<PAGE> 1
TEMPLETON DRAGON FUND
[PHOTO OF J. Mark Mobius, Ph.D.]
J. Mark Mobius, Ph.D.
President
Templeton Dragon
Fund, Inc.
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 developing nations. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $12 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," as
defined in the Fund's prospectus.
March 31, 1997
Dear Shareholder:
We are pleased to bring you the third annual report for the Templeton Dragon
Fund, which covers the twelve months ending March 31, 1997. During this period,
rising exports and large inflows of investment capital contributed to the strong
performance of equity markets in China and Hong Kong. Increased government
spending and declining inflation supported China's growing economy, and the Hong
Kong market was buoyed by a recovery in its retail and property sectors, and the
strong earnings of a number of companies listed on its exchange.
One of the most important developments during this period was the death on
February 19, 1997 of
1
<PAGE> 2
Deng Xiaoping, China's 92-year-old patriarch. Deng leaves a mixed legacy. His
main accomplishment was the liberalization of China's economy, but he will also
be remembered for his support of the brutal crackdown on pro-democracy
demonstrators in Tiananmen Square in 1989. The markets in Hong Kong and China
fell briefly as Deng's health deteriorated, but rebounded after the apparently
peaceful transfer of power to President Jiang Zemin and Premier Li Peng.
On December 11, 1996, Tung Chee Hua was selected as China's first Chief
Executive of Hong Kong. Mr. Tung, a former shipping magnate, appears to combine
a good personal relationship with the Communist Party leadership in Beijing and
a commitment to preserving Hong Kong's capitalist economic structure. However,
the future of Hong Kong will probably be subject to uncertainty until, and
perhaps beyond, its handover to China on July 1, 1997. Within this environment,
your Fund posted a total return of 7.80% in market-price terms, and 20.76% in
net asset value terms, as discussed in the Performance Summary on page 5.
TEMPLETON DRAGON FUND
Geographic Distribution on 3/31/97
Based on Total Net Assets
[PIE CHART]
Hong King Stocks 72.5%
Chinese Stocks 14.0%
Singapore Stocks 0.3%
Short-Term Obligations &
Other Net Assets 13.2%
On March 31, 1997, 72.5% of the Fund's total net assets were invested in Hong
Kong, a 3.1% decrease from the year before. We also had 14.0% invested in the
markets of mainland China, 0.3% in Singapore, and 13.2% in cash and other liquid
assets. The Fund's largest single position continued to be HSBC Holdings PLC,
the holding company for one of the largest banking companies in the world. The
price of shares in this company increased by 59% during the period under review,
as earnings increased 25% in 1996. Other significant positions in the Fund
included shares of New World
2
<PAGE> 3
Development Co. and Sun Hung Kai Properties, companies with large, real estate
holdings and commercial interests in Hong Kong and China.
Looking forward, we believe that prospects are generally positive for many
emerging markets and that China and Hong Kong companies have the potential to
benefit if these markets perform well. China's inflation rate has fallen to
relatively low levels and the government may cut interest rates. Since it
appears unlikely that economic reforms undertaken during Deng's reign could be
easily reversed, we are hopeful that China's economy will maintain momentum.
However, these markets may not perform well if unexpected political or other
developments occur. Such developments could jeopardize China's improved
relationship with Taiwan or a smooth handover of sovereignty in Hong Kong.
Of course, investing in any emerging market 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
<TABLE>
<CAPTION>
TEMPLETON DRAGON FUND
Top 10 Holdings as of 3/31/97
Based on Total Net Assets
Company, % of Total
Industry, Country Net Assets
<S> <C>
HSBC Holdings PLC
Banking, Hong Kong 10.2%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong 9.3%
New World Development Co. Ltd.
Real Estate, Hong Kong 8.0%
Sun Hung Kai Properties Ltd.
Real Estate, Hong Kong 6.4%
Wheelock & Co. Ltd.
Multi-Industry, Hong Kong 4.8%
Hang Lung Development Co. Ltd.
Real Estate, Hong Kong 4.2%
Hongkong Electric Holdings Ltd.
Utilities -- Electrical & Gas, Hong Kong 3.6%
Hopewell Holdings Ltd.
Construction & Housing, Hong Kong 3.1%
Jardine Strategic Holdings Ltd.
