NAME OF REGISTRANT:
Templeton Dragon Fund, Inc.
File No. 811-08394

EXHIBIT ITEM NO. 77(E): LEGAL PROCEEDINGS


INVESTIGATIONS AND SETTLEMENTS

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
marketing 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, provided documents and information in response to
subpoenas and/or requests for documents, information and/or testimony. Beginning
in August 2004, the Company entered into settlements with certain of the
regulators and a governmental entity investigating the mutual fund industry
practices noted above. The Company believes that settlement of each of the
matters is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").

Two of the  settlement  agreements,  those with the SEC and the CAGO  concerning
marketing support  payments,  provide that the distribution of settlement monies
are to be made to the relevant funds, not to individual  shareholders.  The CAGO
has approved the distribution  plan pertaining to the distribution of the monies
owed under the CAGO  settlement  agreement and, in accordance with the terms and
conditions of that  settlement,  the monies were disbursed to the  participating
funds. The Fund did not participate in the CAGO  settlement. The SEC has not yet
approved the distribution plan pertaining to the SEC settlement.  When approved,
disbursements  of  settlement  monies  under the SEC's  settlement  will be made
promptly in accordance with the terms and conditions of that order.

OTHER LEGAL PROCEEDINGS

On April 12, 2005, the Attorney General of West Virginia filed a complaint in
the Circuit Court of Marshall County, West Virginia against a number of
companies engaged in the mutual fund industry, including Franklin Resources,
Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties
alleging violations of the West Virginia Consumer Credit and Protection Act and
seeking, among other things, civil penalties and attorneys' fees and costs.
Defendants have since removed the matter to the United States District Court for
the Northern District of West Virginia. To the extent applicable to the Company,
the complaint arises from activity that occurred in 2001 and duplicates, in
whole or in part, the allegations asserted in the February 4, 2004 Massachusetts
Administrative Complaint concerning one instance of market timing (the
"Administrative Complaint") and the SEC's findings regarding market timing in
its August 2, 2004 Order (the "SEC Order"), both of which matters were
previously reported.

The  Company,  in addition to certain  Franklin,  Templeton,  and Mutual  Series
mutual funds,  current and former officers,  employees,  and directors have been
named in multiple  lawsuits in different  courts alleging  violations of various
federal  securities  and state 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
Administrative  Complaint and the SEC's findings  regarding market timing in the
SEC Order.  The lawsuits are styled as class actions,  or derivative  actions on
behalf of either the named funds or Franklin Resources, Inc.

The  Company,  in addition to certain  Franklin,  Templeton,  and Mutual  Series
mutual funds, 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  marketing  support
payments and/or payment of allegedly  excessive  commissions  and/or advisory or
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 or derivative actions brought
on behalf of the named funds.

The Company and fund management strongly believe that the claims made in each of
the lawsuits described 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. 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 future financial results. 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. The Company is committed to taking all
appropriate actions to protect the interests of its funds' shareholders.