-----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, JsDLWnBLrhBghjmHKsPS82QReQJWZPwFbIB64PLebRRJyzpbrgnn9mCL5u26uJIc eIZX+S7ihuZ5i1ZqwKh6ww== 0000928385-96-000680.txt : 19960531 0000928385-96-000680.hdr.sgml : 19960531 ACCESSION NUMBER: 0000928385-96-000680 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960530 SROS: NASD SROS: NYSE 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: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08394 FILM NUMBER: 96574246 BUSINESS ADDRESS: STREET 1: 700 CENTRAL AVE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138238712 N-30D 1 ANNUAL REPORT Templeton Dragon Fund [PHOTO OF MARK MOBIUS APPEARS HERE] J. Mark Mobius, Ph.D. President Templeton Dragon Fund Dr. Mobius has been living overseas 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 the business practices and customs that are unique to developing nations. Together with his team of Templeton analysts, Dr. Mobius currently oversees more than $8 billion in emerging markets investments for the Templeton Group of Funds. Your Fund's Objective: The Templeton Dragon Fund seeks long-term capital appreciation by investing at least 45% of its total assets in the equity securities of "China companies." May 16, 1996 Dear Shareholder: We are pleased to bring you the second annual report for the Templeton Dragon Fund, which covers the fiscal year ended March 31, 1996. For this period, as shown in the Performance Summary on page 5, your Fund produced a total return of 21.11% in market-price terms. In Hong Kong, a relatively high unemployment rate during the fiscal year led to reduced consumer spending, and activity slowed in the real estate market as higher U.S. interest rates in early 1995 drew money away from Hong Kong's market. As a result, growth of its gross domestic product (GDP) slowed from the strong rates of the past decade to a healthy inflation-adjusted rate of approximately 4% to 5%. 1 China's economic growth was also brought under control, as GDP slowed from a rate of 11.8% in 1994 to 10.2% in 1995. The Chinese government, and many economists, expect growth to fall even further during 1996. Inflation, a chronic problem in China, fell from 24% in 1994 to 14.6% in 1995, and the government has targeted 10% for 1996. Foreign trade and investment expanded, increasing China's trade surplus, from US$5.3 billion in 1994 to US$16.7 billion in 1995; foreign currency reserves increased, from US$52.9 billion in 1994 to almost US$75 billion in 1995; the renminbi/U.S. dollar exchange rate was stable; and personal incomes rose 4% for urban workers and 5% for rural workers. The negotiations between the Chinese and British over Hong Kong, while still marked by wide differences in interpretation of existing agreements, became more productive in late 1995. For example, the Chinese government established the Preparatory Committee, an agency designed to formulate plans for governing Hong Kong after 1997. The committee included a substantial number of Hong Kong businesspeople, which helped gain the approval of investors whose confidence in a stable political environment is important to the success of Hong Kong's reversion to Chinese sovereignty on July 1, 1997. Templeton Dragon Fund Geographic Distribution on 3/31/96 Based on Total Net Assets [PIE CHART APPEARS HERE] Hong Kong Stocks 75.6% Chinese Stocks 10.2% Singapore Stocks 0.3% Short-Term Obligations & Other Net Assets 13.9%
On March 31, 1996, the Fund had 75.6% of its total net assets invested in Hong Kong, 10.2% in China, 0.3% in Singapore and the remaining 13.9% in cash and other liquid assets. The largest investment sectors included real estate, with 24.1% of the Fund's total net assets, multi-industry with 23.3%, banking with 8.4%, and merchandising with 4.4%. The largest positions held by the Fund included: HSBC Holdings, PLC, the holding company for the Hongkong Bank, with over 400 offices worldwide, and major subsidiaries in the U.S. and the U.K.; New World Development Co. Ltd., which maintains varied commercial interests in Hong Kong and power plants and toll 2 roads in China; and Cheung Kong Holdings Ltd., a conglomerate with investments in Hong Kong and China, and interests in property development, telecommunications, trading, energy and finance. Looking forward, we are hopeful that economic growth and inflation in China will remain under control. In our opinion, even if the Chinese government begins to relax credit in the second quarter of 1996, it is likely to be restricted to priority sectors such as agriculture, infrastructure, telecommunications and petrochemicals and is not expected to fuel inflation. Any expansion in credit should prove a benefit to regional economies, especially that of Hong Kong. We believe that Hong Kong is on a path of stable economic growth, which may be aided by possible interest rate cuts. Also affecting its potential growth are issues such as the levels of economic activity in Hong Kong's principal export markets and differences between the U.S. and China concerning China's most- favored-nation trading status and its relationship with Taiwan. Although we believe that China is now, and likely will remain, one of the world's most interesting potential growth stories, investing in any emerging market means Templeton Dragon Fund Top 10 Holdings on 3/31/96 Based on Total Net Assets [BAR CHART APPEARS HERE]
