UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08394
Templeton Dragon Fund, Inc.
(Exact name of registrant as specified in charter)
300 S.E. 2nd Street, Fort Lauderdale, FL 33301-1923
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: (954) 527-7500
Date of fiscal year end: 12/31
Date of reporting period: 6/30/19
| Item 1. | Reports to Stockholders. |
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 416-5585 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 416-5585 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
FRANKLIN TEMPLETON
Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.
During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.
| Contents | ||||
| Semiannual Report | ||||
| Templeton Dragon Fund, Inc. | 2 | |||
| Performance Summary | 5 | |||
| Important Notice to Shareholders | 7 | |||
| Consolidated Financial Highlights and Consolidated Statement of Investments | 8 | |||
| Consolidated Financial Statements | 13 | |||
| Notes to Consolidated Financial Statements | 16 | |||
| Annual Meeting of Shareholders | 22 | |||
| Dividend Reinvestment and Cash Purchase Plan | 23 | |||
| Shareholder Information | 25 | |||
|
Visit franklintempleton.com/investor/investments-and-solutions/investment-options/closed-end-funds/ for fund updates, to access your account, or |
||||
| to find helpful financial planning tools. |
||||
|
Not FDIC Insured
|
May Lose Value
|
No Bank Guarantee
|
| franklintempleton.com | Not part of the semiannual report | 1 | ||
1. Source: The website of the National Bureau of Statistics of the People’s Republic of China (www.stats.gov.cn).
2. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 9.
| 2 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
| franklintempleton.com | Semiannual Report | 3 | ||
TEMPLETON DRAGON FUND, INC.
CFA® is a trademark owned by CFA Institute.
3. The real estate sector comprises real estate management and development in the SOI. The energy sector comprises oil, gas and consumable fuels in the SOI. The health care sector comprises biotechnology, health care equipment and supplies, health care providers and services, and pharmaceuticals in the SOI.
4. The consumer discretionary sector comprises auto components; automobiles; hotels, restaurants and leisure; household durables; internet and direct marketing retail; specialty retail; and textiles, apparel and luxury goods in the SOI. The communication services sector comprises entertainment and interactive media and services in the SOI. The materials sector comprises paper and forest products in the SOI.
See www.franklintempletondatasources.com for additional data provider information.
| 4 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
Performance Summary as of June 30, 2019
Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not reflect any sales charges paid at inception or brokerage commissions paid on secondary market purchases. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 6/30/191
| Cumulative Total Return2 | Average Annual Total Return2 | |||||||||||||
| Based on NAV3 |
Based on market price4 |
Based on NAV3 |
Based on market price4 | |||||||||||
| 6-Month |
+14.15% | +13.06% | +14.15% | +13.06% | ||||||||||
| 1-Year |
-3.58% | +0.57% | -3.58% | +0.57% | ||||||||||
| 5-Year |
+33.93% | +43.51% | +6.02% | +7.49% | ||||||||||
| 10-Year |
+101.20% | +114.76% | +7.24% | +7.94% | ||||||||||
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown.
See page 6 for Performance Summary footnotes.
| franklintempleton.com | Semiannual Report | 5 | ||
TEMPLETON DRAGON FUND, INC.
PERFORMANCE SUMMARY
All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency volatility, economic instability and political developments of countries where the Fund invests. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. There are special risks associated with investments in China, Hong Kong and Taiwan, including exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization and exchange control regulations (including currency blockage), inflation and rapid fluctuations in inflation and interest rates. In addition, investments in Taiwan could be adversely affected by its political and economic relationship with China. Because the Fund invests its assets primarily in companies in a specific region, the Fund is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may adversely affect the value of securities held by the Fund. Also, as a nondiversified investment company investing in “China companies,” the Fund may invest in a relatively small number of issuers and, as a result, be subject to a greater risk of loss with respect to its portfolio securities. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.
The Fund may invest in eligible China A shares (“Stock Connect Securities”) listed and traded on the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect program, as well as eligible China A shares listed and traded on the Shenzhen Stock Exchange through the Shenzhen-Hong Kong Stock Connect program (collectively, “Stock Connect”) and may invest in China Interbank bonds traded on the China Interbank Bond Market (“CIBM”) through the China – Hong Kong Bond Connect program (“Bond Connect”).
Trading through Stock Connect is subject to a number of restrictions that may affect the Fund’s investments and returns. For example, investors in Stock Connect Securities are generally subject to Chinese securities regulations and the listing rules of the respective Exchange, among other restrictions. In addition, Stock Connect Securities generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. While Stock Connect is not subject to individual investment quotas, daily and aggregate investment quotas apply to all Stock Connect participants, which may restrict or preclude the Fund’s ability to invest in Stock Connect Securities. Trading in the Stock Connect program is subject to trading, clearance and settlement procedures that are untested in China, which could pose risks to the Fund. Finally, the withholding tax treatment of dividends and capital gains payable to overseas investors currently is unsettled. In China, the Hong Kong Monetary Authority Central Money Markets Unit holds Bond Connect securities on behalf of ultimate investors (such as the Fund) in accounts maintained with a China-based custodian (either the China Central Depository & Clearing Co. or the Shanghai Clearing House). This recordkeeping system subjects the Fund to various risks, including the risk that the Fund may have a limited ability to enforce rights as a bondholder and the risks of settlement delays and counterparty default of the Hong Kong sub-custodian. In addition, enforcing the ownership rights of a beneficial holder of Bond Connect securities is untested and courts in China have limited experience in applying the concept of beneficial ownership. Bond Connect uses the trading infrastructure of both Hong Kong and China and is not available on trading holidays in Hong Kong. As a result, prices of securities purchased through Bond Connect may fluctuate at times when a Fund is unable to add to or exit its position. Securities offered through Bond Connect may lose their eligibility for trading through the program at any time. If Bond Connect securities lose their eligibility for trading through the program, they may be sold but can no longer be purchased through Bond Connect.
The application and interpretation of the laws and regulations of Hong Kong and China, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect and Bond Connect programs, are uncertain, and they may have a detrimental effect on the Fund’s investments and returns.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 2/29/20. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
3. Assumes reinvestment of distributions based on net asset value.
4. Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.
| 6 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
Important Notice to Shareholders
| franklintempleton.com | Semiannual Report | 7 | ||
TEMPLETON DRAGON FUND, INC.