Multi-Industry, Hong Kong 2.9%
Jardine Matheson Holdings Ltd.
Multi-Industry, Hong Kong 2.1%
</TABLE>
For a complete list of portfolio holdings, please see page 10 of this report.
3
<PAGE> 4
example, the Hong Kong market has increased 975% in the last 15 years, but has
suffered five declines of more than 20% during that time.*
This discussion reflects the strategies we employed for the Fund during the
twelve months under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our 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.
Thank you for investing in the Templeton Dragon Fund. We appreciate your
confidence and look forward to any comments you may have.
As you can see in the "Investment Portfolio" section of this Report, the Fund
invests in Hong Kong securities. Hong Kong is scheduled to revert to the
sovereignty of China on July 1, 1997. As with any major political transfer of
power, this could result in political, social, economic, market or other
developments in Hong Kong, China or other countries that could affect the value
of Fund investments.
* Source: Bloomberg. Based on quarterly percentage price change over the 15
years ended March 31, 1997.
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
4
<PAGE> 5
PERFORMANCE SUMMARY
In market-price terms, the Templeton Dragon Fund produced a total return of
7.80% for the year ended March 31, 1997. Based on the change in actual net asset
value (in contrast to market price), the Fund delivered a total return of 20.76%
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 63.5 cents ($0.635) per share, including long-term capital gains of
22.0 cents ($0.22) per share, short-term capital gains of 7.5 cents ($0.075) and
dividend income of 34.0 cents ($0.34) per share. The Fund's closing price on the
New York Stock Exchange (NYSE) increased by $0.50, from $14.00 on March 31, 1996
to $14.50 on March 31, 1997, while the Fund's net asset value increased by
$2.52, from $15.73 to $18.25. Past performance is not predictive of future
results, and distributions will vary depending on income earned by the Fund and
any profits realized from the sale of securities in the portfolio, as well as
the level of the Fund's operating expenses.
TEMPLETON DRAGON FUND
Periods Ended 3/31/97
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/21/94)
<S> <C> <C>
Cumulative Total Return(1)
Based on change in
net asset value 20.76% 41.00%
Based on change in
market price 7.80% 5.31%
Average Annual Total Return(2)
Based on change in
net asset value 20.76% 14.35%
Based on change in
market price 7.80% 2.07%
</TABLE>
1. Cumulative total returns show 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 dividends and capital gains, either at
net asset value or at market price on the reinvestment date, in accordance with
the dividend reinvestment plan. Investment return and principal value will
fluctuate with market conditions, currencies and the political, social and
economic climates of countries where investments are made. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with the relatively small size and lesser liquidity of these markets.
You may have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
5
<PAGE> 6
THE FOLLOWING LETTER WAS WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO BEIJING.
Beijing, a metropolis of wide, sweeping avenues, majestic buildings and enormous
open spaces, is one of China's most architecturally attractive cities. The
Forbidden City, which houses the Imperial Palace, the Summer Palace and
Tiananmen Square, is quite staggering. Tiananmen Square, for example, is almost
incomprehensibly large. It spans 98 acres and can accommodate more than 1
million people.
A major industrial and commercial center, Beijing is the second-largest city in
China. It is now so big that many taxi drivers have trouble finding their way
around. However, government offices are still housed in large, run-down
buildings that remind one of India. As in India, it is not uncommon to have an
elevator door open onto an animated game of table tennis, which workers often
play in the corridors of office buildings. Privately run restaurants, serving
delicious, regional Chinese food for only a few dollars have sprung up
throughout the city. But government-owned eating establishments, patronized by
government officials, continue to charge hundreds of dollars for a Beijing Duck
banquet.
Beijing, a transportation hub for northern China, possesses important facilities
for processing petroleum, coal and iron ore. It is also home to many small
industries. One company we visited produces sheet-fed offset presses. Although
this company has a dominant position in China, it faces increasing competition
from major overseas producers because it cannot produce machines matching the
speed and quality of those manufactured abroad. Although this company has not
achieved significant growth, many other companies we visited were aggressively
pursuing production and earnings increases.
It is difficult to know which companies will survive the changes now taking
place in China. As a result of liberalized trade regulations, some businesses
are faced with stiff competition from abroad. Others may find themselves in
financial
6
<PAGE> 7
[MAP OF CHINA]
difficulty if the government follows through on its plan to stop subsidizing
enterprises they have subsidized in the past. But this is all part of the move
toward a market economy.
