-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pny8JqYcwJb0bxhvWC4xHkr8Q27sQ9OE5riIsJPODlljFI/FVkOXwvpfHX2yvOTS lehLFkszmXOBNtuR+InZeg== 0000919893-99-000009.txt : 19990831 0000919893-99-000009.hdr.sgml : 19990831 ACCESSION NUMBER: 0000919893-99-000009 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON DRAGON FUND INC CENTRAL INDEX KEY: 0000919893 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650473580 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08394 FILM NUMBER: 99702388 BUSINESS ADDRESS: STREET 1: 700 CENTRAL AVE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138238712 N-30D 1 SEMIANNUAL REPORT DTD 6/30/99 TEMPLETON DRAGON FUND, INC. SEMI ANNUAL REPORT JUNE 30, 1999 [FRANKLIN TEMPLETON LOGO] PAGE [FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS LOGO] [PHOTO OF J. MARK MOBIUS, Ph.D.] J. MARK MOBIUS, Ph.D. President Templeton Dragon Fund, Inc. Dr. Mobius has been living in emerging market countries since earning his Ph.D. in economics and political science at Massachusetts Institute of Technology in 1964. During his extensive travels, he has acquired a thorough knowledge of business practices and customs unique to developing nations. PAGE SHAREHOLDER LETTER - -------------------------------------------------------------------------------- Your Fund's Goal: Templeton Dragon Fund seeks long-term capital appreciation by investing at least 45% of its total net assets in the equity securities of "China companies," as defined in the Fund's prospectus. - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to bring you this semiannual report of Templeton Dragon Fund, which covers the six months ended June 30, 1999. During this period, many Asian economies displayed signs of improvement, rekindling investor interest in the region's securities. Mainland China and Hong Kong equities generally rose in price, and China avoided currency devaluation, but both areas experienced economic hardship during the six months under review. While unemployment fell in countries such as South Korea and Thailand, it approached historical highs in China and Hong Kong. Nevertheless, Hong Kong's equity market rose steadily throughout the period while mainland China's generally lagged until March, then rallied in April when Premier Zhu Rongji, while touring the U.S., promoted his country's bid to join the World Trade Organization. Within this environment, Templeton Dragon Fund delivered a +58.51% six-month cumulative total return in market-price terms and +35.89% in net asset value terms, as shown in the You will find a complete listing of the Fund's portfolio holdings, including dollar value and number of shares or principal amount, beginning on page 10 of this report. CONTENTS Shareholder Letter ........ 1 Important Notice to Shareholders .............. 4 Year 2000 Readiness Disclosure ................ 7 Performance Summary ....... 8 Financial Highlights & Statement of Investments .. 9 Financial Statements ...... 14 Notes to Financial Statements ................ 17 [PYRAMID FUND CATEGORY GRAPH] PAGE GEOGRAPHIC DISTRIBUTION Based on Total Net Assets 06/30/99 [PIE CHART] Hong Kong 57.9%* China 20.9% Singapore 5.2% Philippines 3.4% Thailand 3.0% Malaysia 1.7% Short-Term Investment & Other Net Assets 7.9% *Hong Kong reverted to the sovereignty of China on July 1, 1997. Performance Summary on page 8. On June 30, 1999, the Fund held 57.9% of its total net assets in Hong Kong, 20.9% in mainland China, and 13.3% in other markets. Our position in short-term investments and other net assets increased to 7.9%. During the period under review, we sold our shares of Guangdong Electric Power Development Co. Ltd. at a substantial profit, and established a position in China Telecommunications Ltd., a company accessing China's vast, relatively closed mobile communications market. After our initial purchases in March, the share price of this holding increased substantially, and at the end of the period it was the Fund's second largest position. As a result, telecommunications was its fourth largest sector on June 30, 1999, with multi-industry, real estate and banking the three largest. Near the end of the reporting period, relations between the U.S. and China deteriorated as the U.S. alleged China had stolen U.S. military secrets, the North Atlantic Treaty Organization bombed the Chinese embassy in Belgrade, Yugoslavia, and China's entry into the World Trade Organization was put on hold. Despite this, we believe the U.S. and China will continue to pursue positive relations and we are optimistic about long-term prospects for Templeton Dragon Fund. We are, however, concerned about possible volatility in the Chinese and Hong Kong markets. In our opinion, the economy of mainland China still requires significant restructuring to compete with the rest of Asia, and Hong Kong must also face harsh economic realities. But if interest rates remain low and China returns to a path of reform, we believe the region could begin to expand, potentially benefiting the holdings in your Fund's portfolio. Of course, investing in any emerging market means accepting a certain amount of volatility and, in some cases, the consequences of 2 PAGE severe market corrections. For example, Hong Kong's equity market has increased 1,413% in the last 15 years, but has suffered 5 quarterly declines of more than 20% during that time.