Consolidated Financial Highlights
| Six Months Ended June 30, 2019 |
Year Ended December 31, |
|||||||||||||||||||||||
| (unaudited) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$19.01 | $24.53 | $19.05 | $20.51 | $26.35 | $28.46 | ||||||||||||||||||
| Income from investment operations: |
||||||||||||||||||||||||
| Net investment incomea |
0.14 | 0.32 | b | 0.19 | 0.27 | 0.30 | 0.49 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
2.55 | (3.76 | ) | 6.98 | (0.06 | ) | (2.16 | ) | 1.63 | |||||||||||||||
| Total from investment operations |
2.69 | (3.44 | ) | 7.17 | 0.21 | (1.86 | ) | 2.12 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | (0.21 | ) | (0.34 | ) | (0.29 | ) | (0.49 | ) | (0.02 | ) | |||||||||||||
| Net realized gains |
— | (1.90 | ) | (1.37 | ) | (1.41 | ) | (3.52 | ) | (4.29 | ) | |||||||||||||
| Total distributions |
— | (2.11 | ) | (1.71 | ) | (1.70 | ) | (4.01 | ) | (4.31 | ) | |||||||||||||
| Repurchase of shares |
— | c | 0.03 | 0.02 | 0.03 | 0.03 | 0.08 | |||||||||||||||||
| Net asset value, end of period |
$21.70 | $19.01 | $24.53 | $19.05 | $20.51 | $26.35 | ||||||||||||||||||
| Market value, end of periodd |
$19.22 | $17.00 | $21.51 | $16.38 | $17.81 | $24.04 | ||||||||||||||||||
| Total return (based on market value per share)e |
13.06% | (11.87)% | 42.06% | 1.03% | (8.63)% | 9.74% | ||||||||||||||||||
| Ratios to average net assetsf |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.36% | 1.33% | 1.36% | 1.35% | 1.36% | 1.35% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.36% | g | 1.33% | g | 1.35% | h | 1.35% | g,h | 1.36% | g | 1.35% | g | ||||||||||||
| Net investment income |
1.28% | 1.34% | b | 0.84% | 1.35% | 1.15% | 1.75% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$733,468 | $643,788 | $837,967 | $654,805 | $713,772 | $925,020 | ||||||||||||||||||
| Portfolio turnover rate |
5.60% | 14.06% | 50.93% | 46.85% | i | 71.98% | i | 21.58% | i | |||||||||||||||
aBased on average daily shares outstanding.
bNet investment income per share includes approximately $0.07 per share related to income received in the form of a special dividend in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.05%.
cAmount rounds to less than $0.01 per share.
dBased on the last sale on the New York Stock Exchange.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
hBenefit of expense reduction rounds to less than 0.01%.
iExcludes the value of portfolio securities associated with intercompany transactions.
| 8 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
Consolidated Statement of Investments, June 30, 2019 (unaudited)
| Country | Shares | Value | ||||||||||
| Common Stocks 94.8% |
||||||||||||
| Auto Components 0.4% |
||||||||||||
| aFuyao Glass Industry Group Co. Ltd., A |
China | 621,456 | $ | 2,057,100 | ||||||||
| Weifu High-Technology Co. Ltd., B |
China | 580,692 | 1,047,337 | |||||||||
| bXinchen China Power Holdings Ltd. |
China | 1,900,000 | 87,556 | |||||||||
|
|
|
|||||||||||
| 3,191,993 | ||||||||||||
|
|
|
|||||||||||
| Automobiles 1.9% |
||||||||||||
| Chongqing Changan Automobile Co. Ltd., B |
China | 5,357,619 | 2,091,708 | |||||||||
| Dongfeng Motor Group Co. Ltd., H |
China | 9,296,000 | 7,615,625 | |||||||||
| Jiangling Motors Corp. Ltd., B |
China | 4,836,708 | 4,488,666 | |||||||||
|
|
|
|||||||||||
| 14,195,999 | ||||||||||||
|
|
|
|||||||||||
| Banks 9.8% |
||||||||||||
| aBank of Ningbo Co. Ltd., A |
China | 3,214,700 | 11,347,983 | |||||||||
| China Construction Bank Corp., H |
China | 29,282,272 | 25,226,051 | |||||||||
| aChina Merchants Bank Co. Ltd., A |
China | 2,300,346 | 12,053,132 | |||||||||
| aIndustrial and Commercial Bank of China Ltd., A |
China | 9,832,218 | 8,433,588 | |||||||||
| Industrial and Commercial Bank of China Ltd., H |
China | 20,157,155 | 14,707,319 | |||||||||
|
|
|
|||||||||||
| 71,768,073 | ||||||||||||
|
|
|
|||||||||||
| Beverages 3.1% |
||||||||||||
| aKweichow Moutai Co. Ltd., A |
China | 76,819 | 11,008,023 | |||||||||
| aWuliangye Yibin Co. Ltd., A |
China | 667,200 | 11,460,395 | |||||||||
|
|
|
|||||||||||
| 22,468,418 | ||||||||||||
|
|
|
|||||||||||
| Capital Markets 0.7% |
||||||||||||
| China Everbright Ltd. |
China | 1,524,000 | 2,251,232 | |||||||||
| aGF Securities Co. Ltd., A |
China | 1,520,135 | 3,041,687 | |||||||||
|
|
|
|||||||||||
| 5,292,919 | ||||||||||||
|
|
|
|||||||||||
| Communications Equipment 0.5% |
||||||||||||
| aHytera Communications Corp. Ltd., A |
China | 714,900 | 873,480 | |||||||||
| aShenzhen Sunway Communication Co. Ltd., A |
China | 855,500 | 3,046,102 | |||||||||
|
|
|
|||||||||||
| 3,919,582 | ||||||||||||
|
|
|
|||||||||||
| Electric Utilities 0.7% |
||||||||||||
| CK Infrastructure Holdings Ltd. |
Hong Kong | 642,600 | 5,239,738 | |||||||||
|
|
|
|||||||||||
| Electronic Equipment, Instruments & Components 3.8% |
||||||||||||
| aAVIC Jonhon Optronic Technology Co. Ltd., A |
China | 1,608,590 | 7,838,210 | |||||||||
| aBOE Technology Group Co. Ltd., A |
China | 4,227,300 | 2,117,713 | |||||||||
| Flytech Technology Co. Ltd. |
Taiwan | 405,000 | 1,045,903 | |||||||||
| aHangzhou Hikvision Digital Technology Co. Ltd., A |
China | 1,339,100 | 5,378,397 | |||||||||
| aLeyard Optoelectronic Co. Ltd., A |
China | 3,978,800 | 4,536,903 | |||||||||
| aLuxshare Precision Industry Co. Ltd., A |
China | 1,826,200 | 6,592,809 | |||||||||
|
|
|
|||||||||||
| 27,509,935 | ||||||||||||
|
|
|
|||||||||||
| Entertainment 1.2% |
||||||||||||
| Poly Culture Group Corp. Ltd., H |
China | 1,083,500 | 1,095,684 | |||||||||
| aWuhu Sanqi Interactive Entertainment Network Technology Group Co. Ltd., A |
China | 230,300 | 454,443 | |||||||||
| aZhejiang Huace Film & TV Co. Ltd., A |
China | 7,305,953 | 7,160,404 | |||||||||
|
|
|
|||||||||||
| 8,710,531 | ||||||||||||
|
|
|
|||||||||||
| franklintempleton.com | Semiannual Report | 9 | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Food & Staples Retailing 2.2% |
||||||||||||
| Beijing Jingkelong Co. Ltd., H |
China | 3,959,929 | $ | 727,392 | ||||||||
