SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant [ X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for use
of the Commission only (as
[ X ] Definitive proxy statement permitted Rule 14a-6(e)(2)
[ ] Definitive additional materials
[ ] Soliciting material pursuant to 240.14a-11(c) or 240.14a-12
TEMPLETON DRAGON FUND, INC.
---------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
O-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(Set forth the amount on
which the filing fee is calculated and state how it was
determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identifying the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
PAGE
[GRAPHIC OMITTED]
TEMPLETON DRAGON FUND, INC.
IMPORTANT SHAREHOLDER INFORMATION
This document announces the date, time and location of the annual shareholders
meeting, identifies the proposals to be voted on at the meeting, and contains
your proxy statement and proxy card. A proxy card is, in essence, a ballot.
When you vote your proxy, it tells us how you wish to vote on important issues
relating to your fund. If you complete and sign the proxy, we'll vote it
exactly as you tell us. If you simply sign the proxy, we'll vote it in
accordance with the Directors' recommendations on page 2 of the proxy
statement.
We urge you to spend a few minutes with the proxy statement, reviewing the
proposals at hand. Then, fill out your proxy card and return it to us. When
shareholders return their proxies promptly, the Fund may be able to save money
by not having to conduct additional mailings. We want to know how you would
like to vote and welcome your comments. Please take a few minutes with these
materials and return your proxy to us. If you have any questions, call Fund
Information at 1-800/DIAL BEN (R).
TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
internet, 24 hours a day. If your account is eligible, a control number and
separate instructions are enclosed.
PAGE
[GRAPHIC OMITTED]
TEMPLETON DRAGON FUND, INC.
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting ("Meeting") of shareholders of Templeton Dragon Fund, Inc.
(the "Fund") will be held at 500 East Broward Boulevard, 12th Floor, Ft.
Lauderdale, Florida 33394-3091 on Tuesday, September 29, 1998 at 2:00 p.m.
(EDT).
During the Meeting, shareholders of the Fund will vote on four proposals:
1. The election of Directors of the Fund to hold office for the terms
specified;
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP as
independent auditors of the Fund for the fiscal year ending March 31,
1999;
3. The approval or rejection of a shareholder proposal to request and recommend
that the Board of Directors consider approving, and submitting for
shareholder approval, a proposal to convert the Fund from a closed-end
fund to an open-end fund; and
4. The transaction of any other business that may properly come before the
Meeting.
By order of the Board of Directors,
Barbara J. Green
Secretary
July 30, 1998
Many shareholders hold shares in more than one Templeton fund and will
receive proxy material for each fund owned. Please sign and promptly return
each proxy card in the self-addressed envelope regardless of the number of
shares you own. Japanese shareholders should be aware that Japan Securities
Clearing Corporation may exercise a vote on Proposals 1, 2 and 4 on your
behalf if you do not return a proxy card.
PAGE
TEMPLETON DRAGON FUND, INC.
PROXY STATEMENT
* INFORMATION ABOUT VOTING
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on July 10, 1998 are
entitled to be present and to vote at the Meeting or any adjourned Meeting.
Each share of record is entitled to one vote on each matter presented at
the Meeting. The Notice of Meeting, the proxy card, and the proxy statement
were mailed to shareholders of record on or about July 30, 1998.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on four proposals:
1. The election of six nominees to the position of Director;
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP
as independent auditors of the Fund for the fiscal year ending March 31,
1999;
3. The approval or rejection of a shareholder proposal to request and
recommend that the Board of Directors consider approving, and submitting
for shareholder approval, a proposal to convert the Fund from a
closed-end fund to an open-end fund; and
4. The transaction of any other business that may properly come before the
Meeting.
1
PAGE
HOW DO THE FUND'S DIRECTORS RECOMMEND THAT I VOTE?
The Directors unanimously recommend that you vote:
1. FOR the election of nominees;
2. FOR the ratification of the selection of McGladrey & Pullen, LLP as
independent auditors of the Fund;
3. AGAINST the shareholder proposal that the Board of Directors consider
approving, and submitting for shareholder approval, a proposal to convert
the Fund from a closed-end fund to an open-end fund; and
4. FOR the proxyholders to vote, in their discretion, on any other business
that may properly come before the Meeting.
HOW DO I ENSURE THAT MY VOTE IS ACCURATELY RECORDED?