% of Total Company, Industry, Country Net Assets - -------------------------------------------------------------------------------- Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong 8.7% - -------------------------------------------------------------------------------- HSBC Holdings PLC Banking, Hong Kong 8.4% - -------------------------------------------------------------------------------- New World Development Co. Ltd. Real Estate, Hong Kong 8.0% - -------------------------------------------------------------------------------- Sun Hung Kai Properties Ltd. Real Estate, Hong Kong 6.6% - -------------------------------------------------------------------------------- Hang Lung Development Co. Ltd. Real Estate, Hong Kong 5.2% - -------------------------------------------------------------------------------- Wheelock & Co. Ltd. Multi-Industry, Hong Kong 5.1% - -------------------------------------------------------------------------------- Hopewell Holdings Ltd. Construction & Housing, Hong Kong 3.5% - -------------------------------------------------------------------------------- Jardine Matheson Holdings Ltd. Multi-Industry, Hong Kong 3.3% - -------------------------------------------------------------------------------- Jardine Strategic Holdings Ltd. Multi-Industry, Hong Kong 3.0% - -------------------------------------------------------------------------------- Hongkong Electric Holdings Ltd. Utilities - Electrical & Gas, Hong Kong 2.6% - --------------------------------------------------------------------------------
For a complete list of portfolio holdings, please see page 7 of this report. accepting a certain amount of volatility, and, in some cases, severe market corrections. Investing in China companies is no exception, entailing special considerations, including risks related to market and currency volatility, adverse social and political developments, and the relatively small size and lesser liquidity of the markets involved. While short-term volatility can be disconcerting, declines of as much as 40% to 50% are not unusual in 3 emerging markets. In fact, the Hong Kong market has increased 700% in the last 15 years, but has suffered six declines of more than 20% during that time.1 This discussion reflects the strategies we employed for the Fund during the past year, and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies, and our evaluations, conclusions and decisions regarding portfolio holdings, may change as new circumstances arise. Although past performance of a specific investment or sector cannot guarantee future performance, such 1 Source: Bloomberg. Based on quarterly percentage change over the 15 years ended March 31, 1996. information can be useful in analyzing the securities we purchase or sell for the Fund. Thank you for investing in the Templeton Dragon Fund. We appreciate your support and welcome your comments. Sincerely, /s/ J. Mark Mobius, Ph.D. J. Mark Mobius, Ph.D. President Templeton Dragon Fund, Inc. - -------------------------------------------------------------------------------- On July 25, 1995, the Fund's Board of Directors approved changing the Fund's non-fundamental investment policy to authorize investments in equity securities (i) of companies organized under the laws of, or with a principal office in, Taiwan, (ii) for which the principal equity securities trading market is in Taiwan, or (iii) of companies whose principal business activities are conducted in Taiwan. Investing in Taiwan involves certain risks and special considerations not typically associated with investing in the United States securities markets. - -------------------------------------------------------------------------------- Performance Summary In market-price terms, the Templeton Dragon Fund produced a total return of 21.11% for the year ended March 31, 1996. Based on the change in actual net asset value (in contrast to market price), the Fund delivered a total return of 16.89% for the same period. Both total return figures assume reinvestment of dividends and capital gains in accordance with the dividend reinvestment plan. During the reporting period, shareholders received combined distributions totaling 52.5 cents ($0.525) per share, including short-term capital gains of 5.5 cents ($0.055) and dividend income of 47.0 cents ($0.470) per share. The Fund's closing price on the New York Stock Exchange (NYSE) increased from $12.00 on March 31, 1995 to $14.00 on March 31, 1996, while the Fund's net asset value increased from $13.97 to $15.73. Past distributions and total returns are not predictive of future performance, and distributions will vary depending on income earned by the Fund, as well as any profits realized from the sale of securities in the portfolio. Templeton Dragon Fund Cumulative Total Returns* Periods Ended 3/31/96
