-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Eelkqq+ezOBIiqf1o0hZcC9n0E4kuZccXdoDIhTXc6ficV3wZTYR8t//AY8LbWWa mNtHx/IhCGeDDcAu18P3DQ== 0000950109-95-002075.txt : 19950531 0000950109-95-002075.hdr.sgml : 19950531 ACCESSION NUMBER: 0000950109-95-002075 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950526 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: 033-76050 FILM NUMBER: 95542765 BUSINESS ADDRESS: STREET 1: 700 CENTRAL AVE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138238712 N-30D 1 ANNUAL REPORT 3/31 Templeton Dragon Fund, Inc. [PHOTO APPEARS HERE] J. Mark Mobius, Ph.D. President Templeton Dragon Fund, Inc. - --------------------------- 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 $6 billion in emerging markets investments for the Templeton Group of Funds. - -------------------------------------------------------------------------------- Your Fund's Objective The Templeton Dragon Fund, Inc. seeks long-term capital appreciation by investing at least 45% of its total assets in the equity securities of "China companies." - -------------------------------------------------------------------------------- May 19, 1995 Dear Shareholder: This first annual report of the Templeton Dragon Fund covers the period from its initial offering on September 21, 1994 through the end of the fiscal year on March 31, 1995. This period was difficult for emerging market funds in general and for the Dragon Fund in particular. During this time, the Chinese and Hong Kong stock markets were adversely affected by two major factors. The first was a potential trade war between China and the U.S., which was finally averted on February 26, 1995. The second was the uncertain health of Chinese leader Deng Xiao Ping. Because Deng has no obvious successor at present, comments from his daughter 1 - -------------------------------------------------------------------------------- Templeton Dragon Fund, Inc. Geographic Distribution on 3/31/95 Based on Total Net Assets [PIE CHART APPEARS HERE] Singapore 0.3% China 3.1% Hong Kong 38.8% Short-Term Obligations & Other Net Assets 57.8%
about his deteriorating health aroused concerns regarding the stability of China and Hong Kong in a post-Deng period. The Hong Kong market was also affected by concerns about rising interest rates, soft prices of residential property, and China's takeover of Hong Kong in 1997. Weakness in these markets gave us a chance to accumulate shares at reasonable prices, and we deployed our cash as opportunities arose. As of March 31, 1995, the Fund had approximately 42.2% of its total net assets invested in equities. We are holding the remaining 57.8% in cash and other liquid assets while we wait for buying opportunities to emerge. Among the positions held by the Fund, each of which represented more than 3% of its total net assets were: HSBC Holdings, PLC, the holding company for the Hongkong Bank, with major subsidiaries in the U.S. and the United Kingdom; Cheung Kong Holdings, Ltd., one of the largest property development companies in Hong Kong, with interests in telecommunications, trading, energy and finance; and Sun Hung Kai Properties, Ltd., a leading Hong Kong property development company with interests in commercial, industrial and residential real estate. Since the Fund's inception, we have focused on companies listed on the Hong Kong Stock Exchange. Many of them are benefiting from developments in China, but we believe they have better management than most companies listed on the China exchanges (China "B" shares). Another reason for this strategy is that the availability of China "B" shares, most of which are listed on the Shanghai Stock Exchange, is still relatively low. As the "B" share markets develop further, we expect to increase the Fund's investment in them. 2 - -------------------------------------------------------------------------------- Templeton Dragon Fund, Inc. Top Ten Holdings as of 3/31/95 Based on Total Net Assets
% of Total Company, Industry, Country Net Assets - -------------------------------------------------------------------------------- HSBC Holdings PLC; Banking, Hong Kong 5.3% - -------------------------------------------------------------------------------- Cheung Kong Holdings Ltd.; Multi-Industry, Hong Kong 4.9% - -------------------------------------------------------------------------------- Sun Hung Kai Properties Ltd.; Real Estate, Hong Kong 4.5% - -------------------------------------------------------------------------------- New World Development Co. Ltd.; Real Estate, Hong Kong 3.1% - -------------------------------------------------------------------------------- Hang Lung Development Co. Ltd.; Real Estate, Hong Kong 2.6% - -------------------------------------------------------------------------------- Jardine