetting of financial assets and liabilities to enable investors to understand the effect of these arrangements on a fund’s financial position. In January 2013, FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in ASU No. 2013-01 clarify the intended scope of disclosures required by ASU No. 2011-11. These ASUs are effective for interim and annual reporting periods beginning on or after January 1, 2013. The Fund believes the adoption of these ASUs will not have a material impact on its financial statements.

11. SUBSEQUENT EVENTS

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

Annual Report | 23

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, 2012, 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
February 15, 2013

24 | Annual Report

Templeton Dragon Fund, Inc.

Annual Meeting of Shareholders, May 25, 2012 (unaudited)

The Annual Meeting of Shareholders of the Fund was held at the Fund’s offices, 300 S.E. 2nd Street, Fort Lauderdale, Florida, on May 25, 2012. The purpose of the meeting was to elect four Directors of the Fund and to ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Fund for the fiscal year ending December 31, 2012. At the meeting, the following persons were elected by the shareholders to serve as Directors of the Fund: Ann Torre Bates, David W. Niemiec, Frank A. Olson and Robert E. Wade.* Shareholders also ratified the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Fund for the fiscal year ending December 31, 2012. No other business was transacted at the meeting.

There were approximately 183,963 broker non-votes received with respect to this item.

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

*Harris J. Ashton, Frank J. Crothers, Edith E. Holiday, J. Michael Luttig, Charles B. Johnson, Gregory E. Johnson, Larry D. Thompson and Constantine D.
Tseretopoulos are Directors of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders.

Annual Report | 25

Templeton Dragon Fund, Inc.

Dividend Reinvestment and Cash Purchase Plan

The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the “Plan”) with the following features:

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

Participants should contact Computershare Shareowner Services, LLC, P.O. Box 358015, Pittsburgh, PA 15252-8015, to receive the Plan brochure.

To receive dividends or distributions in cash, the shareholder must notify Computershare Trust Company, N.A. (formerly, The Bank of New York Mellon) (the “Plan Administrator”) at the address above or the institution in whose name the shares are held. The Plan Administrator must receive written notice ten business days before the record date for a distribution.

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

A participant has the option of submitting additional payments to the Plan Administrator, in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase of Fund shares for his or her account. These payments can be made by check payable to Computershare Trust Company, N.A. (formerly, The Bank of New York Mellon) and sent to Computershare Shareowner Services, LLC, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attention: Templeton Dragon Fund, Inc. The Plan Administrator will apply such payments (less a $5.00 service charge and less a pro rata share of trading fees) to purchases of the Fund’s shares on the open market.

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

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.

26 | Annual Report

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 and sent to Computershare Shareowner Services, LLC, P.O. Box 358015, Pittsburgh, PA 15252-8015. Upon withdrawal, the participant will receive, without charge, share certificates issued in the participant’s name for all full shares held by the Plan Administrator; or, if the participant wishes, the Plan Administrator will sell the participant’s shares and send the proceeds to the participant, less a service charge of $15.00 and less trading fees of $0.12 per share. The Plan Administrator will convert any fractional shares held at the time of withdrawal to cash at current market price and send a check to the participant for the net proceeds.

Direct Deposit Service for Registered Shareholders

Cash distributions can now be electronically credited to a checking or savings account at any financial institution that participates in the Automated Clearing House (“ACH”) system. The Direct Deposit service is provided for registered shareholders at no charge. To enroll in the service, access your account online by going to www.cpushareownerservices.com or dial (800) 416-5585 (toll free) and follow the instructions. Direct Deposit will begin with the next scheduled distribution payment date following enrollment in the service.

Annual Report | 27

Templeton Dragon Fund, Inc.

Transfer Agent

Computershare Shareowner Services, LLC
P.O. Box 358015
Pittsburgh, PA 15252-8015
(800) 416-5585
www.cpushareownerservices.com

Direct Registration

If you are a registered shareholder of the Fund, purchases of shares of the Fund can be electronically credited to your Fund account at Computershare Shareowner Services, LLC through Direct Registration. This service provides shareholders with a convenient way to keep track of shares through book entry transactions, to electronically move book-entry shares between broker-dealers, transfer agents and DRS eligible issuers, and eliminates the possibility of lost certificates. For additional information, please contact Computershare Shareowner Services, LLC at (800) 416-5585.

Shareholder Information

Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange under the symbol TDF. 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 (800) 416-5585. Registered shareholders can now access their Fund account on-line with the Investor ServiceDirect^™ web site. For information go to Computershare Shareowner Services, LLC’s web site at www.cpushareownerservices.com 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 (800) DIAL BEN/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.