(1) Investing in "China companies" is no exception and entails special considerations, including risks related to market and currency volatility, adverse economic, social and political developments, and these markets' relatively small size and lesser liquidity. While short-term volatility can be disconcerting, declines exceeding 50% are not unusual in emerging markets. Please remember, this discussion reflects our views, opinions and portfolio holdings as of June 30, 1999, the end of the reporting period. However, market and economic conditions are changing constantly, which can be expected to affect our strategies and the Fund's portfolio composition. Although past performance is not predictive of future results, these insights may give you a better understanding of our investment and management philosophy. We thank you for your participation in Templeton Dragon Fund, and welcome your comments and suggestions. Sincerely, /s/J. MARK MOBIUS - ------------------------ J. Mark Mobius, Ph.D. President Templeton Dragon Fund, Inc. (1) Source: Hang Seng Index. Based on quarterly percentage price change over 15 years ended June 30, 1999. Market return is measured in U.S. dollar terms and does not include reinvested dividends. TOP 10 HOLDINGS 6/30/99 COMPANY % OF TOTAL INDUSTRY, COUNTRY NET ASSETS - ---------------------------------------------- HSBC Holdings PLC Banking, Hong Kong* 8.2% China Telecommunications Ltd. Telecommunications, China 8.1% Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong* 6.4% Dairy Farm International Holdings Ltd. Merchandising, Hong Kong* 6.1% New World Development Co. Ltd. Real Estate, Hong Kong* 5.2% Citic Pacific Ltd. Multi-Industry, Hong Kong* 5.2% Hong Kong Electric Holdings Ltd. Utilities Electrical & Gas, Hong Kong* 4.9% Hang Lung Development Co. Ltd. Real Estate, Hong Kong* 4.0% Jardine Matheson Holdings Ltd. Multi-Industry, Hong Kong* 3.8% Jardine Strategic Holdings Ltd. Multi-Industry, Hong Kong* 3.7% *Hong Kong reverted to the sovereignty of China on July 1, 1997. 3 PAGE IMPORTANT NOTICE TO SHAREHOLDERS ADOPTION OF DEFINITIONS OF "EMERGING MARKET" AND "EMERGING MARKET COMPANY." On July 21, 1999, the Fund's Board of Directors adopted non-fundamental definitions of "emerging market" and "emerging market company" to reflect the dynamic nature of what constitutes an "emerging market" or an "emerging market company." The following definitions generally will be used in managing the Fund's portfolio: "Emerging market" countries are (i) countries that are generally considered low or middle income countries by the International Bank of Reconstruction and Development (commonly known as the World Bank) and the International Finance Corporation; or (ii) countries that are classified by the United Nations or otherwise regarded by their authorities as developing or (iii) countries with a stock market capitalization of less than 3% of the Morgan Stanley Capital International World Index. "Emerging market companies" are (i) companies whose principal securities trading markets are in emerging market countries or (ii) companies that derive a significant share of their total revenue from either goods or services produced or sales made in emerging market countries or (iii) companies that have a significant portion of their assets in emerging market countries or (iv) companies that are linked to currencies of emerging market countries or (v) companies that are organized under the laws of or with principal offices in, emerging market countries. YEAR 2000 ISSUE. Like all investment companies, the Fund's business operations depend on a worldwide network of computer systems that contain date fields. Many of the systems currently use a two digit date field to represent the date, and these systems must 4 PAGE be changed or modified to enable them to distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year 2000 problem). When the Year 2000 arrives, the Fund's operations could be adversely affected if the computer systems used by any of the parties who service the Fund or with which it does business are not Year 2000 ready. The Fund could experience difficulties in effecting transactions if any of its foreign subcustodians, or if foreign broker-dealers or foreign markets are not ready for Year 2000. When evaluating current and potential portfolio positions, Year 2000 is one of the factors the Fund's investment manager considers. The investment manager will rely upon public filings and other statements made by companies about their Year 2000 readiness. Issuers in countries outside the U.S., particularly in emerging markets, may be more susceptible to Year 2000 risks and there may be less public disclosure of these factors. The investment manager, of course, cannot audit each company and its major suppliers to verify their Year 2000 readiness. The Fund's ability to reduce the effects of the Year 2000 problem is also very much dependent upon the efforts of third parties over which the Fund and its investment manager may have no control. If a company in which the Fund is invested is adversely affected by Year 2000 problems, it is likely that the price of its securities also will also be adversely affected. A decrease in the value of one or more of the Fund's portfolio holdings will have a similar impact on the Fund's performance. Franklin Resources, Inc. (Resources) established a Year 2000 Project