Matheson Holdings Ltd.; Multi-Industry, Hong Kong 2.2% - -------------------------------------------------------------------------------- Wheelock & Co. Ltd.; Multi-Industry, Hong Kong 1.6% - -------------------------------------------------------------------------------- Hopewell Holdings Ltd.; Construction & Housing, Hong Kong 1.6% - -------------------------------------------------------------------------------- Jardine Strategic Holdings Ltd.; Multi-Industry, Hong Kong 1.4% - -------------------------------------------------------------------------------- Swire Pacific Ltd.; Multi-Industry, Hong Kong 1.3% - --------------------------------------------------------------------------------
For a complete list of portfolio holdings, see page 10 of this report. Looking forward, we remain optimistic about the long-term investment outlook for China and the Templeton Dragon Fund. Property prices in Hong Kong appear to have stabilized, and stock prices, in our opinion, already reflect the fears that were weakening the market. We do not expect significant changes in China's long- term economic policies after Deng because the reform movement does not depend upon him -- or any other person. Deng could not have enforced the movement towards a market economy without support throughout the country, and although there may be temporary setbacks, we think reformers stand a good chance of dominating China's political agenda if its economy continues to grow at a healthy rate. Although we believe that China is and likely will remain one of the world's most interesting growth stories, investing in any emerging market means putting up with 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 emerging markets. In fact, the Hong Kong market has increased 1000% in the last 15 years, but has suffered nine declines of more than 20% during that time. Thank you for investing in the Templeton Dragon Fund. We appreciate your support and welcome your comments. 3 Performance Summary In market-price terms, the Templeton Dragon Fund produced a total return of - -19.34% for the period from inception on September 21, 1994 through March 31, 1995. Based on the change in actual net asset value (in contrast to market price), total return was -0.11% 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 income distributions totaling 9.5 cents ($0.095) per share. The Fund's closing price on the New York Stock Exchange (NYSE) decreased $3.00 per share, from $15.00 at inception on September 21, 1994 to $12.00 on March 31, 1995. During this time, the Fund's net asset value declined from $14.10 to $13.97. We believe it is important to maintain a long-term investment perspective, and we encourage shareholders to view their investments in a similar manner. 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, Inc. Cumulative Total Returns* Period Ended 3/31/95
Since Inception (9/21/94) Based on change in net asset value -0.11% Based on change in market price -19.34%
*Cumulative total return calculations show the change in value of an investment over the period indicated. These calculations assume reinvestment of all distributions and capital gains, either at net asset value or at market price on the reinvestment date. Past performance is not predictive of future results. 4 The Following Letter was Written by Dr. Mobius After a Recent Trip to Washington, D.C. Although Washington, D.C. is not an emerging-market city, that's where work on this letter began. I visited the U.S. capital to investigate U.S. trade actions towards China and China's trade and investment relations with various multilateral agencies. The following report is based on those discussions. One of the factors impacting stock market sentiment in China and Hong Kong during early 1995 was the threat of a trade war between the U.S. and China. On February 4, 1995, the Clinton Administration announced it was ready to impose the harshest trade sanctions in U.S. history, on China. U.S. Trade Representative (USTR) Mickey Kantor stated that unless a bilateral accord could be reached, the sanctions would take effect on February 26, regardless of China's counter-actions and any resulting trade war between the two economic giants. "We cannot stand by while the interests of our fastest growing, most competitive industries are sacrificed in China," said Kantor. The key irritant in the bilateral trade relationship has been intellectual property rights (IPR) concerning China's piracy of Hollywood films, recorded music, pharmaceutical and agri-chemicals patents, and computer software -- all of which are among the most competitive U.S. industries. The official U.S. position was that China's enforcement of trade regulations was virtually non- existent for copyrighted works. According to