<PAGE> 1
TEMPLETON DRAGON FUND
[PHOTO OF J. MARK MOBIUS, Ph.D.]
Dr. Mobius has been living overseas since earning his Ph.D. in economics and
political science at Massachusetts Institute of Technology in 1964. During his
extensive travels, he has acquired a thorough knowledge of the business
practices and customs that are unique to emerging markets. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $10 billion
in emerging markets investments for the Templeton Group of Funds.
YOUR FUND'S OBJECTIVE:
The Templeton Dragon Fund seeks long-term capital appreciation by investing at
least 45% of its total assets in the equity securities of "China companies."
November 15, 1996
Dear Shareholder:
We are pleased to bring you this semi-annual report for the Templeton Dragon
Fund covering the six months ended September 30, 1996. During this period, your
Fund posted a six-month total return of -1.58% in market-price terms, as
discussed in the Performance Summary on page 5. Based on the change in actual
net asset value, the six-month total return was 7.56%.
The period was encouraging for the Chinese economy, as growth receded to a
healthy 10% per annum, and inflation appeared to be under greater control.
Because of this, austerity measures originally introduced in 1994 and 1995 to
cool the overheating economy were slowly
1
<PAGE> 2
relaxed. Interest rates were reduced in May and again in August after the
annualized inflation rate was reported to be only 6% in July.
Political tension between China and the U.S. during the six months had little
impact on stock prices of "China companies." The yearly debate in the U.S.
Congress over renewing China's most-favored-nation status was relatively mild
and centered on China's human rights record. Although there was the threat of a
trade war between the U.S. and China over China's alleged abuses of intellectual
property rights, minor concessions by China prevented this from happening.
In Hong Kong, strong capital inflows of early 1996 drove the Hang Seng stock
index higher, but later these inflows weakened, and the market stagnated for
much of the period under review. However, higher-than-expected corporate
earnings helped to boost stock prices during August and September.
TEMPLETON DRAGON FUND
Geographic Distribution on 9/30/96
Based on Total Net Assets
[GRAPHIC]
<TABLE>
<S> <C>
Hong Kong Stocks 77.1%
Chinese Stocks 11.8%
Singapore Stocks 0.3%
Short-Term Obligations &
Other Net Assets 10.8%
</TABLE>
On September 30, 1996, the Fund's total net assets were invested 77.1% in Hong
Kong, 11.8% in mainland China, 0.3% in Singapore, with the remaining 10.8% in
cash and other liquid assets. Since we believed that Hong Kong-listed stocks
were selling at bargain prices due to the political uncertainty surrounding the
return of Hong Kong to China, we increased these holdings during the period by
1.5% of total net assets. New World Development Co. and Sun Hung Kai Properties,
2
<PAGE> 3
companies with large real estate holdings and commercial interests in Hong Kong
and China, remained among our largest holdings.
Looking forward, we are optimistic about prospects for stocks of "China
companies." In our opinion, China's central bank may institute further cuts in
interest rates. Lower interest rates usually encourage investors to switch to
equities from lower-yielding bank deposits. They also tend to increase corporate
profits as the companies' interest payments decline. Higher profits, in turn,
can support even higher stock prices. Although uncertainty surrounding the
political future of Hong Kong may cause stagnant stock prices there until June
1997, we believe prices could possibly increase after the transfer of power to
the Chinese government. If this happens, in our opinion, the stocks in our
portfolio have the potential to bring good returns for the Fund.
This discussion reflects the strategies we employed for the Fund during the six
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing the securities we purchase or sell for the Fund.
TEMPLETON DRAGON FUND
Top Ten Holdings as of 9/30/96
Based on Total Net Assets
<TABLE>
<CAPTION>
Company % of Total
Industry, Country Net Assets
<S> <C>
HSBC Holdings PLC
Banking, Hong Kong 10.0%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong 8.9%
New World Development Co. Ltd.
Real Estate, Hong Kong 8.5%
Sun Hung Kai Properties Ltd.
Real Estate, Hong Kong 7.4%
Wheelock & Co. Ltd.
Multi-Industry, Hong Kong 5.2%
Hang Lung Development Co. Ltd.