You may attend the Meeting and vote in person or you may complete and
return the attached proxy card. If you are eligible to vote by telephone or
through the internet, separate instructions are enclosed.
Proxy cards that are properly signed, dated and received at or prior to the
Meeting will be voted as specified. If you specify a vote for any of the
Proposals 1 through 4, your proxy will be voted as you indicated. If you
simply sign and date the proxy card, but don't specify a vote for any of
the Proposals 1 through 4, your shares will be voted IN FAVOR of the
nominees for Director (Proposal 1), IN FAVOR of ratifying the selection of
McGladrey & Pullen, LLP as independent auditors (Proposal 2), AGAINST the
shareholder proposal that the Board of Directors consider approving, and
submitting for shareholder approval, a proposal to convert the Fund from a
closed-end fund to an open-end fund (Proposal 3), and/or IN ACCORDANCE with
the discretion of the persons named in the proxy card as to any other
matters that legally may come before the Meeting (Proposal 4).
2
PAGE
CAN I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by (1) delivering
a written revocation to the Secretary of the Fund, (2) forwarding to the
Fund a later-dated proxy that is received by the Fund at or prior to the
Meeting, or (3) attending the Meeting and voting in person.
* THE PROPOSALS
PROPOSAL 1: ELECTION OF DIRECTORS
HOW ARE NOMINEES SELECTED?
The Board of Directors of the Fund (the "Board") established a Nominating
and Compensation Committee (the "Committee") consisting of Andrew H. Hines,
Jr., Edith E. Holiday and Gordon S. Macklin. The Committee is responsible
for the selection, nomination for appointment and election of candidates to
serve as Directors of the Fund. The Committee will review shareholders'
nominations to fill vacancies on the Board, if these nominations are in
writing and addressed to the Committee at the Fund's offices. However, the
Committee expects to be able to identify from its own resources an ample
number of qualified candidates.
WHO ARE THE NOMINEES AND DIRECTORS?
The Board is divided into three classes, each class having a term of three
years. Each year the term of office of one class expires. This year, the
terms of four Directors are expiring. Martin L. Flanagan, Andrew H. Hines,
Jr., Edith E. Holiday and Charles B. Johnson have been nominated for terms
set to expire at the 2001 annual meeting of shareholders. Frank J. Crothers
and Constantine Dean Tseretopoulos have been nominated for one-year terms,
set to expire at the 1999 annual meeting of shareholders. These terms
continue, however, until successors are duly elected and qualified. With
the exception of Mr. Crothers and Mr. Tseretopoulos, all of the nominees
are currently members of the Board. In addition, all of the current
nominees and Directors are also directors or trustees of other investment
companies in the Franklin Group of Funds(R) and the Templeton Group of Funds
(the "Franklin Templeton Group of Funds").
3
PAGE
Certain nominees and Directors of the Fund hold director and/or officer
positions with Franklin Resources, Inc. ("Resources") and its affiliates.
Resources is a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 19% and 15%, respectively, of its outstanding shares.
Resources is primarily engaged, through various subsidiaries, in providing
investment management, share distribution, transfer agent and
administrative services to a family of investment companies. Resources is a
New York Stock Exchange, Inc. ("NYSE") listed holding company (NYSE: BEN).
Charles E. Johnson, a vice president of the Fund, is the son and nephew,
respectively, of brothers Charles B. Johnson, the chairman of the Board and
a vice president of the Fund, and Rupert H. Johnson, Jr., a vice president
of the Fund. There are no family relationships among any of the Directors
or nominees for Director.
Each nominee is currently available and has consented to serve if elected.
If any of the nominees should become unavailable, the persons named in the
proxy card will vote in their discretion for another person or other
persons who may be nominated as Directors.