| Dairy Farm International Holdings Ltd. |
China | 2,205,678 | 15,770,598 | |||||||||
|
|
|
|||||||||||
| 16,497,990 | ||||||||||||
|
|
|
|||||||||||
| Food Products 4.4% |
||||||||||||
| aHenan Shuanghui Investment & Development Co. Ltd., A |
China | 659,446 | 2,390,285 | |||||||||
| Uni-President China Holdings Ltd. |
China | 24,224,700 | 26,977,835 | |||||||||
| Uni-President Enterprises Corp. |
Taiwan | 1,181,831 | 3,155,059 | |||||||||
|
|
|
|||||||||||
| 32,523,179 | ||||||||||||
|
|
|
|||||||||||
| Health Care Equipment & Supplies 1.0% |
||||||||||||
| Ginko International Co. Ltd. |
Taiwan | 1,112,000 | 6,999,806 | |||||||||
|
|
|
|||||||||||
| Health Care Providers & Services 2.0% |
||||||||||||
| aChina National Accord Medicines Corp. Ltd., A |
China | 671,601 | 4,091,144 | |||||||||
| aHuadong Medicine Co. Ltd., A |
China | 1,970,522 | 7,449,577 | |||||||||
| Sinopharm Group Co. Ltd., H |
China | 882,000 | 3,104,779 | |||||||||
|
|
|
|||||||||||
| 14,645,500 | ||||||||||||
|
|
|
|||||||||||
| Hotels, Restaurants & Leisure 0.1% |
||||||||||||
| aHuangshan Tourism Development Co. Ltd., A |
China | 803,046 | 1,086,430 | |||||||||
|
|
|
|||||||||||
| Household Durables 1.6% |
||||||||||||
| aGree Electric Appliances Inc. of Zhuhai, A |
China | 101,476 | 812,778 | |||||||||
| aHaier Smart Home Co. Ltd., A. |
China | 399,400 | 1,005,654 | |||||||||
| aMidea Group Co. Ltd., A. |
China | 1,353,016 | 10,218,356 | |||||||||
|
|
|
|||||||||||
| 12,036,788 | ||||||||||||
|
|
|
|||||||||||
| Independent Power & Renewable Electricity Producers 0.3% |
||||||||||||
| aChina Yangtze Power Co. Ltd., A |
China | 747,164 | 1,947,666 | |||||||||
|
|
|
|||||||||||
| Industrial Conglomerates 0.5% |
||||||||||||
| CK Hutchison Holdings Ltd. |
Hong Kong | 366,000 | 3,607,458 | |||||||||
|
|
|
|||||||||||
| Insurance 8.8% |
||||||||||||
| AIA Group Ltd. |
Hong Kong | 3,312,980 | 35,728,777 | |||||||||
| China Life Insurance Co. Ltd., H |
China | 4,262,000 | 10,496,583 | |||||||||
| aPing An Insurance (Group) Co. of China Ltd., A |
China | 1,405,250 | 18,133,512 | |||||||||
|
|
|
|||||||||||
| 64,358,872 | ||||||||||||
|
|
|
|||||||||||
| Interactive Media & Services 9.7% |
||||||||||||
| bBaidu Inc., ADR |
China | 40,792 | 4,787,349 | |||||||||
| Tencent Holdings Ltd. |
China | 1,465,200 | 66,131,541 | |||||||||
|
|
|
|||||||||||
| 70,918,890 | ||||||||||||
|
|
|
|||||||||||
| Internet & Direct Marketing Retail 8.6% |
||||||||||||
| bAlibaba Group Holding Ltd., ADR |
China | 340,010 | 57,614,694 | |||||||||
| bCtrip.com International Ltd., ADR |
China | 145,300 | 5,363,023 | |||||||||
|
|
|
|||||||||||
| 62,977,717 | ||||||||||||
|
|
|
|||||||||||
| IT Services 1.4% |
||||||||||||
| TravelSky Technology Ltd., H |
China | 5,222,059 | 10,494,720 | |||||||||
|
|
|
|||||||||||
| 10 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Machinery 1.0% |
||||||||||||
| aShenzhen Inovance Technology Co. Ltd., A |
China | 879,000 | $ | 2,932,646 | ||||||||
| aZhengzhou Yutong Bus Co. Ltd., A |
China | 2,142,802 | 4,062,923 | |||||||||
|
|
|
|||||||||||
| 6,995,569 | ||||||||||||
|
|
|
|||||||||||
| Marine 0.6% |
||||||||||||
| COSCO Shipping Energy Transportation Co. Ltd., H |
China | 7,648,000 | 4,522,924 | |||||||||
|
|
|
|||||||||||
| Oil, Gas & Consumable Fuels 6.1% |
||||||||||||
| China Petroleum & Chemical Corp., H |
China | 40,541,000 | 27,556,141 | |||||||||
| CNOOC Ltd. |
China | 4,628,800 | 7,915,973 | |||||||||
| PetroChina Co. Ltd., H |
China | 17,219,500 | 9,500,080 | |||||||||
|
|
|
|||||||||||
| 44,972,194 | ||||||||||||
|
|
|
|||||||||||
| Paper & Forest Products 1.2% |
||||||||||||
| Nine Dragons Paper Holdings Ltd. |
China | 9,531,301 | 8,455,024 | |||||||||
|
|
|
|||||||||||
| Pharmaceuticals 2.9% |
||||||||||||
| aJiangsu Hengrui Medicine Co. Ltd., A |
China | 1,841,743 | 17,701,846 | |||||||||
| Tong Ren Tang Technologies Co. Ltd., H |
China | 1,636,300 | 1,950,033 | |||||||||
| aYifan Pharmaceutical Co. Ltd., A |
China | 910,200 | 1,623,748 | |||||||||
|
|
|
|||||||||||
| 21,275,627 | ||||||||||||
|
|
|
|||||||||||
| Real Estate Management & Development 2.1% |
||||||||||||
| aChina Merchants Shekou Industrial Zone Holdings Co. Ltd., A |
China | 910,400 | 2,770,921 | |||||||||
| China Overseas Land & Investment Ltd. |
China | 1,410,000 | 5,198,057 | |||||||||
| CK Asset Holdings Ltd. |
Hong Kong | 964,000 | 7,545,759 | |||||||||
|
|
|
|||||||||||
| 15,514,737 | ||||||||||||
|
|
|
|||||||||||
| Semiconductors & Semiconductor Equipment 10.0% |
||||||||||||
| Taiwan Semiconductor Manufacturing Co. Ltd. |
Taiwan | 9,497,136 | 73,271,854 | |||||||||
|
|
|
|||||||||||
| Software 0.5% |
||||||||||||
| aBeijing Thunisoft Corp. Ltd., A |
China | 1,401,500 | 3,877,862 | |||||||||
|
|
|
|||||||||||
| Specialty Retail 0.2% |
||||||||||||
| Luk Fook Holdings (International) Ltd. |
Hong Kong | 378,000 | 1,185,461 | |||||||||
|
|
|
|||||||||||
| Textiles, Apparel & Luxury Goods 4.7% |
||||||||||||
| Anta Sports Products Ltd. |
China | 5,065,000 | 34,783,926 | |||||||||
|
|
|
|||||||||||
| Transportation Infrastructure 0.8% |
||||||||||||
| COSCO Shipping Ports Ltd. |
China | 5,666,174 | 5,592,084 | |||||||||
|
|
|
|||||||||||
| Wireless Telecommunication Services 2.0% |
||||||||||||
| China Mobile Ltd. |
China | 1,572,500 | 14,321,714 | |||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $390,526,876) |
695,161,180 | |||||||||||
|
|
|
|||||||||||
| franklintempleton.com | Semiannual Report | 11 | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
| Country | Shares | Value | ||||||||||
| Short Term Investments (Cost $23,777,309) 3.2% |
||||||||||||
| Money Market Funds 3.2% |
||||||||||||
| c,dInstitutional Fiduciary Trust Money Market Portfolio, 2.05% |
United States | 23,777,309 | $ | 23,777,309 | ||||||||
|
|
|
|||||||||||
| Total Investments (Cost $414,304,185) 98.0% |
718,938,489 | |||||||||||
| Other Assets, less Liabilities 2.0% |
14,529,093 | |||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 733,467,582 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 21.
