<PAGE>
Templeton Dragon Fund
[PHOTO APPEARS HERE]
J. Mark Mobius, Ph.D.
President
Templeton Dragon Fund
- ---------------------
Dr. Mobius has been living overseas since earning his Ph.D. in economics and
political science at Massachusetts Institute of Technology in 1964. During his
extensive travels, he has acquired a thorough knowledge of the business
practices and customs that are unique to emerging markets. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $6 billion
in emerging markets investments for the Templeton Group of Funds.
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Dragon Fund seeks long-term capital appreciation by investing at
least 45% of its total assets in the equity securities of "China companies."
- --------------------------------------------------------------------------------
November 15, 1995
Dear Shareholders:
We are pleased to bring you the semi-annual report of the Templeton Dragon Fund
for the six months ended September 30, 1995. Although investment conditions were
difficult during the period, there are potential bright signs on the horizon. As
shown in the Performance Summary on page 5, the net asset value of your Fund's
shares rose 5.51% over the period to $14.74 from $13.97, and the Fund's closing
price on the New York Stock Exchange increased to $12.50 from $12.00 on
March 31, 1995.
Throughout the six months under review, the Chinese government tightened credit
and used price controls in an attempt to slow runaway growth and resulting
inflation
1
<PAGE>
without causing a "hard landing" for the economy. These policies were partially
successful, with inflation falling from its peak of 25% in October 1994 to less
than 20% on September 30, 1995.
During the six-month reporting period, President Jiang Zemin moved closer to a
smooth assumption of power as the influence of Deng Xiao Peng waned. Deng has
not been seen in public for more than a year now, and although he is still a
revered figure, he appears to have little real everyday political influence.
China's leaders seem to be moving away from Communist dogma and, while various
factions are jockeying for power, they all apparently share the common goal of
promoting China as a considerable force in world trade and politics. We expect a
period of uncertainty after Deng Xiao Peng dies, but feel that it should be
short-lived and that China's current economic policies will continue.
Hong Kong's economy remains closely linked to conditions in China. Despite
China's economic slowdown and worries about the 1997 change in sovereignty, Hong
Kong's economy was growing at an annualized rate of 6% on September 30, 1995.
Even though the market has been rising slowly since the beginning of 1995, Hong
Kong stock prices were 22% off their record highs set in
- --------------------------------------------------------------------------------
Templeton Dragon Fund
Geographic Distribution on 9/30/95
Based on Total Net Assets
[PIE GRAPH APPEARS HERE]
<TABLE>
<S> <C>
Chinese Stocks 8.6%
Hong Kong Stocks 72.4%
Singapore Stocks 0.3%
Short-Term Obligations &
Other Net Assets 18.7%
</TABLE>
January 1994 and we believe there are still opportunities to buy stocks at what
may be bargain prices. The Hong Kong real estate market, which is an important
storehouse for Hong Kong's private-sector wealth, is showing early signs of a
recovery, although without the presence of the speculators who drove property
prices to their overblown levels of 18 months ago. Residential property buyers
now are increasingly seeking apartments to live in rather than as investments.
As you know, the Fund seeks long-term capital appreciation through investing at
least 45% of its capital in
2
<PAGE>
Chinese or China-related companies, and is now 81.3% invested in equities, with
the balance held in liquid assets.
Over the reporting period, the Fund increased its holdings in both Hong Kong and
China. At the end of the reporting period, Hong Kong represented almost 73% of
the fund's portfolio, up from 38.8% on March 31, 1995. Hong Kong-listed HSBC
Holdings PLC remained the Fund's largest single investment, at 9.1% of the
portfolio's total net assets. The HSBC Group is the holding company for the
Hongkong and Shanghai Banking Corporations' interests around the world. Many of
the companies within the HSBC Group have extensive business exposure in China.
New World Developments and Cheung Kong Holdings, two Hong Kong based property-
oriented companies, account for 7.8% and 7.1% of the fund's holdings,
respectively. Since these companies have large investments in China and will
become more significant as Hong Kong's economy is integrated into China's, we
believe they are appropriate in a fund primarily oriented towards China.
Our holdings in China were 8.6% of total net assets by September 30, 1995,
compared with 3.1% six months ago. Our largest investments there were in
Shandong Huaneng Power and the Shanghai Lujiaxui Finance & Trade Zone
Development Stock Company Ltd.