Team in 1996. This team has already made most of the changes necessary to make the computer systems that service the 5 PAGE Fund and its shareholders Year 2000 compliant and continues to seek reasonable assurances from all suppliers that they will be Year 2000 compliant on a timely basis. Resources is refining a contingency plan of procedures to follow (where feasible) in the event of the failure of any mission critical systems. However, in an operation as complex and geographically distributed as Resources' business, the alternatives to use of normal systems, especially mission critical systems, or supplies of electricity or long distance voice and data lines are limited. REPURCHASE PROGRAM. On October 18, 1997, the Board of Directors of the Fund authorized management to implement an open-market share repurchase program pursuant to which the Fund, from time to time, at the discretion of management may purchase up to an aggregate of 5.4 million shares of the Fund's Common Stock (approximately 10% of the shares outstanding on October 17, 1997) in open-market transactions. This authorization remains in effect. MANAGED DISTRIBUTION POLICY. On July 22, 1998, the Board of Directors of the Fund adopted a managed distribution policy in an effort to address the market discount of the Fund's share price to net asset value. Under the managed distribution policy, the Fund intends to make quarterly distributions to Fund shareholders equal to 2.5% of the Fund's net asset value at the close of the New York Stock Exchange on the Friday prior to the declaration date. If the total amount distributed exceeds the Fund's aggregate net investment income and net realized capital gains with respect to a given year, the excess amount distributed generally will constitute a return of capital. Shareholders who participate in the Fund's dividend reinvestment and cash purchase plan will receive their distributions in additional shares of the Fund. 6 PAGE YEAR 2000 READINESS DISCLOSURE - HOW FRANKLIN TEMPLETON IS TACKLING THE Y2K PROBLEM [SPECIAL UPDATE LOGO] Franklin Templeton formed a company-wide team in 1996 to identify and correct problems related to the date changeover after December 31, 1999. All but one of our mission-critical systems are certified as Year 2000 compliant and are operating in production, as of July 15, 1999. We intend to have our remaining mission-critical system, a replacement for an existing sales and marketing system, certified by the end of September 1999. The Y2K team is also upgrading, testing, and certifying remaining noncritical systems, as well as integrating and testing links with many external parties. Our dedicated, business continuity team is building contingency plans worldwide in the event of Year 2000 failures. Earlier this year, we successfully completed a series of Securities Industry Association nationwide tests of transactions with other business partners under simulated Year 2000 conditions. This summer we also successfully participated in industry-wide testing of our interfaces with major dealers and real-time market data services. You can learn more about Franklin Templeton's Y2K project by visiting our Web Site at www.franklintempleton.com. 7 PAGE 1. Cumulative total return represents the change in value of an investment over the periods indicated. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, currency volatility, and the economic, social and political climates of countries where the Fund invests. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Also, as a non-diversified investment company investing in "China" companies, the Fund may invest in a relatively small number of issuers and, as a result, be subject to greater risk of loss with respect to its portfolio securities. You may have a gain or loss when you sell your shares. PERFORMANCE SUMMARY AS OF 6/30/99 Although the Board of Directors adopted a managed distribution policy for the Fund, distributions will vary based on earnings of the Fund's portfolio, as well as any profits realized from the sale of the portfolio's securities and the level of the Fund's operating expenses. Past distributions are not indicative of future trends. All total returns include reinvested distributions according to the terms specified in the Fund's dividend reinvestment and cash purchase plan and do not reflect any sales charges paid at inception or brokerage commissions paid on secondary market purchases. PRICE AND DISTRIBUTION INFORMATION CHANGE 6/30/99 12/31/98 - -------------------------------------------------------------------------------- Net Asset Value +$2.86 $12.86 $10.00 Market Price (NYSE) +$3.6875 $11.0625 $7.3750 DISTRIBUTIONS (1/1/99 - 6/30/99) ------------------------------------------------- Dividend Income $0.5232 PERFORMANCE
INCEPTION 6-MONTH 1-YEAR 3-YEAR (9/8/94) - ------------------------------------------------------------------------------------- Cumulative Total Return(1) Based on change in net asset value +35.89% +50.03% +6.37% +27.19% Based on change in market price +58.51% +49.79% +10.09% +2.92% Average Annual Total Return(2) Based on change in net asset value +35.89% +50.03% +2.08% +5.13% Based on change in market price +58.51% +49.79% +3.26% +0.60%
Past performance is not predictive of future results. 8 PAGE TEMPLETON DRAGON FUND, INC. Financial Highlights