Real Estate, Hong Kong 4.9%
Hongkong Electric Holdings Ltd.
Utilities -- Electrical & Gas, Hong Kong 3.6%
Hopewell Holdings Ltd.
Construction & Housing, Hong Kong 3.3%
Jardine Strategic Holdings Ltd.
Multi-Industry, Hong Kong 2.9%
Jardine Matheson Holdings Ltd.
Multi-Industry, Hong Kong 2.5%
</TABLE>
For a complete list of portfolio holdings, please see page 9 of this report.
3
<PAGE> 4
Investing in any emerging market, however, means accepting a certain amount of
volatility and, in some cases, severe market corrections. Investing in "China
companies" is no exception and entails special considerations, including risks
related to market and currency volatility, adverse economic, social and
political developments, and the relatively small size and lesser liquidity of
the markets involved. While short-term volatility can be disconcerting, declines
of as much as 40% to 50% are not unusual in emerging markets. For example, the
Hong Kong market has increased 830% in the last 15 years, but has suffered five
declines of more than 20% during that time.*
Thank you for investing in the Templeton Dragon Fund. We appreciate your support
and welcome your comments.
* Source: Bloomberg. Based on quarterly percentage price change over the 15
years ended September 30, 1996.
4
<PAGE> 5
PERFORMANCE SUMMARY
In market-price terms, the Templeton Dragon Fund produced a total return of
- -1.58% for the six months ended September 30, 1996. Based on the change in
actual net asset value (in contrast to market price), the Fund delivered a total
return of 7.56% for the same period. Both total return figures assume
reinvestment of dividends and capital gains in accordance with the dividend
reinvestment plan.
During the reporting period, shareholders received combined distributions
totaling 15.0 cents ($0.15) per share, including long-term capital gains of 11.0
cents ($0.11) per share, short-term capital gains of 1.5 cents ($0.015) and
dividend income of 2.5 cents ($0.025) per share. The Fund's closing price on the
New York Stock Exchange (NYSE) decreased by $0.375, from $14.00 on March 31,
1996 to $13.625 on September 30, 1996, while the Fund's net asset value
increased by $1.00, from $15.73 to $16.73.
Past performance is not predictive of future results, and distributions will
vary depending on income earned by the Fund, as well as any profits realized
from the sale of securities in the portfolio.
TEMPLETON DRAGON FUND
Periods Ended 9/30/96
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/21/94)
<S> <C> <C>
Cumulative Total Return(1)
Based on change in
net asset value 17.92% 25.01%
Based on change in
market price 13.25% -3.86%
Average Annual Total Return(2)
Based on change in
net asset value 17.92% 11.63%
Based on change in
market price 13.25% -1.92%
</TABLE>
1. Cumulative total returns represents the change in value of an investment
over the periods indicated.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated.
All calculations assume reinvestment of dividend and capital gains
distributions, either at net asset value or at market price on the reinvestment
date, in accordance with the dividend reinvestment plan. Past performance is not
predictive of future results.
5
<PAGE> 6
THE FOLLOWING LETTER WAS WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO SHANGHAI.
We arrived in Shanghai, late in the evening, after a short flight from Hong
Kong. As we drove to our hotel I had a chance to reflect on how the city had
changed since I first visited it in 1987. Ever since Shanghai was opened to
foreign trade in 1842, it has been at the forefront of China's relations with
the outside world. Evidence of this is the architecturally staggering Bund, a
boulevard along the Huangpu River lined with 19th century European-style stone
buildings. The Bund was home to the British, French and Americans until they
were expelled by Chinese forces in 1927.
Today, Shanghai is embracing westernism like no other part of China. It has
become a city that does not sleep, with construction work on skyscrapers
continuing throughout the night, particularly in the section across the river
from Old Shanghai. The rattle and hum of bowling alleys can be heard in many
places; American fast-food restaurants are almost everywhere; and old factories
have been replaced by those employing the latest technology. However, the
government's austerity program has affected corporate earnings, and rents have
recently started to drop as the supply of new buildings has begun to exceed
demand. In my opinion, the economy should probably improve if restrictions on
credit are eased next year. The People's Bank of China (PBoC), which controls
the price and supply of money, has already cut lending rates, and further cuts
may take place.