- --------------------------------------------------------------------------------
Templeton Dragon Fund
Top Ten Holdings as of 9/30/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
HSBC Holdings PLC.; Banking, Hong Kong 9.1%
- --------------------------------------------------------------------------------
New World Development Co. Ltd.;
Real Estate, Hong Kong 7.8%
- --------------------------------------------------------------------------------
Cheung Kong Holdings Ltd.;
Multi-Industry, Hong Kong 7.1%
- --------------------------------------------------------------------------------
Sun Hung Kai Properties Ltd.;
Real Estate, Hong Kong 6.4%
- --------------------------------------------------------------------------------
Hang Lung Development Co. Ltd.;
Real Estate, Hong Kong 4.7%
- --------------------------------------------------------------------------------
Wheelock & Co. Ltd.;
Multi-Industry, Hong Kong 4.0%
- --------------------------------------------------------------------------------
Hopewell Holdings Ltd.;
Construction & Housing, Hong Kong 4.0%
- --------------------------------------------------------------------------------
Jardine Matheson Holdings Ltd.;
Multi-Industry, Hong Kong 3.1%
- --------------------------------------------------------------------------------
Jardine Strategic Holdings Ltd.;
Multi-Industry, Hong Kong 2.9%
- --------------------------------------------------------------------------------
Hongkong Electric Holdings Ltd.;
Utilities - Electrical & Gas, Hong Kong 2.8%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, see page 10 of this report.
The dispute over Hong Kong's political structures has long been a source of
tension between the Chinese government and Hong Kong Governor Chris Patten. Much
of this tension was removed by agreements between Britain and China on a supreme
court for the territory after it reverts to China in 1997, and on financing the
construction of Hong Kong's new airport. However, uncertainty returned when
China announced that it would sack all of Hong Kong's elected lawmakers when it
took over in mid-
3
<PAGE>
1997. In our opinion, the 1997 handover may not negatively change the way
businesses operate there. The Chinese government has substantial investments in
Hong Kong through intermediary firms, and a number of provincial governments
also have large investments in Hong Kong. At the same time, many Hong Kong
businessmen have extensive investments in China. It is clear that the Chinese
government wants Hong Kong to continue as a successful business center and a
center for international contacts and trade.
We believe that China will remain one of the world's most interesting growth
stories. However, investing in any emerging market means putting up with a
certain amount of volatility, and, in some cases, severe market corrections.
Investing in China companies is no exception, entailing special considerations,
including risks related to market and currency volatility, adverse social and
political developments, and the relatively small size and lesser liquidity of
the markets involved. While short-term volatility can be disconcerting, declines
of as much as 40% to 50% are not unusual in emerging markets. For example, the
Hong Kong market has increased 763% in the last 15 years, but has suffered six
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 change over 15 years ended
June 30, 1995.
4
<PAGE>
- --------------------------------------------------------------------------------
Performance Summary
In market-price terms, the Templeton Dragon Fund produced a total return of
- -15.20% for the six-month period ended September 30, 1995. Based on the change
in actual net asset value (in contrast to market price), total return was 6.46%
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, the Fund's closing price on the New York Stock
Exchange increased from $12.00 on March 31, 1995, to $12.50 on September 30,
1995, while the net asset value increased from $13.97 to $14.74 for the same
period. Shareholders received combined distributions totaling 13 cents ($0.13)
per share, including short-term capital gains of 0.5 cents ($0.005) per share
and dividend income totaling 12.5 cents ($0.125) per share.
We believe it is important to maintain a long-term investment perspective, and
we encourage shareholders to view their investments in a similar manner. Past
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
Cumulative Total Returns*
Periods Ended September 30, 1995
<TABLE>
<CAPTION>
Since
Inception
Six-Month One-Year (09/21/94)
<S> <C> <C> <C>
Based on change
in net asset value 6.46% 6.49% 6.34%
Based on change
in market price -15.20% -16.67% -15.23%
</TABLE>
*Cumulative total return calculations show the change in value of an investment
over the periods indicated. These calculations assume reinvestment of all
distributions and capital gains, 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
<PAGE>
The Following Letter
was Written by Dr. Mobius
During a Trip to Shanghai.
Shanghai is at the heart of an area that has been described as the largest
market in Asia. Some analysts have said that the largest concentration of
consumers in the Asia Pacific area is not Japan, not southern China, and not any
single country, but the Yangtze River Delta region. This market includes
Shanghai and the provinces of Jiangsu, Anhui and Zhejiang. It is estimated to
contain almost 200 million people, a population larger than Indonesia's or
Japan's. Although foreign investors who came to China in the 1980s concentrated
on Guangdong, the focus shifted to the Yangtze River Delta in the 1990s. One
quarter of China's increased economic production comes from this region, which
has been growing faster than Taiwan and South Korea. In addition to Shanghai,
the autonomous townships and village enterprises in the vicinity have grown a
great deal. These areas offer lower taxes and cheap credit to export-oriented
enterprises and are not restricted by the quotas and targets to which the state
enterprises are subject.
Progress in Shanghai is really amazing -- development just does not stop! As we
came off the newly completed north-south elevated highway, which had just been
finished and was festooned with banners celebrating its opening, we noticed
buildings being completed throughout the city. A Shanghai municipal official
told us that the Pudong New Area development, which will result in an entirely
new city at the mouth of the Yangtze River, will have a major port, a new
airport, office buildings, housing, and a new stock exchange. He said that
although Hong Kong was now the largest port in China, Shanghai would eventually
surpass it and become China's financial and trade center. He added that this did
not mean Hong Kong would become smaller, but that all of China's financial
activity and trade would increase.
We visited several companies in Shanghai, all of which are benefiting in one way
or another from the region's extraordinary growth. Shanghai
6
<PAGE>
[MAP APPEARS HERE]
Shangling Electric Appliances Co. makes refrigerators, air-conditioners and
microwave ovens that are in demand as changing lifestyles increase the desire
for fast- and frozen-foods. Shangling has a close relationship with Mitsubishi
of Japan, whose influence was apparent when we visited. Our three hosts were
wearing crisp white- and blue-striped uniform shirts. Everyone in the plant wore
uniforms, and the company brochure and annual report had the bright, quality
feel of a major Japanese appliance company.
Next, we visited the Lian Hua plant, a joint-venture fiber and textiles factory
started by the Shanghai Chemical Fibre Corporation and a Hong Kong company
controlled by a Taiwanese investor. On this rainy, dark day, they were trying to
save electricity, and no lights were on in their offices. Between January 1993
and December 1994, electricity prices rose by 55%, and we were told they were
expected to continue rising. To save money, the company increases production at
night when electricity prices are lower.
Ironically, our next visit was to a company that makes light bulbs. Shanghai
Jianbao Industry has recognized that the light bulb business offers only
7
<PAGE>
low profit margins and has begun to diversify. One of its new ventures produces
chicken essence, another makes chemicals, another makes packaging materials, and
one is engaged in port construction.
We also made a series of visits to automobile-related companies such as
Volkswagen and Shanghai Diesel, which assembles diesel engines under license
from U.S. based Caterpillar Corporation and Shanghai Tyre and Rubber Company.
One of the managers at the Volkswagen plant told me that working in China
involved language difficulties and meant using an interpreter, which is time
consuming. The plant was not very different from other automobile plants we had
visited, with its moving assembly line, conveniently placed parts bins, and
workers adding various parts to the cars moving along the line.
Our last visit was to the enormous Shanghai Yaohua Pilkington glass plant, where
the production line was humming. The manufacturing process starts with a mixture
of silica, waste glass and soda ash feeding into a white hot furnace. This
inferno of material, reminiscent of volcanic lava with a crust on top, flows
from the furnace onto a bed of molten tin and then to the cooling process, which
reveals the smooth glass. Just walking from one end to another took about half
an hour.
There are 85 cities and towns in the Yangtze River Delta, and 35 have
populations of more than one million. Although the Chinese previously were not
allowed to move from one area to another, the situation has completely changed,
and the region is now attracting migrants at an estimated rate of nine million
per year. This has created infrastructure, housing, and security problems, and
in order to provide the necessary water, sewerage, rail, roads, power and
housing services, local governments in the area will require more and more
foreign investment. We shall, of course, continue to monitor the situation as we
pursue future investment opportunities for the benefit of the Fund's
shareholders.
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
Templeton Dragon Fund, Inc.
8
<PAGE>
Templeton Dragon Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SEPTEMBER 8, 1994
SIX MONTHS ENDED (COMMENCEMENT
SEPTEMBER 30, 1995 OF OPERATIONS) TO
(UNAUDITED) MARCH 31, 1995
------------------ -----------------
<S> <C> <C>
Net asset value, beginning of period $ 13.97 $ 14.10
-------- --------
Income from investment operations:
Net investment income .23 .22
Net realized and unrealized gain (loss) .67 (.22)
-------- --------
Total from investment operations .90 (.00)
-------- --------
Underwriting expenses deducted from
capital -- (.04)
Distributions:
Dividends from net investment income (.12) (.09)
Distributions from net realized gain (.01)
-------- --------
Total distributions (.13) (.13)
-------- --------
Change in net asset value .77 (.13)
-------- --------
Net asset value, end of period $ 14.74 $ 13.97
======== ========
TOTAL RETURN *
Based on market value per share (15.20)% (19.34)%
Based on net asset value per share 6.46% (0.11)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $795,847 $754,227
Ratio of expenses to average net assets 1.44%** 1.54%**
Ratio of net investment income to average
net assets 3.19%** 2.99%**
Portfolio turnover rate 1.76% --
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, September 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: 81.3%
- ---------------------------------------------------------------------------------
Appliances and Household Durables: 2.0%
Foshan Electrical and
Lighting Co. Ltd., B Chn. 700,000 $ 511,530
Hualing Holdings Ltd. H.K. 2,332,000 377,019
Luks Industrial Co. Ltd. H.K. 12,076,000 1,608,738
Semi-Tech (Global) Co.
Ltd. H.K. 5,470,510 8,242,876
Shanghai Narcissus
Electric Appliances Co.
Ltd., B Chn. 8,701,200 2,331,922
*Shanghai Vacuum
Electron Devices Co.
Ltd., B Chn. 5,396,092 1,284,270
Shenzhen Huafa
Electronics Co. Ltd., B Chn. 1,184,000 248,846
*Shenzhen Konka
Electronic Group Co.
Ltd., B Chn. 2,060,000 1,278,891
Tsann Kuen Enterprise
Co. Ltd., B Chn. 546,000 105,927
------------
15,990,019
- ---------------------------------------------------------------------------------
Automobiles: 1.3%
Jardine International
Motor Holdings Ltd. H.K. 7,973,000 8,662,157
Qing Ling Motors Co.
Ltd., H Chn. 8,000,000 1,841,768
------------
10,503,925
- ---------------------------------------------------------------------------------
Banking: 9.5%
HSBC Holdings PLC H.K. 5,214,000 72,494,406
JCG Holdings Ltd. H.K. 4,469,000 3,323,558
------------
75,817,964
- ---------------------------------------------------------------------------------
Broadcasting & Publishing: 0.9%
Leefung-Asco Printers
Holdings Ltd. H.K. 8,221,000 1,435,435
Ming Pao Enterprise
Corp. Ltd. H.K. 8,185,000 3,837,529
+South Sea Development
Co. Ltd. H.K. 46,054,000 1,667,825
------------
6,940,789
- ---------------------------------------------------------------------------------
Building Materials & Components: 0.6%
K Wah International
Holdings Ltd. H.K. 9,887,000 1,496,151
Shanghai Yaohua
Pilkington Glass, B Chn. 3,198,800 3,390,728
------------
4,886,879
- ---------------------------------------------------------------------------------
Chemicals: 1.0%
Shanghai Chlor-Alkali
Chemical Co. Ltd., B Chn. 8,550,000 2,445,300
Shanghai Pechemical Co.
Ltd., H Chn. 15,022,000 4,371,548
Shenzhen Petrochemical
(Group) Shareholding
Co. Ltd., B Chn. 750,000 218,257
Zhuhai Sez Lizhu
Pharmaceutical, B Chn. 2,610,000 843,928
------------
7,879,033
- ---------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, September 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: (CONT.)
- -----------------------------------------------------------------------------------
Construction & Housing: 4.3%
Hopewell Holdings Ltd. H.K. 46,496,090 $ 31,571,902
Wai Kee Holdings Ltd. H.K. 24,868,000 2,991,223
------------
34,563,125
- -----------------------------------------------------------------------------------
Electrical & Electronics: 0.7%
*China Treasure
Telecomunications
Holdings Ltd. H.K. 20,512,000 968,336
G.P. Batteries
International Ltd. Sing. 900,000 2,520,000
Gold Peak Industries
(Holdings) Ltd. H.K. 1,107,000 529,754
Great Wall Electronic
International Ltd. H.K. 9,622,000 784,027
Shanghai Automation
Instrumentation Co., B Chn. 4,511,000 1,037,530
------------
5,839,647
- -----------------------------------------------------------------------------------
Electronic Components & Instruments: 0.2%
S. Megga International
Holdings Ltd. H.K. 18,862,000 1,195,388
- -----------------------------------------------------------------------------------
Financial Services: 1.5%
Guoco Group Ltd. H.K. 200,000 1,001,073
Min Xin Holdings H.K. 11,196,000 2,143,135
Peregrine Investments
Holdings Ltd. H.K. 2,566,000 3,849,813
Sun Hung Kai & Co. Ltd. H.K. 16,294,000 4,847,084
------------
11,841,105
- -----------------------------------------------------------------------------------
Food & Household Products: 1.0%
C.P. Pokphand Co. Ltd. H.K. 3,208,000 1,306,983
Fairwood Holdings Ltd. H.K. 14,768,000 1,317,940
Golden Resources
Development
International Ltd. H.K. 7,340,000 759,471
*Shanghai New Asia Group
Co. Ltd., B Chn. 311,800 150,911
Vitasoy International
Holdings Ltd. H.K. 10,354,000 4,352,277
------------
7,887,582
- -----------------------------------------------------------------------------------
Health & Personal Care: 0.3%
China Pharmaceutical
Enterprise & Investment
Corp. Ltd. H.K. 12,345,000 1,995,842
- -----------------------------------------------------------------------------------
Industrial Components: 0.4%
*Shanghai Refrigerator
Compressor Co. Ltd., B Chn. 1,221,720 593,756
*Shanghai Rubber Belt
Co. Ltd., B Chn. 807,936 131,694
Shanghai Shangling
Electric Appliance, B Chn. 496,000 448,384
Shanghai Tyre & Rubber
Co. Ltd., B Chn. 7,589,000 2,367,768
------------
3,541,602
- -----------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, September 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ----------------------------------------------------------------------------------
Leisure & Tourism: 0.7%
*Glynhill International
Ltd. H.K. 17,768,000 $ 569,922
Hongkong & Shanghai
Hotels Ltd. H.K. 1,961,000 2,447,541
Shanghai Jin Jiang Tower
Co. Ltd., B Chn. 8,182,954 2,651,277
------------
5,668,740
- ----------------------------------------------------------------------------------
Machinery & Engineering: 1.2%
China Textile Machinery
Co. Ltd., B Chn. 3,948,000 607,992
Guangzhou Shipyard
International Co. Ltd.,
H Chn. 10,530,000 3,404,814
Northeast Electric
Transmission
& Transformation H.K. 2,102,000 448,582
Shanghai Erfangji
Textile Machinery Co.
Ltd., B Chn. 14,541,636 2,472,078
Shanghai Industrial
Sewing Machine Corp. Chn. 9,514,700 1,750,705
Shanghai Steel Tube Co.
Ltd., B Chn. 5,088,600 722,581
------------
9,406,752
- ----------------------------------------------------------------------------------
Merchandising: 2.2%
Dickson Concepts
(International) Ltd. H.K. 10,864,000 7,868,696
Fortei Holdings Ltd. H.K. 3,978,000 252,108
Joyce Boutique Holdings
Ltd. H.K. 7,678,000 1,737,845
Le Saunda Holdings Ltd. H.K. 3,616,000 266,580
LI & Fung Ltd. H.K. 1,965,897 1,500,161
Linkful International
Holdings Ltd. H.K. 2,211,000 171,579
Wo Kee Hong Holdings
Ltd. H.K. 22,409,000 5,159,023
Yaohan Hongkong Corp.
Ltd. H.K. 4,000,000 258,675
------------
17,214,667
- ----------------------------------------------------------------------------------
Metals & Mining: 0.2%
Maanshan Iron & Steel
Co. Ltd., H Chn. 10,076,000 1,876,617
- ----------------------------------------------------------------------------------
Misc Materials & Commodities: 0.1%
Luoyang Glass Co. Ltd.,
H Chn. 2,731,000 1,094,986
- ----------------------------------------------------------------------------------
Multi-Industry: 22.6%
Cheung Kong Holdings
Ltd. H.K. 10,449,000 56,896,013
China Southern Glass Co.
Ltd., B Chn. 3,255,000 1,768,175
Dairy Farm International
Holdings Ltd. H.K. 17,918,904 15,589,446
Jardine Matheson
Holdings Ltd. H.K. 3,632,400 24,518,700
Jardine Strategic
Holdings Ltd. H.K. 7,823,625 22,844,985
*Jardine Strategic
Holdings Ltd., wts. H.K. 349,625 125,865
Lai Sun Garment
International Ltd. H.K. 6,081,000 6,213,368
Shenzhen Gintian
Industrial Co. Ltd., B Chn. 599,200 269,697
Shenzhen Tellus
Machinery & Electronics
Co. Ltd., B Chn. 162,800 33,690
</TABLE>
12
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, September 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ----------------------------------------------------------------------------------
Multi-Industry: (cont.)
Stelux International
Holdings Ltd. H.K. 8,274,000 $ 2,193,787
Swire Pacific Ltd., B H.K. 13,860,000 17,209,152
Wheelock & Co. Ltd. H.K. 21,431,000 32,014,699
------------
179,677,577
- ----------------------------------------------------------------------------------
Real Estate: 23.1%
China Overseas Land &
Investment Ltd. H.K. 30,733,000 5,644,407
Hang Lung Development
Co. Ltd. H.K. 23,035,000 37,092,198
*Hang Lung Development
Co. Ltd., wts. H.K. 535,000 85,803
Lai Sun Development Co.
Ltd. H.K. 79,990,000 9,414,605
New World Development
Co. Ltd. H.K. 15,783,000 62,260,758
Shanghai Jinqiao Export
Processing Zone
Development, B Chn. 8,338,200 4,752,774
Shanghai Lujiaxui
Finance & Trade Zn Dev
Stock Co Ltd, B Chn. 9,524,000 6,495,368
Shanghai Outer Gaoqiao
Free Trade Zone
Develop. Co., B Chn. 1,571,000 640,968
*Shenzhen Properties &
Resources Develop.
(Group) Ltd., B Chn. 3,473,800 745,827
Shenzhen Vanke Co. Ltd.,
B Chn. 4,184,900 1,569,669
Sun Hung Kai Properties
Ltd. H.K. 6,306,000 51,179,107
*Tian An China
Investments Co. Ltd. H.K. 27,670,000 3,900,863
------------
183,782,347
- ----------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 1.2%
*Fu Hui Jewellery Co.