the International Intellectual Property Alliance (IIPA), a federation of U.S. trade associations, core copyright industries such as those just mentioned make up the second largest segment of total U.S. exports. At $45.8 billion a year, and growing by 11.7% annually, they trail only motor vehicles and auto parts ($47.3 billion). The IIPA claims that last year the following U.S. industries lost approximately $866 million through piracy in China: computer programs ($351 million), sound recordings and musical compositions ($345 million), 5 books ($120 million) and motion pictures ($50 million). The group maintains that Chinese government ministries routinely use pirated U.S. software in their computers and allow retailers to sell it pre-loaded onto computers. It adds that IIPA members filed 25 civil cases on this subject in China in 1994, but have so far obtained only one judgement in a court system that simply does not yet work for foreign complainants. The organization says there has been virtually no action by central, provincial, or most local governments to stem the tide of whole-sale infringements. The USTR's office was especially disappointed because it believes China has failed to implement the January 16, 1992, Memorandum of Understanding in which it promised to take direct steps to protect intellectual property rights of U.S. exporters in these critical sectors. That agreement had averted a stiff package of trade sanctions the Bush Administration was threatening to impose at the time. Many experts believe it may be politically impossible for Chinese trade agencies to crack down on their country's pirate firms, which are often linked to powerful forces in the political and military establishments. According to Mickey Kantor, the Business Software Alliance, a U.S. trade association, estimated that 94% of the computer software used in China was pirated from its members. Kantor also said that 29 compact disc factories in China were producing 75 million U.S.-copyrighted compact discs (CDs), laser discs, and CD-ROMs each year even though China's domestic market capacity for such products was only 5 million units a year. He accused China of intentionally pirating these products in order to fuel a lucrative export business, and claimed that China created demand for bootleg U.S. movie videos by preventing Hollywood from showing more than 10 films there per year. "The Chinese," said Kantor, "have taken some steps, but they have not addressed the major substantive problems -- or the continuing operation of Chinese factories that mass produce pirated products for export." Kantor's comments came after six months of IPR negotiations with China, beginning on June 30, 1994. When these talks failed to reach a conclusion, his office announced on December 31, 1994, that it was threatening to impose stiff sanctions on $2.5 billion worth of Chinese exports. The month of January saw much behind-the-scenes lobbying, with 6 U.S. industries struggling to ensure that the proposed sanctions would not hurt them. By February 4, the lobbying campaign had lowered the proposed sanctions to only $1.1 billion -- a small portion of China's $30 billion U.S. trade deficit with China. The prevailing belief was that such action would not harm the core aspects of economic relations between the U.S. and China. China quickly threatened to impose sanctions of its own, which many experts say were far less threatening to the U.S. than those Washington wanted to impose on Beijing. The most serious measures appeared to be a suspension of legally imported films and videos from the U.S., and an end to negotiations on joint ventures with U.S. auto makers. Since few of the former are allowed in to China now, and German and Japanese car makers are already present to pre-empt the latter, Beijing probably chose these counter-retaliatory measures because they would have little impact on China's domestic economy. Potentially the world's largest consumer market, China is of growing interest to all exporting nations. However, the prevailing thinking in Washington is that the U.S. is a far more important market to China than China is to the U.S. For now at least, any trade war would seem to hurt China more than the U.S. Many experts doubt China would impose any retaliatory sanctions that would restrict its ability to benefit from U.S. trade and investment in telecommunications, power generation and aircraft assembly. Still, the White House can hardly ignore the fact that China is currently the world's fastest growing market for U.S. exports, showing a volume increase of 18% between 1993 and 1994, compared with 4% for U.S. exports to the world overall during that period. Finally, on February 26, the Office of the United States Trade Representative issued an