aThe security is owned by Templeton China Opportunities Fund, Ltd., a wholly-owned subsidiary of the Fund. See Note 1(c).
bNon-income producing.
cSee Note 3(c) regarding investments in affiliated management investment companies.
dThe rate shown is the annualized seven-day effective yield at period end.
| 12 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities
June 30, 2019 (unaudited)
| Assets: |
||||
| Investments in securities: |
||||
| Cost - Unaffiliated issuers |
$390,526,876 | |||
| Cost - Non-controlled affiliates (Note 3c) |
23,777,309 | |||
|
|
|
|||
| Value - Unaffiliated issuers |
$695,161,180 | |||
| Value - Non-controlled affiliates (Note 3c) |
23,777,309 | |||
| Cash |
7,536,050 | |||
| Foreign currency, at value (cost $3,805,393) |
3,805,393 | |||
| Receivables: |
||||
| Investment securities sold |
222,432 | |||
| Dividends |
3,841,095 | |||
|
|
|
|||
| Total assets |
734,343,459 | |||
|
|
|
|||
| Liabilities: |
||||
| Payables: |
||||
| Investment securities purchased |
25,604 | |||
| Management fees |
734,699 | |||
| Custodian fees |
72,237 | |||
| Accrued expenses and other liabilities |
43,337 | |||
|
|
|
|||
| Total liabilities |
875,877 | |||
|
|
|
|||
| Net assets, at value |
$733,467,582 | |||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$361,462,689 | |||
| Total distributable earnings (loss) |
372,004,893 | |||
|
|
|
|||
| Net assets, at value |
$733,467,582 | |||
|
|
|
|||
| Shares outstanding |
33,805,143 | |||
|
|
|
|||
| Net asset value per share |
$21.70 | |||
|
|
|
|||
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 13 | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended June 30, 2019 (unaudited)
| Investment income: |
||||
| Dividends: (net of foreign taxes)* |
||||
| Unaffiliated issuers |
$ | 9,342,605 | ||
| Non-controlled affiliates (Note 3c) |
87,437 | |||
| Interest: (net of foreign taxes)~ |
||||
| Unaffiliated issuers |
11,585 | |||
|
|
|
|||
| Total investment income |
9,441,627 | |||
|
|
|
|||
| Expenses: |
||||
| Management fees (Note 3a) |
4,514,667 | |||
| Transfer agent fees |
39,632 | |||
| Custodian fees (Note 4) |
139,743 | |||
| Reports to shareholders |
17,663 | |||
| Registration and filing fees |
18,510 | |||
| Professional fees |
66,853 | |||
| Directors’ fees and expenses |
63,947 | |||
| Other |
18,422 | |||
|
|
|
|||
| Total expenses |
4,879,437 | |||
| Expenses waived/paid by affiliates (Note 3c) |
(14,242 | ) | ||
|
|
|
|||
| Net expenses |
4,865,195 | |||
|
|
|
|||
| Net investment income |
4,576,432 | |||
|
|
|
|||
| Realized and unrealized gains (losses): |
||||
| Net realized gain (loss) from: |
||||
| Investments: |
||||
| Unaffiliated issuers. |
16,128,761 | |||
| Foreign currency transactions |
(89,376 | ) | ||
|
|
|
|||
| Net realized gain (loss) |
16,039,385 | |||
|
|
|
|||
| Net change in unrealized appreciation (depreciation) on: |
||||
| Investments: |
||||
| Unaffiliated issuers. |
70,181,357 | |||
| Translation of other assets and liabilities denominated in foreign currencies |
17,226 | |||
|
|
|
|||
| Net change in unrealized appreciation (depreciation) |
70,198,583 | |||
|
|
|
|||
| Net realized and unrealized gain (loss) |
86,237,968 | |||
|
|
|
|||
| Net increase (decrease) in net assets resulting from operations |
$ | 90,814,400 | ||
|
|
|
|||
| *Foreign taxes withheld on dividends | $ | 1,031,987 | ||
| ~Foreign taxes withheld on interest | $ | 1,262 | ||
| 14 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
for the six months ended June 30, 2019 (unaudited)
| Six Months Ended June 30, 2019 (unaudited) |
Year Ended December 31, 2018 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income |
$ 4,576,432 | $ 10,814,150 | ||||||
| Net realized gain (loss) |
16,039,385 | 54,067,267 | ||||||
| Net change in unrealized appreciation (depreciation) |
70,198,583 | (181,206,566 | ) | |||||
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
90,814,400 | (116,325,149 | ) | |||||
|
|
|
|||||||
| Distributions to shareholders |
— | (71,571,314 | ) | |||||
|
|
|
|||||||
| Capital share transactions from - repurchase of shares (Note 2) |
(1,134,409 | ) | (6,283,023 | ) | ||||
|
|
|
|||||||
| Net increase (decrease) in net assets |
89,679,991 | (194,179,486 | ) | |||||
| Net assets: |
||||||||
| Beginning of period |
643,787,591 | 837,967,077 | ||||||
|
|
|
|||||||
| End of period |
$733,467,582 | $ 643,787,591 | ||||||
|
|
|
|||||||
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 15 | ||
TEMPLETON DRAGON FUND, INC.
Notes to Consolidated Financial Statements (unaudited)
| 16 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| franklintempleton.com | Semiannual Report | 17 | ||
TEMPLETON DRAGON FUND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Capital Stock
At June 30, 2019, there were 100 million shares authorized ($0.01 par value). During the periods ended June 30, 2019 and December 31, 2018 there were no shares issued; all reinvested distributions were satisfied with previously issued shares purchased in the open market.
Under the Board approved open-market share repurchase program, the Fund may purchase, from time to time, Fund shares in open-market transactions, at the discretion of management. Since the inception of the program, the Fund has repurchased a total of 9,334,184 shares. Transactions in the Fund’s shares were as follows:
| Six Months Ended | Year Ended | |||||||||||||||
| June 30, 2019 | December 31, 2018 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Shares repurchased |
60,341 | $ | 1,134,409 | 292,742 | $ | 6,283,023 | ||||||||||
| Weighted average discount of market price to net asset value of shares repurchased |
10.35% | 13.89% | ||||||||||||||
| 18 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and directors of the Fund are also officers, and/or directors of the following subsidiaries:
| Subsidiary | Affiliation | |
| Templeton Asset Management Ltd. (TAML) | Investment manager | |
| Templeton Investment Counsel, LLC (TIC) | Investment manager | |
| Franklin Templeton Services, LLC (FT Services) | Administrative manager |
a. Management Fees
The Fund pays an investment management fee to TAML based on the average weekly net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 1.250% | Up to and including $1 billion | |
| 1.200% | Over $1 billion, up to and including $5 billion | |
| 1.150% | Over $5 billion, up to and including $10 billion | |
| 1.100% | Over $10 billion, up to and including $15 billion | |
| 1.050% | Over $15 billion, up to and including $20 billion | |
| 1.000% | In excess of $20 billion |
Under an agreement with TAML, TIC is paid a fee for serving as the QFII for the China Fund. The fee is paid by TAML and is not an additional expense of the Fund.