Since Inception One-Year (9/8/94) Based on change in net asset value 16.89% 16.76% Based on change in market price 21.11% -2.31%
*Cumulative total return calculations show the change in value of an investment over the period indicated. These calculations assume reinvestment of all income and capital gains distributions, either at net asset value or at market price on the reinvestment date. Past performance is not predictive of future results. 5 Templeton Dragon Fund, Inc. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
SEPTEMBER 8, 1994 (COMMENCEMENT YEAR ENDED OF OPERATIONS) TO MARCH 31, 1996 MARCH 31, 1995 -------------- ----------------- Net asset value, beginning of period $ 13.97 $ 14.10 -------- -------- Income from investment operations: Net investment income .37 .22 Net realized and unrealized gain (loss) 1.92 (.22) -------- -------- Total from investment operations 2.29 -- -------- -------- Underwriting expenses deducted from capital -- (.04) -------- -------- Distributions: Dividends from net investment income (.47) (.09) Distributions from net realized gains (.06) -- -------- -------- Total distributions (.53) (.09) -------- -------- Change in net asset value 1.76 (.13) -------- -------- Net asset value, end of period $ 15.73 $ 13.97 ======== ======== TOTAL RETURN* Based on market value per share 21.11% (19.34)% Based on net asset value per share 16.89% (0.11)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $849,510 $754,227 Ratio of expenses to average net assets 1.52% 1.54%** Ratio of net investment income to average net assets 2.48% 2.99%** Portfolio turnover rate 7.81% -- Average commission rate paid (per share) $ .0018
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. **ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 6 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1996 - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS: 86.1% - ------------------------------------------------------------------------------- Appliances & Household Durables: 2.3% *Foshan Electrical and Lighting Co. Ltd., B Chn. 700,000 $ 491,014 Hualing Holdings Ltd. H.K. 14,280,000 1,938,712 Luks Industrial Co. Ltd. H.K. 12,076,000 1,280,362 Semi-Tech (Global) Co. Ltd. H.K. 6,170,302 9,294,546 Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 8,701,200 1,583,618 *Shanghai Shangling Electric Appliance, B Chn. 3,403,000 2,259,592 *Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 5,807,092 1,399,509 Shenzhen Huafa Electronics Co. Ltd., B Chn. 1,184,000 186,770 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 2,120,000 1,074,528 Tsann Kuen Enterprise Co. Ltd., B Chn. 546,000 105,896 ------------ 19,614,547 - ------------------------------------------------------------------------------- Automobiles: 1.6% Jardine International Motor Holdings Ltd. H.K. 7,615,000 10,141,518 Qing Ling Motors Co. Ltd., H Chn. 12,484,000 3,874,011 ------------ 14,015,529 - ------------------------------------------------------------------------------- Banking: 8.4% HSBC Holdings PLC H.K. 4,775,192 71,621,706 - ------------------------------------------------------------------------------- Broadcasting & Publishing: 0.1% Leefung-Asco Printers Holdings Ltd. H.K. 8,165,000 1,097,957 - ------------------------------------------------------------------------------- Building Materials & Components: 1.0% China Southern Glass Co. Ltd., B Chn. 5,562,198 2,560,308 *K Wah International Holdings Ltd. H.K. 14,491,986 2,304,777 K Wah International Holdings Ltd., wts. H.K. 988,700 44,743 Shanghai Yaohua Pilkington Glass, B Chn. 4,094,800 3,931,008 ------------ 8,840,836 - ------------------------------------------------------------------------------- Chemicals: 1.7% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 10,050,000 2,492,400 Shanghai Petrochemical Co. Ltd., H Chn. 33,966,000 10,540,264 Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 3,585,076 820,479 ------------ 13,853,143 - ------------------------------------------------------------------------------- Construction & Housing: 4.3% Hopewell Holdings Ltd. H.K. 50,961,021 29,651,486 Wai Kee Holdings Ltd. H.K. 25,391,536 6,648,288 ------------ 36,299,774 - -------------------------------------------------------------------------------
