-----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, A0HhnT3tHVb4VHeEbvZYvTJZBi9rsHf11vKDwBAehVJDc4xxlye3kew4o2CcjeUa n8ERNXCbB7c/opJugQGr0A== 0000950149-96-001995.txt : 19961209 0000950149-96-001995.hdr.sgml : 19961209 ACCESSION NUMBER: 0000950149-96-001995 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961206 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: 96676888 BUSINESS ADDRESS: STREET 1: 700 CENTRAL AVE CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138238712 N-30D 1 TEMPLETON DRAGON FUND SAR - 9/30/96 1 TEMPLETON DRAGON FUND [PHOTO OF J. MARK MOBIUS, Ph.D.] 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 emerging markets. Together with his team of Templeton analysts, Dr. Mobius currently oversees more than $10 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." November 15, 1996 Dear Shareholder: We are pleased to bring you this semi-annual report for the Templeton Dragon Fund covering the six months ended September 30, 1996. During this period, your Fund posted a six-month total return of -1.58% in market-price terms, as discussed in the Performance Summary on page 5. Based on the change in actual net asset value, the six-month total return was 7.56%. The period was encouraging for the Chinese economy, as growth receded to a healthy 10% per annum, and inflation appeared to be under greater control. Because of this, austerity measures originally introduced in 1994 and 1995 to cool the overheating economy were slowly 1 2 relaxed. Interest rates were reduced in May and again in August after the annualized inflation rate was reported to be only 6% in July. Political tension between China and the U.S. during the six months had little impact on stock prices of "China companies." The yearly debate in the U.S. Congress over renewing China's most-favored-nation status was relatively mild and centered on China's human rights record. Although there was the threat of a trade war between the U.S. and China over China's alleged abuses of intellectual property rights, minor concessions by China prevented this from happening. In Hong Kong, strong capital inflows of early 1996 drove the Hang Seng stock index higher, but later these inflows weakened, and the market stagnated for much of the period under review. However, higher-than-expected corporate earnings helped to boost stock prices during August and September. TEMPLETON DRAGON FUND Geographic Distribution on 9/30/96 Based on Total Net Assets [GRAPHIC] Hong Kong Stocks 77.1% Chinese Stocks 11.8% Singapore Stocks 0.3% Short-Term Obligations & Other Net Assets 10.8%
On September 30, 1996, the Fund's total net assets were invested 77.1% in Hong Kong, 11.8% in mainland China, 0.3% in Singapore, with the remaining 10.8% in cash and other liquid assets. Since we believed that Hong Kong-listed stocks were selling at bargain prices due to the political uncertainty surrounding the return of Hong Kong to China, we increased these holdings during the period by 1.5% of total net assets. New World Development Co. and Sun Hung Kai Properties, 2 3 companies with large real estate holdings and commercial interests in Hong Kong and China, remained among our largest holdings. Looking forward, we are optimistic about prospects for stocks of "China companies." In our opinion, China's central bank may institute further cuts in interest rates. Lower interest rates usually encourage investors to switch to equities from lower-yielding bank deposits. They also tend to increase corporate profits as the companies' interest payments decline. Higher profits, in turn, can support even higher stock prices. Although uncertainty surrounding the political future of Hong Kong may cause stagnant stock prices there until June 1997, we believe prices could possibly increase after the transfer of power to the Chinese government. If this happens, in our opinion, the stocks in our portfolio have the potential to bring good returns for the Fund. This discussion reflects the strategies we employed for the Fund during the six months under review, and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies, 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 information can be useful in analyzing the securities we purchase or sell for the Fund. TEMPLETON DRAGON FUND Top Ten Holdings as of 9/30/96 Based on Total Net Assets