While in Shanghai, we visited many companies and saw the impact of the
government's austerity measures at first hand. In the Pudong area, we inspected
the Xingfu Motorcycle Plant, a producer of motorcycles distributed through
independent dealers. Because bank credit is tight, the company had to extend
credit lines to these dealers so that they could operate effectively. Designed
by the Shanghai Design Institute, this gleaming factory resembles modern
factories found elsewhere in the world, while reflecting the cosmopolitan feel
of Shanghai. It uses German, Japanese and local machines and is jointly owned by
a Thai company and the Shanghai Automotive Industry Corporation.
6
<PAGE> 7
Xingfu means "happiness" in Chinese, and in my opinion, the owners of this new
plant should be very happy.
From the Xingfu Motorcycle Plant we found our way, with some difficulty, to the
Gold Peak factory. Roads and factories have sprung up so quickly in the Pudong
area that even taxi drivers often cannot find them. When we visited this factory
many years ago, it was producing batteries for the cheap end of the market. Now,
it produces high technology batteries for watches, calculators and other small
electronic devices. Most of the workers are women, paid about RMB800 (US$100)
per month plus an allowance for housing and for lunch. Clean and well-lit, the
factory is owned by a Singapore-listed company whose parent company, Gold Peak
Industries Ltd., is listed on the Hong Kong Stock Exchange.
[MAP OF CHINA]
Located at the center of the fastest growing region of the fastest growing
country in the world, Shanghai is a powerhouse of the Chinese economy. In my
opinion, it will eventually bring China to the forefront of the world economy.
For this fact alone, companies based in Shanghai will demand our close attention
for a long time to come.+
Sincerely,
/s/ J. Mark Mobius
- --------------------------
J. Mark Mobius, Ph.D.
President
Templeton Dragon Fund, Inc.
+The letter reflects the strategies employed for the Fund during the past six
months and includes our opinions as of the close of the period. Since economic
and market conditions are constantly changing, our strategies and evaluations,
conclusions and decisions regarding portfolio holdings may change as new
circumstances arise.
7
<PAGE> 8
TEMPLETON DRAGON FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 8, 1994
ENDED (COMMENCEMENT
SEPTEMBER 30, 1996 YEAR ENDED OF OPERATIONS) TO
(UNAUDITED) MARCH 31, 1996 MARCH 31, 1995
------------------ -------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 15.73 $ 13.97 $ 14.10
-------- -------- --------
Income from investment operations:
Net investment income .23 .37 .22
Net realized and unrealized gain (loss) .92 1.92 (.22)
-------- -------- --------
Total from investment operations 1.15 2.29 (.00)
-------- -------- --------
Underwriting expenses deducted from capital -- -- (.04)
-------- -------- --------
Distributions:
Dividends from net investment income (.03) (.47) (.09)
Distributions from net realized gains (.12) (.06) --
-------- -------- --------
Total distributions (.15) (.53) (.09)
-------- -------- --------
Change in net asset value 1.00 1.76 (.13)
-------- -------- --------
Net asset value, end of period $ 16.73 $ 15.73 $ 13.97
======== ======== ========
TOTAL RETURN*
Based on market value per share (1.58)% 21.11% (19.34)%
Based on net asset value per share 7.56% 16.89% (.11)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $903,628 $849,510 $ 754,227