7 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1996 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Electrical & Electronics: 0.8% *+China Treasure Telecomunications Holdings Ltd. H.K. 44,540,000 $ 1,727,696 *China Treasure Telecomunications Holdings Ltd., wts. H.K. 3,930,000 43,701 G.P. Batteries International Ltd. Sing. 900,000 2,214,000 Gold Peak Industries (Holdings) Ltd. H.K. 669,000 354,655 *GP Batteries International Ltd., wts. Sing. 225,000 165,938 *Great Wall Electronic International Ltd. H.K. 17,398,000 1,327,233 Shanghai Automation Instrumentation Co., B Chn. 4,511,000 852,579 ------------ 6,685,802 - ------------------------------------------------------------------------------- Electronic Components & Instruments: 0.1% S. Megga International Holdings Ltd. H.K. 18,862,000 743,847 - ------------------------------------------------------------------------------- Financial Services: 2.1% JCG Holdings Ltd. H.K. 3,445,000 3,140,322 Min Xin Holdings H.K. 11,196,000 1,708,208 Peregrine Investments Holdings Ltd. H.K. 4,756,000 7,656,090 Sun Hung Kai & Co. Ltd. H.K. 16,294,000 5,056,323 ------------ 17,560,943 - ------------------------------------------------------------------------------- Food & Household Products: 0.7% C.P. Pokphand Co. Ltd. H.K. 45,000 21,383 *Fairwood Holdings Ltd. H.K. 14,768,000 1,336,643 Golden Resources Development International Ltd. H.K. 10,138,000 1,494,352 *NG Fund Hong Ltd. H.K. 1,396,000 658,831 *Shanghai New Asia Group Co. Ltd., B Chn. 4,622,800 2,764,434 ------------ 6,275,643 - ------------------------------------------------------------------------------- Health & Personal Care: 0.1% Zhuhai Sez Lizhu Pharmaceutical, B Chn. 2,610,000 776,183 - ------------------------------------------------------------------------------- Industrial Components: 0.3% *Shanghai Refrigerator Compressor Co. Ltd., B Chn. 1,445,220 624,335 *Shanghai Rubber Belt Co. Ltd., B Chn. 1,560,458 293,366 Shanghai Tyre & Rubber Co. Ltd., B Chn. 8,215,000 2,053,750 ------------ 2,971,451 - ------------------------------------------------------------------------------- Leisure & Tourism: 0.8% *Glynhill International Ltd. H.K. 22,556,000 717,452 Hongkong & Shanghai Hotels Ltd. H.K. 1,961,000 3,207,480 Shanghai Jin Jiang Tower Co. Ltd., B Chn. 10,646,661 2,895,892 ------------ 6,820,824 - -------------------------------------------------------------------------------
8 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1996 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Machinery & Engineering: 1.0% *China Textile Machinery Co. Ltd., B Chn. 6,266,600 $ 977,590 Guangzhou Shipyard International Co. Ltd., H Chn. 10,530,000 2,546,043 *Northeast Electric Transmission & Transformation H.K. 2,168,000 392,449 *Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 20,014,656 2,641,935 Shanghai Industrial Sewing Machine Corp. Chn. 9,514,700 1,293,999 Shanghai Steel Tube Co. Ltd., B Chn. 5,088,600 692,050 -------------- 8,544,066 - ------------------------------------------------------------------------------- Merchandising: 4.4% Dairy Farm International Holdings Ltd. H.K. 20,262,904 19,148,444 Dickson Concepts (International) Ltd. H.K. 9,598,000 10,548,616 Fortei Holdings Ltd. H.K. 3,978,000 190,310 Joyce Boutique Holdings Ltd. H.K. 4,039,000 1,488,382 LI & Fung Ltd. H.K. 631,897 563,756 Linkful International Holdings Ltd. H.K. 2,211,000 105,776 Wo Kee Hong Holdings Ltd. H.K. 26,549,000 4,737,215 *Yaohan Hongkong Corp. Ltd. H.K. 4,000,000 191,363 -------------- 36,973,862 - ------------------------------------------------------------------------------- Metals & Mining: 0.4% Maanshan Iron & Steel Co. Ltd., H Chn. 19,076,000 3,009,144 - ------------------------------------------------------------------------------- Miscellaneous Materials & Commodities: 0.2% Luoyang Glass Co. Ltd., H Chn. 6,091,000 1,929,525 - ------------------------------------------------------------------------------- Multi-Industry: 23.3% Cheung Kong Holdings Ltd. H.K. 10,449,000 73,632,079 Jardine Matheson Holdings Ltd. H.K. 3,582,913 27,946,721 Jardine Strategic Holdings Ltd. H.K. 8,123,625 25,670,655 *Jardine Strategic Holdings Ltd., wts. H.K. 349,625 131,109 Lai Sun Garment International Ltd. H.K. 7,023,000 8,036,404 Shenzhen Gintian Industrial Co. Ltd., B Chn. 599,200 159,601 Shenzhen Tellus Machinery & Electronics Co. Ltd., B Chn. 162,800 24,418 Stelux International Holdings Ltd. H.K. 8,274,000 1,904,282 Swire Pacific Ltd., B H.K. 12,645,000 17,330,877 WBL Corp. Ltd. Sing. 89,000 211,167 Wheelock & Co. Ltd. H.K. 21,431,000 42,950,672 -------------- 197,997,985 - ------------------------------------------------------------------------------- Real Estate: 24.1% China Overseas Land & Investment Ltd. H.K. 30,733,000 7,033,542 Hang Lung Development Co. Ltd. H.K. 23,035,000 43,931,504 Lai Sun Development Co. Ltd. H.K. 79,990,000 13,548,862 New World Development Co. Ltd. H.K. 14,547,208 67,713,924 Shanghai Jinqiao Export Processing Zone Development, B Chn. 8,338,200 2,668,224