4
PAGE
Listed below, for each nominee and current Director, is a brief description
of recent professional experience, as well as each such person's ownership
of shares of the Fund and shares of all funds in the Franklin Templeton
Group of Funds:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- -------------------------------- ------------------------------------- -------------------- ---------------
NOMINEES TO SERVE UNTIL 2001 ANNUAL MEETING OF SHAREHOLDERS:
<S> <C> <C> <C>
MARTIN L. FLANAGAN* Senior Vice President and Chief 1,000(**) 2,803
Director and Vice President Financial Officer, Franklin
since 1994 Resources, Inc.; Executive Vice
President and Director, Templeton
Worldwide, Inc.; Executive Vice
President, Chief Operating Officer
and Director, Templeton
Investment Counsel, Inc.;
Executive Vice President and
Chief Financial Officer, Franklin
Advisers, Inc.; Chief Financial
Officer, Franklin Advisory
Services, Inc. and Franklin
Investment Advisory Services, Inc.;
President and Director, Franklin
Templeton Services, Inc.; Senior
Vice President and Chief Financial
Officer, Franklin/Templeton
Investor Services, Inc.; officer
and/or director of some of the
other subsidiaries of Franklin
Resources, Inc.; and officer and/or
director or trustee, as the case may
be, of 53 of the investment
companies in the Franklin
Templeton Group of Funds.
Age 38.
</TABLE>
5
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------- ------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
ANDREW H. HINES, JR. Consultant for the Triangle 0 36,725
Director since 1994 Consulting Group; Executive-in-
Residence of Eckerd College
(1991-present); director or trustee,
as the case may be, of 22 of the
investment companies in the
Franklin Templeton Group of
Funds; and formerly, Chairman
and Director, Precise Power
Corporation (1990-1997), Director,
Checkers Drive-In Restaurant, Inc.
(1994-1997), and Chairman of the
Board and Chief Executive
Officer, Florida Progress
Corporation (holding company in
the energy area) (1982-1990) and
director of various of its
subsidiaries. Age 75.
</TABLE>
6
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ ------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
EDITH E. HOLIDAY Director, Amerada Hess 100(**) 2,431
Director since 1996 Corporation (crude oil and natural
gas refining) (1993-present),
Hercules Incorporated (chemicals,
fibers and resins) (1993-present),
Beverly Enterprises, Inc. (health
care) (1995-present) and H.J.
Heinz Company (packaged foods
and allied products)
(1994-present); director or trustee,
as the case may be, of 25 of the
investment companies in the
Franklin Templeton Group of
Funds; and formerly, Chairman
(1995-1997) and Trustee
(1993-1997), National Child
Research Center, Assistant to the
President of the United States and
Secretary of the Cabinet
(1990-1993), General Counsel to
the United States Treasury
Department (1989-1990), and
Counselor to the Secretary and
Assistant Secretary for Public
Affairs and Public Liaison-United
States Treasury Department
(1988-1989). Age 46.
</TABLE>
7
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------------ ------------------------------------ -------------------- ---------------
<S> <C> <C> <C>
CHARLES B. JOHNSON* President, Chief Executive Officer 10,000(**) 1,474,371
Chairman since 1995 and and Director, Franklin Resources,
Vice President since 1994 Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc.,
Franklin Advisory Services, Inc.,
Franklin Investment Advisory
Services, Inc. and Franklin
Templeton Distributors, Inc.;
Director, Franklin/Templeton
Investor Services, Inc. and
Franklin Templeton Services, Inc.;
officer and/or director or trustee,
as the case may be, of most of the
other subsidiaries of Franklin
Resources, Inc. and of 50 of the
investment companies in the
Franklin Templeton Group of
Funds; and formerly, Director,
General Host Corporation
(nursery and craft centers).
Age 65.
DIRECTORS SERVING UNTIL 2000 ANNUAL MEETING OF SHAREHOLDERS:
JOHN WM. GALBRAITH President, Galbraith Properties, 21,614(**) 1,243,462
Director since 1995 Inc. (personal investment
company); Director, Gulf West
Banks, Inc. (bank holding
company) (1995-present); director
or trustee, as the case may be, of
20 of the investment companies in
the Franklin Templeton Group of
Funds; and formerly, Director,
Mercantile Bank (1991-1995), Vice
Chairman, Templeton, Galbraith &
Hansberger Ltd. (1986-1992), and
Chairman, Templeton Funds
Management, Inc. (1974-1991).
Age 76.
</TABLE>
8
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ -------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
BETTY P. KRAHMER Director or trustee of various civic 9,000(***) 105,043
Director since 1994 associations; director or trustee, as
the case may be, of 21 of the
investment companies in the
Franklin Templeton Group of
Funds; and formerly, Economic
GORDON S. MACKLIN Analyst, U.S. government. Age 68.