28 | Annual Report

Templeton Dragon Fund, Inc.

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $26,199,177 as a long term capital gain dividend for the fiscal year ended December 31, 2012.

Under Section 871(k)(2)(C) of the Code, the Fund hereby reports the maximum amount allowable but no less than $2,099,160 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, 2012.

Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $9,501,276 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2012. Distributions, including qualified dividend income, paid during calendar year 2012 will be reported to shareholders on Form 1099-DIV by mid-February 2013. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

At December 31, 2012, more than 50% of the Fund’s total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. As shown in the table below, the Fund hereby reports to shareholders the foreign source income and foreign taxes paid, pursuant to Section 853 of the Code. This written statement will allow shareholders of record on December 14, 2012, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The following table provides a detailed analysis of foreign tax paid, foreign source income, and foreign qualified dividends as reported by the Fund, to shareholders of record.

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.

Annual Report | 29

Templeton Dragon Fund, Inc.

Tax Information (unaudited) (continued)

Foreign Source Income Per Share (Column 2) is the amount per share of income dividends 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, 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

By mid-February 2013, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2012. 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 2012 individual income tax returns.

¹Qualified dividends are taxed at reduced long term capital gains tax rates. 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.

Shareholder Information

Proxy Voting Policies and Procedures

The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Fund files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Certifications

The Fund’s Chief Executive Officer – Finance and Administration is required by the New York Stock Exchange’s Listing Standards to file annually with the Exchange a certification that she is not aware of any violation by the Fund of the Exchange’s Corporate Governance Standards applicable to the Fund. The Fund has filed such certification.

In addition, the Fund’s Chief Executive Officer – Finance and Administration and Chief Financial Officer and Chief Accounting Officer are required by the rules of the U.S. Securities and Exchange Commission to provide certain certifications with respect to the Fund’s Form N-CSR and Form N-CSRS (which include the Fund’s annual and semiannual reports to shareholders) that are filed semiannually with the Commission. The Fund has filed such certifications with its Form N-CSRS for the six months ended June 30, 2012. Additionally, the Fund expects to file, on or about March 1, 2013, such certifications with its Form N-CSR for the year ended December 31, 2012.

36 | Annual Report

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its
principal executive officers and principal financial and accounting
officer.

(c) N/A

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an
exhibit a copy of its code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant has an audit committee financial expert serving
on its audit committee.

(2) The audit committee financial expert is David W. Niemiec and he is
“independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees
The aggregate fees paid to the principal accountant for professional
services rendered by the principal accountant for the audit of the
registrant’s annual financial statements or for services that are
normally provided by the principal accountant in connection with
statutory and regulatory filings or engagements were $44,741 for the
fiscal year ended December 31, 2012 and $44,473 for the fiscal year
ended December 31, 2011.

(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and
related services rendered by the principal accountant to the registrant
that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph
(a) of Item 4 were $6,552 for the fiscal year ended December 31, 2012
and $6,552 for the fiscal year ended December 31, 2011. The services
for which these fees were paid included attestation services.

There were no fees paid to the principal accountant for assurance and
related services rendered by the principal accountant to the
registrant's investment adviser and any entity controlling, controlled
by or under common control with the investment adviser that provides
ongoing services to the registrant that are reasonably related to the
performance of the audit of their financial statements.

(c) Tax Fees
There were no fees paid to the principal accountant for professional
services rendered by the principal accountant to the registrant for tax
compliance, tax advice and tax planning.

The aggregate fees paid to the principal accountant for professional
services rendered by the principal accountant to the registrant’s
investment adviser and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing
services to the registrant for tax compliance, tax advice and tax
planning were $4,600 for the fiscal year ended December 31, 2012 and
$100,000 for the fiscal year ended December 31, 2011. The services for
which these fees were paid included technical tax consultation for
capital gain tax reporting to foreign governments, application of local
country tax laws to investments and licensing securities with local
country offices.

(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 $414 for the fiscal year
ended December 31, 2012 and $0 for the fiscal year ended December 31,
2011. The services for which these fees were paid include review of
materials provided to the fund Board in connection with the investment
management contract renewal process.

The aggregate fees paid to the principal accountant for products and
services rendered by the principal accountant to the registrant’s
investment adviser and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing
services to the registrant other than services reported in paragraphs
(a)-(c) of Item 4 were $152,036 for the fiscal year ended December 31,
2012 and $0 for the fiscal year ended December 31, 2011. The services
for which these fees were paid include review of materials provided to
the fund Board in connection with the investment management contract
renewal process.