9 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1996 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Real Estate (cont.) Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd., B Chn. 9,559,000 $ 5,257,450 Shanghai Outer Gaoqiao Free Trade Zone Development Co., B Chn. 1,571,000 461,874 Shenzhen Properties & Resources Development (Group) Ltd., B Chn. 3,473,800 651,281 Shenzhen Vanke Co. Ltd., B Chn. 4,184,900 1,515,092 *+South Sea Development Co. Ltd. H.K. 46,054,000 1,345,772 Sun Hung Kai Properties Ltd. H.K. 6,306,000 56,463,732 Tian An China Investments Co. Ltd. H.K. 27,670,000 4,293,251 -------------- 204,884,508 - ------------------------------------------------------------------------------- Recreation, Other Consumer Goods: 1.8% *Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 7,710,000 235,268 KTP Holdings Ltd. H.K. 15,374,000 695,746 Phoenix Co. Ltd. Chn. 5,322,300 872,857 Shanghai Forever Bicycle Co. Ltd., B Chn. 3,752,000 510,272 Shanghai Wingsung Co. Ltd., B Chn. 200,000 37,200 Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 13,362,400 2,159,685 Yue Yuen Industrial (Holdings) Ltd. H.K. 42,410,000 10,309,129 -------------- 14,820,157 - ------------------------------------------------------------------------------- Textiles & Apparel: 1.3% Goldlion Holdings Ltd. H.K. 10,375,000 8,317,171 *Laws International Holdings Ltd. H.K. 17,300,000 1,722,395 Shanghai Lian Hua Fibre Corp., B Chn. 296,000 50,320 Top Form International Ltd. H.K. 16,937,000 646,032 Tungtex (Holdings) Co. Ltd. H.K. 2,600,000 242,048 Victor Onward Textile Industrial Co. Ltd., B Chn. 81,400 12,104 -------------- 10,990,070 - ------------------------------------------------------------------------------- Transportation: 1.2% China Merchants Shekou Port Service Co. Ltd., B Chn. 4,399,900 1,518,972 Chiwan Wharf Holdings Ltd., B Chn. 6,634,000 2,603,335 Cross Harbour Tunnel Co. Ltd. H.K. 812,000 1,595,862 *Osprey Maritime Ltd. Sing. 111,000 268,620 *Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 5,612,000 4,209,000 -------------- 10,195,789 - -------------------------------------------------------------------------------
10 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1996 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Utilities--Electrical & Gas: 4.0% *Guangdong Electric Power Development Co. Ltd., B, 144A Chn. 3,380,000 $ 1,879,235 Hongkong Electric Holdings Ltd. H.K. 6,735,500 21,903,003 Shandong Huaneng Power Chn. 886,000 7,752,500 Wing Shan International Ltd. H.K. 21,654,000 2,463,863 ------------ 33,998,601 - ------------------------------------------------------------------------------- Wholesale & International Trade: 0.1% East Asiatic Co. (Hong Kong) Ltd. (The) H.K. 7,520,000 982,053 ------------ TOTAL COMMON STOCKS (cost $648,822,083) 731,503,945 - ------------------------------------------------------------------------------- PRINCIPAL IN LOCAL CURRENCY** - ------------------------------------------------------------------------------- SHORT TERM OBLIGATIONS: 13.4% (cost $113,489,247) - ------------------------------------------------------------------------------- U.S. Treasury Bills, 4.53% to 5.01% with maturities to 6/06/96 U.S. 113,673,000 113,487,165 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.5% (cost $762,311,330) 844,991,110 OTHER ASSETS, LESS LIABILITIES: 0.5% 4,518,557 ------------ TOTAL NET ASSETS: 100.0% $849,509,667 ============
*NON-INCOME PRODUCING. **CURRENCY OF COUNTRY INDICATED. +SEE NOTE 5. SEE NOTES TO FINANCIAL STATEMENTS. 11 Templeton Dragon Fund, Inc. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES March 31, 1996 Assets: Investments in securities at value (identified cost $762,311,330) $844,991,110 Cash 598 Receivables: Investment securities sold 10,074,843 Dividends 2,044,318 Unamortized organization costs 13,285 ------------ Total assets 857,124,154 ------------ Liabilities: Payable for investment securities purchased 6,226,419 Accrued expenses 1,388,068 ------------ Total liabilities 7,614,487 ------------ Net assets, at value $849,509,667 ============ Net assets consist of: Undistributed net investment income $ 1,150,166 Net unrealized appreciation 82,679,780 Accumulated net realized gain 6,384,762 Net capital paid in on shares of capital stock 759,294,959 ------------ Net assets, at value $849,509,667 ============ Shares outstanding 54,007,093 ============ Net asset value per share ($849,509,667 / 54,007,093) $ 15.73 ============