For the period ended June 30, 2019, the annualized gross effective investment management fee rate was 1.250% of the Fund’s average weekly net assets.
b. Administrative Fees
Under an agreement with TAML, FT Services provides administrative services to the Fund. The fee is paid by TAML based on the Fund’s average weekly net assets, and is not an additional expense of the Fund.
c. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended June 30, 2019, the Fund held investments in affiliated management investment companies as follows:
| Net Change in | Number of | |||||||||||||||||||||||||||||||
| Value at | Unrealized | Value at | Shares | |||||||||||||||||||||||||||||
| Beginning | Realized | Appreciation | End of | Held at End | Dividend | |||||||||||||||||||||||||||
| of Period | Purchases | Sales | Gain (Loss) | (Depreciation) | Period | of Period | Income | |||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 2.05% |
$539,399 | $38,236,527 | $(14,998,617 | ) | $ — | $ — | $23,777,309 | 23,777,309 | $87,437 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 19 | ||
TEMPLETON DRAGON FUND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended June 30, 2019, there were no credits earned.
5. Income Taxes
At June 30, 2019, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| Cost of investments |
$ | 415,754,960 | ||
|
|
|
|||
| Unrealized appreciation |
$ | 350,963,061 | ||
| Unrealized depreciation |
(47,779,532) | |||
|
|
|
|||
| Net unrealized appreciation (depreciation) |
$ | 303,183,529 | ||
|
|
|
|||
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of investments in the China Fund.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended June 30, 2019, aggregated $39,397,741 and $70,244,767, respectively.
7. Concentration of Risk
Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. In addition, certain foreign securities may not be as liquid as U.S. securities.
Investing in China A-shares may include certain risks and considerations not typically associated with investing in U.S. securities. In general, A-shares are issued by companies incorporated in the People’s Republic of China (PRC) and listed on the Shanghai and Shenzhen Stock Exchanges and available for investment by domestic (Chinese) investors and holders of a QFII license and, in the case of certain eligible A-shares, through the Shanghai and Shenzhen Stock Connect programs. The Shanghai and Shenzhen Stock Exchanges are, however, substantially smaller, less liquid and more volatile than the major securities markets in the United States.
8. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
| • | Level 1 – quoted prices in active markets for identical financial instruments |
| • | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| 20 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| • | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
At June 30, 2019, all of the Fund’s investments in financial instruments carried at fair value were valued using Level 1 inputs. For detailed categories, see the accompanying Consolidated Statement of Investments.
9. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the consolidated financial statements.
Abbreviations
| Selected Portfolio | ||
| ADR |
American Depositary Receipt | |
| franklintempleton.com | Semiannual Report | 21 | ||
TEMPLETON DRAGON FUND, INC.
Annual Meeting of Shareholders May 30, 2019 (unaudited)
The Annual Meeting of Shareholders of Templeton Dragon Fund, Inc. (the “Fund”) was held at the Fund’s offices, 300 S.E. 2nd Street, Fort Lauderdale, Florida, on May 30, 2019. The purpose of the meeting was to elect four Directors of the Fund and to ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Fund for the fiscal year ending December 31, 2019. At the meeting, the following persons were elected by the shareholders to serve as Directors of the Fund: Edith E. Holiday, Larry D. Thompson, Rupert H. Johnson, Jr. and Gregory E. Johnson.* Shareholders also ratified the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Fund for the fiscal year ending December 31, 2019. No other business was transacted at the meeting with respect to the Fund.
The results of the voting at the Annual Meeting are as follows:
1. Election of four Directors
| % of | % of | % of | % of | |||||||||||||||||||||
| Outstanding | Shares | Outstanding | Shares | |||||||||||||||||||||
| Term Expiring 2022 | For | Shares | Present | Withheld | Shares | Present | ||||||||||||||||||
| Edith E. Holiday |
17,683,652 | 52.23% | 56.20% | 13,781,824 | 40.71% | 43.80% | ||||||||||||||||||
| Larry D. Thompson |
21,295,329 | 62.90% | 67.68% | 10,170,147 | 30.04% | 32.32% | ||||||||||||||||||
| Rupert H. Johnson, Jr. |
21,264,598 | 62.81% | 67.58% | 10,200,878 | 30.13% | 32.42% | ||||||||||||||||||
| Gregory E. Johnson |
21,247,874 | 62.76% | 67.53% | 10,217,603 | 30.18% | 32.47% | ||||||||||||||||||
There were no broker non-votes received with respect to this item.
2. Ratification of the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Fund for the fiscal year ending December 31, 2019:
| % of | % of | |||||||||||
| Shares | Outstanding | Shares | ||||||||||
| Voted | Shares | Present | ||||||||||
| For |
31,105,754 | 91.88% | 98.86% | |||||||||
| Against |
128,774 | 0.38% | 0.41% | |||||||||
| Abstain |
230,942 | 0.68% | 0.73% | |||||||||
* Harris J. Ashton, Ann Torre Bates, Mary C. Choksi, J. Michael Luttig, David W. Niemiec, Constantine D. Tseretopoulos and Robert E. Wade are Directors of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders.
| 22 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
Dividend Reinvestment and Cash Purchase Plan
The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the “Plan”) with the following features:
If shares of the Fund are held in the shareholder’s name, the shareholder will automatically be a participant in the Plan 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.
To receive dividends or distributions in cash, the shareholder must notify American Stock Transfer and Trust Company, LLC (the “Plan Administrator”) at P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or the institution in whose name the shares are held. The Plan Administrator must receive written notice ten business days before the record date for the distribution.
Whenever the Fund declares dividends in either cash or shares of the Fund, if the market price is equal to or exceeds net asset value at the valuation date, the participant will receive the dividends entirely in new shares at a price equal to the net asset value, but not less than 95% of the then current market price of the Fund’s shares. If the market price is lower than net asset value or if dividends and/or capital gains distributions are payable only in cash, the participant will receive shares purchased on the New York Stock Exchange or otherwise on the open market.
A participant has the option of submitting additional cash payments to the Plan Administrator, in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase of Fund shares for his or her account. These payments can be made by check payable to American Stock Transfer and Trust Company, LLC and sent to American Stock Transfer and Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560, Attention: Templeton Dragon Fund, Inc. The Plan Administrator will apply such payments (less a $5.00 service charge and less a pro rata share of trading fees) to purchases of the Fund’s shares on the open market.
Whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of trading fees. Trading fees will be deducted from amounts to be invested. The Plan Administrator’s fee for a sale of shares through the Plan is $15.00 per transaction plus a $0.12 per share trading fee.
The automatic reinvestment of dividends and/or capital gains does not relieve the participant of any income tax that may be payable on dividends or distributions.
The participant may withdraw from the Plan without penalty at any time by written notice to the Plan Administrator sent to American Stock Transfer and Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. Upon withdrawal, the participant will receive, without charge, share certificates issued in the participant’s name for all full shares held by the Plan Administrator; or, if the participant wishes, the Plan Administrator will sell the participant’s shares and send the proceeds to the participant, less a service charge of $15.00 and less trading fees of $0.12 per share. The Plan Administrator will convert any fractional shares held at the time of withdrawal to cash at current market price and send a check to the participant for the net proceeds.
For more information, please see the Plan’s Terms and Conditions located at the back of this report.
Transfer Agent
American Stock Transfer and Trust Company, LLC
P.O. Box 922 ,Wall Street Station,
New York, NY 10269-056
Overnight Address:
211 Quality Circle, Suite 210
College Station, TX 77845
| franklintempleton.com | Semiannual Report | 23 | ||
TEMPLETON DRAGON FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
(800) 416-5585
www.astfinancial.com
Direct Deposit Service for Registered Shareholders
Cash distributions can now be electronically credited to a checking or savings account at any financial institution that participates in the Automated Clearing House (“ACH”) system. The Direct Deposit service is provided for registered shareholders at no charge. To enroll in the service, access your account online by going to www.astfinancial.com or dial (800) 416-5585 (toll free) and follow the instructions. Direct Deposit will begin with the next scheduled distribution payment date following enrollment in the service.