(e) (1) The registrant’s audit committee is directly responsible for
approving the services to be provided by the auditors, including:

(i) pre-approval of all audit and audit related services;

(ii) pre-approval of all non-audit related services to be
provided to the Fund by the auditors;

(iii) pre-approval of all non-audit related services to be
provided to the registrant by the auditors to the registrant’s
investment adviser or to any entity that controls, is controlled by or
is under common control with the registrant’s investment adviser and
that provides ongoing services to the registrant where the non-audit
services relate directly to the operations or financial reporting of
the registrant; and

(iv) establishment by the audit committee, if deemed necessary
or appropriate, as an alternative to committee pre-approval of services
to be provided by the auditors, as required by paragraphs (ii) and
(iii) above, of policies and procedures to permit such services to be
pre-approved by other means, such as through establishment of
guidelines or by action of a designated member or members of the
committee; provided the policies and procedures are detailed as to the
particular service and the committee is informed of each service and
such policies and procedures do not include delegation of audit

committee responsibilities, as contemplated under the Securities
Exchange Act of 1934, to management; subject, in the case of (ii)
through (iv), to any waivers, exceptions or exemptions that may be
available under applicable law or rules.

(e) (2) None of the services provided to the registrant described in
paragraphs (b)-(d) of Item 4 were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(f) No disclosures are required by this Item 4(f).

(g) The aggregate non-audit fees paid to the principal accountant for
services rendered by the principal accountant to the registrant and the
registrant’s investment adviser and any entity controlling, controlled
by or under common control with the investment adviser that provides
ongoing services to the registrant were $163,602 for the fiscal year
ended December 31, 2012 and $106,552 for the fiscal year ended December
31, 2011.

(h) The registrant’s audit committee of the board has considered
whether the provision of non-audit services that were rendered to the
registrant’s investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser that
provides ongoing services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is
compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants

Members of the Audit Committee are: Ann Torre Bates, Frank J. Crothers,
David W. Niemiec and Constantine D. Tseretopoulos

Item 6. Schedule of Investments. N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-
End Management Investment Companies.

The board of trustees of the Fund has delegated the authority to vote
proxies related to the portfolio securities held by the Fund to the
Fund's investment manager Templeton Asset Management Ltd. in accordance
with the Proxy Voting Policies and Procedures (Policies) adopted by the
investment manager.

The investment 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 investment manager’s
instructions and/or policies. The investment manager votes proxies
solely in the best interests of the Fund and its shareholders.

To assist it in analyzing proxies, the investment manager subscribes to
Institutional Shareholder Services, Inc. (ISS), an unaffiliated third-
party corporate governance research service that provides in-depth
analyses of shareholder meeting agendas, vote recommendations,
executing votes, ballot reconciliation, recordkeeping and vote
disclosure services. In addition, the investment 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, as well as
a limited subscription to its international research. Although ISS’
and/or Glass Lewis’ analyses are thoroughly reviewed and considered in
making a final voting decision, the investment manager does not
consider recommendations from ISS, Glass Lewis or any other third party
to be determinative of the investment manager’s ultimate decision. As a
matter of policy, the officers, directors/trustees and employees of the
investment manager and the Proxy Group will not be influenced by
outside sources whose interests conflict with the interests of the Fund
and its shareholders. Efforts are made to resolve all conflicts in the
best interests of the investment manager’s clients. Material conflicts
of interest are identified by the Proxy Group based upon analyses of
client, distributor, broker-dealer and vendor lists, information
periodically gathered from directors and officers, and information
derived from other sources, including public filings. In situations
where a material conflict of interest is identified, the Proxy Group
may defer to the voting recommendation of ISS, Glass Lewis or those of
another independent third-party provider of proxy services; or send the
proxy directly to the Fund's board or a committee of the board with the
investment manager's recommendation regarding the vote for approval.

Where a material conflict of interest has been identified, but the
items on which the investment manager’s vote recommendations differ
from Glass Lewis, ISS, or another independent third-party provider of
proxy services relate specifically to (1) shareholder proposals
regarding social or environmental issues, (2) “Other Business” without
describing the matters that might be considered, or (3) items the
investment manager wishes to vote in opposition to the recommendations
of an issuer’s management, the Proxy Group may defer to the vote
recommendations of the investment manager rather than sending the proxy
directly to the Fund's board or a board committee for approval.