STATEMENT OF OPERATIONS for the year ended March 31, 1996 Investment income (net of $341 foreign taxes withheld) Dividends $ 21,705,769 Interest 10,435,462 ------------ Total income $ 32,141,231 Expenses: Management fees (Note 3) 10,030,863 Administrative fees (Note 3) 1,203,706 Transfer agent fees 145,000 Custodian fees 223,000 Reports to shareholders 388,000 Audit fees 61,000 Legal fees (Note 3) 4,000 Registration fees 63,235 Directors' fees and expenses 51,000 Amortization of organization costs 4,026 Other 14,616 ------------ Total expenses 12,188,446 ------------ Net investment income 19,952,785 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 9,378,641 Foreign currency transactions (55,034) ------------ 9,323,607 Net unrealized appreciation on investments 94,360,136 ------------ Net realized and unrealized gain 103,683,743 ------------ Net increase in net assets resulting from operations $123,636,528 ============
SEE NOTES TO FINANCIAL STATEMENTS. 12 Templeton Dragon Fund, Inc. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
SEPTEMBER 8, 1994 (COMMENCEMENT YEAR ENDED OF OPERATIONS) TO MARCH 31, 1996 MARCH 31, 1995 -------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 19,952,785 $ 11,711,389 Net realized gain on investment and foreign currency transactions 9,323,607 31,545 Net unrealized appreciation (depreciation) 94,360,136 (11,680,356) ------------ ------------ Net increase in net assets resulting from operations 123,636,528 62,578 Distributions to shareholders: From net investment income (25,383,334) (5,130,674) From net realized gain (2,970,390) -- Capital share transactions (Note 2) -- 759,194,948 ------------ ------------ Net increase in net assets 95,282,804 754,126,852 Net assets: Beginning of period 754,226,863 100,011 ------------ ------------ End of period $849,509,667 $754,226,863 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 13 Templeton Dragon Fund, Inc. Notes to Financial Statements - -------------------------------------------------------------------------------- 1. SUMMARY OF ACCOUNTING POLICIES Templeton Dragon Fund, Inc. (the Fund) is a Maryland corporation and a closed- end, non-diversified management investment company registered under the Invest- ment Company Act of 1940. The Fund seeks to achieve its objective by investing in equity securities of China companies, Japan companies and Asia-Pacific com- panies. The following summarizes the Fund's significant accounting policies. a. Securities Valuations: Securities listed or traded on a recognized national or foreign exchange or NASDAQ are valued at the last reported sales prices on the principal exchange on which the securities are traded. Over-the-counter securities and listed se- curities for which no sale is reported are valued at the mean between the last current bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management and ap- proved in good faith by the Board of Directors. b. Foreign Currency Transactions: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign curren- cies are translated into U.S. dollar amounts on the respective dates of such transactions. When the Fund purchases or sells foreign securities it customar- ily enters into a foreign exchange contract to minimize foreign exchange risk between the trade date and the settlement date of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of for- eign currencies, currency gains or losses realized between the trade and set- tlement dates on securities transactions, the differences between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at the end of the fiscal period, resulting from changes in the exchange rates. c. Income Taxes: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision has been made for income taxes. d. Unamortized Organization Costs: Organization costs are being amortized on a straight line basis over five years. e. Security Transactions, Investment Income, Distributions and Expenses: Security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Certain dividend income on foreign securi- ties is recorded as soon as information is available to the Fund. Interest in- come and estimated expenses are accrued daily. Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. 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. 14 Templeton Dragon Fund, Inc. Notes to Financial Statements (cont.) - -------------------------------------------------------------------------------- 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK At March 31, 1996, there were 100,000,000 shares of $.01 par value capital stock authorized. On September 21, 1994, the Fund completed the initial public offering of 54 million shares of its common stock; proceeds paid to the Fund amounted to $759,194,948, after deduction of underwriting commissions and expenses of $2,205,052. 