Direct Registration
If you are a registered shareholder of the Fund, purchases of shares of the Fund can be electronically credited to your Fund account at American Stock Transfer and Trust Company, LLC through Direct Registration. This service provides shareholders with a convenient way to keep track of shares through book entry transactions, electronically move book-entry shares between broker-dealers, transfer agents and DRS eligible issuers, and eliminate the possibility of lost certificates. For additional information, please contact American Stock Transfer and Trust Company, LLC at (800) 416-5585.
Shareholder Information
Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange under the symbol “TDF.” Information about the net asset value and the market price is available at franklintempleton.com.
For current information about dividends and shareholder accounts, call (800) 416-5585. Registered shareholders can access their Fund account on-line. For information go to American Stock Transfer and Trust Company, LLC website at www.astfinancial.com and follow the instructions.
The daily closing net asset value as of the previous business day may be obtained when available by calling Franklin Templeton Fund Information after 7 a.m. Pacific time any business day at (800) DIAL BEN/342-5236. The Fund’s net asset value and dividends are also listed on the NASDAQ Stock Market, Inc.’s Mutual Fund Quotation Service (“NASDAQ MFQS”).
Shareholders not receiving copies of reports to shareholders because their shares are registered in the name of a broker or a custodian can request that they be added to the Fund’s mailing list, by writing Templeton Dragon Fund, Inc., 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL, 33733-8030.
| 24 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
| franklintempleton.com | Semiannual Report | 25 | ||
TEMPLETON DRAGON FUND, INC.
SHAREHOLDER INFORMATION
| 26 |
Semiannual Report | franklintempleton.com | ||
TEMPLETON DRAGON FUND, INC.
SHAREHOLDER INFORMATION
| franklintempleton.com | Semiannual Report | 27 | ||
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
| 28 |
Not part of the semiannual report | franklintempleton.com | ||
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (continued)
| franklintempleton.com | Not part of the semiannual report | 29 | ||
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
Investors should be aware that the value of investments made for the Fund may go down as well as up. Like any investment in securities, the value of the Fund’s portfolio will be subject to the risk of loss from market, currency, economic, political and other factors. The Fund and its investors are not protected from such losses by the investment manager. Therefore, investors who cannot accept this risk should not invest in shares of the Fund.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
|
Semiannual Report | |||||
| Templeton Dragon Fund, Inc. | ||||||
| Investment Manager | Transfer Agent | Fund Information | ||||
| Templeton Asset | American Stock Transfer & Trust Co., LLC | (800) DIAL BEN® / 342-5236 | ||||
| Management Ltd. | 6201 15th Avenue | |||||
| Brooklyn, NY 11219 | ||||||
| Toll Free Number: (800) 416-5585 | ||||||
| Hearing Impaired Number: (866) 703-9077 | ||||||
| International Phone Number: (718) 921-8124 | ||||||
| www.astfinancial.com | ||||||
| © 2019 Franklin Templeton Investments. All rights reserved. |
TLTDF S 08/19 |
| Item 2. | Code of Ethics. |
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
| Item 3. | Audit Committee Financial Expert. |
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial experts are Ann Torre Bates and David W. Niemiec and they are “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
| Item 4. | Principal Accountant Fees and Services. N/A |
| Item 5. | Audit Committee of Listed Registrants |
Members of the Audit Committee are: Ann Torre Bates, David W. Niemiec and Constantine D. Tseretopoulos
| Item 6. | Schedule of Investments. N/A |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
The board of directors of the Fund has delegated the authority to vote proxies related to the portfolio securities held by the Fund to the Fund’s investment manager Templeton Asset Management Ltd. (Asset Management) in accordance with the Proxy Voting Policies and Procedures (Policies) adopted by the investment manager.
The investment manager has delegated its administrative duties with respect to the voting of proxies for securities to the Proxy Group within Franklin Templeton Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All proxies received by the Proxy Group will be voted based upon the investment manager’s instructions and/or policies. The investment manager votes proxies solely in the best interests of the Fund and its shareholders.
To assist it in analyzing proxies of equity securities, the investment manager subscribes to Institutional Shareholder Services, Inc. (ISS), an unaffiliated third-party corporate governance research service that
provides in-depth analyses of shareholder meeting agendas, vote recommendations, vote execution services, ballot reconciliation services, recordkeeping and vote disclosure services. In addition, the investment manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated third-party analytical research firm, to receive analyses and vote recommendations on the shareholder meetings of publicly held U.S. companies, as well as a limited subscription to its international research. Also, the investment manager has a supplemental subscription to Egan-Jones Proxy Services (Egan-Jones), an unaffiliated third party proxy advisory firm, to receive analyses and vote recommendations. Although analyses provided by ISS, Glass Lewis, Egan-Jones, and/or another independent third party proxy service provider (each a “Proxy Service”) are thoroughly reviewed and considered in making a final voting decision, the investment manager does not consider recommendations from a Proxy Service or any third party to be determinative of the investment manager’s ultimate decision. Rather, the investment manager exercises its independent judgment in making voting decisions. For most proxy proposals, the investment manager’s evaluation should result in the same position being taken for all Funds. In some cases, however, the evaluation may result in a Fund voting differently, depending upon the nature and objective of the Fund, the composition of its portfolio and other factors. As a matter of policy, the officers, directors/trustees and employees of the investment manager and the Proxy Group will not be influenced by outside sources whose interests conflict with the interests of the Fund and its shareholders. Efforts are made to resolve all conflicts in the best interests of the investment manager’s clients. Material conflicts of interest are identified by the Proxy Group based upon analyses of client, distributor, broker-dealer and vendor lists, information periodically gathered from directors and officers, and information derived from other sources, including public filings. In situations where a material conflict of interest is identified, the Proxy Group may vote consistent with the voting recommendation of a Proxy Service; or send the proxy directly to the Fund’s board or a committee of the board with the investment manager’s recommendation regarding the vote for approval.
Where a material conflict of interest has been identified, but the items on which the investment manager’s vote recommendations differ from a Proxy Service and relate specifically to (1) shareholder proposals regarding social or environmental issues, (2) “Other Business” without describing the matters that might be considered, or (3) items the investment manager wishes to vote in opposition to the recommendations of an issuer’s management, the Proxy Group may defer to the vote recommendations of the investment manager rather than sending the proxy directly to the Fund’s board or a board committee for approval.