As I traveled to the airport, I thought about China's enormous potential to
become one of the most important economies in the world. If the Chinese
government drops restrictions on foreign exchange capital flows, and allows
locals and foreigners to own the same class of stock, foreigners would be able
to participate more actively in this potential, and Chinese companies could
benefit from the additional resources available to them. I believe that this day
will come soon.*
Sincerely,
/s/J. Mark Mobius, Ph.D.
J. Mark Mobius, Ph.D.
President
Templeton Dragon Fund, Inc.
*This letter reflects the strategies employed for the Fund during the past
fiscal year and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise.
7
<PAGE> 8
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF
SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
BY PROFESSOR
ROBERT HERRMANN
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs have been launched in various
locations, with the support of generous local donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
8
<PAGE> 9
TEMPLETON DRAGON FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SEPTEMBER 8, 1994
YEAR ENDED MARCH 31 (COMMENCEMENT
---------------------- OF OPERATIONS) TO
1997 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 .34 .37 .22
Net realized and unrealized gain (loss) 2.82 1.92 (.22)
-------- -------- --------
Total from investment operations 3.16 2.29 --
-------- -------- --------
Underwriting expenses deducted from capital -- -- (.04)
-------- -------- --------
Distributions:
Dividends from net investment income (.34) (.47) (.09)
Distributions from net realized gains (.30) (.06) --
-------- -------- --------
Total distributions (.64) (.53) (.09)
-------- -------- --------
Change in net asset value 2.52 1.76 (.13)
-------- -------- --------
Net asset value, end of period $ 18.25 $ 15.73 $ 13.97
======== ======== ========
TOTAL RETURN*
Based on market value per share 7.80% 21.11% (19.34)%
Based on net asset value per share 20.76% 16.89% (0.11)%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000) $985,719 $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 1.93% 2.48% 2.99%**
Portfolio turnover rate 8.73% 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.
9
<PAGE> 10
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 86.8%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLIANCES & HOUSEHOLD
DURABLES: 2.6% Hualing Holdings Ltd. H.K. 30,467,000 $ 4,639,625
*Luks Industrial Co. Ltd., wts. H.K. 2,415,200 116,884
Semi-Tech (Global) Co. Ltd. H.K. 7,104,070 7,517,825
*Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 9,571,320 1,990,835
+*Shanghai Shangling Electric Appliance, B Chn. 13,633,600 5,398,906
*Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 6,478,701 1,606,718
Shenzhen Huafa Electronics Co. Ltd., B Chn. 946,000 496,276
Shenzhen Konka Electronic Group Co. Ltd., B Chn. 2,794,415 3,636,955
------------
25,404,024
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 0.7%
Jardine International Motor Holdings Ltd. H.K. 5,887,000 7,293,507
- ---------------------------------------------------------------------------------------------------------------------
BANKING: 10.2%
HSBC Holdings PLC H.K. 4,337,938 100,769,012
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING &
PUBLISHING: 0.1%
Leefung-Asco Printers Holdings Ltd. H.K. 8,165,000 1,085,337
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS &
COMPONENTS: 1.3%
China Southern Glass Co. Ltd., B Chn. 8,966,100 5,669,840
K Wah International Holdings Ltd. H.K. 15,778,125 2,891,445
*K Wah International Holdings Ltd., wts. H.K. 988,700 38,279
*Shanghai Yaohua Pilkington Glass, B Chn. 8,056,475 4,060,463
------------
12,660,027
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS: 1.7%
Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 10,050,000 3,236,100
Shanghai Pechemical Co. Ltd., H Chn. 43,180,000 11,145,095
Shenzhen Petrochemical (Group) Shareholding Co.
Ltd., B Chn. 3,555,532 2,172,680
------------
16,553,875
- ---------------------------------------------------------------------------------------------------------------------
CONSTRUCTION &
HOUSING: 3.2%
Hopewell Holdings Ltd. H.K. 58,447,021 30,925,547
International Pipe Ltd. H.K. 3,944,531 575,235
------------
31,500,782
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL &
ELECTRONICS: 1.1%
+*CCT Telecom Holdings Ltd. H.K. 91,872,000 4,742,576
G.P. Batteries International Ltd. Sing. 900,000 2,484,000
*GP Batteries International Ltd., wts. Sing. 225,000 211,500
</TABLE>
10
<PAGE> 11
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRICAL &
ELECTRONICS (cont.)