3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Certain officers of the Fund are also directors or officers of Templeton Asset Management Limited (TAML) and Templeton Global Investors, Inc. (TGII), the Fund's investment manager and administrative manager, respectively. The Fund pays monthly an investment management fee to TAML equal, on an annual basis, to 1.25% of the average weekly net assets of the Fund. The Fund pays TGII monthly a fee of 0.15% per annum of the Fund's average weekly net assets, of which 0.10% is paid to Nomura Capital Management, Inc. (NCM) for various ad- ministrative services to the Fund. An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for the Fund, which firm received fees of $4,000 for the year ended March 31, 1996. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the year ended March 31, 1996 were $356,312,353 and $47,397,304, respectively. The cost of securities for federal income tax purposes is $762,331,542. Realized gains and losses are reported on an identified cost basis. At March 31, 1996, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income tax purposes, was as follows: Unrealized appreciation $133,853,902 Unrealized depreciation (51,194,334) ------------ Net unrealized appreciation $ 82,659,568 ============
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The Investment Company Act of 1940 defines "affiliated companies" as invest- ments in portfolio companies in which the Fund owns 5% or more of the outstand- ing voting securities. Investments in "affiliated companies" at March 31, 1996 amounted to $3,073,468. 15 Templeton Dragon Fund, Inc. Independent Auditor's Report - -------------------------------------------------------------------------------- The Board of Directors and Shareholders Templeton Dragon Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Templeton Dragon Fund, Inc. as of March 31, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for the periods indicated in the accompanying financial statements. These financial statements and finan- cial highlights are the responsibility of the Fund's management. Our responsi- bility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial high- lights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement pre- sentation. We believe that our audits provide a reasonable basis for our opin- ion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Tem- pleton Dragon Fund, Inc. as of March 31, 1996, the results of its operations, the changes in its net assets and the financial highlights for the periods in- dicated, in conformity with generally accepted accounting principles. LOGO New York, New York April 26, 1996 16 Templeton Dragon Fund, Inc. - -------------------------------------------------------------------------------- DIVIDEND REINVESTMENT PLAN The Fund offers a Dividend Reinvestment Plan ( the "Plan") with the following features: .If shares of the Fund are held in the shareholder's name, the share- holder will automatically be a participant in the Plan 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 in- structs them otherwise, or unless the reinvestment service is not provided by the broker-dealer or nominee. .Participants should contact Chemical Mellon Se- curities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pitts- burgh, PA 15230, to receive the Plan brochure. .To receive dividends or distri- butions in cash, the shareholder must notify Chemical Mellon Securities Trust Company ("Mellon") or the institution in whose name the shares are held. Mellon must receive written notice within 10 business days before the record date for the distribution. .Whenever the Fund declares dividends in either cash or com- mon stock of the Fund, if the market price is equal to or exceeds 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 and if dividends and/or capital gains distributions are payable only in cash, the participant will receive shares purchased on the New York Stock Exchange. .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 par- ticipants may withdraw from the Plan without penalty at any time by written no- tice to Mellon. Upon withdrawal, the participant will receive, without charge, stock certificates issued and in the participant's name for all full shares; or, if the participant's wishes, Mellon will sell the participant's shares and send the proceeds, net of any brokerage commissions. A $5.00 fee is charges by Mellon upon any cash withdrawal or termination. .Whenever shares are purchased on the New York Stock Exchange, each participant will pay a pro rata portion of brokerage commissions. Brokerage commissions will be deducted from amounts to be invested. 