To avoid certain potential conflicts of interest, the investment manager will employ echo voting or pass-through voting, if possible, in the following instances: (1) when the Fund invests in an underlying fund in reliance on any one of Sections 12(d) (1) (F), or (G) of the 1940 Act, the rules thereunder, or pursuant to a SEC exemptive order thereunder; (2) when the Fund invests uninvested cash in affiliated money market funds pursuant to the rules under the 1940 Act or any exemptive orders thereunder (“cash sweep arrangement”); or (3) when
required pursuant to the Fund’s governing documents or applicable law. Echo voting means that the investment manager will vote the shares in the same proportion as the vote of all of the other holders of the underlying fund’s shares. With respect to instances when a Franklin Templeton U.S. registered investment company invests in an underlying fund in reliance on any one of Sections 12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or pursuant to an SEC exemptive order thereunder, and there are no other unaffiliated shareholders also invested in the underlying fund, the Investment Manager will vote in accordance with the recommendation of such investment company’s board of trustees or directors. In addition, to avoid certain potential conflicts of interest, and where required under a fund’s governing documents or applicable law, the Investment Manager will employ pass-through voting when a Franklin Templeton U.S. registered investment company invests in an underlying fund in reliance on Section 12(d)(1)(E) of the 1940 Act, the rules thereunder, or pursuant to an SEC exemptive order thereunder. In “pass-through voting,” a feeder fund will solicit voting instructions from its shareholders as to how to vote on the master fund’s proposals.
The recommendation of management on any issue is a factor that the investment manager considers in determining how proxies should be voted. However, the investment manager does not consider recommendations from management to be determinative of the investment manager’s ultimate decision. As a matter of practice, the votes with respect to most issues are cast in accordance with the position of the company’s management. Each issue, however, is considered on its own merits, and the investment manager will not support the position of the company’s management in any situation where it deems that the ratification of management’s position would adversely affect the investment merits of owning that company’s shares.
Engagement with issuers. The investment manager believes that engagement with issuers is important to good corporate governance and to assist in making proxy voting decisions. The investment manager may engage with issuers to discuss specific ballot items to be voted on in advance of an annual or special meeting to obtain further information or clarification on the proposals. The investment manager may also engage with management on a range of environmental, social or corporate governance issues throughout the year.
Investment manager’s proxy voting policies and principles The investment manager has adopted general proxy voting guidelines, which are summarized below. These guidelines are not an exhaustive list of all the issues that may arise and the investment manager cannot anticipate all future situations. In all cases, each proxy and proposal (including both management and shareholder proposals) will be considered based on the relevant facts and circumstances on a case-by-case basis.
Board of directors. The investment manager supports an independent, diverse board of directors, and prefers that key committees such as audit, nominating, and compensation committees be comprised of independent directors. The investment manager supports boards with strong risk management oversight. The investment manager will generally vote against management efforts to classify a board and will generally
support proposals to declassify the board of directors. The investment manager will consider withholding votes from directors who have attended less than 75% of meetings without a valid reason. While generally in favor of separating Chairman and CEO positions, the investment manager will review this issue as well as proposals to restore or provide for cumulative voting on a case-by-case basis, taking into consideration factors such as the company’s corporate governance guidelines or provisions and performance. The investment manager generally will support non-binding shareholder proposals to require a majority vote standard for the election of directors; however, if these proposals are binding, the investment manager will give careful review on a case-by-case basis of the potential ramifications of such implementation.
In the event of a contested election, the investment manager will review a number of factors in making a decision including management’s track record, the company’s financial performance, qualifications of candidates on both slates, and the strategic plan of the dissidents and/or shareholder nominees.
Ratification of auditors of portfolio companies. The investment manager will closely scrutinize the independence, role and performance of auditors. On a case-by-case basis, the investment manager will examine proposals relating to non-audit relationships and non-audit fees. The investment manager will also consider, on a case-by-case basis, proposals to rotate auditors, and will vote against the ratification of auditors when there is clear and compelling evidence of a lack of independence, accounting irregularities or negligence. The investment manager may also consider whether the ratification of auditors has been approved by an appropriate audit committee that meets applicable composition and independence requirements.
Management and director compensation. A company’s equity-based compensation plan should be in alignment with the shareholders’ long-term interests. The investment manager believes that executive compensation should be directly linked to the performance of the company. The investment manager evaluates plans on a case-by-case basis by considering several factors to determine whether the plan is fair and reasonable, including the ISS quantitative model utilized to assess such plans and/or the Glass Lewis evaluation of the plans. The investment manager will generally oppose plans that have the potential to be excessively dilutive, and will almost always oppose plans that are structured to allow the repricing of underwater options, or plans that have an automatic share replenishment “evergreen” feature. The investment manager will generally support employee stock option plans in which the purchase price is at least 85% of fair market value, and when potential dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis, although the investment manager will generally oppose “golden parachutes” that are considered to be excessive. The investment manager will normally support proposals that require a percentage of directors’ compensation to be in the form of common stock, as it aligns their interests with those of shareholders.
The investment manager will review non-binding say-on-pay proposals on a case-by-case basis, and will generally vote in favor of such proposals unless compensation is misaligned with performance and/or shareholders’ interests, the company has not provided reasonably clear disclosure regarding its compensation practices, or there are concerns with the company’s remuneration practices.
Anti-takeover mechanisms and related issues. The investment manager generally opposes anti-takeover measures since they tend to reduce shareholder rights. However, as with all proxy issues, the investment manager conducts an independent review of each anti-takeover proposal. On occasion, the investment manager may vote with management when the research analyst has concluded that the proposal is not onerous and would not harm the Fund or its shareholders’ interests. The investment manager generally supports proposals that require shareholder rights’ plans (“poison pills”) to be subject to a shareholder vote and will closely evaluate such plans on a case-by-case basis to determine whether or not they warrant support. In addition, the investment manager will generally vote against any proposal to issue stock that has unequal or subordinate voting rights. The investment manager generally opposes any supermajority voting requirements as well as the payment of “greenmail.” The investment manager generally supports “fair price” provisions and confidential voting. The investment manager will review a company’s proposal to reincorporate to a different state or country on a case-by-case basis taking into consideration financial benefits such as tax treatment as well as comparing corporate governance provisions and general business laws that may result from the change in domicile.
Changes to capital structure. The investment manager realizes that a company’s financing decisions have a significant impact on its shareholders, particularly when they involve the issuance of additional shares of common or preferred stock or the assumption of additional debt. The investment manager will review, on a case-by-case basis, proposals by companies to increase authorized shares and the purpose for the increase. The investment manager will generally not vote in favor of dual-class capital structures to increase the number of authorized shares where that class of stock would have superior voting rights. The investment manager will generally vote in favor of the issuance of preferred stock in cases where the company specifies the voting, dividend, conversion and other rights of such stock and the terms of the preferred stock issuance are deemed reasonable. The investment manager will review proposals seeking preemptive rights on a case-by-case basis.
Mergers and corporate restructuring. Mergers and acquisitions will be subject to careful review by the research analyst to determine whether they would be beneficial to shareholders. The investment manager will analyze various economic and strategic factors in making the final decision on a merger or acquisition. Corporate restructuring proposals are also subject to a thorough examination on a case-by-case basis.
Environmental and social issues. The investment manager considers environmental and social issues alongside traditional financial measures to provide a more comprehensive view of the value, risk and
return potential of an investment. Companies may face significant financial, legal and reputational risks resulting from poor environmental and social practices, or negligent oversight of environmental or social issues. Franklin Templeton’s “Responsible Investment Principles and Policies” describes the investment manager’s approach to consideration of environmental, social and governance issues within the investment manager’s processes and ownership practices.
The investment manager will review shareholder proposals on a case-by-case basis and may support those that serve to enhance value or mitigate risk, are drafted appropriately, and do not disrupt the course of business or require a disproportionate or inappropriate use of company resources. In the investment manager’s experience, those companies that are managed well are often effective in dealing with the relevant environmental and social issues that pertain to their business. As such, the investment manager will generally give management discretion with regard to environmental and social issues. However, in cases where management and the board have not demonstrated adequate efforts to mitigate material environmental or social risks, have engaged in inappropriate or illegal conduct, or have failed to adequately address current or emergent risks that threaten shareholder value, the investment manager may choose to support well-crafted shareholder proposals that serve to promote or protect shareholder value. This may include seeking appropriate disclosure regarding material environmental and social issues.