Great Wall Electronic International Ltd. H.K. 16,300,264 $ 2,061,540
*Shanghai Automation Instrumentation Co., B Chn. 5,187,650 1,172,409
------------
10,672,025
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS &
INSTRUMENTS: 0.2%
*S. Megga International Holdings Ltd. H.K. 23,502,000 1,728,824
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 1.6%
JCG Holdings Ltd. H.K. 3,445,000 2,712,003
Peregrine Investments Holdings Ltd. H.K. 4,306,000 6,862,971
*Peregrine Investments Holdings Ltd., wts. H.K. 475,600 115,391
*Sun Hung Kai & Co. Ltd, wts. H.K. 4,562,320 264,953
Sun Hung Kai & Co. Ltd. H.K. 22,811,600 5,858,413
------------
15,813,731
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD
PRODUCTS: 0.7%
*Fairwood Holdings Ltd. H.K. 22,152,000 1,172,109
Golden Resources Development International Ltd. H.K. 10,138,000 1,125,180
Shanghai New Asia Group Co. Ltd., B Chn. 8,328,300 4,097,524
------------
6,394,813
- ---------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL
CARE: 0.3%
Zhuhai Sez Lizhu Pharmaceutical Group Inc., B Chn. 3,638,000 2,638,579
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
COMPONENTS: 0.8%
Shanghai Refrigerator Compressor Co. Ltd., B Chn. 5,338,464 3,203,078
Shanghai Rubber Belt Co. Ltd., B Chn. 1,807,936 441,136
*Shanghai Tyre & Rubber Co. Ltd., B Chn. 9,614,000 4,287,844
------------
7,932,058
- ---------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.4%
*Shanghai Jin Jiang Tower Co. Ltd., B Chn. 12,034,675 3,947,373
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY &
ENGINEERING: 1.2%
*China Textile Machinery Co. Ltd., B Chn. 2,353,000 442,364
+Guangzhou Shipyard International Co. Ltd., H Chn. 15,988,000 3,177,503
Northeast Electric Transmission & Transformation Chn. 11,746,000 1,561,343
+*Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 22,016,122 4,050,966
*Shanghai Industrial Sewing Machine Corp. Chn. 9,514,700 1,826,822
*Shanghai Steel Tube Co. Ltd., B Chn. 5,705,300 1,141,060
------------
12,200,058
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MERCHANDISING: 3.0%
Dairy Farm International Holdings Ltd. H.K. 23,544,660 $ 17,776,218
Dickson Concepts (International) Ltd. H.K. 2,058,999 7,440,212
Fortei Holdings Ltd. H.K. 3,978,000 308,026
Joyce Boutique Holdings Ltd. H.K. 1,215,000 228,929
*Wo Kee Hong Holdings Ltd. H.K. 30,485,000 3,068,682
*Wo Kee Hong Holdings Ltd., wts. H.K. 6,097,000 73,176
*Yaohan Hongkong Corp. Ltd. H.K. 4,000,000 147,121
------------
29,042,364
- ----------------------------------------------------------------------------------------------------------------------
METALS & MINING: 0.4%
Maanshan Iron & Steel Co. Ltd., H Chn. 19,676,000 3,910,468
- ----------------------------------------------------------------------------------------------------------------------
MISC MATERIALS &
COMMODITIES: 0.1%
Luoyang Glass Co. Ltd., H Chn. 7,379,000 1,428,433
- ----------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 21.7%
Cheung Kong Holdings Ltd. H.K. 10,449,000 92,034,051
Jardine Matheson Holdings Ltd. (Singapore) H.K. 3,637,002 21,094,612
Jardine Strategic Holdings Ltd. (Singapore) H.K. 8,123,625 28,107,743
*Jardine Strategic Holdings Ltd., wts. H.K. 349,625 113,628
Lai Sun Garment International Ltd. H.K. 7,023,000 8,972,821
Stelux Holdings International Ltd. H.K. 2,513,000 528,629
*Stelux International Holdings Ltd., wts. H.K. 566,600 25,593
Swire Pacific Ltd., B H.K. 12,901,000 16,399,506
WBL Corp. Ltd. Sing. 89,000 215,646
Wheelock & Co. Ltd. H.K. 21,431,000 46,879,535
------------
214,371,764
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 24.3%
China Overseas Land & Investment Ltd. H.K. 26,007,000 14,096,481
Hang Lung Development Co. Ltd. H.K. 22,851,000 41,433,602
Lai Sun Development Co. Ltd. H.K. 14,794,400 17,183,476
*Lai Sun Development Co. Ltd., wts. H.K. 7,999,000 753,581
New World Development Co. Ltd. H.K. 14,671,837 79,146,539
Shanghai Jinqiao Export Processing Zone
Development, B Chn. 8,338,200 4,736,098
Shanghai Lujiaxui Finance & Trade Zn
Dev Stock Co. Ltd., B Chn. 10,969,000 10,925,124
Shanghai Wai Gaoqiao Free Trade Zone Dev. Co., B Chn. 1,571,000 735,228
Shenzhen Properties & Resources
Develop. (Group) Ltd., B Chn. 3,361,180 1,795,822
Shenzhen Vanke Co. Ltd., B Chn. 4,603,390 4,033,840
</TABLE>
12
<PAGE> 13
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REAL ESTATE (cont.)
Sun Hung Kai Properties Ltd. H.K. 5,926,000 $ 62,711,423
Tian An China Investments Co. Ltd. H.K. 24,497,000 2,560,761
------------
240,111,975
- ---------------------------------------------------------------------------------------------------------------------
RECREATION & OTHER CONSUMER GOODS: 2.7%
* KTP Holdings Ltd. H.K. 19,217,500 880,433
* Phoenix Co. Ltd. Chn. 6,451,530 1,290,306
* Shanghai Wingsung Co. Ltd., B Chn. 230,000 67,620
* Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 13,362,400 6,423,650
Yue Yuen Industrial (Holdings) Ltd. H.K. 8,648,000 17,856,931
------------
26,518,940
- ---------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL: 0.9%
Goldlion Holdings Ltd. H.K. 6,323,000 5,181,650
Laws International Holdings Ltd. H.K. 22,510,000 3,369,804
Tungtex (Holdings) Co. Ltd. H.K. 2,600,000 244,944
------------
8,796,398
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 2.5%
Chiwan Wharf Holdings Ltd., B Chn. 9,001,800 6,923,836
Cross Harbour Tunnel Co. Ltd. H.K. 1,268,000 2,732,794
* Guangshen Railway Co. Ltd., ADR Chn. 183,000 4,003,125
IMC Holdings Ltd. H.K. 121,000 56,997
Orient Overseas International Ltd. H.K. 1,314,000 699,504
+ Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 8,820,500 10,231,780
------------
24,648,036
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES-ELECTRICAL & GAS: 5.0%
Guangdong Electric Power Dev. Co. Ltd., B, 144a Chn. 1,696,000 1,663,453
Hong Kong Electric Holdings Ltd. H.K. 9,999,500 35,294,478
Shandong Huaneng Power Chn. 886,000 9,303,000
Wing Shan International Ltd. H.K. 21,654,000 3,437,276
------------
49,698,207
- ---------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL TRADE: 0.1%
* East Asiatic Co. (Hong Kong) Ltd. (The) H.K. 7,520,000 854,027
------------
TOTAL COMMON STOCKS (cost $654,525,587) 855,974,637
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
TEMPLETON DRAGON FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 12.9% (cost $126,731,290)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.94% to 5.23% with
maturities to 6/19/97 U.S. 127,610,000 $126,727,685
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.7% (cost $781,256,877) 982,702,322
OTHER ASSETS, LESS LIABILITIES: 0.3% 3,016,414
------------
TOTAL NET ASSETS: 100.0% $985,718,736
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRY INDICATED.