Company % of Total Industry, Country Net Assets HSBC Holdings PLC Banking, Hong Kong 10.0% Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong 8.9% New World Development Co. Ltd. Real Estate, Hong Kong 8.5% Sun Hung Kai Properties Ltd. Real Estate, Hong Kong 7.4% Wheelock & Co. Ltd. Multi-Industry, Hong Kong 5.2% Hang Lung Development Co. Ltd. Real Estate, Hong Kong 4.9% Hongkong Electric Holdings Ltd. Utilities -- Electrical & Gas, Hong Kong 3.6% Hopewell Holdings Ltd. Construction & Housing, Hong Kong 3.3% Jardine Strategic Holdings Ltd. Multi-Industry, Hong Kong 2.9% Jardine Matheson Holdings Ltd. Multi-Industry, Hong Kong 2.5%
For a complete list of portfolio holdings, please see page 9 of this report. 3 4 Investing in any emerging market, however, means accepting a certain amount of volatility and, in some cases, severe market corrections. Investing in "China companies" is no exception and entails special considerations, including risks related to market and currency volatility, adverse economic, social and political developments, and 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. For example, the Hong Kong market has increased 830% in the last 15 years, but has suffered five 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. * Source: Bloomberg. Based on quarterly percentage price change over the 15 years ended September 30, 1996. 4 5 PERFORMANCE SUMMARY In market-price terms, the Templeton Dragon Fund produced a total return of - -1.58% for the six months ended September 30, 1996. Based on the change in actual net asset value (in contrast to market price), the Fund delivered a total return of 7.56% 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 15.0 cents ($0.15) per share, including long-term capital gains of 11.0 cents ($0.11) per share, short-term capital gains of 1.5 cents ($0.015) and dividend income of 2.5 cents ($0.025) per share. The Fund's closing price on the New York Stock Exchange (NYSE) decreased by $0.375, from $14.00 on March 31, 1996 to $13.625 on September 30, 1996, while the Fund's net asset value increased by $1.00, from $15.73 to $16.73. Past performance is not predictive of future results, 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 Periods Ended 9/30/96
Since Inception One-Year (9/21/94) Cumulative Total Return(1) Based on change in net asset value 17.92% 25.01% Based on change in market price 13.25% -3.86% Average Annual Total Return(2) Based on change in net asset value 17.92% 11.63% Based on change in market price 13.25% -1.92%
1. Cumulative total returns represents the change in value of an investment over the periods indicated. 2. Average annual total returns represent the average annual change in value of an investment over the periods indicated. All calculations assume reinvestment of dividend and capital gains distributions, either at net asset value or at market price on the reinvestment date, in accordance with the dividend reinvestment plan. Past performance is not predictive of future results. 5 6 THE FOLLOWING LETTER WAS WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO SHANGHAI. We arrived in Shanghai, late in the evening, after a short flight from Hong Kong. As we drove to our hotel I had a chance to reflect on how the city had changed since I first visited it in 1987. Ever since Shanghai was opened to foreign trade in 1842, it has been at the forefront of China's relations with the outside world. Evidence of this is the architecturally staggering Bund, a boulevard along the Huangpu River lined with 19th century European-style stone buildings. The Bund was home to the British, French and Americans until they were expelled by Chinese forces in 1927. Today, Shanghai is embracing westernism like no other part of China. It has become a city that does not sleep, with construction work on skyscrapers continuing throughout the night, particularly in the section across the river from Old Shanghai. The rattle and hum of bowling alleys can be heard in many places; American fast-food restaurants are almost everywhere; and old factories have been replaced by those employing the latest technology. However, the government's austerity program has affected corporate earnings, and rents have recently started to drop as the supply of new buildings has begun to exceed demand. In my opinion, the economy should probably improve if restrictions on credit are eased next year. The People's Bank of China (PBoC), which controls the price and supply of money, has already cut lending rates, and further cuts may take place. While in Shanghai, we visited many companies and saw the impact of the government's austerity measures at first hand. In the Pudong area, we inspected the Xingfu Motorcycle Plant, a producer of motorcycles distributed through independent dealers. Because bank credit is tight, the company had to extend credit lines to these dealers so that they could operate effectively. Designed by the Shanghai Design Institute, this gleaming factory resembles modern factories found elsewhere in the world, while reflecting the cosmopolitan feel of Shanghai. It uses German, Japanese and local machines and is jointly owned by a Thai company and the Shanghai Automotive Industry Corporation. 