SIX MONTHS ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, 1999 DECEMBER 31, -------------------------------------------- (UNAUDITED)+++ 1998++ 1998 1997 1996 1995+ ------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period) Net asset value, beginning of period...... $10.00 $13.58 $18.25 $15.73 $13.97 $14.10 ------------------------------------------------------------------------------ Income from investment operations: Net investment income.................... .12 .25 .37 .34 .37 .22 Net realized and unrealized gains (losses)............................... 3.26 (3.26) (3.58) 2.82 1.92 (.22) ------------------------------------------------------------------------------ Total from investment operations.......... 3.38 (3.01) (3.21) 3.16 2.29 -- Underwriting expenses deducted from capital................................. -- -- -- -- -- (.04) ------------------------------------------------------------------------------ Less distributions from: Net investment income.................... (.12) (.27) (.35) (.34) (.47) (.09) In excess of net investment income....... (.40) -- -- -- -- -- Net realized gains....................... -- -- (.70) (.30) (.06) -- In excess of net realized gains.......... -- -- (.41) -- -- -- Tax return of capital.................... -- (.30) -- -- -- -- ------------------------------------------------------------------------------ Total distributions....................... (.52) (.57) (1.46) (.64) (.53) (.09) ------------------------------------------------------------------------------ Net asset value, end of period............ $12.86 $10.00 $13.58 $18.25 $15.73 $13.97 ============================================================================== Total Return* Based on market value per share.......... 58.51% (30.08)% (11.82)% 7.80% 21.11% (19.34)% Based on net asset value per share....... 35.89% (20.60)% (16.39)% 20.76% 16.89% (.11)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's)......... $679,913 $528,464 $733,533 $985,719 $849,510 $754,227 Ratios to average net assets: Expenses................................. 1.61%** 1.59%** 1.53% 1.50% 1.52% 1.54%** Net investment income.................... 2.37%** 3.21%** 2.14% 1.93% 2.48% 2.99%** Portfolio turnover rate................... 31.08% 39.92% 13.59% 8.73% 7.81% --
* Total return is not annualized. ** Annualized. + For the period September 8, 1994 (commencement of operations) to March 31, 1995. ++ For the period April 1, 1998 to December 31, 1998. Prior to this period, the Fund's fiscal year end was March 31. +++ Based on average weighted shares outstanding. See Notes to Financial Statements. 9 PAGE TEMPLETON DRAGON FUND, INC. STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
COUNTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------- COMMON STOCKS 92.0% APPLIANCES & HOUSEHOLD DURABLES .8% *Konka Group Co. Ltd., B.................................... China 5,123,381 $ 5,718,435 ------------ AUTOMOBILES .2% Oriental Holdings Bhd. ..................................... Malaysia 512,000 1,401,263 ------------ BANKING 12.0% *Bangkok Bank Public Co. Ltd. .............................. Thailand 998,400 2,179,558 Development Bank of Singapore Ltd., fgn. ................... Singapore 70,000 855,213 HSBC Holdings PLC........................................... Hong Kong 1,536,132 56,029,612 Overseas Chinese Banking Corp. Ltd., fgn. .................. Singapore 607,000 5,062,790 Philippine Commercial International Bank Inc. .............. Philippines 105,750 722,602 *Philippine National Bank................................... Philippines 1,794,300 4,857,106 Public Bank Bhd. ........................................... Malaysia 143,000 108,755 Public Bank Bhd., fgn. ..................................... Malaysia 2,577,000 2,699,068 *Siam Commercial Bank Ltd., fgn. ........................... Thailand 289,358 400,197 *Thai Farmers Bank Public Co. Ltd. ......................... Thailand 2,360,400 4,736,803 *Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 5,000 15,458 United Overseas Bank Ltd., fgn. ............................ Singapore 513,000 3,585,727 ------------ 81,252,889 ------------ BEVERAGES & TOBACCO 2.0% Asia Pacific Breweries Ltd. ................................ Singapore 390,000 1,191,189 Fraser and Neave Ltd. ...................................... Singapore 1,951,000 8,652,012 *Tsingtao Brewey Co. Ltd., H................................ China 18,836,000 3,932,841 ------------ 13,776,042 ------------ BUILDING MATERIALS & COMPONENTS 1.1% *Siam Cement Public Co. Ltd. ............................... Thailand 355,300 6,667,596 *Tipco Asphalt Public Co. Ltd., fgn. ....................... Thailand 426,300 589,595 ------------ 7,257,191 ------------ CHEMICALS 1.4% Shanghai Petrochemical Co. Ltd., H.......................... China 33,112,600 7,809,928 Singapore Petroleum Company, fgn. .......................... Singapore 52,000 42,761 *Thai Petrochemical Industry Public Co. Ltd., fgn. ......... Thailand 2,545,100 1,656,472 ------------ 9,509,161 ------------ CONSTRUCTION & HOUSING .4% Italian-Thai Development Public Co. Ltd., fgn. ............. Thailand 460,400 1,111,203 YTL Corp. Berhad............................................ Malaysia 757,000 1,593,684 ------------ 2,704,887 ------------