Director since 1994 Director, Fund American 2,000(**) 458,864
Enterprises Holdings, Inc., MCI
Communications Corporation,
MedImmune, Inc. (biotechnology),
Spacehab, Inc. (aerospace services)
and Real 3D (software); director
or trustee, as the case may be, of
49 of the investment companies in
the Franklin Templeton Group of
Funds; and formerly, Chairman,
White River Corporation (financial
services) and Hambrecht and
Quist Group (investment banking)
and President, National
Association of Securities Dealers,
Inc. Age 70.
</TABLE>
9
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ ------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
FRED R. MILLSAPS Manager of personal investments 0 700,551
Director since 1994 (1978-present); director of various
business and nonprofit
organizations; director or trustee,
as the case may be, of 22 of the
investment companies in the
Franklin Templeton Group of
Funds; and formerly, Chairman
and Chief Executive Officer,
Landmark Banking Corporation
(1969-1978), Financial Vice
President, Florida Power and Light
(1965-1969), and Vice President,
Federal Reserve Bank of Atlanta
(1958-1965). Age 69.
NOMINEES TO SERVE UNTIL 1999 ANNUAL MEETING OF SHAREHOLDERS:
FRANK J. CROTHERS Chairman, Atlantic Equipment & 0 11,351
Power Ltd.; Vice Chairman,
Caribbean Utilities Co., Ltd.;
President, Provo Power
Corporation; director of various
other business and non-profit
organizations; and director or
trustee, as the case may be, of 5 of
the investment companies in the
Franklin Templeton Group of
Funds. Age 54.
</TABLE>
10
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ ------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
CONSTANTINE DEAN Physician, Lyford Cay Hospital 0 75,334
TSERETOPOULOS (1987-present); director of various
nonprofit organizations; director or
trustee, as the case may be, of 5 of
the investment companies in the
Franklin Templeton Group of
Funds; and formerly, Cardiology
Fellow, University of Maryland
(1985-1987) and Internal Medicine
Intern, Greater Baltimore Medical
Center (1982-1985). Age 44.
DIRECTORS SERVING UNTIL 1999 ANNUAL MEETING OF SHAREHOLDERS:
HARRIS J. ASHTON Director, RBC Holdings, Inc. (a 500(**) 861,572
Director since 1994 bank holding company) and Bar-S
Foods (a meat packing company);
director or trustee, as the case may
be, of 49 of the investment
companies in the Franklin
Templeton Group of Funds; and
formerly, President, Chief
Executive Officer and Chairman of
the Board, General Host
Corporation (nursery and craft
centers). Age 66.
</TABLE>
11
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ ----------------------------------- -------------------- ---------------
<S> <C> <C> <C>
NICHOLAS F. BRADY* Chairman, Templeton Emerging 1,000(**) 37,305
Director since 1994 Markets Investment Trust PLC,
Templeton Latin America
Investment Trust PLC, Darby
Overseas Investments, Ltd. and
Darby Emerging Markets
Investments LDC (investment
firms) (1994-present); Chairman
and Director, Templeton Central
and Eastern European Investment
Company; Director, Templeton
Global Strategy Funds, Amerada
Hess Corporation (crude oil and
natural gas refining), Christiana
Companies, Inc. (operating and
investment companies), and H.J.
Heinz Company (packaged foods
and allied products); director or
trustee, as the case may be, of 21
of the investment companies in the
Franklin Templeton Group of
Funds; and formerly, Secretary of
the United States Department of
the Treasury (1988-1993) and
Chairman of the Board, Dillon,
Read & Co., Inc. (investment
banking) prior to 1988. Age 68.
</TABLE>
12
PAGE
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
FUND SHARES TEMPLETON
OWNED BENEFICIALLY GROUP OF FUNDS
PRINCIPAL OCCUPATION AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE JUNE 19, 1998 JUNE 16, 1998
- ------------------------ ----------------------------------- -------------------- ---------------
<S> <C> <C> <C>
S. JOSEPH FORTUNATO Member of the law firm of Pitney, 100(**) 359,946
Director since 1994 Hardin, Kipp & Szuch; director or
trustee, as the case may be, of 51
of the investment companies in the
Franklin Templeton Group of
Funds; and formerly, Director,
General Host Corporation
(nursery and craft centers).
Age 65.
<FN>
- ------------------------
* Nicholas F. Brady, Martin L. Flanagan, and Charles B. Johnson are
"interested persons" as defined by the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act limits the percentage of interested
persons that can comprise a fund's board of directors. Mr. Johnson is an
interested person due to his ownership interest in Resources. Mr. Flanagan
is an interested person due to his employment affiliation with Resources.