6 7 Xingfu means "happiness" in Chinese, and in my opinion, the owners of this new plant should be very happy. From the Xingfu Motorcycle Plant we found our way, with some difficulty, to the Gold Peak factory. Roads and factories have sprung up so quickly in the Pudong area that even taxi drivers often cannot find them. When we visited this factory many years ago, it was producing batteries for the cheap end of the market. Now, it produces high technology batteries for watches, calculators and other small electronic devices. Most of the workers are women, paid about RMB800 (US$100) per month plus an allowance for housing and for lunch. Clean and well-lit, the factory is owned by a Singapore-listed company whose parent company, Gold Peak Industries Ltd., is listed on the Hong Kong Stock Exchange. [MAP OF CHINA] Located at the center of the fastest growing region of the fastest growing country in the world, Shanghai is a powerhouse of the Chinese economy. In my opinion, it will eventually bring China to the forefront of the world economy. For this fact alone, companies based in Shanghai will demand our close attention for a long time to come.+ Sincerely, /s/ J. Mark Mobius - -------------------------- J. Mark Mobius, Ph.D. President Templeton Dragon Fund, Inc. +The letter reflects the strategies employed for the Fund during the past six months and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies and evaluations, conclusions and decisions regarding portfolio holdings may change as new circumstances arise. 7 8 TEMPLETON DRAGON FUND, INC. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
SIX MONTHS SEPTEMBER 8, 1994 ENDED (COMMENCEMENT SEPTEMBER 30, 1996 YEAR ENDED OF OPERATIONS) TO (UNAUDITED) MARCH 31, 1996 MARCH 31, 1995 ------------------ -------------- ----------------- Net asset value, beginning of period $ 15.73 $ 13.97 $ 14.10 -------- -------- -------- Income from investment operations: Net investment income .23 .37 .22 Net realized and unrealized gain (loss) .92 1.92 (.22) -------- -------- -------- Total from investment operations 1.15 2.29 (.00) -------- -------- -------- Underwriting expenses deducted from capital -- -- (.04) -------- -------- -------- Distributions: Dividends from net investment income (.03) (.47) (.09) Distributions from net realized gains (.12) (.06) -- -------- -------- -------- Total distributions (.15) (.53) (.09) -------- -------- -------- Change in net asset value 1.00 1.76 (.13) -------- -------- -------- Net asset value, end of period $ 16.73 $ 15.73 $ 13.97 ======== ======== ======== TOTAL RETURN* Based on market value per share (1.58)% 21.11% (19.34)% Based on net asset value per share 7.56% 16.89% (.11)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $903,628 $849,510 $ 754,227 Ratio of expenses to average net assets 1.50%** 1.52% 1.54%** Ratio of net investment income to average net assets 2.84%** 2.48% 2.99%** Portfolio turnover rate 4.21% 7.81% -- Average commission rate paid (per share) $ .0017 $ .0018 * NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. ** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. 8 9 TEMPLETON DRAGON FUND, INC. Investment Portfolio, September 30, 1996 (unaudited) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 89.2% - --------------------------------------------------------------------------------------------------------------------- APPLIANCES & HOUSEHOLD DURABLES: 3.0% Foshan Electrical and Lighting Co. Ltd., B Chn. 814,500 $ 537,172 + Hualing Holdings Ltd. H.K. 41,963,000 3,852,804 * Luks Industrial Co. Ltd. H.K. 12,076,000 1,202,447 * Luks Industrial Co. Ltd., wts. H.K. 2,415,200 81,204 Semi-Tech (Global) Co. Ltd. H.K. 6,970,905 11,538,547 * Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 9,571,320 1,244,272 +* Shanghai Shangling Electric Appliance, B Chn. 13,601,600 5,467,843 * Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 