Ratio of expenses to average net assets 1.50%** 1.52% 1.54%**
Ratio of net investment income to average
net assets 2.84%** 2.48% 2.99%**
Portfolio turnover rate 4.21% 7.81% --
Average commission rate paid (per share) $ .0017 $ .0018
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 89.2%
- ---------------------------------------------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD
DURABLES: 3.0%
Foshan Electrical and Lighting Co. Ltd., B Chn. 814,500 $ 537,172
+ Hualing Holdings Ltd. H.K. 41,963,000 3,852,804
* Luks Industrial Co. Ltd. H.K. 12,076,000 1,202,447
* Luks Industrial Co. Ltd., wts. H.K. 2,415,200 81,204
Semi-Tech (Global) Co. Ltd. H.K. 6,970,905 11,538,547
* Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 9,571,320 1,244,272
+* Shanghai Shangling Electric Appliance, B Chn. 13,601,600 5,467,843
* Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 6,845,401 889,902
Shenzhen Huafa Electronics Co. Ltd., B Chn. 1,184,000 260,287
Shenzhen Konka Electronic Group Co. Ltd., B Chn. 2,149,550 1,876,304
Tsann Kuen Enterprise Co. Ltd., B Chn. 709,800 232,225
------------
27,183,007
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 1.2%
* Jardine International Motor Holdings Ltd. H.K. 7,163,000 9,077,641
Qing Ling Motors Co. Ltd., H Chn. 4,892,000 1,882,025
------------
10,959,666
- ---------------------------------------------------------------------------------------------------------------------
BANKING: 10.0%
HSBC Holdings PLC H.K. 4,884,067 90,632,822
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING &
PUBLISHING: 0.1%
Leefung-Asco Printers Holdings Ltd. H.K. 8,165,000 580,725
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS &
COMPONENTS: 1.2%
China Southern Glass Co. Ltd., B Chn. 8,966,100 3,942,162
K Wah International Holdings Ltd. H.K. 15,452,073 2,817,461
* K Wah International Holdings Ltd., wts. H.K. 988,700 38,356
* Shanghai Yaohua Pilkington Glass, B Chn. 7,945,475 3,972,738
------------
10,770,717
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS: 1.7%
Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 10,050,000 2,211,000
Shanghai Pechemical Co. Ltd., H Chn. 43,180,000 11,446,916
Shenzhen Petrochemical (Group) Shareholding Co.
Ltd., B Chn. 3,845,532 1,203,438
------------
14,861,354
- ---------------------------------------------------------------------------------------------------------------------
CONSTRUCTION &
HOUSING: 3.3%
Hopewell Holdings Ltd. H.K. 52,702,021 29,816,545
* Road King Infrastructure Ltd. H.K. 136,475 112,950
------------
29,929,495
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL &
ELECTRONICS: 0.7%
+* China Treasure Telecommunications Holdings Ltd. H.K. 45,936,000 $ 1,811,778
* China Treasury Telecommunications Holdings Ltd.,
wts. H.K. 2,116,000 26,269
G.P. Batteries International Ltd. Sing. 900,000 2,601,000
* GP Batteries International Ltd., wts. Sing. 225,000 166,500
Great Wall Electronic International Ltd. H.K. 17,398,000 1,417,398
* Shanghai Automation Instrumentation Co., B Chn. 5,187,650 684,770
------------
6,707,715
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS
& INSTRUMENTS: 0.1%
* S. Megga International Holdings Ltd. H.K. 23,502,000 741,561
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL
SERVICES: 1.7%
JCG Holdings Ltd. H.K. 3,445,000 3,096,179
Min Xin Holdings H.K. 2,094,000 731,126
Peregrine Investments Holdings Ltd. H.K. 4,306,000 6,821,221
* Peregrine Investments Holdings Ltd., wts. H.K. 475,600 89,179