announcement stating that the U.S. and China had reached an accord on protection of intellectual property rights, and that China had promised to take immediate steps to address rampant piracy throughout that country. The agreement provided for a special enforcement period during which China would make long- term changes to ensure effective enforce- 7 ment of intellectual property rights and would provide U.S. right-holders with enhanced access to the Chinese market. I believe that it will be very difficult to eliminate piracy of intellectual property rights in China. The value of pirated property is so great, and the ability to pay for it is so limited, that violation of the February 26 accord will likely be tempting to people who have taken to heart Deng Xiao Ping's dictum, "to be rich is glorious." China will probably continue to absorb technology and know-how from the U.S. and other countries, and pay only a fraction of what they should be paying for such assets. However, such technology and know-how should enable China to increase productivity and upgrade its growth prospects, and benefits should eventually accrue to the rest of the world. Sincerely, /s/ J. Mark Mobius, Ph.D. J. Mark Mobius, Ph.D. President Templeton Dragon Fund, Inc. - -------------------------------------------------------------------------------- Although Sir John Templeton has not been involved in investment management of the Templeton funds since October 1992, we were saddened by his recent decision to step down as Chairman and Director of the U.S. registered Templeton funds. The independent directors have nominated John Wm. Galbraith, former vice chairman of Templeton, Galbraith & Hansberger, Ltd. to succeed him. The investment manager will continue to use the investment philosophies and principles established by Sir John. - -------------------------------------------------------------------------------- 8 Templeton Dragon Fund, Inc. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
SEPTEMBER 8, 1994 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 1995 ----------------- Net asset value, beginning of period $ 14.10 -------- Income from investment operations: Net investment income .22 Net realized and unrealized loss (.22) -------- Total from investment operations (.00) Underwriting expenses deducted from capital (.04) Distributions to shareholders from net investment income (.09) -------- Change in net asset value (.13) -------- Net asset value, end of period $ 13.97 ======== TOTAL RETURN * Based on market value per share (19.34)% Based on net asset value per share (0.11)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $754,227 Ratio of expenses to average net assets 1.54%** Ratio of net investment income to average net assets 2.99%** Portfolio turnover rate --
*NOT ANNUALIZED. **ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 9 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1995 - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS: 42.2% - ------------------------------------------------------------------------------- Appliances & Household Durables: 0.5% Luks Industrial Co. Ltd. H.K. 4,136,000 $ 518,872 Semi-Tech Co. Ltd. H.K. 1,284,500 2,134,742 *Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 2,461,900 615,475 Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 1,976,010 375,442 Shenzhen Huafa Electronics Co. Ltd., B Chn. 18,000 3,818 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 202,000 99,276 ------------ 3,747,625 - ------------------------------------------------------------------------------- Automobiles: 0.7% Jardine International Motor Holdings Ltd. H.K. 4,805,000 5,313,341 - ------------------------------------------------------------------------------- Banking: 5.5% HSBC Holdings PLC H.K. 3,514,000 39,652,936 JCG Holdings Ltd. H.K. 3,322,000 1,901,170 ------------ 41,554,106 - ------------------------------------------------------------------------------- Broadcasting & Publishing: 0.1% Leefung-Asco Printers Holdings Ltd. H.K. 951,000 150,054 Ming Pao Enterprise Corp. Ltd. H.K. 822,000 499,664 South Sea Development Co. Ltd. H.K. 6,138,000 309,599 ------------ 959,317 - ------------------------------------------------------------------------------- Building Materials & Components: 0.4% K Wah International Holdings Ltd. H.K. 9,846,000 1,604,496 Shanghai Yaohua Pilkington Glass, B Chn. 1,540,300 1,694,330 ------------ 3,298,826 - ------------------------------------------------------------------------------- Chemicals: 0.2% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 1,819,000 458,388 Shanghai Petrochemical Co. Ltd., H Chn. 2,836,000 871,120 *Zhuhai Sez Lizhu Pharmaceutical, B Chn. 1,198,000 550,039 ------------ 1,879,547 - ------------------------------------------------------------------------------- Construction & Housing: 1.7% Hopewell Holdings Ltd. H.K. 16,838,000 11,868,482 Wai Kee Holdings Ltd. H.K. 3,978,000 637,962 ------------ 12,506,444 - ------------------------------------------------------------------------------- Electrical & Electronics: 0.5% China Treasure Telecomunications Holdings Ltd. H.K. 934,000 50,735 G.P. Batteries International Ltd. Sing. 900,000 2,430,000
10 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1995 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Electrical & Electronics (cont.) Gold Peak Industries Holdings Ltd. H.K. 1,107,000 $ 400,879 Great Wall Electronic International Ltd. H.K. 6,960,000 522,090 Tsann Kuen Enterprise Co. Ltd., B Chn. 546,000 203,020 ------------ 3,606,724 - ------------------------------------------------------------------------------- Electronic Components & Instruments: 0.1% S. Megga International Holdings Ltd. H.K. 10,362,000 710,277 - ------------------------------------------------------------------------------- Financial Services: 0.8% Min Xin Holdings H.K. 1,000,000 184,946 Peregrine Investments Holdings Ltd. H.K. 2,066,000 2,364,731 Sun Hung Kai & Co. Ltd. H.K. 9,547,000 3,827,690 ------------ 6,377,367 - ------------------------------------------------------------------------------- Food & Household Products: 2.0% C.P. Pokphand Co. Ltd. H.K. 7,870,000 2,341,050 Dairy Farm International Holdings Ltd. H.K. 7,246,000 9,277,729 Fairwood Holdings Ltd. H.K. 12,734,000 1,366,945 Golden Resources Development International Ltd. H.K. 4,556,000 400,683 Vitasoy International Holdings Ltd. H.K. 5,004,000 1,828,285 ------------ 15,214,692 - ------------------------------------------------------------------------------- Health & Personal Care: 0.1% China Pharmaceutical Enterprise & Investment Corp. Ltd. H.K. 8,281,000 931,773 - ------------------------------------------------------------------------------- Industrial Components: 0.2% Shanghai Refrigerator Compressor Co. Ltd., B Chn. 600,000 271,200 *Shanghai Rubber Belt Co. Ltd., B Chn. 807,936 126,038 Shanghai Tyre & Rubber Co. Ltd., B Chn. 4,870,000 1,363,600 ------------ 1,760,838 - ------------------------------------------------------------------------------- Leisure & Tourism: 0.1% *Glynhill International Ltd. H.K. 880,000 30,729 Hongkong & Shanghai Hotels Ltd. H.K. 307,000 361,317 Shanghai Jin Jiang Tower Co. Ltd., B Chn. 1,173,989 429,680 ------------ 821,726 - ------------------------------------------------------------------------------- Machinery & Engineering: 1.0% Guangzhou Shipyard International Co. Ltd., H Chn. 5,708,000 2,712,998 Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 5,655,000 1,051,830
11 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1995 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Machinery & Engineering (cont.) *Shanghai Industrial Sewing Machine Corp. Chn. 9,514,700 $ 2,702,175 *Shanghai Steel Tube Co. Ltd., B Chn. 4,626,000 1,054,728 ------------ 7,521,731 - ------------------------------------------------------------------------------- Merchandising: 1.4% Dickson Concepts (International) Ltd. H.K. 7,048,000 3,782,876 Fortei Holdings Ltd. H.K. 3,978,000 303,546 Joyce Boutique Holdings Ltd. H.K. 26,000 4,540 Le Saunda Holdings Ltd. H.K. 3,316,000 278,764 LI & Fung Ltd. H.K. 2,994,000 2,013,554 Linkful International Holdings Ltd. H.K. 2,211,000 171,573 Wo Kee Hong Holdings Ltd. H.K. 15,773,000 3,325,141 Yaohan Hongkong Corp. Ltd. H.K. 4,000,000 517,331 ------------ 10,397,325 - ------------------------------------------------------------------------------- Miscellaneous Materials & Commodities: 0.1% *Luoyang Glass Co. Ltd., H Chn. 2,267,000 1,055,510 - ------------------------------------------------------------------------------- Multi-Industry: 12.0% Cheung Kong Holdings Ltd. H.K. 8,449,000 36,825,052 China Southern Glass Co. Ltd., B Chn. 500,000 294,878 Jardine Matheson Holdings Ltd. H.K. 1,832,800 16,495,200 Jardine Strategic Holdings Ltd. H.K. 2,797,000 10,628,600 Lai Sun Garment International Ltd. H.K. 2,168,000 2,355,303 Shenzhen Gintian Industrial Co. Ltd., B Chn. 202,000 90,132 Stelux Holdings Ltd. H.K. 6,839,000 1,990,138 Swire Pacific Ltd., B H.K. 8,702,500 9,679,449 Wheelock & Co. Ltd. H.K. 7,335,000 12,427,380 ------------ 90,786,132 - ------------------------------------------------------------------------------- Real Estate: 11.8% China Overseas Land & Investment Ltd. H.K. 10,691,000 2,129,351 Hang Lung Development Co. Ltd. H.K. 12,983,000 19,813,683 *Hang Lung Development Co. Ltd., wts. H.K. 535,000 81,648 Lai Sun Development Co. Ltd. H.K. 20,682,000 2,701,606 New World Development Co. Ltd. H.K. 8,683,000 23,639,052 Shanghai Jinqiao Export Processing Zone Development, B Chn. 2,954,700 1,914,646 *Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd., B Chn. 1,314,000 959,220 *Shanghai Outer Gaoqiao Free Trade Zone Development Co., B Chn. 1,571,000 848,340 Shenzhen Properties & Resources Development Group Ltd., B Chn. 290,000 108,769 Shenzhen Vanke Co. Ltd., B Chn. 494,000 194,227
12 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1995 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Real Estate (cont.) Sun Hung Kai Properties Ltd. H.K. 4,956,000 $ 33,811,304 Tian An China Investments Co. Ltd. H.K. 16,486,000 2,814,475 ------------ 89,016,321 - ------------------------------------------------------------------------------- Recreation, Other Consumer Goods: 0.6% *Fu Hui Jewellery Co. Ltd. H.K. 7,430,000 461,252 *Shanghai Forever Bicycle Co. Ltd., B Chn. 1,252,000 225,360 Shanghai Phoenix Bicycle Co. Ltd., B Chn. 822,300 238,467 Shanghai Wingsung Stationery Co. Ltd., B Chn. 200,000 48,400 Shenzhen China Bicycles Co. Ltd., B Chn. 1,478,000 586,842 Yue Yuen Industrial Holdings Ltd. H.K. 11,546,000 2,792,424 ------------ 4,352,745 - ------------------------------------------------------------------------------- Telecommunications: 0.1% *Shanghai Posts & Telecommunications Equipment Co., B Chn. 50,000 30,000 - ------------------------------------------------------------------------------- Textiles & Apparel: 0.6% Goldlion Holdings Ltd. H.K. 11,204,000 2,666,239 Laws International Holdings Ltd. H.K. 7,218,000 1,241,586 Shanghai Lian Hua Fibre Corp., B Chn. 80,000 20,720 Top Form International Ltd. H.K. 7,481,000 551,496 Tungtex (Holdings) Co. Ltd. H.K. 3,000,000 387,998 ------------ 4,868,039 - ------------------------------------------------------------------------------- Transportation: 0.1% Chiwan Wharf Holdings Ltd., B Chn. 520,000 237,067 - ------------------------------------------------------------------------------- Utilities-Electrical & Gas: 1.5% Hong Kong Electric Holdings Ltd. H.K. 2,710,000 8,674,664 Shandong Huaneng Power Chn. 190,000 1,710,000 Wing Shan International Ltd. H.K. 8,486,000 1,031,666 ------------ 11,416,330 - ------------------------------------------------------------------------------- Wholesale & International Trade: 0.1% East Asiatic Co. Ltd. H.K. 2,044,000 293,435 ------------ TOTAL COMMON STOCKS (cost $330,516,031) 318,657,238 - -------------------------------------------------------------------------------
13 Templeton Dragon Fund, Inc. Investment Portfolio, March 31, 1995 (cont.) - --------------------------------------------------------------------------------
PRINCIPAL IN INDUSTRY ISSUE COUNTRY LOCAL CURRENCY VALUE - ------------------------------------------------------------------------------ SHORT TERM OBLIGATIONS: 59.7% (cost $450,004,064) - ------------------------------------------------------------------------------ U.S. Treasury Bills, 5.40% to 5.66% with maturities to 5/18/95 U.S. $452,006,000 $450,182,501 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS: 101.9% (cost $780,520,095) 768,839,739 OTHER ASSETS, LESS LIABILITIES: (1.9)% (14,612,876) ------------ TOTAL NET ASSETS: 100.0% $754,226,863 ============
* NON-INCOME PRODUCING. SEE NOTES TO FINANCIAL STATEMENTS. 14 Templeton Dragon Fund, Inc. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES March 31, 1995 Assets: Investments in securities at value (identified cost $780,520,095) $768,839,739 Receivables: Investment securities sold 12,395,238 Dividends 992,481 Unamortized organization costs 17,311 ------------ Total assets 782,244,769 ------------ Liabilities: Payables: Organization and registration expenses 65,075 Investment securities purchased 26,765,018 Accrued expenses 1,187,813 ------------ Total liabilities 28,017,906 ------------ Net assets, at value $754,226,863 ============ Net assets consists of: Undistributed net investment income $ 6,580,715 Net unrealized depreciation (11,680,356) Accumulated net realized gain 31,545 Net capital paid in on shares of capital stock 759,294,959 ------------ Net assets, at value $754,226,863 ============ Shares outstanding 54,007,093 ============ Net asset value per share ($754,226,863 / 54,007,093) $ 13.97 ============
STATEMENT OF OPERATIONS for the period September 8, 1994 (commencement of operations) to March 31, 1995 Investment income: Dividends $ 2,559,679 Interest 15,160,973 ------------ Total income $ 17,720,652 Expenses: Management fees (Note 3) 4,959,778 Administrative fees (Note 3) 595,174 Transfer agent fees 35,500 Custodian fees 150,000 Reports to shareholders 98,000 Audit fees 20,350 Legal fees 50,500 Registration fees 55,000 Directors' fees and expenses 35,500 Amortization of organization costs 2,255 Other 7,206 ------------ Total expenses 6,009,263 ------------ Net investment income 11,711,389 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 104,212 Foreign currency transactions (72,667) ------------ 31,545 Net unrealized depreciation on investments (11,680,356) ------------ Net realized and unrealized loss (11,648,811) ------------ Net increase in net assets resulting from operations $ 62,578 ============
SEE NOTES TO FINANCIAL STATEMENTS. 15 Templeton Dragon Fund, Inc. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
SEPTEMBER 8, 1994 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 1995 ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 11,711,389 Net realized gain from security and foreign currency transactions 31,545 Net unrealized depreciation (11,680,356) ------------ Net increase in net assets resulting from operations 62,578 Distributions to shareholders from net investment income (5,130,674) Capital share transactions (Note 2) 759,194,948 ------------ Net increase in net assets 754,126,852 Net assets: Beginning of period 100,011 ------------ End of period $754,226,863 ============
SEE NOTES TO FINANCIAL STATEMENTS. 16 Templeton Dragon Fund, Inc. Notes to Financial Statements - -------------------------------------------------------------------------------- 1. SUMMARY OF ACCOUNTING POLICIES Templeton Dragon Fund, Inc. (the Fund) was organized as a Maryland corporation on March 2, 1994 and commenced operations on September 8, 1994 as a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940. The following summarizes the Fund's significant accounting policies. a. Securities Valuations: Securities listed or traded on a recognized national or foreign stock exchange or NASDAQ are valued at the last reported sales prices on the principal ex- change on which the securities are traded. Over-the-counter securities and listed securities 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 approved in good faith by the Board of Directors. b. Foreign Currency Translations: 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 foreign exchange contracts 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. Security Transactions, Investment Income, Distributions and Expenses: Security transactions are accounted for on trade date. Dividend income is re- corded on the ex-dividend date. Certain dividend income on foreign securities is recorded as soon as information is available to the Fund. Interest income 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. e. Unamortized Organization Costs: Organization costs are being amortized on a straight line basis over five years. 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK 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. At March 31, 1995, there were 100,000,000 shares of $.01 par value capital stock authorized. 17 Templeton Dragon Fund, Inc. Notes to Financial Statements (cont.) - -------------------------------------------------------------------------------- 3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Certain officers of the Fund are also directors or officers of Templeton In- vestment Management (Hong Kong) Limited (TIML) and Templeton Global Investors, Inc. (TGII), the Fund's investment manager and administrative manager, respec- tively. The Fund pays monthly an investment management fee to TIML 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 as- sets. TGII and the Fund has entered into a Japanese Shareholder Servicing and Administration Agreement with Nomura Capital Management, Inc. (NCM), whereby NCM provides various administrative services to the Fund. For its services TGII pays to NCM a fee equal, on an annual basis, to 0.10% of the Fund's average weekly net assets. An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for the Fund, which firm received $50,500 for the period September 8, 1994 (commencement of operations) through March 31, 1995. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the pe- riod ended March 31, 1995 were $330,516,032 and $0, respectively. The cost of securities for federal income tax purposes is the same as that shown in the Statement of Assets and Liabilities. Realized gains and losses are reported on an identified cost basis. At March 31, 1995, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income taxes purposes, was as follows: Unrealized appreciation $ 7,484,395 Unrealized depreciation (19,164,751) ------------ Net unrealized depreciation $(11,680,356) ============
5. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
NET INCREASE NET GAIN (LOSS) (DECREASE) ON SECURITY AND IN NET ASSETS INVESTMENT NET INVESTMENT FOREIGN CURRENCY RESULTING FROM INCOME INCOME TRANSACTIONS OPERATIONS ----------------- ------------------ ------------------- ------------------- PER PER PER PER TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE ----------- ----- ----------- ----- ------------ ----- ------------ ----- 1995 For the period ended: September 30, 1994 $ 95,154 --* $ (207,382) $(.01) $ 172,251 $ .01 $ (35,131) --* December 31, 1994 8,973,078 $.17 5,159,548 .10 (27,968,243) (.51) (22,808,695) $(.41) March 31, 1995 8,652,420 .16 6,759,223 .13 16,147,181 .28 22,906,404 .41 ----------- ---- ----------- ----- ------------ ----- ------------ ----- $17,720,652 $.33 $11,711,389 $ .22 $(11,648,811) $(.22) $ 62,578 --* =========== ==== =========== ===== ============ ===== ============ =====
* LESS THAN $.01. 18 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, 1995, and the related statement of operations, the statement of changes in net assets and the financial highlights for the period from September 8, 1994 (commence- ment of operations) to March 31, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit 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, 1995, 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 audit provides 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, 1995, the results of its operations, the changes in its net assets and the financial highlights for the period indi- cated, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP New York, New York April 28, 1995 19 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 at the valuation date, participants 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 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 participant may withdraw from the Plan without penalty at any time by written notice 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 charged by Mellon upon any cash withdrawal or ter- mination. *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. 20 Templeton Dragon Fund, Inc. - -------------------------------------------------------------------------------- TRANSFER AGENT Chemical Mellon Shareholder Services Securities Transfer Services 450 West 33rd Street 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. 21 NOTES ----- 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 Massachusetts*** German Government Bond Fund FUNDS Michigan*** Global Government Income Fund Minnesota*** Investment Grade Income Fund American Trust Missouri U.S. Government Securities Fund American Government New Jersey Securities Fund New York* FRANKLIN FUNDS SEEKING HIGH Developing Markets North Carolina CURRENT INCOME AND STABILITY Trust Ohio*** OF PRINCIPAL Foreign Fund Oregon Adjustable Rate Securities Global Infrastructure Pennsylvania Fund Fund Tennessee** Adjustable U.S. Government Global Opportunities Texas Securities Fund Trust Virginia Short-Intermediate U.S. Global Rising Dividends Washington** Government Securities Fund Fund Greater European Fund FRANKLIN FUNDS FRANKLIN FUNDS FOR NON-U.S. Growth Fund SEEKING CAPITAL GROWTH INVESTORS Income Fund California Tax-Advantaged High Yield Japan Fund DynaTech Fund Securities Fund Latin America Fund Growth Fund Tax-Advantaged International Money Fund Equity Fund Bond Fund Real Estate Securities Global Health Tax-Advantaged U.S. Fund Care Fund Government Securities Fund Smaller Companies Gold Fund Growth Fund Growth Fund FRANKLIN TEMPLETON World Fund International INTERNATIONAL CURRENCY FUNDS Equity Fund Global Currency Fund FRANKLIN FUNDS Pacific Hard Currency Fund SEEKING TAX- Growth Fund High Income Currency Fund FREE INCOME Real Estate Federal Intermediate Securities FRANKLIN MONEY MARKET FUNDS Term Fund California Tax-Exempt Money Tax-Free Income Fund Small Cap Fund Federal Tax-Free Growth Fund Federal Money Fund Income Fund IFT U.S. Treasury Money High Yield Tax-Free Market Portfolio Income Fund FRANKLIN FUNDS SEEKING Money Fund Insured Tax-Free GROWTH AND INCOME New York Tax-Exempt Money Income Fund*** Balance Sheet Fund Puerto Rico Tax-Free Investment Fund Tax-Exempt Money Fund Income Fund Convertible Securities Fund FRANKLIN FUND FOR FRANKLIN STATE-SPECIFIC Equity Income Fund CORPORATIONS FUNDS SEEKING TAX-FREE Global Utilities Fund Corporate Qualified Dividend INCOME Income Fund Fund Alabama Premier Return Fund Arizona* Rising Dividends Fund FRANKLIN TEMPLETON VARIABLE Arkansas** Strategic Income Fund ANNUITIES California* Utilities Fund Franklin Valuemark Colorado Franklin Templeton Valuemark Connecticut FRANKLIN FUNDS SEEKING Income Florida* HIGH CURRENT INCOME Plus (an intermediate Georgia AGE High Income Fund annuity) Hawaii** Indiana Kentucky Louisiana Maryland Toll-free 1-800/DIAL BEN (1-800/342-5236) * Two or more fund options available: Long-term portfolio, intermediate-term portfolio, a portfolio of 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 bythe presence of a regular beeping tone. TLTRG A95 05/95 [RECYCLING LOGO APPEARS HERE] TEMPLETON DRAGON FUND, INC. Annual Report March 31, 1995 [FRANKLIN TEMPLETON LOGO APPEARS HERE] -----END PRIVACY-ENHANCED MESSAGE-----