Mr. Brady's status as an interested person results from his business
affiliations with Resources and Templeton Global Advisors Limited. Mr.
Brady and Resources are both limited partners of Darby Overseas Partners,
L.P. ("Darby Overseas"). Mr. Brady is Chairman and shareholder of Darby
Emerging Markets Investments LDC, which is the corporate general partner
of Darby Overseas. In addition, Darby Overseas and Templeton Global
Advisors Limited are limited partners of Darby Emerging Markets Fund, L.P.
The remaining nominees and Directors of the Fund are not interested
persons (the "Independent Directors").
** Less than 1%.
*** Less than 1%. Of the shares indicated, Mrs. Krahmer beneficially owns
1,000 shares for her own account. Of the remainder, beneficial ownership
may be attributable to Mrs. Krahmer by virtue of her husband's ownership
of 4,000 shares through a retirement account, and the ownership of 4,000
shares held in trust for the benefit of Mrs. Krahmer's children for which
her husband serves as trustee.
</FN>
</TABLE>
HOW OFTEN DO THE DIRECTORS MEET AND WHAT ARE THEY PAID?
The role of the Directors is to provide general oversight of the Fund's
business, and to ensure that the Fund is operated for the benefit of
shareholders. The Directors anticipate meeting at least five times during the
current fiscal year to review the operations of the Fund and the Fund's
investment performance. The Directors also oversee the services furnished to the
Fund by Templeton Asset Management Ltd.-Hong Kong branch, the Fund's investment
manager (the "Investment Manager"), and various other service providers. The
Fund pays the Independent Directors and Mr. Brady an annual retainer of $2,000
and a fee of $400 per board meeting attended. Directors serving on the Audit
Committee of the Fund and other
13
PAGE
investment companies in the Franklin Templeton Group of Funds receive a
flat fee of $2,000 per Audit Committee meeting attended, a portion of which
is allocated to the Fund. Members of the Nominating and Compensation
Committee are not compensated for any committee meeting that is held in
conjunction with a Board meeting.
During the fiscal year ended March 31, 1998, there were four meetings of
the Board, one meeting of the Audit Committee, and two meetings of the
Nominating and Compensation Committee. Each of the Directors then in office
attended at least 75% of the total number of meetings of the Board. There
was 100% attendance at all committee meetings during the fiscal year.
Certain Directors and Officers of the Fund are shareholders of Resources
and may receive indirect remuneration due to their participation in
management fees and other fees received from the Franklin Templeton Group
of Funds by the Investment Manager and its affiliates. The Investment
Manager or its affiliates pay the salaries and expenses of the Officers. No
pension or retirement benefits are accrued as part of Fund expenses.
<TABLE>
The following table shows the compensation paid to Directors by the Fund
and by the Franklin Templeton Group of Funds:
<CAPTION>
AGGREGATE NUMBER OF BOARDS WITHIN THE TOTAL COMPENSATION FROM
COMPENSATION FRANKLIN TEMPLETON GROUP OF THE FRANKLIN TEMPLETON
NAME OF DIRECTOR FROM THE FUND* FUNDS ON WHICH DIRECTOR SERVES** GROUP OF FUNDS***
- ------------------------- ---------------- ---------------------------------- ------------------------
<S> <C> <C> <C>
Harris J. Ashton $6,700 49 $ 344,642
Nicholas F. Brady 6,700 21 119,675
S. Joseph Fortunato 6,700 51 361,562
John Wm. Galbraith 7,730 20 117,675
Andrew H. Hines, Jr. 8,080 22 144,175
Edith E. Holiday 6,700 25 72,875
Betty P. Krahmer 6,700 21 119,675
Gordon S. Macklin 6,700 49 337,292
Fred R. Millsaps 8,080 22 144,175
<FN>
- -------------------------
* Compensation received for the fiscal year ended March 31, 1998, which
was prior to the adoption of the current fee compensation referred to
above.
** We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment
company for which the Board members are responsible. The Franklin
Templeton Group of Funds currently includes 54 registered investment
companies, with approximately 170 U.S. based funds or series.
*** For the calendar year ended December 31, 1997.
</FN>
</TABLE>
The table above indicates the total fees paid to Directors by all of the
funds in the Franklin Templeton Group of Funds and by the Fund
individually. Each of these Directors also serves as directors or trustees
of other investment companies in the Franklin Templeton Group of Funds,
many of which hold meetings at different dates and times. The Directors and
the
14
PAGE
Fund's management believe that having the same individuals serving on the
boards of many of the funds in the Franklin Templeton Group of Funds
enhances the ability of each fund to obtain, at a relatively modest cost to
each separate fund, the services of high caliber, experienced and
knowledgeable Independent Directors who can more effectively oversee the
management of the funds.
WHO ARE THE EXECUTIVE OFFICERS OF THE FUND?
Officers of the Fund are appointed by the Directors and serve at the
pleasure of the Board. Listed below, for each Executive Officer, is a brief
description of recent professional experience:
<TABLE>
<CAPTION>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------ ---------------------------------------------------------------
<S> <C>
CHARLES B. JOHNSON See Proposal 1, "Election of Directors."
Chairman since 1995 and
Vice President since 1994
J. MARK MOBIUS Portfolio Manager of various Templeton advisory affiliates;
President since 1994 Managing Director of Templeton Asset Management Ltd.;
officer of 8 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, President,
International Investment Trust Company Limited (investment
manager of Taiwan R.O.C. Fund) (1986-1987) and Director,
Vickers da Costa, Hong Kong (1983-1986). Age 61.
RUPERT H. JOHNSON, JR. Executive Vice President and Director, Franklin Resources,
Vice President since 1996 Inc. and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Senior Vice President and
Director, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of
Funds. Age 57.
HARMON E. BURNS Executive Vice President and Director, Franklin Resources,
Vice President since 1996 Inc., Franklin Templeton Distributors, Inc. and Franklin
Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the
case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 53 of the investment companies in the
Franklin Templeton Group of Funds. Age 53.
</TABLE>
15
PAGE
<TABLE>
<CAPTION>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------ -----------------------------------------------------------------
<S> <C>
CHARLES E. JOHNSON Senior Vice President and Director, Franklin Resources, Inc.;
Vice President since 1996 Senior Vice President, Franklin Templeton Distributors, Inc.;
President and Director, Templeton Worldwide, Inc.; President,
Chief Executive Officer, Chief Investment Officer and
Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.;
Vice President, Franklin Advisers, Inc.; officer and/or director
of some of the other subsidiaries of Franklin Resources, Inc.;
and officer and/or director or trustee, as the case may be, of
34 of the investment companies in the Franklin Templeton
Group of Funds. Age 42.
DEBORAH R. GATZEK Senior Vice President and General Counsel, Franklin
Vice President since 1996 Resources, Inc.; Senior Vice President, Franklin Templeton
Services, Inc. and Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President,
Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 53 of the
investment companies in the Franklin Templeton Group of
Funds. Age 49.
MARK G. HOLOWESKO President and Chief Investment Officer, Templeton Global
Vice President since 1994 Advisors Limited; Executive Vice President and Director,
Templeton Worldwide, Inc.; officer of 21 of the investment
companies in the Franklin Templeton Group of Funds; and
formerly, Investment Administrator, RoyWest Trust
Corporation (Bahamas) Limited (1984-1985). Age 38.
MARTIN L. FLANAGAN See Proposal 1, "Election of Directors."
Vice President and
Director since 1994
SAMUEL J. FORESTER, JR. Vice President of 10 of the investment companies in the
Vice President since 1994 Franklin Templeton Group of Funds; and formerly, President,
Templeton Global Bond Managers; a division of Templeton
Investment Counsel, Inc., Founder and Partner, Forester,
Hairston Investment Management, Inc. (1989-1990),
Managing Director (Mid-East Region), Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988), and Advisor for Saudi
Arabian Monetary Agency (1982-1987).
</TABLE>
16
PAGE
<TABLE>
<CAPTION>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------ -----------------------------------------------------------------
<S> <C>
JOHN R. KAY Vice President and Treasurer, Templeton Worldwide, Inc.;
Vice President since 1994 Assistant Vice President, Franklin Templeton Distributors,
Inc.; officer of 25 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, Vice President and
Controller, Keystone Group, Inc. Age 57.
ELIZABETH M. KNOBLOCK General Counsel, Secretary and Senior Vice President,
Vice President-Compliance Templeton Investment Counsel, