Templeton Dragon Fund
(PHOTO) Dr. Mobius has been living overseas since earning his Ph.D. in
economics and political science at Massachusetts Institute of
J. MARK Technology in 1964. During his extensive travels, he has acquired
MOBIUS, a thorough knowledge of the business practices and customs that
PH.D. are unique to developing nations. Together with his team of
President Templeton analysts, Dr. Mobius currently oversees more than $6
Templeton billion in emerging markets investments for the Templeton Group
Dragon of Funds. In 1994, Morningstar, Inc. named him "1993 Closed- End
Fund, Inc. Fund Manager of the Year."
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The Following Letter was Written by Dr. Mobius After a Recent Trip to China.
Dear Shareholder:
Guangzhou is the capital of Guangdong Province. This province borders Hong Kong
and is influenced by the wealth of that British Colony, which is soon to be re-
absorbed into the Chinese political structure. I'm sure that the leaders in
Beijing have mixed emotions about Guangdong, as they have about Hong Kong. Ac-
cording to some historians, it is in Hong Kong and Guangdong Province that Sun
Yat Sen, the father of modern China and the leader in the struggle to overthrow
the Ching Dynasty, began his crusade to rid China of the Ching dynasty. He was
born in a village called Tsui Hang (green luck) located near the Portuguese
Colony of Macau, which, like Hong Kong, will also be given back to China. Dur-
ing a recent visit to Vancouver, Canada, we came across the Tsui Hang Village
Restaurant, a branch of a successful chain of that same name based in Hong
Kong. The first page of the restaurant's menu mentioned the significance of
that name and how Sun Yat Sen received donations from Chinese in Canada and the
United States to carry on his battle to create a modern China, which he finally
succeeded in doing in
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1911. Today, Guangdong is probably the richest province in China due to its
proximity to Hong Kong and to the many Chinese who emigrated to the four cor-
ners of the earth and whose descendants still send back money. The Cantonese
(Guangdong-wah) dialect reflects the down-to-earth nature of the people here
and their practical bent that makes them very good businessmen.
We recently visited Guangzhou Shipyard (GS) and found the entrepreneurial
spirit alive and well despite the government ownership background of this com-
pany. It was a pleasant surprise to see how such a company could begin to
transform itself from a bloated and inefficient state-owned enterprise to an
aggressive and profitable establishment. Currently, it is working not only on
ship building but also container manufacturing and production of steel struc-
tures for export. Like other companies in China, it enjoys tax concessions be-
cause of its export activities. According to company officials, while there is
normally a 17% value added tax (VAT) on products sold in China, the company
pays no VAT on exports.
The chairman and managing director of GS is a "professor of engineering", an
indication of high academic accomplishment, and a potent qualification in
China when combined with business acumen. We were delighted by the openness
and clarity of the presentation given by him and his staff. When we discussed
the company's accounting system, we found that they published their accounts
according to Chinese accounting standards as well as Hong Kong accounting
standards because they are listed on the Hong Kong Stock Exchange. We discov-
ered a number of differences regarding the treatment of foreign exchange gains
and losses. For example, under Hong Kong's accounting principles, such gains
and losses are booked immediately during the year in which they are incurred,
but under Chinese accounting, such gains and losses can be amortized over a
period of not less than five years. For GS, the Chinese accounting results for
the first half of 1994 showed a lower gain of RMB 41 million as compared with
the Hong Kong accounts, which showed a gain of RMB 86 million. Chinese ac-
counting results, in this case, were thus more conservative.
Unlike most other Chinese companies we have visited, GS allowed us to take
pictures of the plant and operations and answered all of our questions. Cur-
rently their profit breakdown is: ship building 65%, ship container manufac-
turing 20%, ship repairing 2%, and other operations such as fibreglass ship
manufacturing and mechanical engineering 13%. Management said that their larg-
est profit margins could come from steel fabrication and that they planned to
expand that activity. Recently they
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obtained a contract to build a main structure of a new bridge across the Pearl
River near Hong Kong and Macau. News of that contract was noticed by an Ameri-
can company, which contacted GS and proposed a joint venture to construct steel
structures for bridges, buildings and power plants (which should be a major
growth area for China). This US$12 million joint venture will be 51% owned by
the U.S. firm and 49% by the Chinese firm.
GS has obtained considerable know-how and equipment from the U.S., Japan, Italy
and Germany. While inspecting their huge rolling machines capable of bending
100 mm steel, we were told that the largest machine was from West Germany while
a more sophisticated machine had just been imported from Italy. However, most
of the equipment in the ship container manufacturing operations was from the
U.S. The ship container plant turns out 35,000 large steel containers per year
in an assembly line operation. With the continuation of their large container
export business plus expansion of steel fabrication (the most profitable busi-
ness) and new orders for ships (fourteen ships backlog, of which eight are for
export), management expects that within a few years 40% of profits will come
from shipbuilding, 30% from containers and 30% from steel structures.
GS is 42.6% owned by the government but it differs markedly from other compa-
nies in China with large government ownership which have taken on the charac-
teristics of government bureaucracies. The remaining shareholders include Chi-
nese individuals (25.6%), and Hong Kong and other foreign investors who pur-
chased the company's "H" shares listed on the Hong Kong Stock Exchange (31.8%).
GS is a good illustration of the transformation of government enterprises in
China, and of how such companies can benefit from more open world trade and an
infusion of investment capital and modern technology. It should be remembered,
of course, that investing in emerging markets involves special considerations,
which may include risks related to market and currency volatility, adverse so-
cial and political developments, and the relatively small size and lesser li-
quidity of these markets.
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
February 15, 1995
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Templeton Dragon Fund, Inc.
Investment Portfolio, December 31, 1994 (unaudited)
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<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
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COMMON STOCKS: 18.8%
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Appliances & Household Durables: 0.2%
Semi-Tech (Global) Co. Ltd. H.K. 957,000 $ 1,614,068
Shanghai Narcissus Electric
Appliances Co. Ltd., B Chn. 556,000 126,768
Shanghai Vacuum Electron Devices
Co. Ltd., B Chn. 438,000 90,228
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1,831,064
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Automobiles: 0.4%
Jardine International Motor
Holdings Ltd. H.K. 2,896,000 3,050,391
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Banking: 2.5%
HSBC Holdings PLC H.K. 1,598,000 17,244,976
JCG Holdings Ltd. H.K. 3,322,000 1,728,084
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18,973,060
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Broadcasting & Publishing: 0.1%
Leefung-Asco Printers Holdings
Ltd. H.K. 71,000 10,552
South Sea Development Co. Ltd. H.K. 3,138,000 219,001
------------
229,553
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Building Materials & Components: 0.3%
K Wah International Holdings Ltd. H.K. 6,410,000 1,342,061
Shanghai Yaohua Pilkington Glass,
B Chn. 1,131,000 1,108,380
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2,450,441
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Chemicals: 0.1%
Shanghai Chlor-Alkali Chemical
Co. Ltd., B Chn. 1,819,000 491,130
Shanghai Pechemical Co. Ltd., H Chn. 1,284,000 365,079
Zhuhai Sez Lizhu Pharmaceutical,
B Chn. 386,000 199,548
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1,055,757
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Construction & Housing: 0.6%
Hopewell Holdings Ltd. H.K. 5,405,000 4,470,695
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Electrical & Electronics: 0.2%
G.P. Batteries International Ltd. Sing. 600,000 1,650,000
Gold Peak Industries (Holdings)
Ltd. H.K. 607,000 239,270
Great Wall Electronic
International Ltd. H.K. 3,000,000 236,510
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2,125,780
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Electronic Components & Instruments: 0.1%
S. Megga International Holdings
Ltd. H.K. 7,692,000 864,884
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</TABLE>
4
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, December 31, 1994 (unaudited) (cont.)
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<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
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COMMON STOCKS (CONT.)
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Financial Services: 0.5%
Peregrine Investments Holdings
Ltd. H.K. 2,066,000 $ 2,429,803
Sun Hung Kai & Co. Ltd. H.K. 4,190,000 1,678,708
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4,108,511
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Food & Household Products: 1.0%
C.P. Pokphand Co. Ltd. H.K. 3,986,000 932,428
Dairy Farm International Holdings
Ltd. H.K. 4,319,000 4,632,982
Fairwood Holdings Ltd. H.K. 10,132,000 982,100
Vitasoy International Holdings
Ltd. H.K. 2,252,000 778,559
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7,326,069
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Health & Personal Care: 0.1%
China Pharmaceutical Enterprise &
Investment Corp. Ltd. H.K. 759,000 84,361
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Industrial Components: 0.1%
Shanghai Tyre & Rubber Co. Ltd.,
B Chn. 917,000 348,460
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Machinery & Engineering: 0.5%
Guangzhou Shipyard International
Co. Ltd., H Chn. 3,154,000 1,131,160
Shanghai Erfangji Textile
Machinery Co. Ltd., B Chn. 4,155,000 831,000
Shanghai Industrial Sewing
Machine Corp. Chn. 2,674,700 1,069,880
Shanghai Steel Tube Co. Ltd., B Chn. 2,276,000 630,452
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3,662,492
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Merchandising: 0.7%
Dickson Concepts (International)
Ltd. H.K. 3,736,000 2,438,359
Fortei Holdings Ltd. H.K. 250,000 19,709
Le Saunda Holdings Ltd. H.K. 878,000 76,027
LI & Fung Ltd. H.K. 1,234,000 805,389
Linkful International Holdings
Ltd. H.K. 1,965,000 172,691
Wo Kee Hong Holdings Ltd. H.K. 6,995,000 1,609,189
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5,121,364
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Miscellaneous Materials & Commodities: 0.1%
Luoyang Glass Co. Ltd., H Chn. 681,000 259,638
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</TABLE>
5
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, December 31, 1994 (unaudited) (cont.)
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<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
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COMMON STOCKS (CONT.)
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Multi-Industry: 3.6%
Jardine Matheson Holdings Ltd. H.K. 1,144,800 $ 8,174,501
Jardine Strategic Holdings Ltd. H.K. 2,042,000 6,703,302
Lai Sun Garment International
Ltd. H.K. 1,610,000 1,945,525
Shenzhen Gintian Industrial Co.
Ltd., B Chn. 132,000 58,856
Stelux Holdings Ltd. H.K. 6,008,000 1,785,900
Swire Pacific Ltd., B H.K. 3,825,000 3,757,027
Wheelock & Co. Ltd. H.K. 2,550,000 4,234,895
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26,660,006
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Real Estate: 6.3%
Cheung Kong Holdings Ltd. H.K. 2,911,000 11,850,921
China Overseas Land & Investment
Ltd. H.K. 7,691,000 1,411,466
Hang Lung Development Co. Ltd. H.K. 6,630,000 9,425,525
Hang Lung Development Co. Ltd.,
wts. H.K. 535,000 80,207
Lai Sun Development Co. Ltd. H.K. 11,436,000 1,418,877
New World Development Co. Ltd. H.K. 3,332,000 8,892,511
Shanghai Jinqiao Export
Processing Zone
Development, B Chn. 2,078,000 1,454,600
Shanghai Lujiaxui Finance & Trade
Zone
Development Stock Co. Ltd., B Chn. 300,000 243,000
Shanghai Outer Gaoqiao Free Trade
Zone
Develop. Co., B Chn. 1,571,000 926,890
Shenzhen Properties & Resources
Development
(Group) Ltd Chn. 290,000 110,565
Shenzhen Vanke Co. Ltd., B Chn. 494,000 233,034
Sun Hung Kai Properties Ltd. H.K. 1,385,000 8,269,725
Tian An China Investments Co.
Ltd. H.K. 9,480,000 1,899,063
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46,216,384
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Recreation, Other Consumer Goods: 0.3%
Fu Hui Jewellery Co. Ltd. H.K. 5,996,000 356,467
Shanghai Forever Bicycle Co.
Ltd., B Chn. 1,252,000 260,416
Shanghai Phoenix Bicycle Co.
Ltd., B Chn. 802,000 413,030
Shanghai Wingsung Stationery Co.
Ltd., B Chn. 200,000 90,000
Shenzhen China Bicycles Co. Ltd.,
B Chn. 500,000 219,709
Yue Yuen Industrial (Holdings)
Ltd. H.K. 4,444,000 878,749
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2,218,371
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Telecommunications: 0.1%
Shanghai Posts &
Telecommunications Equipment Co.,
B Chn. 50,000 27,900
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</TABLE>
6
<PAGE>
Templeton Dragon Fund, Inc.
Investment Portfolio, December 31, 1994 (unaudited) (cont.)
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<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
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Textiles & Apparel: 0.4%
Goldlion Holdings Ltd. H.K. 8,777,000 $ 2,087,196
Laws International Holdings
Ltd. H.K. 5,002,000 853,330
Shanghai Lian Hua Fibre
Corp., B Chn. 80,000 30,400
Top Form International Ltd. H.K. 2,395,000 191,909
Tungtex (Holdings) Co. Ltd. H.K. 1,000,000 116,317
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3,279,152
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Transportation: 0.1%
Chiwan Wharf Holdings Ltd.,
B Chn. 500,000 193,861
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Utilities Electrical & Gas: 0.4%
Hong Kong Electric Holdings
Ltd. H.K. 410,000 1,120,711
Shandong Huaneng Power Chn. 127,000 1,222,375
Wing Shan International Ltd. H.K. 4,374,000 638,788
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2,981,874
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Wholesale & International Trade: 0.1%
East Asiatic Co. Ltd. H.K. 1,594,000 247,212
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TOTAL COMMON STOCKS 137,787,280
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<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY
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<C> <S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 82.1%
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U.S. Treasury Bills, 4.75%
to 5.45% with
maturities to 2/23/95 U.S. $604,264,000 600,570,917
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TOTAL INVESTMENTS: 100.9% 738,358,197
OTHER ASSETS, LESS LIABILITIES: (0.9%) (6,746,841)
------------
TOTAL NET ASSETS: 100.0% $731,611,356
============
</TABLE>
7
<PAGE>
Templeton Dragon Fund, Inc.
Financial Highlights, December 31, 1994 (unaudited)
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<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
-------------------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period, October 1,
1994 $759,550,724 $ 14.06
Net investment income $ 5,159,548 $ 0.10
Distribution from net
investment income (5,130,673) (0.10)
Net loss on security and
foreign currency transactions (27,968,243) (0.51)
------------ -------
Net decrease in net asset
value (27,939,368) (0.51)
------------ -------
End of period, December 31,
1994 $731,611,356 $ 13.55
============ =======
</TABLE>
- ---
This report is sent to the shareholders of Templeton Dragon Fund, Inc. for
their information. It is not a prospectus, circular or representation intended
for use in the purchase or sale of shares of the Fund or of any securities men-
tioned in the report.
8
<PAGE>
Templeton Dragon Fund, Inc.
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TRANSFER AGENT
Mellon Financial Services Securities Transfer Services 85 Challenger Road Over-
peck Centre Ridgefield Park, NJ 07660 800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Dragon Fund, Inc. shares is published each Monday in The Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers
in a table called "Publicly Traded Funds". The Fund's New York Stock Exchange
trading symbol is TDF.
For current information about the net asset value, call 1-800-357-0738.
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.
9
<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.
- --------------------------
[LOGO OF RECYCLED TLTDF PF 12/94
PAPER APPEARS HERE]
TEMPLETON
DRAGON
FUND, INC.
Third Quarter Report
December 31, 1994
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