(H.K.) Ltd. H.K. 7,710,000 324,088
KTP Holdings Ltd. H.K. 15,374,000 874,912
Phoenix Co. Ltd. Chn. 5,322,300 1,117,683
Shanghai Forever Bicycle
Co. Ltd., B Chn. 3,752,000 551,544
Shanghai Wingsung
Stationery Co. Ltd., B Chn. 200,000 46,000
Shenzhen China Bicycles
Co. (Holdings) Ltd., B Chn. 3,702,000 1,220,960
Yue Yuen Industrial
(Holdings) Ltd. H.K. 20,662,000 5,745,606
------------
9,880,793
- ----------------------------------------------------------------------------------
Textiles & Apparel: 1.4%
Goldlion Holdings Ltd. H.K. 13,711,000 7,536,732
Laws International
Holdings Ltd. H.K. 14,638,000 1,931,110
Shanghai Lian Hua Fibre
Corp., B Chn. 296,000 67,488
Top Form International
Ltd., 144a H.K. 16,937,000 1,336,261
Tungtex (Holdings) Co.
Ltd. H.K. 2,600,000 292,562
Victor Onward Textile
Industrial Co. Ltd., B Chn. 81,400 11,581
------------
11,175,734
- ----------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, September 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ----------------------------------------------------------------------------------------
Transportation: 0.4%
China Merchants Shekou
Port Service Co. Ltd.,
B Chn. 800,000 $ 363,180
Chiwan Wharf Holdings
Ltd., B Chn. 2,234,000 1,054,632
Cross Harbour Tunnel Co.
Ltd. H.K. 624,000 1,210,600
Shanghai Dazhong Taxi
Shareholding Co. Ltd.,
B Chn. 211,897 173,756
------------
2,802,168
- ----------------------------------------------------------------------------------------
Utilities Electrical & Gas: 4.4%
Guangdong Electric Power
Development Co Ltd,
B, 144a Chn. 3,380,000 1,871,050
Hongkong Electric
Holdings Ltd. H.K. 6,710,000 22,434,070
Shandong Huaneng Power Chn. 886,000 7,863,250
Wing Shan International
Ltd. H.K. 21,638,000 2,658,678
------------
34,827,048
- ----------------------------------------------------------------------------------------
Wholesale & International Trade: 0.1%
East Asiatic Co. (Hong
Kong) Ltd. (The) H.K. 7,520,000 914,262
------------
TOTAL COMMON STOCKS (cost $625,315,797) 647,204,591
- ----------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 19.1% (cost
$151,906,967)
- ----------------------------------------------------------------------------------------
U.S. Treasury Bills,
5.28% to 5.34% with
maturities to 11/09/95 U.S. 152,349,000 151,953,500
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.4% (cost $777,222,764) 799,158,091
OTHER ASSETS, LESS LIABILITIES: (0.4)% (3,310,811)
------------
TOTAL NET ASSETS: 100.0% $795,847,280
============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 6.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Dragon Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities at value (identified cost $777,222,764) $799,158,091
Cash 5,850
Receivables:
Investment securities sold 725,714
Dividends 2,885,445
Unamortized organization costs 15,298
------------
Total assets 802,790,398
------------
Liabilities:
Payable for investment securities purchased 5,750,923
Accrued expenses 1,192,195
------------
Total liabilities 6,943,118
------------
Net assets, at value $795,847,280
============
Net assets consist of:
Undistributed net investment income $ 12,321,062
Net unrealized appreciation 21,935,327
Accumulated net realized gain 2,295,932
Net capital paid in on shares of capital stock 759,294,959
------------
Net assets, at value $795,847,280
============
Shares outstanding (Note 2) 54,007,093
============
Net asset value per share ($795,847,280 / 54,007,093) $ 14.74
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended September 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment income
(net of $11,223
foreign taxes withheld)
Dividends $11,060,476
Interest 7,058,592
-----------
Total income $18,119,068
Expenses:
Management fees (Note 3) 4,872,978
Administrative fees (Note 3) 584,759
Transfer agent fees 1,000
Custodian fees 40,000
Reports to shareholders 82,000
Audit fees 28,000
Legal fees (Note 3) 1,000
Registration fees 14,035
Directors' fees and expenses 2,000
Amortization of organization costs 2,013
Other 50
-----------
Total expenses 5,627,835
-----------
Net investment income 12,491,233
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,587,704
Foreign currency transactions (53,282)
-----------
2,534,422
Net unrealized appreciation on investments 33,615,683
-----------
Net realized and unrealized gain 36,150,105
-----------
Net increase in net assets resulting from operations $48,641,338
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton Dragon Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 8, 1994
ENDED (COMMENCEMENT
SEPTEMBER 30, 1995 OF OPERATIONS) TO
(UNAUDITED) MARCH 31, 1995
------------------ -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 12,491,233 $ 11,711,389
Net realized gain on investment and
foreign currency transactions 2,534,422 31,545
Net unrealized appreciation
(depreciation) 33,615,683 (11,680,356)
------------ ------------
Net increase in net assets resulting
from operations 48,641,338 62,578
Distributions to shareholders:
From net investment income (6,750,886) (5,130,674)
From net realized gain (270,035) --
Capital share transactions (Note 2) -- 759,194,948
------------ ------------
Net increase in net assets 41,620,417 754,126,852
Net assets:
Beginning of period 754,226,863 100,011
------------ ------------
End of period $795,847,280 $754,226,863
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Templeton Dragon Fund, Inc.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (the Fund), was organized as a Maryland corporation
on March 2, 1994 and commenced operations on September 8, 1994 as a closed-end,
non-diversified management investment company registered under the Investment
Company Act of 1940. The following summarizes the Fund's significant accounting
policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income from foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
e. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over five
years.