6,845,401 889,902 Shenzhen Huafa Electronics Co. Ltd., B Chn. 1,184,000 260,287 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 2,149,550 1,876,304 Tsann Kuen Enterprise Co. Ltd., B Chn. 709,800 232,225 ------------ 27,183,007 - --------------------------------------------------------------------------------------------------------------------- AUTOMOBILES: 1.2% * Jardine International Motor Holdings Ltd. H.K. 7,163,000 9,077,641 Qing Ling Motors Co. Ltd., H Chn. 4,892,000 1,882,025 ------------ 10,959,666 - --------------------------------------------------------------------------------------------------------------------- BANKING: 10.0% HSBC Holdings PLC H.K. 4,884,067 90,632,822 - --------------------------------------------------------------------------------------------------------------------- BROADCASTING & PUBLISHING: 0.1% Leefung-Asco Printers Holdings Ltd. H.K. 8,165,000 580,725 - --------------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & COMPONENTS: 1.2% China Southern Glass Co. Ltd., B Chn. 8,966,100 3,942,162 K Wah International Holdings Ltd. H.K. 15,452,073 2,817,461 * K Wah International Holdings Ltd., wts. H.K. 988,700 38,356 * Shanghai Yaohua Pilkington Glass, B Chn. 7,945,475 3,972,738 ------------ 10,770,717 - --------------------------------------------------------------------------------------------------------------------- CHEMICALS: 1.7% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 10,050,000 2,211,000 Shanghai Pechemical Co. Ltd., H Chn. 43,180,000 11,446,916 Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 3,845,532 1,203,438 ------------ 14,861,354 - --------------------------------------------------------------------------------------------------------------------- CONSTRUCTION & HOUSING: 3.3% Hopewell Holdings Ltd. H.K. 52,702,021 29,816,545 * Road King Infrastructure Ltd. H.K. 136,475 112,950 ------------ 29,929,495 - ---------------------------------------------------------------------------------------------------------------------
9 10 TEMPLETON DRAGON FUND, INC. Investment Portfolio, September 30, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS: 0.7% +* China Treasure Telecommunications Holdings Ltd. H.K. 45,936,000 $ 1,811,778 * China Treasury Telecommunications Holdings Ltd., wts. H.K. 2,116,000 26,269 G.P. Batteries International Ltd. Sing. 900,000 2,601,000 * GP Batteries International Ltd., wts. Sing. 225,000 166,500 Great Wall Electronic International Ltd. H.K. 17,398,000 1,417,398 * Shanghai Automation Instrumentation Co., B Chn. 5,187,650 684,770 ------------ 6,707,715 - --------------------------------------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS & INSTRUMENTS: 0.1% * S. Megga International Holdings Ltd. H.K. 23,502,000 741,561 - --------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: 1.7% JCG Holdings Ltd. H.K. 3,445,000 3,096,179 Min Xin Holdings H.K. 2,094,000 731,126 Peregrine Investments Holdings Ltd. H.K. 4,306,000 6,821,221 * Peregrine Investments Holdings Ltd., wts. H.K. 475,600 89,179 Sun Hung Kai & Co. Ltd. H.K. 16,294,000 4,793,592 ------------ 15,531,297 - --------------------------------------------------------------------------------------------------------------------- FOOD & HOUSEHOLD PRODUCTS: 0.9% C.P. Pokphand Co. Ltd. H.K. 45,000 14,257 * Fairwood Holdings Ltd. H.K. 14,768,000 888,028 * Fairwood Holdings Ltd., rts. H.K. 7,384,000 109,810 Golden Resources Development International Ltd. H.K. 10,138,000 1,166,794 NG Fund Hong Ltd. H.K. 6,722,000 3,259,731 Shanghai New Asia Group Co. Ltd., B Chn. 5,947,300 2,854,704 ------------ 8,293,324 - --------------------------------------------------------------------------------------------------------------------- HEALTH & PERSONAL CARE: 0.2% Zhuhai Sez Lizhu Pharmaceutical Group Inc., B Chn. 5,140,000 1,994,051 - --------------------------------------------------------------------------------------------------------------------- INDUSTRIAL COMPONENTS: 0.6% Shanghai Refrigerator Compressor Co. Ltd., B Chn. 5,338,464 2,455,693 Shanghai Rubber Belt Co. Ltd., B Chn. 1,807,936 274,806 * Shanghai Tyre & Rubber Co. Ltd., B Chn. 9,614,000 2,384,272 ------------ 5,114,771 - --------------------------------------------------------------------------------------------------------------------- LEISURE & TOURISM: 0.4% * Glynhill International Ltd. H.K. 16,882,000 1,157,049 * Shanghai Jin Jiang Tower Co. Ltd., B Chn. 12,034,675 2,743,906 ------------ 3,900,955 - ---------------------------------------------------------------------------------------------------------------------
10 11 TEMPLETON DRAGON FUND, INC. Investment Portfolio, September 30, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- MACHINERY & ENGINEERING: 1.1% * China Textile Machinery Co. Ltd., B Chn. 7,116,000 $ 711,600 + Guangzhou Shipyard International Co. Ltd., H Chn. 15,988,000 3,432,055 Northeast Electric Transmission & Transformation Chn. 11,746,000 1,944,249 +* Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 22,016,122 2,201,612 * Shanghai Industrial Sewing Machine Corp. Chn. 9,514,700 1,094,191 * Shanghai Steel Tube Co. Ltd., B Chn. 5,605,300 717,478 ------------ 10,101,185 - --------------------------------------------------------------------------------------------------------------------- MERCHANDISING: 3.0% Dairy Farm International Holdings Ltd. H.K. 21,270,259 12,974,858 Dickson Concepts (International) Ltd. H.K. 3,364,000 10,810,216 Fortei Holdings Ltd. H.K. 3,978,000 298,363 Joyce Boutique Holdings Ltd. H.K. 2,423,000 576,532 * Linkful International Holdings Ltd. H.K. 2,211,000 78,627 Wo Kee Hong Holdings Ltd. H.K. 30,485,000 2,010,520 * Wo Kee Hong Holdings Ltd., wts. H.K. 6,097,000 102,497 * Yaohan Hongkong Corp. Ltd. H.K. 4,000,000 170,697 ------------ 27,022,310 - --------------------------------------------------------------------------------------------------------------------- METALS & MINING: 0.4% Maanshan Iron & Steel Co. Ltd., H Chn. 19,676,000 3,613,076 - --------------------------------------------------------------------------------------------------------------------- MISCELLANEOUS MATERIALS & COMMODITIES: 0.1% Luoyang Glass Co. Ltd., H Chn. 6,873,000 1,173,201 - --------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY: 23.2% Cheung Kong Holdings Ltd. H.K. 10,449,000 80,397,711 * Cheung Kong Infrastructure Hldgs. Ltd. H.K. 2,162,000 3,564,658 Jardine Matheson Holdings Ltd. H.K. 3,637,002 22,731,263 Jardine Strategic Holdings Ltd. H.K. 8,123,625 25,833,128 * Jardine Strategic Holdings Ltd., wts. H.K. 349,625 94,399 Lai Sun Garment International Ltd. H.K. 7,023,000 9,626,768 * Shenzhen Gintian Industry Co. Ltd., B Chn. 719,040 220,370 * Shenzhen Tellus Machinery & Electronics Co. Ltd., B Chn. 162,800 35,789 Stelux International Holdings Ltd. H.K. 8,274,000 1,776,133 Swire Pacific Ltd., B H.K. 12,695,500 17,976,946 WBL Corp. Ltd. Sing. 89,000 176,963 Wheelock & Co. Ltd. H.K. 21,431,000 47,390,418 ------------ 209,824,546 - ---------------------------------------------------------------------------------------------------------------------
11 12 TEMPLETON DRAGON FUND, INC. Investment Portfolio, September 30, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- REAL ESTATE: 26.1% China Overseas Land & Investment Ltd. H.K. 30,733,000 $ 10,432,449 Hang Lung Development Co. Ltd. H.K. 23,035,000 44,086,124 Lai Sun Development Co. Ltd. H.K. 14,794,400 15,496,527 * Lai Sun Development Co. Ltd., wts. H.K. 7,999,000 682,703 New World Development Co. Ltd. H.K. 14,671,837 77,030,465 Shanghai Jinqiao Export Processing Zone Development, B Chn. 8,338,200 2,784,959 Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd., B Chn. 9,115,000 8,203,500 Shanghai Wai Gaoqiao Free Trade Zone Development Co., B Chn. 1,571,000 537,282 Shenzhen Properties & Resources Development (Group) Ltd., B Chn. 3,821,180 1,235,349 Shenzhen Vanke Co. Ltd., B Chn. 4,603,390 2,393,072 +* South Sea Development Co. Ltd. H.K. 46,054,000 2,531,094 Sun Hung Kai Properties Ltd. H.K. 6,306,000 67,072,094 Tian An China Investments Co. Ltd. H.K. 27,670,000 3,685,517 ------------ 236,171,135 - --------------------------------------------------------------------------------------------------------------------- RECREATION & OTHER CONSUMER GOODS: 1.9% * Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 7,710,000 204,390 * KTP Holdings Ltd. H.K. 15,374,000 606,371 * Phoenix Co. Ltd. Chn. 5,854,530 690,835 * Shanghai Forever Bicycle Co. Ltd., B Chn. 3,457,000 407,926 * Shanghai Wingsung Co. Ltd., B Chn. 230,000 39,560 Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 13,362,400 3,248,586 Yue Yuen Industrial (Holdings) Ltd. H.K. 43,240,000 11,742,403 ------------ 16,940,071 - --------------------------------------------------------------------------------------------------------------------- TEXTILES & APPAREL: 1.2% Goldlion Holdings Ltd. H.K. 9,055,000 7,669,759 Laws International Holdings Ltd. H.K. 21,288,000 2,862,992 Shanghai Lian Hua Fibre Corp., B Chn. 296,000 30,488 Tungtex (Holdings) Co. Ltd. H.K. 2,600,000 245,442 Victor Onward Textile Industrial Co. Ltd., B Chn. 81,400 18,211 ------------ 10,826,892 - ---------------------------------------------------------------------------------------------------------------------
12 13 TEMPLETON DRAGON FUND, INC. Investment Portfolio, September 30, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- TRANSPORTATION: 2.1% China Merchants Shekou Port Service Co. Ltd., B Chn. 4,566,240 $ 2,172,994 Chiwan Wharf Holdings Ltd., B Chn. 9,290,800 4,625,576 Cross Harbour Tunnel Co. Ltd. H.K. 1,205,000 2,625,663 * Guangshen Railway Co. Ltd., ADR Chn. 183,000 3,477,000 IMC Holdings Ltd. H.K. 121,000 68,065 Orient Overseas International Ltd. H.K. 1,314,000 951,558 Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 6,785,000 4,749,500 ------------ 18,670,356 - --------------------------------------------------------------------------------------------------------------------- UTILITIES ELECTRICAL & GAS: 4.9% Guangdong Electric Power Development Co Ltd, B, 144A Chn. 1,696,000 1,184,327 Hongkong Electric Holdings Ltd. H.K. 9,999,500 32,327,363 Shandong Huaneng Power Chn. 886,000 7,974,000 Wing Shan International Ltd. H.K. 21,654,000 2,772,205 ------------ 44,257,895 - --------------------------------------------------------------------------------------------------------------------- WHOLESALE & INTERNATIONAL TRADE: 0.1% * East Asiatic Co. (Hong Kong) Ltd. (The) H.K. 7,520,000 914,108 ------------ TOTAL COMMON STOCKS (cost $682,467,341) 806,716,235 - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL IN LOCAL CURRENCY** - --------------------------------------------------------------------------------------------------------------------- SHORT TERM OBLIGATIONS: 10.5% (cost $94,250,393) - --------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bills, 4.90% to 5.145% with maturities to 12/12/96 U.S. 94,445,000 94,567,370 - --------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.7% (cost $776,717,734) 901,283,605 OTHER ASSETS, LESS LIABILITIES: 0.3% 2,344,668 ------------ TOTAL NET ASSETS: 100.0% $903,628,273 ============
* NON-INCOME PRODUCING. ** CURRENCY OF COUNTRY INDICATED. + SEE NOTE 5 SEE NOTES TO FINANCIAL STATEMENTS. 13 14 TEMPLETON DRAGON FUND, INC. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES September 30, 1996 (unaudited) Assets: Investments in securities at value (identified cost $776,717,734) $901,283,605 Cash 121 Receivables: Investment securities sold 255,421 Dividends 3,385,391 Unamortized organization costs 11,272 ----------- Total assets 904,935,810 ----------- Liabilities: Payable for investment securities purchased 121,615 Accrued expenses 1,185,922 ----------- Total liabilities 1,307,537 ----------- Net assets, at value $903,628,273 =========== Net assets consist of: Undistributed net investment income $ 12,105,566 Net unrealized appreciation 124,565,871 Accumulated net realized gain 7,661,877 Net capital paid in on shares of capital stock 759,294,959 ----------- Net assets, at value $903,628,273 =========== Shares outstanding 54,007,093 =========== Net asset value per share ($903,628,273 / 54,007,093) $ 16.73 ===========
STATEMENT OF OPERATIONS For the six months ended September 30, 1996 (unaudited) Investment income (net of $490 foreign taxes withheld) Dividends $16,332,742 Interest 2,473,389 ----------- Total income $18,806,131 Expenses: Management fees (Note 3) 5,391,062 Administrative fees (Note 3) 646,927 Transfer agent fees 57,000 Custodian fees 170,796 Reports to shareholders 71,000 Audit fees 23,500 Legal fees (Note 3) 76,000 Registration fees 29,800 Directors' fees and expenses 30,000 Amortization of organization costs 2,013 Other 2,456 ----------- Total expenses 6,500,554 ----------- Net investment income 12,305,577 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 8,033,352 Foreign currency transactions (5,350) ----------- 8,028,002 Net unrealized appreciation on investments 41,886,091 ----------- Net realized and unrealized gain 49,914,093 ----------- Net increase in net assets resulting from operations $62,219,670 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 14 15 TEMPLETON DRAGON FUND, INC. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED SEPTEMBER 30, 1996 YEAR ENDED (UNAUDITED) MARCH 31, 1996 ------------------ -------------- Increase (decrease) in net assets: Operations: Net investment income $ 12,305,577 $ 19,952,785 Net realized gain on investment and foreign currency transactions 8,028,002 9,323,607 Net unrealized appreciation 41,886,091 94,360,136 ------------ ------------ Net increase in net assets resulting from operations 62,219,670 123,636,528 Distributions to shareholders: From net investment income (1,350,177) (25,383,334) From net realized gain (6,750,887) (2,970,390) ------------ ------------ Net increase in net assets 54,118,606 95,282,804 Net assets: Beginning of period 849,509,667 754,226,863 ------------ ------------ End of period $903,628,273 $849,509,667 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 15 16 TEMPLETON DRAGON FUND, INC. Notes to Financial Statements (unaudited) - -------------------------------------------------------------------------------- 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 Investment Company Act of 1940. The Fund seeks to achieve its objective by investing in equity securities of China companies, Japan companies and Asia-Pacific companies. 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 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 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 currencies are translated into U.S. dollar amounts on the respective dates of such transactions. When the Fund purchases or sells foreign securities it customarily 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 foreign currencies, currency gains or losses realized between the trade and settlement 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 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. 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. 16 17 TEMPLETON DRAGON FUND, INC. Notes to Financial Statements (unaudited) (cont.) - -------------------------------------------------------------------------------- 2. Transactions in Shares of Capital Stock At September 30, 1996, there were 100,000,000 shares of $.01 par value capital stock authorized. 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 administrative 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 $76,000 for the six months ended September 30, 1996. 4. Purchases and Sales of Securities Purchases and sales of securities (excluding short-term securities) for the period ended September 30, 1996, were $57,640,084 and $32,307,125, 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 September 30, 1996, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income tax purposes, was as follows: Unrealized appreciation $196,070,342 Unrealized depreciation (71,504,471) ---------- Net unrealized appreciation $124,565,871 ==========
5. Holding of 5% Voting Securities of Portfolio Companies The Investment Company Act of 1940 defines "affiliated companies" as investments in portfolio companies in which the Fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" at September 30, 1996 amounted to $19,297,186. For the period ended September 30, 1996, dividends from affiliated companies was $445,585. 17 18 TEMPLETON DRAGON FUND, INC. Annual Meeting of Shareholders, July 24, 1996 - -------------------------------------------------------------------------------- An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 700 Central Avenue, St. Petersburg, Florida, on July 24, 1996. The purpose of the meeting was to elect three directors of the Fund, to ratify the selection of McGladrey & Pullen, LLP, as the Fund's independent public accountants for the fiscal year ended March 31, 1997 and in their discretion, to authorize the proxyholders to vote upon such other matters which may legally come before the meeting or any other adjournment thereof. At the meeting, the following persons were elected by the shareholders to serve as directors of the Fund: Harris J. Ashton, Nicholas F. Brady and S. Joseph Fortunato. The shareholders ratified the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent public accountants for the fiscal year ending March 31, 1997. No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: 1. Election of three (3) Directors for the term set forth below:
% OF % OF OUTSTANDING OUTSTANDING TERM EXPIRING 1999: FOR SHARES AGAINST SHARES - ------------------- ---------- ----------- ------- ----------- Harris J. Ashton 3,454,208 65.14% 2,273 0.04% Nicholas F. Brady 3,427,730 64.64% 28,751 0.54% S. Joseph Fortunato 3,452,593 65.11% 3,888 0.07%
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent public accountants of the Fund for the fiscal year ended March 31, 1997:
% OF % OF % OF OUTSTANDING OUTSTANDING OUTSTANDING FOR SHARES AGAINST SHARES ABSTAIN SHARES ---------- ----------- ------- ----------- ------- ----------- 47,340,337 87.66% 672,830 1.25% 227,418 0.42%
18 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 shareholder 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 instructs them otherwise, or unless the reinvestment service is not provided by the broker-dealer or nominee. --Participants should contact Chemical Mellon Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pittsburgh, PA 15230, to receive the Plan brochure. --To receive dividends or distributions 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 common 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 participants 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 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. 19 20 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 because 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. Petersburg, FL 33701. 20 21 NOTES 22 NOTES 23 LITERATURE REQUEST - -------------------------------------------------------------------------------- For a free brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Fund Information, toll free, at 1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you invest or send money. 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. FRANKLIN TEMPLETON GROUP GLOBAL GROWTH Franklin Global Health Care Fund Franklin Templeton Fund Templeton Developing Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Global Infrastructure Fund Templeton Global Opportunities Trust Templeton Global Real Estate Fund Templeton Global Smaller Companies Fund Templeton Greater European Fund Templeton Growth Fund Templeton Latin America Fund Templeton Pacific Growth Fund Templeton World Fund GLOBAL GROWTH AND INCOME Franklin Global Utilities Fund Franklin Templeton German Government Bond Fund Franklin Templeton Global Currency Fund Mutual European Fund Templeton Global Bond Fund Templeton Growth and Income Fund GLOBAL INCOME Franklin Global Government Income Fund Franklin Templeton Hard Currency Fund Franklin Templeton High Income Currency Fund Templeton Americas Government Securities Fund GROWTH Franklin Blue Chip Fund Franklin California Growth Fund Franklin DynaTech Fund Franklin Equity Fund Franklin Gold Fund Franklin Growth Fund Franklin MidCap Growth Fund Mutual Discovery Fund GROWTH AND INCOME Franklin Asset Allocation Fund Franklin Balance Sheet Investment Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin MicroCap Value Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Strategic Income Fund Franklin Utilities Fund Franklin Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Shares Fund Templeton American Trust, Inc. INCOME Franklin Adjustable Rate Securities Fund Franklin Adjustable U.S. Government Securities Fund Franklin's AGE High Income Fund Franklin Investment Grade Income Fund Franklin Short-Intermediate U.S. Government Securities Fund Franklin U.S. Government Securities Fund Franklin Money Fund Franklin Federal Money Fund FOR NON-U.S. INVESTORS: Franklin Tax-Advantaged High Yield Securities Fund Franklin Tax-Advantaged International Bond Fund Franklin Tax-Advantaged U.S. Government Securities Fund FOR CORPORATIONS: Franklin Corporate Qualified Dividend Fund FRANKLIN FUNDS SEEKING TAX-FREE INCOME Federal Intermediate-Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund Puerto Rico Tax-Free Income Fund Tax-Exempt Money Fund FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME Alabama Arizona* Arkansas** California* Colorado Connecticut Florida* Georgia Hawaii** Indiana Kentucky Louisiana Maryland Massachusetts*** Michigan* Minnesota*** Missouri New Jersey New York* North Carolina Ohio*** Oregon Pennsylvania Tennessee** Texas Virginia Washington** VARIABLE ANNUITIES Franklin Valuemark(R) Franklin Templeton Valuemark Income Plus (an immediate annuity) *Two or more fund options available: long-term portfolio, intermediate-term portfolio, a portfolio of insured municipal securities, and/or a high yield portfolio (CA) and a money market portfolio (CA and NY). **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. 11/96.1 24 TEMPLETON DRAGON FUND, INC. SEMI-ANNUAL REPORT SEPTEMBER 30, 1996 TEMPLETON DRAGON FUND, INC. 700 Central Avenue St. Petersburg Florida 33701-3628 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. [FRANKLIN TEMPLETON LOGO] -----END PRIVACY-ENHANCED MESSAGE-----