NAME OF REGISTRANT:
Templeton Dragon Fund, Inc.
File No. 811-08874

EXHIBIT ITEM NO. 77(E): LEGAL PROCEEDINGS
REGULATORY MATTERS


 INVESTIGATIONS

As part of various  investigations  by a number of federal,  state,  and foreign
regulators  and  governmental  entities,  including the  Securities and Exchange
Commission ("SEC"),  the California Attorney General's Office ("CAGO"),  and the
National  Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
market  support  payments to securities  dealers who sell fund shares,  Franklin
Resources,  Inc.  and  certain  of its  subsidiaries  (as used in this  section,
together,  the "Company"),  as well as certain current or former  executives and
employees of the Company, received subpoenas and/or requests for documents,
information and/or testimony. The Company and its current  employees  provided
documents  and  information  in response to those  requests  and  subpoenas.


SETTLEMENTS

Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and the shareholders of the
Franklin, Templeton, and Mutual Series mutual funds (the "funds").

On August 2, 2004, Franklin Resources, Inc. announced  that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, the SEC  issued an "Order  Instituting
Administrative  and Cease-and-Desist Proceedings  Pursuant to  Sections 203(e)
and 203(k) of the Investment  Advisers  Act of 1940 and Sections 9(b) and 9(f)
of the Investment Company Act of 1940, Making Findings and Imposing Remedial
Sanctions and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned
the activities of a limited  number of third parties that ended in 2000
and those that were the subject of the first Massachusetts administrative
compliant described below.

Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million  is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions.  The Order also requires  Franklin  Advisers,  Inc. to, among
other  things,  enhance  and  periodically review  compliance  policies  and
procedures.

On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"),  reached an agreement with the Securities Division
of the Office of the Secretary of the Commonwealth of Massachusetts (the "State
of Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as
described above.

Under  the  terms  of the  settlement  consent  order  issued  by the  State  of
Massachusetts,  Franklin Advisers, Inc. and FTAS consented  to the entry of a
cease-and-desist order and agreed to pay a $5 million  administrative fine to
the State of Massachusetts (the "Massachusetts Consent Order").  The
Massachusetts Consent Order included two different sections: "Statements of
Fact" and "Violations of Massachusetts Securities Laws." Franklin Advisers, Inc.
and FTAS admitted the facts in the Statements of Fact.

On October 25,  2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it
describes  the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted  the  Statements  of Fact portion of the
Massachusetts Consent Order (the "Second Compliant"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November
19, 2004, resolving the Second Compliant. As a result of the November 19, 2004,
settlement, Franklin Resources, Inc. filed a new Form 8-K. The terms of the
Massachusetts Consent Order did not change and there was no monetary fine
associated with this second settlement.

On  November  17,  2004,  Franklin  Resources,  Inc.  announced  that  Franklin/
Templeton  Distributors,  Inc.  ("FTDI")  reached  an  agreement  with the CAGO,
resolving the issues  resulting from the CAGO's  investigation  concerning sales
and marketing support payments. Under the terms of the settlement,  FTDI neither
admitted nor denied the allegations in the CAGO's compliant and agreed to pay $2
million to the State of California as a civil penalty, $14 million to the funds,
to be  allocated by an  independent  distribution  consultant  to be paid for by
FTDI, and $2 million to the CAGO for its investigative costs.

On December 13, 2004, Franklin  Resources,  Inc. announced that its subsidiaries
FTDI and Franklin  Advisers,  Inc. reached an agreement with the SEC,  resolving
the issues resulting from the SEC's investigation  concerning  marketing support
payments to securities  dealers who sell fund shares.  In  connection  with that
agreement,   the  SEC   issued  an   "Order   Instituting   Administrative   and
Cease-and-Desist  Proceedings,  Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections  203(e) and 203(k) of the Investment  Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment  Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the " Second Order").

Under the terms of the Second Order, in which FTDI and Franklin  Advisers,  Inc.
neither admitted nor denied the findings contained  therein,  they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin   Advisers,   Inc.  also  agreed  to  implement  certain  measures  and
undertakings  relating to marketing support payments to  broker-dealers  for the
promotion or sale of fund shares, including making additional disclosures in the
funds'  Prospectuses and Statement of Additional  Information.  The Second Order
further requires the appointment of an independent distribution  consultant,  at
the Company's  expense,  who shall developed a plan for the  distribution of the
penalty and the disgorgement to the funds.


OTHER LEGAL  PROCEEDINGS

The Company and other funds, and certain current and former officers, employees,
and directors have been named in multiple  lawsuits in different  federal courts
in Nevada,  California,  Illinois, New York, and Florida, alleging violations of
various  federal  securities  laws and  seeking,  among other  relief,  monetary
damages,   restitution,   removal  of  fund   trustees,   directors,   advisers,
administrators,  and distributors,  rescission of management contracts and 12b-1
Plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach
of duty with respect to alleged arrangements to permit market timing and/or late
trading  activity,  or breach  of duty  with  respect  to the  valuation  of the
portfolio  securities of certain Templeton funds managed by Franklin  Resources,
Inc. subsidiaries,  resulting in alleged market timing activity. The majority of
these lawsuits duplicate,  in whole or in part, the allegations  asserted in the
February 4, 2004 Massachusetts  administrative compliant and the findings in the
SEC's August 2, 2004 Order, as described above. The lawsuits are styled as class
actions,  or derivative  actions on behalf of either the named funds or Franklin
Resources, Inc.

In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive
relief, and/or attorneys' fees and costs. These lawsuits are styled as class
actions and derivative actions brought on behalf of certain funds.

The Company and fund management  strongly  believes that the claims made in each
of the lawsuits  identified  above are without  merit and intends to  vigorously
defend against them. The Company cannot  predict with  certainty,  however,  the
eventual  outcome  of  the  remaining  governmental  investigations  or  private
lawsuits,  nor whether they will have a material negative impact on the Company.
Public  trust and  confidence  are  critical to the  Company's  business and any
material loss of investor and/or client confidence could result in a significant
decline in assets under  management by the Company,  which would have an adverse
effect on the Company's future financial  results.  If the Company finds that it
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.  The  Company is  committed  to taking all  appropriate
actions to protect the interests of the funds' shareholders.