The investment manager will consider supporting a shareholder proposal seeking disclosure and greater board oversight of lobbying and corporate political contributions if the investment manager believes that there is evidence of inadequate oversight by the company’s board, if the company’s current disclosure is significantly deficient, or if the disclosure is notably lacking in comparison to the company’s peers.
Governance matters. The investment manager generally supports the right of shareholders to call special meetings and act by written consent. However, the investment manager will review such shareholder proposals on a case-by-case basis in an effort to ensure that such proposals do not disrupt the course of business or require a disproportionate or inappropriate use of company resources.
Proxy access. In cases where the investment manager is satisfied with company performance and the responsiveness of management, it will generally vote against shareholder proxy access proposals not supported by management. In other instances, the investment manager will consider such proposals on a case-by-case basis, taking into account factors such as the size of the company, ownership thresholds and holding periods, nomination limits (e.g., number of candidates that can be nominated), the intentions of the shareholder proponent, and shareholder base.
Global corporate governance. Many of the tenets discussed above are applied to the investment manager’s proxy voting decisions for international investments. However, the investment manager must be flexible in these worldwide markets. Principles of good corporate governance may vary by country, given the constraints of a country’s
laws and acceptable practices in the markets. As a result, it is on occasion difficult to apply a consistent set of governance practices to all issuers. As experienced money managers, the investment manager’s analysts are skilled in understanding the complexities of the regions in which they specialize and are trained to analyze proxy issues germane to their regions.
The investment manager will generally attempt to process every proxy it receives for all domestic and foreign securities. However, there may be situations in which the investment manager may be unable to successfully vote a proxy, or may choose not to vote a proxy, such as where: (i) a proxy ballot was not received from the custodian bank; (ii) a meeting notice was received too late; (iii) there are fees imposed upon the exercise of a vote and it is determined that such fees outweigh the benefit of voting; (iv) there are legal encumbrances to voting, including blocking restrictions in certain markets that preclude the ability to dispose of a security if the investment manager votes a proxy or where the investment manager is prohibited from voting by applicable law, economic or other sanctions, or other regulatory or market requirements, including but not limited to, effective Powers of Attorney; (v) additional documentation or the disclosure of beneficial owner details is required; (vi) the investment manager held shares on the record date but has sold them prior to the meeting date; (vii) a proxy voting service is not offered by the custodian in the market; (viii) due to either system error or human error, the investment manager’s intended vote is not correctly submitted; (ix) the investment manager believes it is not in the best interest of the Fund or its shareholders to vote the proxy for any other reason not enumerated herein; or (x) a security is subject to a securities lending or similar program that has transferred legal title to the security to another person.
In some non-U.S. jurisdictions, even if the investment manager uses reasonable efforts to vote a proxy on behalf of the Fund, such vote or proxy may be rejected because of (a) operational or procedural issues experienced by one or more third parties involved in voting proxies in such jurisdictions; (b) changes in the process or agenda for the meeting by the issuer for which the investment manager does not have sufficient notice; or (c) the exercise by the issuer of its discretion to reject the vote of the investment manager. In addition, despite the best efforts of the Proxy Group and its agents, there may be situations where the investment manager’s votes are not received, or properly tabulated, by an issuer or the issuer’s agent.
The investment manager or its affiliates may, on behalf of one or more of the proprietary registered investment companies advised by the investment manager or its affiliates, determine to use its best efforts to recall any security on loan where the investment manager or its affiliates (a) learn of a vote on a material event that may affect a security on loan and (b) determine that it is in the best interests of such proprietary registered investment companies to recall the security for voting purposes.
Procedures for meetings involving fixed income securities & privately held issuers. From time to time, certain custodians may process events for fixed income securities through their proxy voting channels
rather than corporate action channels for administrative convenience. In such cases, the Proxy Group will receive ballots for such events on the ISS voting platform. The Proxy Group will solicit voting instructions from the investment manager for each Fund involved. If the Proxy Group does not receive voting instructions from the investment manager, the Proxy Group will take no action on the event. The investment manager may be unable to vote a proxy for a fixed income security, or may choose not to vote a proxy, for the reasons described above.
The Proxy Group will monitor such meetings involving fixed income securities or privately held issuers for conflicts of interest in accordance with these procedures. If a fixed income or privately held issuer is flagged as a potential conflict of interest, the investment manager may nonetheless vote as it deems in the best interests of the Fund. The investment manager will report such decisions on an annual basis to the Fund board as may be required.
In the rare instance where there is a vote for a privately held issuer, the decision will generally be made by the relevant portfolio managers or research analysts.
Shareholders may view the complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301-1923, Attention: Proxy Group. Copies of the Fund’s proxy voting records are available online at franklintempleton.com and posted on the SEC website at www.sec.gov. The proxy voting records are updated each year by August 31 to reflect the most recent 12-month period ended June 30.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. N/A |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
| Period |
(a) Total Number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Program |
(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| Month #1 (1/1/19 - 1/31/19) |
3,545.000 | 17.95 | 3,545.000 | 33,861,939.00 | ||||||||||||
| Month #2 (2/1/19 - 2/28/19) |
7,550.000 | 18.31 | 7,550.000 | 33,854,389.00 | ||||||||||||
| Month #3 (3/1/19 - 3/31/19) |
11,375.000 | 19.69 | 11,375.000 | 33,843,014.00 | ||||||||||||
| Month #4 (4/1/19 - 4/30/19) |
— | — | — | 33,843,014.00 | ||||||||||||
| Month #5 (5/1/19 - 5/31/19) |
34,485.000 | 18.75 | 34,485.000 | 33,808,529.00 | ||||||||||||
| Month #6 (6/1/19 - 6/30/19) |
3,386.000 | 18.31 | 3,386.000 | 33,805,143.00 | ||||||||||||
|
|
|
|
|
|||||||||||||
| Total |
60,341.000 | 60,341.000 | ||||||||||||||
|
|
|
|
|
|||||||||||||
The Board previously authorized an open-market share repurchase program pursuant to whichthe Fund may purchase, from time to time, Fund shares in open-market transactions, at the discretion of management. Effective February 26, 2013, the Board approved a modification to the Fund’s previously announced open-market share repurchase program to authorize the Fund to repurchase up to 10% of the Fund’s shares outstanding in open market transactions as of that date, at the discretion of management. Since the inception of the program, the Fund had repurchased a total of 9,334,184 shares.
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors that would require disclosure herein.
| Item 11. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSRS, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Company. N/A |
| Item 13. | Exhibits. |
(a) (1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Templeton Dragon Fund, Inc. | ||
| By | /S/ MATTHEW T. HINKLE | |
| Matthew T. Hinkle | ||
| Chief Executive Officer – Finance and Administration | ||
| Date | August 30, 2019 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By | /S/ MATTHEW T. HINKLE | |
| Matthew T. Hinkle | ||
| Chief Executive Officer – Finance and Administration | ||
| Date | August 30, 2019 | |
| By | /S/ ROBERT G. KUBILIS | |
| Robert G. Kubilis | ||
| Chief Financial Officer and Chief Accounting Officer | ||
| Date | August 30, 2019 | |