10 PAGE TEMPLETON DRAGON FUND, INC. STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) ELECTRICAL & ELECTRONICS .2% Acer Computer International Ltd. ........................... Singapore 9,000 $ 10,710 G P Batteries International Ltd. ........................... Singapore 637,000 1,219,747 *Hana Microelectronics Co. Ltd., fgn. ...................... Thailand 18,700 56,290 ------------ 1,286,747 ------------ ENERGY SOURCES .2% Yanzhou Coal Mining Company Ltd., H......................... China 3,558,000 1,272,540 ------------ FOOD & HOUSEHOLD PRODUCTS .6% *Charoen Pokphand Feedmill Public Co. Ltd., fgn. ........... Thailand 13,090 21,299 Saha Pathanapibul Public Co. Ltd., fgn. .................... Thailand 65,000 96,949 *Shanghai New Asia Group Co. Ltd., B........................ China 13,759,408 3,715,040 ------------ 3,833,288 ------------ INDUSTRIAL COMPONENTS *Leader Universal Holdings Bhd. ............................ Malaysia 562,000 235,153 ------------ LEISURE & TOURISM 3.6% CDL Hotel International Ltd. ............................... Hong Kong 196,426 82,278 Genting Bhd. ............................................... Malaysia 165,600 631,895 Hong Kong & Shanghai Hotels Ltd. ........................... Hong Kong 12,650,000 10,760,615 Overseas Union Enterprise Ltd. ............................. Singapore 268,400 851,313 Resorts World Bhd. ......................................... Malaysia 443,000 1,043,382 Shangri-La Asia Ltd. ....................................... Hong Kong 8,914,000 11,029,263 ------------ 24,398,746 ------------ MERCHANDISING 6.4% Dairy Farm International Holdings Ltd. ..................... Hong Kong 34,492,643 41,391,172 Siam Makro Public Company Ltd., fgn. ....................... Thailand 1,158,300 2,205,089 ------------ 43,596,261 ------------ METALS & MINING .1% Natsteel Ltd. .............................................. Singapore 441,000 771,912 ------------ MISC MATERIALS & COMMODITIES Golden Hope Plantations Bhd. ............................... Malaysia 11,000 9,437 ------------ MULTI-INDUSTRY 25.5% Beijing Datang Power Generation Co. Ltd., H................. China 56,888,000 18,330,036 Cheung Kong Holdings Ltd. .................................. Hong Kong 4,855,000 43,175,853 Cheung Kong Infrastructure Holdings Ltd. ................... Hong Kong 140,000 289,605 China Resources Enterprises Ltd. ........................... China 8,160,000 14,408,321 Citic Pacific Ltd. ......................................... Hong Kong 11,000,000 35,088,963 Hong Leong Industries Bhd. ................................. Malaysia 237,000 279,411 Hutchison Whampoa Ltd. ..................................... Hong Kong 32,000 289,734 Jardine Matheson Holdings Ltd. ............................. Hong Kong 5,110,109 25,550,545 Jardine Strategic Holdings Ltd. ............................ Hong Kong 9,565,825 24,871,145
11 PAGE TEMPLETON DRAGON FUND, INC. STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) MULTI-INDUSTRY (CONT.) *Lai Sun Garment International Ltd. ........................ Hong Kong 25,336,000 $ 1,861,297 Perlis Plantations Bhd. .................................... Malaysia 3,000 3,505 Sembcorp Industries Ltd. ................................... Singapore 675,035 1,070,540 WBL Corp. Ltd. ............................................. Singapore 49,000 67,348 Wheelock and Company Ltd. .................................. Hong Kong 5,666,511 7,778,001 ------------ 173,064,304 ------------ REAL ESTATE 16.4% China Overseas Land & Investment Ltd. ...................... Hong Kong 112,524,000 15,952,931 China Vanke Co. Ltd., B..................................... China 7,563,826 5,079,043 Hang Lung Development Co. Ltd. ............................. Hong Kong 22,187,000 27,451,903 Henderson China Holdings Limited............................ Hong Kong 7,237,500 3,824,504 Hong Kong Land Holdings Ltd. ............................... Hong Kong 4,727,000 7,657,740 *Lai Sun Development Co. Ltd. .............................. Hong Kong 5,074,800 444,765 New World Development Co. Ltd. ............................. Hong Kong 11,836,731 35,469,689 *Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co Ltd, B... China 2,873,866 1,868,013 Sun Hung Kai Properties Ltd. ............................... Hong Kong 1,077,570 9,825,951 United Industrial Corporation Ltd. ......................... Singapore 2,848,000 1,923,759 United Overseas Land Ltd. .................................. Singapore 1,521,000 1,715,313 ------------ 111,213,611 ------------ RECREATION & OTHER CONSUMER GOODS .4% Tanjong PLC................................................. Malaysia 1,049,000 2,608,697 ------------ TELECOMMUNICATIONS 10.7% *China Telecommunications Ltd. ............................. China 19,860,000 55,160,623 Philippine Long Distance Telephone Co., ADR................. Philippines 591,700 17,824,963 ------------ 72,985,586 ------------ TRANSPORTATION 4.0% Cross Harbour Tunnel Co. Ltd. .............................. Hong Kong 2,170,000 1,636,132 Guangshen Railway Co. Ltd., H, ADR.......................... China 292,600 2,231,075 Guangshen Railway Co. Ltd., H............................... China 25,390,000 3,894,147 Keppel Corp., Ltd. ......................................... Singapore 2,098,000 7,147,372 Malaysian Airlines System Bhd. ............................. Malaysia 596,000 815,579 *Neptune Orient Lines Ltd. ................................. Singapore 577,000 704,940 *Shanghai Dazhong Taxi Shareholding Co. Ltd., B............. China 16,135,210 10,971,943 ------------ 27,401,188 ------------ UTILITIES ELECTRICAL & GAS 6.0% Hong Kong Electric Holdings Ltd. ........................... Hong Kong 10,391,623 33,483,129 Shandong Huaneng Power Development Co. Ltd., ADR............ China 1,437,700 7,458,069 ------------ 40,941,198 ------------