17
<PAGE>
Templeton Dragon Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
On September 21, 1994, the fund completed the initial public offering of 54
million shares of its common stock; proceeds paid to the Fund amounted to
$759,194,948, after deduction of underwriting commissions and expenses of
$2,205,052.
At September 30, 1995, 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 In-
vestment Management (Singapore) Pte. Limited (TIMPL) and Templeton Global In-
vestors, Inc. (TGII), the Fund's investment manager and administrative manager,
respectively. The Fund pays monthly an investment management fee to TIMPL
equal, on an annual basis, to 1.25% of the average weekly net assets of the
Fund. Templeton Investment Management (Hong Kong) Limited acted as the Fund's
investment manager prior to its reorganization as the Hong Kong office of TIMPL
on September 30, 1995. The Fund pays TGII, monthly a fee of 0.15% per annum of
the Fund's average weekly net assets. TGII and the Fund has entered into a Jap-
anese Shareholder Servicing and Administration Agreement with Nomura Capital
Management, Inc. (NCM), whereby NCM provides various administrative services to
the Fund. For its services TGII pays to NCM a fee equal, on an annual basis, to
0.10% of the Fund's average weekly net assets.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received $1,000 for the six months ended September 30,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the pe-
riod ended September 30, 1995, were $301,410,885 and $9,211,802, 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, 1995, the aggregate gross unrealized appreciation and depreci-
ation of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 69,519,311
Unrealized depreciation (47,583,984)
------------
Net unrealized appreciation $ 21,935,327
============
</TABLE>
18
<PAGE>
Templeton Dragon Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
5. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NET INCREASE
NET GAIN (LOSS) (DECREASE)
ON INVESTMENT AND IN NET ASSETS
INVESTMENT NET INVESTMENT FOREIGN CURRENCY RESULTING FROM
INCOME INCOME TRANSACTIONS OPERATIONS
----------------- ------------------ ------------------- -------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
----------- ----- ----------- ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
For the period ended:
June 30, 1995 $11,680,144 $.22 $ 9,007,915 $ .17 $ 24,224,947 $ .44 $ 33,232,862 $ .61
September 30, 1995 6,438,924 .12 3,483,318 .06 11,925,158 .23 15,408,476 .29
----------- ---- ----------- ----- ------------ ----- ------------ -----
$18,119,068 $.34 $12,491,233 $ .23 $ 36,150,105 $ .67 $ 48,641,338 $ .90
=========== ==== =========== ===== ============ ===== ============ =====
1995
For the period ended:
September 30, 1994 $ 95,154 --* $ (207,382) $(.01) $ 172,251 $ .01 $ (35,131) --*
December 31, 1994 8,973,078 $.17 5,159,548 .10 (27,968,243) (.51) (22,808,695) $(.41)
March 31, 1995 8,652,420 .16 6,759,223 .13 16,147,181 .28 22,906,404 .41
----------- ---- ----------- ----- ------------ ----- ------------ -----
$17,720,652 $.33 $11,711,389 $ .22 $(11,648,811) $(.22) $ 62,578 $ --*
=========== ==== =========== ===== ============ ===== ============ =====
</TABLE>
* LESS THAN $.01
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. Investments in "affiliated companies" at September 30,
1995 amounted to $1,667,825.
19
<PAGE>
Templeton Dragon Fund, Inc.
Annual Meeting of Shareholders, July 26, 1995
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on July 26, 1995. The purpose of
the meeting was to elect twelve directors of the Fund, to ratify the selection
of McGladrey & Pullen, LLP, as the Fund's independent public accountants for
the fiscal year ending March 31, 1996, 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 per-
sons were elected by the Shareholders to serve as directors of the Fund: Harris
J. Ashton, Nicholas F. Brady, F. Bruce Clarke, Martin L. Flanagan, S. Joseph
Fortunato, John Wm. Galbraith, Andrew H. Hines, Jr., Charles B. Johnson, Betty
P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Hasso-G Von Diergardt-
Naglo. 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, 1996. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. ELECTION OF TWELVE (12) DIRECTORS FOR THE TERMS SET FORTH BELOW:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED AGAINST SHARES ABSTAIN %
---------- ----------- ------ ------- ----------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
TERM EXPIRING 1998:
F. Bruce Clarke 50,723,014 93.92% 98.66% 686,617 1.27% -- --
Martin L. Flanagan 50,761,781 93.99% 98.74% 647,850 1.20% -- --
Andrew H. Hines, Jr. 50,744,418 93.96% 98.71% 665,213 1.23% -- --
Charles B. Johnson 50,811,184 94.08% 98.84% 598,447 1.11% -- --
TERM EXPIRING 1997:
John Wm. Galbraith 50,751,351 93.97% 98.72% 658,280 1.22% -- --
Betty P. Krahmer 50,789,888 94.04% 98.79% 619,743 1.15% -- --
Gordon S. Macklin 50,753,673 93.98% 98.72% 655,958 1.21% -- --
Fred R. Millsaps 50,764,863 94.00% 98.75% 644,768 1.19% -- --
TERM EXPIRING 1996:
Harris J. Ashton 50,751,077 93.97% 98.72% 658,554 1.22% -- --
Nicholas F. Brady 50,759,967 93.99% 98.74% 649,664 1.20% -- --
S. Joseph Fortunato 50,747,493 93.96% 98.71% 662,138 1.23% -- --
Hasso-G Von Diergardt-
Naglo 50,746,478 93.97% 98.71% 661,153 1.22% -- --
</TABLE>
2. RATIFICATION OF THE SELECTION OF MCGLADREY & PULLEN, LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS OF THE FUND FOR THE FISCAL YEAR ENDING MARCH 31, 1996:
<TABLE>
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING SHARES OUTSTANDING OUTSTANDING
FOR SHARES VOTED AGAINST SHARES ABSTAIN SHARES
---------- ----------- ------ ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
50,826,048 94.11% 98.86% 440,570 .82% 159,712 .30%
</TABLE>
20
<PAGE>
Templeton Dragon Fund, Inc.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
The Fund offers a Dividend Reinvestment Plan (the "Plan") with the following
features: .If shares of the Fund are held in the shareholder's name, the share-
holder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder in-
structs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. .Participants should contact Chemical Mellon Se-
curities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pitts-
burgh, PA 15230, to receive the Plan brochure. .To receive dividends or distri-
butions in cash, the shareholder must notify Chemical Mellon Securities Trust
Company ("Mellon") or the institution in whose name the shares are held. Mellon
must receive written notice within 10 business days before the record date for
the distribution. .Whenever the Fund declares dividends in either cash or com-
mon stock of the Fund, if the market price is equal to or exceeds net asset
value at the valuation date, participants will receive the dividends entirely
in stock at a price equal to the net asset value but not less than 95% of the
then current market price of the Fund's shares. If the market price is lower
than net asset value and if dividends and/or capital gains distributions are
payable only in cash, the participant will receive shares purchased on the New
York Stock Exchange. .The automatic reinvestment of dividends and/or capital
gains does not relieve the participant of any income tax which may be payable
on dividends or distributions. .The participant may withdraw from the Plan
without penalty at any time by written notice to Mellon. Upon withdrawal, the
participant will receive, without charge, stock certificates issued and in the
participant's name for all full shares; or, if the participant's wishes, Mellon
will sell the participant's shares and send the proceeds, net of any brokerage
commissions. A $5.00 fee is charged by Mellon upon any cash withdrawal or ter-
mination. .Whenever shares are purchased on the New York Stock Exchange, each
participant will pay a pro rata portion of brokerage commissions. Brokerage
commissions will be deducted from amounts to be invested.
21
<PAGE>
Templeton Dragon Fund, Inc.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chemical Mellon Shareholder Services
Securities Transfer Services
450 West 33rd
Street New York, NY 10001
800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Dragon Fund, Inc. shares is published each Monday in The Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers
in a table called "Publicly Traded Funds." The Fund's New York Stock Exchange
trading symbol is TDF. The Fund's shares are also listed and traded in Japan on
the Osaka Stock Exchange.
For current information about the net asset value, call 1-800-292-9293.
If any shareholder is not receiving copies of the Reports to Shareholders be-
cause shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton Dragon Fund, Inc., 700 Central Avenue, St. Peters-
burg, FL 33701.
22
<PAGE>
Notes
-----
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
TLTDF S95 11/95
[RECYCLED PAPER LOGO APPEARS HERE]
TEMPLETON
DRAGON
FUND, INC.
Semi-Annual Report
September 30, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