To avoid certain potential conflicts of interest, the investment
manager will employ echo voting, if possible, in the following
instances: (1) when the Fund invests in an underlying fund in reliance
on any one of Sections 12(d) (1) (E), (F), or (G) of the Investment
Company Act of 1940, as amended (1940 Act), the rules thereunder, or
pursuant to a SEC exemptive order thereunder; (2) when the Fund invests
uninvested cash in affiliated money market funds pursuant to the rules
under the 1940 Act or any exemptive orders thereunder (“cash sweep
arrangement”); or (3) when required pursuant to the Fund’s governing
documents or applicable law. Echo voting means that the investment
manager will vote the shares in the same proportion as the vote of all
of the other holders of the Fund’s shares.

The recommendation of management on any issue is a factor that the
investment manager considers in determining how proxies should be
voted. However, the investment manager does not consider

recommendations from management to be determinative of the investment
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 investment 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.

Investment manager’s proxy voting policies and principles The
investment 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 investment 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 investment 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 investment manager will generally vote against
management efforts to classify a board and will generally support
proposals to declassify the board of directors. The investment manager
will consider withholding 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 investment 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. The investment manager generally will
support non-binding shareholder proposals to require a majority vote
standard for the election of directors; however, if these proposals are
binding, the investment manager will give careful review on a case-by-
case basis of the potential ramifications of such implementation.

In the event of a contested election, the investment manager will
review a number of factors in making a decision including management’s
track record, the company’s financial performance, qualifications of
candidates on both slates, and the strategic plan of the dissidents.

Ratification of auditors of portfolio companies. The investment
manager will closely scrutinize the independence, role and performance
of auditors. On a case-by-case basis, the investment manager will
examine proposals relating to non-audit relationships and non-audit
fees. The investment 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
a lack of independence, accounting irregularities or negligence. . The
investment manager may also consider whether the ratification of
auditors has been approved by an appropriate audit committee that meets
applicable composition and independence requirements.

Management and director compensation. A company’s equity-based
compensation plan should be in alignment with the shareholders’ long-
term interests. The investment manager believes that executive
compensation should be directly linked to the performance of the
company. The investment 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
investment 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
investment 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 investment manager will generally oppose “golden
parachutes” that are considered to be excessive. The investment 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 investment manager will review non-binding say-on-pay proposals on
a case-by-case basis, and will generally vote in favor of such
proposals unless compensation is misaligned with performance and/or
shareholders’ interests, the company has not provided reasonably clear
disclosure regarding its compensation practices, or there are concerns
with the company’s remuneration practices.

Anti-takeover mechanisms and related issues. The investment manager
generally opposes anti-takeover measures since they tend to reduce
shareholder rights. However, as with all proxy issues, the investment
manager conducts an independent review of each anti-takeover proposal.
On occasion, the investment 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 investment
manager generally supports proposals that require shareholder rights’
plans (“poison pills”) to be subject to a shareholder vote and will
closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. In addition, the investment
manager will generally vote against any proposal to issue stock that
has unequal or subordinate voting rights. The investment manager
generally opposes any supermajority voting requirements as well as the
payment of “greenmail.” The investment manager generally supports “fair
price” provisions and confidential voting. The investment manager will
review a company’s proposal to reincorporate to a different state or
country on a case-by-case basis taking into consideration financial
benefits such as tax treatment as well as comparing corporate
governance provisions and general business laws that may result from
the change in domicile.

Changes to capital structure. The investment manager realizes that a
company's financing decisions have a significant impact on its
shareholders, particularly when they involve the issuance of additional
shares of common or preferred stock or the assumption of additional
debt. The investment manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose
for the increase. The investment 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 investment 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. The
investment manager will review proposals seeking preemptive rights on a
case-by-case basis.

Mergers and corporate restructuring. Mergers and acquisitions will be
subject to careful review by the research analyst to determine whether
they would be beneficial to shareholders. The investment manager will
analyze various economic and strategic factors in making the final
decision on a merger or acquisition. Corporate restructuring proposals
are also subject to a thorough examination on a case-by-case basis.

Environment, social and governance issues. The investment manager
will generally give management discretion with regard to social,
environmental and ethical issues, although the investment manager may
vote in favor of those that are believed to have significant economic
benefits or implications for the Fund and its shareholders. The
investment manager generally supports the right of shareholders to call
special meetings and act by written consent. However, the investment
manager will review such shareholder proposals on a case-by-case basis
in an effort to ensure that such proposals do not disrupt the course of
business or waste company resources for the benefit of a small minority
of shareholders. The investment manager will consider supporting a
shareholder proposal seeking disclosure and greater board oversight of
lobbying and corporate political contributions if the investment
manager believes that there is evidence of inadequate oversight by the
company’s board, if the company’s current disclosure is significantly
deficient, or if the disclosure is notably lacking in comparison to the
company’s peers. The investment manager will consider on a case-by-case
basis any well-drafted and reasonable proposals for proxy access
considering such factors as the size of the company, ownership
thresholds and holding periods, responsiveness of management,
intentions of the shareholder proponent, company performance, and
shareholder base.