Sun Hung Kai & Co. Ltd. H.K. 16,294,000 4,793,592
------------
15,531,297
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD
PRODUCTS: 0.9%
C.P. Pokphand Co. Ltd. H.K. 45,000 14,257
* Fairwood Holdings Ltd. H.K. 14,768,000 888,028
* Fairwood Holdings Ltd., rts. H.K. 7,384,000 109,810
Golden Resources Development International Ltd. H.K. 10,138,000 1,166,794
NG Fund Hong Ltd. H.K. 6,722,000 3,259,731
Shanghai New Asia Group Co. Ltd., B Chn. 5,947,300 2,854,704
------------
8,293,324
- ---------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL
CARE: 0.2%
Zhuhai Sez Lizhu Pharmaceutical Group Inc., B Chn. 5,140,000 1,994,051
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
COMPONENTS: 0.6%
Shanghai Refrigerator Compressor Co. Ltd., B Chn. 5,338,464 2,455,693
Shanghai Rubber Belt Co. Ltd., B Chn. 1,807,936 274,806
* Shanghai Tyre & Rubber Co. Ltd., B Chn. 9,614,000 2,384,272
------------
5,114,771
- ---------------------------------------------------------------------------------------------------------------------
LEISURE &
TOURISM: 0.4%
* Glynhill International Ltd. H.K. 16,882,000 1,157,049
* Shanghai Jin Jiang Tower Co. Ltd., B Chn. 12,034,675 2,743,906
------------
3,900,955
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY &
ENGINEERING: 1.1%
* China Textile Machinery Co. Ltd., B Chn. 7,116,000 $ 711,600
+ Guangzhou Shipyard International Co. Ltd., H Chn. 15,988,000 3,432,055
Northeast Electric Transmission & Transformation Chn. 11,746,000 1,944,249
+* Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 22,016,122 2,201,612
* Shanghai Industrial Sewing Machine Corp. Chn. 9,514,700 1,094,191
* Shanghai Steel Tube Co. Ltd., B Chn. 5,605,300 717,478
------------
10,101,185
- ---------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 3.0%
Dairy Farm International Holdings Ltd. H.K. 21,270,259 12,974,858
Dickson Concepts (International) Ltd. H.K. 3,364,000 10,810,216
Fortei Holdings Ltd. H.K. 3,978,000 298,363
Joyce Boutique Holdings Ltd. H.K. 2,423,000 576,532
* Linkful International Holdings Ltd. H.K. 2,211,000 78,627
Wo Kee Hong Holdings Ltd. H.K. 30,485,000 2,010,520
* Wo Kee Hong Holdings Ltd., wts. H.K. 6,097,000 102,497
* Yaohan Hongkong Corp. Ltd. H.K. 4,000,000 170,697
------------
27,022,310
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING: 0.4%
Maanshan Iron & Steel Co. Ltd., H Chn. 19,676,000 3,613,076
- ---------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS
& COMMODITIES: 0.1%
Luoyang Glass Co. Ltd., H Chn. 6,873,000 1,173,201
- ---------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 23.2%
Cheung Kong Holdings Ltd. H.K. 10,449,000 80,397,711
* Cheung Kong Infrastructure Hldgs. Ltd. H.K. 2,162,000 3,564,658
Jardine Matheson Holdings Ltd. H.K. 3,637,002 22,731,263
Jardine Strategic Holdings Ltd. H.K. 8,123,625 25,833,128
* Jardine Strategic Holdings Ltd., wts. H.K. 349,625 94,399
Lai Sun Garment International Ltd. H.K. 7,023,000 9,626,768
* Shenzhen Gintian Industry Co. Ltd., B Chn. 719,040 220,370
* Shenzhen Tellus Machinery & Electronics Co.
Ltd., B Chn. 162,800 35,789
Stelux International Holdings Ltd. H.K. 8,274,000 1,776,133
Swire Pacific Ltd., B H.K. 12,695,500 17,976,946
WBL Corp. Ltd. Sing. 89,000 176,963
Wheelock & Co. Ltd. H.K. 21,431,000 47,390,418
------------
209,824,546
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 26.1%
China Overseas Land & Investment Ltd. H.K. 30,733,000 $ 10,432,449
Hang Lung Development Co. Ltd. H.K. 23,035,000 44,086,124
Lai Sun Development Co. Ltd. H.K. 14,794,400 15,496,527
* Lai Sun Development Co. Ltd., wts. H.K. 7,999,000 682,703
New World Development Co. Ltd. H.K. 14,671,837 77,030,465
Shanghai Jinqiao Export Processing Zone
Development, B Chn. 8,338,200 2,784,959
Shanghai Lujiaxui Finance & Trade Zone
Development Stock Co. Ltd., B Chn. 9,115,000 8,203,500
Shanghai Wai Gaoqiao Free Trade Zone
Development Co., B Chn. 1,571,000 537,282
Shenzhen Properties & Resources
Development (Group) Ltd., B Chn. 3,821,180 1,235,349
Shenzhen Vanke Co. Ltd., B Chn. 4,603,390 2,393,072
+* South Sea Development Co. Ltd. H.K. 46,054,000 2,531,094
Sun Hung Kai Properties Ltd. H.K. 6,306,000 67,072,094
Tian An China Investments Co. Ltd. H.K. 27,670,000 3,685,517
------------
236,171,135
- ---------------------------------------------------------------------------------------------------------------------
RECREATION & OTHER
CONSUMER GOODS: 1.9%
* Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 7,710,000 204,390
* KTP Holdings Ltd. H.K. 15,374,000 606,371
* Phoenix Co. Ltd. Chn. 5,854,530 690,835
* Shanghai Forever Bicycle Co. Ltd., B Chn. 3,457,000 407,926
* Shanghai Wingsung Co. Ltd., B Chn. 230,000 39,560
Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 13,362,400 3,248,586
Yue Yuen Industrial (Holdings) Ltd. H.K. 43,240,000 11,742,403
------------
16,940,071
- ---------------------------------------------------------------------------------------------------------------------
TEXTILES &
APPAREL: 1.2%
Goldlion Holdings Ltd. H.K. 9,055,000 7,669,759
Laws International Holdings Ltd. H.K. 21,288,000 2,862,992
Shanghai Lian Hua Fibre Corp., B Chn. 296,000 30,488
Tungtex (Holdings) Co. Ltd. H.K. 2,600,000 245,442
Victor Onward Textile Industrial Co. Ltd., B Chn. 81,400 18,211
------------
10,826,892
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, September 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 2.1%
China Merchants Shekou Port Service Co. Ltd., B Chn. 4,566,240 $ 2,172,994
Chiwan Wharf Holdings Ltd., B Chn. 9,290,800 4,625,576
Cross Harbour Tunnel Co. Ltd. H.K. 1,205,000 2,625,663
* Guangshen Railway Co. Ltd., ADR Chn. 183,000 3,477,000
IMC Holdings Ltd. H.K. 121,000 68,065
Orient Overseas International Ltd. H.K. 1,314,000 951,558
Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 6,785,000 4,749,500
------------
18,670,356
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL
& GAS: 4.9%
Guangdong Electric Power Development Co Ltd, B,
144A Chn. 1,696,000 1,184,327
Hongkong Electric Holdings Ltd. H.K. 9,999,500 32,327,363
Shandong Huaneng Power Chn. 886,000 7,974,000
Wing Shan International Ltd. H.K. 21,654,000 2,772,205
------------
44,257,895
- ---------------------------------------------------------------------------------------------------------------------
WHOLESALE &
INTERNATIONAL
TRADE: 0.1%
* East Asiatic Co. (Hong Kong) Ltd. (The) H.K. 7,520,000 914,108
------------
TOTAL COMMON STOCKS
(cost $682,467,341) 806,716,235
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION> PRINCIPAL IN
LOCAL CURRENCY**
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS:
10.5% (cost $94,250,393)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.90% to 5.145% with
maturities to 12/12/96 U.S. 94,445,000 94,567,370
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL
INVESTMENTS: 99.7%
(cost $776,717,734) 901,283,605
OTHER ASSETS, LESS
LIABILITIES: 0.3% 2,344,668
------------
TOTAL NET ASSETS: 100.0% $903,628,273
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRY INDICATED.
+ SEE NOTE 5
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
TEMPLETON DRAGON FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities at value
(identified cost $776,717,734) $901,283,605
Cash 121
Receivables:
Investment securities sold 255,421
Dividends 3,385,391
Unamortized organization costs 11,272
-----------
Total assets 904,935,810
-----------
Liabilities:
Payable for investment securities
purchased 121,615
Accrued expenses 1,185,922
-----------
Total liabilities 1,307,537
-----------
Net assets, at value $903,628,273
===========
Net assets consist of:
Undistributed net investment income $ 12,105,566
Net unrealized appreciation 124,565,871
Accumulated net realized gain 7,661,877
Net capital paid in on shares of
capital stock 759,294,959
-----------
Net assets, at value $903,628,273
===========
Shares outstanding 54,007,093
===========
Net asset value per share
($903,628,273 / 54,007,093) $ 16.73
===========
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended
September 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income
(net of $490 foreign
taxes withheld)
Dividends $16,332,742
Interest 2,473,389
-----------
Total income $18,806,131
Expenses:
Management fees (Note 3) 5,391,062
Administrative fees (Note 3) 646,927
Transfer agent fees 57,000
Custodian fees 170,796
Reports to shareholders 71,000
Audit fees 23,500
Legal fees (Note 3) 76,000
Registration fees 29,800
Directors' fees and expenses 30,000
Amortization of
organization costs 2,013
Other 2,456
-----------
Total expenses 6,500,554
-----------
Net investment income 12,305,577
Realized and unrealized
gain (loss):
Net realized gain (loss) on:
Investments 8,033,352
Foreign currency
transactions (5,350)
-----------
8,028,002
Net unrealized appreciation
on investments 41,886,091
-----------
Net realized and
unrealized gain 49,914,093
-----------
Net increase in net assets
resulting from operations $62,219,670
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
TEMPLETON DRAGON FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996
------------------ --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 12,305,577 $ 19,952,785
Net realized gain on investment and foreign currency transactions 8,028,002 9,323,607
Net unrealized appreciation 41,886,091 94,360,136
------------ ------------
Net increase in net assets resulting from operations 62,219,670 123,636,528
Distributions to shareholders:
From net investment income (1,350,177) (25,383,334)
From net realized gain (6,750,887) (2,970,390)
------------ ------------
Net increase in net assets 54,118,606 95,282,804
Net assets:
Beginning of period 849,509,667 754,226,863
------------ ------------
End of period $903,628,273 $849,509,667
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Summary of Accounting Policies
Templeton Dragon Fund, Inc. (the Fund) is a Maryland corporation and a
closed-end, non-diversified management investment company registered under the
Investment Company Act of 1940. The Fund seeks to achieve its objective by
investing in equity securities of China companies, Japan companies and
Asia-Pacific companies. The following summarizes the Fund's significant
accounting policies.
A. SECURITIES VALUATIONS:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange on
which the securities are traded. Over-the-counter securities and listed
securities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and
approved in good faith by the Board of Directors.
B. FOREIGN CURRENCY TRANSACTIONS:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange rates.
C. INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
D. UNAMORTIZED ORGANIZATION COSTS:
Organization costs are being amortized on a straight line basis over five years.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND EXPENSES:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign
securities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
F. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
16
<PAGE> 17
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. Transactions in Shares of Capital Stock
At September 30, 1996, there were 100,000,000 shares of $.01 par value capital
stock authorized.
3. Investment Management Fees and Other Transactions with Affiliates
Certain officers of the Fund are also directors or officers of Templeton Asset
Management Limited (TAML) and Templeton Global Investors, Inc. (TGII), the
Fund's investment manager and administrative manager, respectively.
The Fund pays monthly an investment management fee to TAML equal, on an annual
basis, to 1.25% of the average weekly net assets of the Fund. The Fund pays TGII
monthly a fee of 0.15% per annum of the Fund's average weekly net assets, of
which 0.10% is paid to Nomura Capital Management, Inc. (NCM) for various
administrative services to the Fund.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received fees of $76,000 for the six months ended September
30, 1996.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1996, were $57,640,084 and $32,307,125, respectively.
The cost of securities for federal income tax purposes is the same as that shown
in the Statement of Assets and Liabilities. Realized gains and losses are
reported on an identified cost basis.
At September 30, 1996, the aggregate gross unrealized appreciation and
depreciation of portfolio securities, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $196,070,342
Unrealized depreciation (71,504,471)
----------
Net unrealized appreciation $124,565,871
==========
</TABLE>
5. Holding of 5% Voting Securities of Portfolio Companies
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the Fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies" at September 30, 1996
amounted to $19,297,186. For the period ended September 30, 1996, dividends from
affiliated companies was $445,585.
17
<PAGE> 18
TEMPLETON DRAGON FUND, INC.
Annual Meeting of Shareholders, July 24, 1996
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on July 24, 1996. The purpose of
the meeting was to elect three directors of the Fund, to ratify the selection of
McGladrey & Pullen, LLP, as the Fund's independent public accountants for the
fiscal year ended March 31, 1997 and in their discretion, to authorize the
proxyholders to vote upon such other matters which may legally come before the
meeting or any other adjournment thereof. At the meeting, the following persons
were elected by the shareholders to serve as directors of the Fund: Harris J.
Ashton, Nicholas F. Brady and S. Joseph Fortunato. The shareholders ratified the
selection of McGladrey & Pullen, LLP, to serve as the Fund's independent public
accountants for the fiscal year ending March 31, 1997. No other business was
transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. Election of three (3) Directors for the term set forth below:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 1999: FOR SHARES AGAINST SHARES
- ------------------- ---------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Harris J. Ashton 3,454,208 65.14% 2,273 0.04%
Nicholas F. Brady 3,427,730 64.64% 28,751 0.54%
S. Joseph Fortunato 3,452,593 65.11% 3,888 0.07%
</TABLE>
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent
public accountants of the Fund for the fiscal year ended March 31, 1997:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
---------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
47,340,337 87.66% 672,830 1.25% 227,418 0.42%
</TABLE>
18
<PAGE> 19
TEMPLETON DRAGON FUND, INC.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
The Fund offers a Dividend Reinvestment Plan ( the "Plan") with the following
features: --If shares of the Fund are held in the shareholder's name, the
shareholder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder
instructs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. --Participants should contact Chemical Mellon
Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750,
Pittsburgh, PA 15230, to receive the Plan brochure. --To receive dividends or
distributions in cash, the shareholder must notify Chemical Mellon Securities
Trust Company ("Mellon") or the institution in whose name the shares are held.
Mellon must receive written notice within 10 business days before the record
date for the distribution. --Whenever the Fund declares dividends in either cash
or common stock of the Fund, if the market price is equal to or exceeds net
asset value but not less than 95% of the then current market price of the Fund's
shares. If the market price is lower than net asset value and if dividends
and/or capital gains distributions are payable only in cash, the participant
will receive shares purchased on the New York Stock Exchange. --The automatic
reinvestment of dividends and/or capital gains does not relieve the participant
of any income tax which may be payable on dividends or distributions. --The
participants may withdraw from the Plan without penalty at any time by written
notice to Mellon. Upon withdrawal, the participant will receive, without charge,
stock certificates issued and in the participant's name for all full shares; or,
if the participant's wishes, Mellon will sell the participant's shares and send
the proceeds, net of any brokerage commissions. A $5.00 fee is charges by Mellon
upon any cash withdrawal or termination. --Whenever shares are purchased on the
New York Stock Exchange, each participant will pay a pro rata portion of
brokerage commissions. Brokerage commissions will be deducted from amounts to be
invested.
19
<PAGE> 20
TEMPLETON DRAGON FUND, INC.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chemical Mellon Shareholder Services
Securities Transfer Services
450 West 33rd Street, 15th Floor
New York, NY 10001
800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Dragon Fund, Inc. shares is published each Monday in the Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers
in a table called "Publicly Traded Funds". The Fund's New York Stock Exchange
trading symbol is TDF.
For current information about the net asset value, call 1-800-292-9293.
If any shareholder is not receiving copies of the Reports to Shareholders
because shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton Dragon Fund, Inc., 700 Central Avenue, St.
Petersburg, FL 33701.
20
<PAGE> 21
NOTES
<PAGE> 22
NOTES
<PAGE> 23
LITERATURE REQUEST
- --------------------------------------------------------------------------------
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone calls
to or from our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.
FRANKLIN TEMPLETON GROUP
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Care Fund
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Fund
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Trust
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Companies Fund
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Fund
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INCOME
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Income Fund
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FOR NON-U.S. INVESTORS:
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FOR CORPORATIONS:
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TAX-FREE INCOME
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Tax-Free Income Fund
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Income Fund
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FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
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Hawaii**
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Kentucky
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Maryland
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Michigan*
Minnesota***
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North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
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Virginia
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VARIABLE ANNUITIES
Franklin Valuemark(R)
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Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities. 11/96.1
<PAGE> 24
TEMPLETON
DRAGON
FUND, INC.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
TEMPLETON DRAGON FUND, INC.
700 Central Avenue
St. Petersburg
Florida 33701-3628
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
[FRANKLIN TEMPLETON LOGO]