17 Templeton Dragon Fund, Inc. - -------------------------------------------------------------------------------- TRANSFER AGENT Chemical Mellon Shareholder Services Securities Transfer Services 450 West 33rd Street, 15th Floor New York, NY 10001 800-526-0801 SHAREHOLDER INFORMATION Weekly comparative net asset value and market price information about Templeton Dragon Fund, Inc. shares is published each Monday in the Wall Street Journal, weekly in Barron's and each Saturday in The New York Times and other newspapers in a table called "Publicly Traded Funds". The Fund's New York Stock Exchange trading symbol is TDF. For current information about the net asset value, call 1-800-292-9293. If any shareholder is not receiving copies of the Reports to Shareholders be- cause shares are registered in a broker's name or in a custodian's name, he or she can write and request that his or her name be added to the Fund's mailing list, by writing Templeton Dragon Fund, Inc., 700 Central Avenue, St. Peters- burg, FL 33701. 18 The Franklin Templeton Group Literature Request - Call today for a free descriptive brochure and prospectus on any of the funds listed below. The prospectus contains more complete information, including fees, charges and expenses, and should be read carefully before investing or sending money. Templeton Funds Florida* Franklin Funds Seeking Franklin Templeton Global American Trust Georgia Growth and Income Currency Funds Americas Government Hawaii** Balance Sheet German Government Securities Indiana Investment Fund Bond Developing Markets Trust Kentucky Convertible Securities Fund Global Currency Foreign Fund Louisiana Equity Income Fund High Income Currency Global Infrastructure Fund Maryland Global Utilities Fund Hard Currency Global Opportunities Trust Massachusetts*** Income Fund Franklin Money Greater European Fund Michigan*** MicroCap Value Market Funds Growth Fund Minnesota*** Natural Resources Fund Money Fund Growth and Income Fund Missouri Premier Return Fund Federal Money Fund Global Bond Fund New Jersey Real Estate Securities Fund Tax-Exempt Money Latin America Fund New York* Rising Dividends Fund Fund Pacific Growth North Carolina Strategic Income Fund California Tax-Exempt Global Real Estate Fund Ohio*** Utilities Fund Money Fund Global Smaller Oregon Value New York Tax-Exempt Company Fund Pennsylvania Money Fund World Fund Tennessee Franklin Funds Seeking IFT U.S. Treasury Money Texas High Current Income Market Portfolio Franklin Funds Seeking Virginia AGE High Income Fund Tax-Free Income Washington** Global Government Franklin Fund for Corporations Federal Tax-Free Income Fund Corporate Qualified Income Fund Franklin Funds Investment Grade Dividend Fund Federal Intermediate-Term Seeking Capital Growth Income Fund Tax-Free Income Fund California Growth Fund U.S. Government Franklin Tax-Deferred High Yield DynaTech Fund Securities Fund Annuity Insured Tax-Free Equity Fund Franklin Valuemark Income Fund*** Global Health Care Franklin Funds Seeking Franklin Templeton Puerto Rico Tax-Free Gold Fund High Current Income and Valuemark Income Plus Income Fund Growth Fund Stability of Principal (an immediate annuity) International Adjustable Rate Franklin State-Specific Equity Fund Securities Fund Funds Seeking Tax-Free Income Japan Fund Adjustable U.S. Government Alabama Small Cap Growth Fund Securities Fund Arizona* Short-Intermediate U.S. Arkansas** Government California* Securities Fund Colorado Connecticut Franklin Funds for Non-U.S. Investors Tax-Advantaged High Yield Securities Fund Tax-Advantaged International Bond Fund Tax-Advantaged U.S. Government Securities Fund
Fund Information: 1-800/342-5236 Shareholder Services: 1-800/632-2301 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. *Two or more fund options available: long-term portfolio, intermediate-term portfolio, a portfolio of insured municipal securities, and a high yield portfolio (CA). **The fund may invest up to 100% of its assets in bonds that pay interest subject to the federal alternative minimum tax. ***Portfolio of insured municipal securities. - -------------------------- TEMPLETON DRAGON FUND, INC. 700 Central Avenue St. Petersburg, Florida 33701-3628 Auditors McGladrey & Pullen, LLP 555 Fifth Avenue New York, New York 10017-2416 Investors should be aware that the value of investments made for the Fund may go up as well as down and that the investment manager may make errors in selecting securities for the Fund's portfolio. Like any investment in securities, the Fund's portfolio will be subject to the risk of loss from market, currency, economic, political, and other factors. The Fund and Fund 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 A96 05/96 LOGO TEMPLETON DRAGON FUND, INC. Annual Report March 31, 1996 LOGO -----END PRIVACY-ENHANCED MESSAGE-----