Global corporate governance. Many of the tenets discussed above are
applied to the investment manager's proxy voting decisions for
international investments. However, the investment manager must be
flexible in these worldwide markets. Principles of good corporate
governance may vary by country, given the constraints of a country’s
laws and acceptable practices in the markets. As a result, it is on
occasion difficult to apply a consistent set of governance practices to
all issuers. As experienced money managers, the investment manager's
analysts are skilled in understanding the complexities of the regions
in which they specialize and are trained to analyze proxy issues
germane to their regions.

The investment manager will generally attempt to process every proxy it
receives for all domestic and foreign securities. However, there may be
situations in which the investment manager may be unable to vote a
proxy, or may choose not to vote a proxy, such as where: (i) the proxy
ballot was not received from the custodian bank; (ii) a meeting notice
was received too late; (iii) there are fees imposed upon the exercise
of a vote and it is determined that such fees outweigh the benefit of

voting; (iv) there are legal encumbrances to voting, including blocking
restrictions in certain markets that preclude the ability to dispose of
a security if the investment manager votes a proxy or where the
investment manager is prohibited from voting by applicable law or other
regulatory or market requirements, including but not limited to,
effective Powers of Attorney; (v) the investment manager held shares on
the record date but has sold them prior to the meeting date; (vi) proxy
voting service is not offered by the custodian in the market; (vii) the
investment manager believes it is not in the best interest of the Fund
or its shareholders to vote the proxy for any other reason not
enumerated herein; or (viii) a security is subject to a securities
lending or similar program that has transferred legal title to the
security to another person. The investment manager or its affiliates
may, on behalf of one or more of the proprietary registered investment
companies advised by the investment manager or its affiliates,
determine to use its best efforts to recall any security on loan where
the investment manager or its affiliates (a) learn of a vote on a
material event that may affect a security on loan and (b) determine
that it is in the best interests of such proprietary registered
investment companies to recall the security for voting purposes.

Shareholders may view the complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies
of the Policies free of charge by calling the Proxy Group collect at
(954) 527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301-1923,
Attention: Proxy Group. Copies of the Fund’s proxy voting records are
available online at franklintempleton.com and posted on the SEC website
at www.sec.gov. The proxy voting records are updated each year by
August 31 to reflect the most recent 12-month period ended June 30.

Item 8. Portfolio Managers of Closed-End Management Investment Company.

(a)(1) As of February 27, 2013, the portfolio managers of the Fund are
as follows:

Mark Mobius, PH.D., Executive Chairman of Templeton Emerging Markets
Group and Portfolio Manager of Asset Management.
Dr. Mobius has been a portfolio manager of the Fund since inception. He
has primary responsibility for the investments of the Fund. He has
final authority over all aspects of the Fund's investment portfolio,
including but not limited to, purchases and sales of individual
securities, portfolio risk assessment, and the management of daily cash
balances in accordance with anticipated management requirements. The
degree to which he may perform these functions, and the nature of these
functions, may change from time to time. Dr. Mobius joined Franklin
Templeton Investments in 1987.

Eddie Chow, Executive Vice President of Templeton Asset Management Ltd.
Mr. Chow heads the team with primary responsibility for allocation of
investments for the Fund. He has been working on the Fund since 2000
providing research and advice on the purchases and sales of individual
securities, and portfolio risk assessment. Mr. Chow joined Franklin
Templeton Investments in 1994.

opportunity due to an allocation of that opportunity across all
eligible funds and other accounts. The investment 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
investment 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 investment 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 investment 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 investment
manager and/or other officers of the investment manager, with
responsibility for the Fund, have discretion in the granting of

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 changes in the
Registrant’s internal controls or in other factors that could
materially affect the internal controls over financial reporting
subsequent to the date of their evaluation in connection with the
preparation of this Shareholder Report on Form N-CSR.

Item 12. Exhibits.

(a)(1) Code of Ethics

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and
Administration, and Mark H. Otani, Chief Financial Officer and Chief
Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 of Laura F. Fergerson, Chief Executive Officer - Finance and
Administration, and Mark H. Otani, Chief Financial Officer and Chief
Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Templeton Dragon Fund, Inc.

By /s/LAURA F. FERGERSON_________
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date February 27, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

By /s/LAURA F. FERGERSON_________
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date February 27, 2013

By /s/MARK H. OTANI_______________
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date February 27, 2013