+ SEE NOTE 5
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
TEMPLETON DRAGON FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $781,256,877) $982,702,322
Receivables:
Investment securities sold 2,070,556
Dividends 2,538,109
Unamortized organization costs 9,303
------------
Total assets 987,320,290
------------
Liabilities:
Payable for investment securities
purchased 15,555
Funds advanced by custodian 94,225
Accrued expenses 1,491,774
------------
Total liabilities 1,601,554
------------
Net assets, at value $985,718,736
============
Net assets consist of:
Undistributed net investment income $ 880,701
Net unrealized appreciation 201,445,445
Accumulated net realized gain 24,097,631
Net capital paid in on shares of
capital stock 759,294,959
------------
Net assets, at value $985,718,736
============
Shares outstanding 54,007,093
============
Net asset value per share ($985,718,736 /
54,007,093 shares
outstanding) $ 18.25
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended March 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
(net of $810 foreign
taxes withheld)
Dividends $ 26,947,239
Interest 5,199,667
------------
Total income $ 32,146,906
Expenses:
Management fees (Note 3) 11,663,793
Administrative fees (Note
3) 1,399,655
Transfer agent fees 72,000
Custodian fees 371,197
Reports to shareholders 314,000
Audit fees 45,500
Legal fees 68,000
Registration and filing
fees 51,800
Directors' fees and
expenses 64,000
Amortization of
organization costs 4,015
------------
Total expenses 14,053,960
------------
Net investment
income 18,092,946
Realized and unrealized gain
(loss):
Net realized gain (loss)
on:
Investments 33,660,300
Foreign currency
transactions (15,338)
------------
33,644,962
Net unrealized
appreciation on
investments 118,765,665
------------
Net realized and
unrealized gain 152,410,627
------------
Net increase in net assets
resulting from operations $170,503,573
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
TEMPLETON DRAGON FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 18,092,946 $ 19,952,785
Net realized gain on investment and foreign currency transactions 33,644,962 9,323,607
Net unrealized appreciation 118,765,665 94,360,136
------------ ------------
Net increase in net assets resulting from operations 170,503,573 123,636,528
Distributions to shareholders:
From net investment income (18,362,411) (25,383,334)
From net realized gain (15,932,093) (2,970,390)
------------ ------------
Net increase in net assets 136,209,069 95,282,804
Net assets:
Beginning of year 849,509,667 754,226,863
------------ ------------
End of year $985,718,736 $849,509,667
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (the Fund) is 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 at least 45% of its
total assets in equity securities of China 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 in good faith by
management and approved 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.
17
<PAGE> 18
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At March 31, 1997, there were 100,000,000 shares of $.01 par value capital stock
authorized. There were no share transactions for the years ended March 31, 1997
and 1996.
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 Franklin Templeton Services, Inc. (FTSI), 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 FTSI
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. 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 legal fees for the year ended March 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended March 31, 1997, were $72,566,068 and $100,527,856, respectively. The cost
of securities for federal income tax purposes is $781,280,705. Realized gains
and losses are reported on an identified cost basis.
At March 31, 1997, 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 $259,068,218
Unrealized depreciation (57,646,602)
-----------
Net unrealized appreciation $201,421,616
===========
</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 March 31, 1997
amounted to $27,601,731. For the year ended March 31, 1997, dividends from
affiliated companies was $340,029.
18
<PAGE> 19
TEMPLETON DRAGON FUND, INC.
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Dragon Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Dragon Fund, Inc. as of March 31, 1997,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended and
the financial highlights for the periods indicated in the accompanying financial
statements. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Dragon Fund, Inc. as of March 31, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
April 25, 1997
19
<PAGE> 20
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 Chase 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 Chase 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.
20
<PAGE> 21
TEMPLETON DRAGON FUND, INC.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chase 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.
21
<PAGE> 22
NOTES
--------
<PAGE> 23
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Infrastructure Fund
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Templeton Americas Government Securities Fund
GROWTH
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES:
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable Rate Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin U.S. Government Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR NON-U.S. INVESTORS:
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
FOR CORPORATIONS:
Franklin Corporate Qualified Dividend Fund
FRANKLIN FUNDS SEEKING TAX-FREE INCOME
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES, AND/OR A HIGH YIELD
PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS THAT PAY INTEREST
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
***PORTFOLIO OF INSURED MUNICIPAL SECURITIES.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97
<PAGE> 24
[MAP OF WORLD]
Templeton Dragon Fund, Inc.
700 Central Avenue
St. Petersburg
Florida 33701-3628
Auditors
McGladrey &Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
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.
TEMPLETON
DRAGON
FUND, INC.
Annual Report
March 31, 1997
[TEMPLETON LOGO]
[RECYCLE LOGO] TLTDF A97 5/97