12 PAGE TEMPLETON DRAGON FUND, INC. STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) WHOLESALE & INTERNATIONAL TRADE Metro Holdings Ltd. ........................................ Singapore 91,000 $ 143,248 ------------ TOTAL COMMON STOCKS (COST $502,640,570)..................... 625,381,784 ------------ PREFERRED STOCKS (COST $370,848) .1% *Siam Commercial Bank, 5.25%, cvt. pfd., 144A, fgn. ........ Thailand 320,200 455,878 ------------ PRINCIPAL AMOUNT** -------- SHORT TERM INVESTMENTS (COST $46,473,492) 6.8% U.S. Treasury Bills, 4.36% to 4.805%, with maturities to 12/09/1999................................................ United States $47,097,000 46,485,542 ------------ TOTAL INVESTMENTS (COST $549,484,910) 98.9%................. 672,323,204 OTHER ASSETS, LESS LIABILITIES 1.1%......................... 7,589,407 ------------ TOTAL NET ASSETS 100.0%..................................... $679,912,611 ============
*Non-income producing. **Securities denominated in U.S. dollars. See Notes to Financial Statements. 13 PAGE TEMPLETON DRAGON FUND, INC. Financial Statements STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1999 (UNAUDITED) Assets: Investments in securities, at value (cost $549,484,910).... $ 672,323,204 Cash....................................................... 78,558 Receivables: Investment securities sold................................ 12,689,575 Dividends and interest.................................... 1,857,037 ------------- Total assets.......................................... 686,948,374 ------------- Liabilities: Payables: Investment securities purchased........................... 4,979,931 To affiliates............................................. 751,749 To shareholders........................................... 682,793 Deferred tax liability (Note 1e)........................... 394,327 Accrued expenses........................................... 226,963 ------------- Total liabilities..................................... 7,035,763 ------------- Net assets, at value........................................ $ 679,912,611 ============= Net assets consist of: Distributions in excess of net investment income........... $ (21,114,179) Net unrealized appreciation................................ 122,443,967 Accumulated net realized loss.............................. (153,791,148) Capital shares............................................. 732,373,971 ------------- Net assets, at value........................................ $ 679,912,611 ============= Net asset value per share ($679,912,611 / 52,859,893 shares outstanding).............................................. $12.86 =============
See Notes to Financial Statements. 14 PAGE TEMPLETON DRAGON FUND, INC. Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) Investment Income: (net of foreign taxes of $126,966) Dividends.................................................. $ 10,198,561 Interest................................................... 857,002 ------------ Total investment income............................... $ 11,055,563 Expenses: Management fees (Note 3)................................... 3,474,911 Administrative fees (Note 3)............................... 416,989 Transfer agent fees........................................ 42,600 Custodian fees............................................. 134,500 Reports to shareholders.................................... 181,500 Registration and filing fees............................... 36,800 Professional fees.......................................... 157,100 Directors' fees and expenses............................... 17,700 Other...................................................... 5,943 ------------ Total expenses........................................ 4,468,043 ------------ Net investment income........................... 6,587,520 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments............................................... (44,396,477) Foreign currency transactions............................. 41,786 ------------ Net realized loss..................................... (44,354,691) Net unrealized appreciation (depreciation) on: Investments............................................... 217,266,215 Deferred taxes (Note 1e).................................. (394,327) ------------ Net unrealized appreciation........................... 216,871,888 ------------ Net realized and unrealized gain............................ 172,517,197 ------------ Net increase in net assets resulting from operations........ $179,104,717 ============
See Notes to Financial Statements. 15 PAGE TEMPLETON DRAGON FUND, INC. Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED (UNAUDITED) DECEMBER 31, 1998 ------------------------------------- Increase (decrease) in net assets: Operations: Net investment income..................................... $ 6,587,520 $ 13,087,493 Net realized loss from investments and foreign currency transactions............................................. (44,354,691) (88,448,519) Net unrealized appreciation (depreciation) on investments.............................................. 216,871,888 (88,830,321) ------------------------------------- Net increase (decrease) in net assets resulting from operations............................................ 179,104,717 (164,191,347) Distributions to shareholders from: Net investment income..................................... (6,587,520) (13,956,089) In excess of net investment income........................ (21,068,776) -- Tax return of capital..................................... -- (16,054,032) Capital share transactions (Note 2)........................ -- (10,866,955) ------------------------------------- Net increase (decrease) in net assets................... 151,448,421 (205,068,423) Net assets: Beginning of period........................................ 528,464,190 733,532,613 ------------------------------------- End of period.............................................. $679,912,611 $ 528,464,190 ===================================== Distributions in excess of net investment income included in net assets End of period.............................................. $(21,114,179) $ (45,403) =====================================
See Notes to Financial Statements. 16 PAGE TEMPLETON DRAGON FUND, INC. Notes to Financial Statements (unaudited) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Templeton Dragon Fund, Inc. (the Fund), is registered under the Investment Company Act of 1940 as a closed-end, non-diversified investment company. The Fund seeks long-term capital appreciation by investing at least 45% of its total assets in the equity securities of "China companies", as defined in the Fund's prospectus. The following summarizes the Fund's significant accounting policies. a. SECURITY VALUATION: Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Directors. b. FOREIGN CURRENCY TRANSLATION: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. When the Fund purchases or sells foreign securities it will customarily enter into a foreign exchange contract to minimize foreign exchange risk from the trade date to the settlement date of such transactions. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign currency denominated assets and liabilities other than investments in securities held at the end of the reporting period. c. INCOME TAXES: No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute all of its taxable income. d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Certain income from foreign securities is recorded as soon as 17 PAGE TEMPLETON DRAGON FUND, INC. Notes to Financial Statements (unaudited) (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.) information is available to the Fund. Interest income and estimated expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. e. DEFERRED TAXES: Deferred taxes are recorded for estimated tax liabilities inherent in the Fund's portfolio securities which may arise from subsequent sales of those securities and asset repatriations from countries that impose such taxes. f. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 2. CAPITAL STOCK On October 18, 1997, the Board of Directors of the Fund authorized management to implement an open-market share repurchase program pursuant to which the Fund from time to time at the discretion of management may purchase up to an aggregate of 5.4 million shares of the Fund's Common Stock. At June 30, 1999, there were 100 million shares authorized ($0.01 par value). During the period ended June 30, 1999, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. During the period April 1, 1998 through December 31, 1998, 1,147,200 shares were repurchased for $10,866,955. 3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES Certain officers of the Fund are also officers or directors of Templeton Asset Management Ltd. (TAML) and Franklin Templeton Services, Inc. (FT Services), the Fund's investment manager and administrative manager, respectively. The Fund pays an investment management fee to TAML of 1.25% per year of the average weekly net assets of the Fund. The Fund pays FT Services an administrative fee of 0.15% per year of the Fund's average weekly net assets, of which 0.10% is paid to Nomura Asset Management U.S.A. Inc. 18 PAGE TEMPLETON DRAGON FUND, INC. Notes to Financial Statements (unaudited) (continued) 4. INCOME TAXES At June 30, 1999, the net unrealized appreciation based on the cost of investments for income tax purposes of $550,738,732 was as follows: Unrealized appreciation..................................... $151,441,489 Unrealized depreciation..................................... (29,857,017) ------------ Net unrealized appreciation................................. $121,584,472 ============
Net realized capital gains differ for financial statement and tax purposes primarily due to differing treatments of wash sales and losses realized on the sale of securities subsequent to October 31. At December 31, 1998, the Fund had tax basis capital losses of $107,000,000 which may be carried over to offset future capital gains. Such losses expire December 31, 2006. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the six months ended June 30, 1999 aggregated $163,944,324 and $235,014,726 respectively. 19 PAGE TEMPLETON DRAGON FUND, INC. Dividend Reinvestment and Cash Purchase Plan The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with the following features: If shares of the Fund are held in the shareholder's name, the shareholder will automatically be a participant in the Plan (other than shareholders holding their shares through Japan Securities Clearing Corporation, who will not be enrolled in the Plan unless certain conditions are met and they elect to participate), unless he elects to withdraw. If the shares are registered in the name of a broker-dealer or other nominee (i.e., in "street name"), the broker-dealer or nominee will elect to participate in the Plan on the shareholder's behalf unless the shareholder instructs them otherwise, or unless the reinvestment service is not provided by the broker-dealer or nominee. Participants should contact ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938, to receive the Plan brochure. To receive dividends or distributions in cash, the shareholder must notify Mellon Securities Trust Company (the "Plan Agent") at the address above or the institution in whose name the shares are held. The Plan Agent must receive written notice within 10 business days before the record date for the distribution. Whenever the Fund declares dividends in either cash or common stock of the Fund, if the market price is equal to or exceeds net asset value at the valuation date, the participant will receive the dividends entirely in stock at a price equal to the net asset value, but not less than 95% of the then current market price of the Fund's shares. If the market price is lower than net asset value or if dividends and/or capital gains distributions are payable only in cash, the participant will receive shares purchased on the New York Stock Exchange or otherwise on the open market. A participant has the option of submitting additional payments to the Plan Agent, in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase of Fund shares for his or her account. These payments shall be made by check or money order payable to "Mellon Securities Trust Co." and sent to ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn: Templeton Dragon Fund, Inc. The Plan Agent shall apply such payments (less a $5.00 service charge and less a pro rata share of trading fees) to purchases of Fund shares in the open market. The automatic reinvestment of dividends and/or capital gains does not relieve the participant of any income tax which may be payable on dividends or distributions. The participant may withdraw from the Plan without penalty at any time by written notice to the Plan Agent sent to ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South Hackensack, NY 07606-1938. Upon withdrawal, the participant will receive, without charge, stock certificates issued in the participant's name for all full shares held by the Plan Agent; or, if the participant wishes, the Plan Agent will sell the participant's shares and send the proceeds, less a service charge of $5.00 and less trading fees. Whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of trading fees. Trading fees will be deducted from amounts to be invested. 20 PAGE TEMPLETON DRAGON FUND, INC. TRANSFER AGENT ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 1-800/416-5585 www.chasemellon.com SHAREHOLDER INFORMATION Shares of Templeton Dragon Fund, Inc. are traded daily on the New York Stock Exchange under the symbol "TDF." The Fund's shares are also listed and traded in Japan on the Osaka Exchange. Information about the net asset value and the market price is published each Monday in the Wall Street Journal, weekly in Barron's and each Saturday in The New York Times and other newspapers. Daily market prices for the Fund's shares are published in the New York Stock Exchange Composite Transactions section of newspapers. For current information about distributions and shareholder accounts, call 1-800-416-5585. The daily closing net asset value as of the previous business day may be obtained when available by calling Franklin Templeton Fund Information after 7 a.m. pacific time any business day at 1-800-DIAL BEN(R) (1-800-342-5236). The Fund's net asset value and dividends are also listed on the NASDAQ Stock Market, Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS") Shareholders not receiving copies of the Reports to Shareholders because their shares are registered in the name of a broker or a custodian can request that they be added to the Fund's mailing list, by writing Templeton Dragon Fund, Inc., 100 Fountain Parkway, P.O. Box 33030, St Petersburg, FL 33733-8030. 21 PAGE This page intentionally left blank. PAGE This page intentionally left blank. PAGE This page intentionally left blank. PAGE SEMIANNUAL REPORT TEMPLETON DRAGON FUND, INC. 100 Fountain Parkway P.O. Box 33030 St. Petersburg, Florida 33733-8030 TRANSFER AGENT ChaseMellon Shareholder Services 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 1-800/416-5585 www.chasemellon.com FUND INFORMATION 1-800/342-5236 Investors should be aware that the value of investments made for the Fund may go down as well as up. Like any investment in securities, the value of the Fund's portfolio will be subject to the risk of loss from market, currency, economic, political and other factors. The Fund and its investors are not protected from such losses by the Investment Manager. Therefore, investors who cannot accept the risk of such losses should not invest in shares of the Fund. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. TLTDF S99 08/99 -----END PRIVACY-ENHANCED MESSAGE-----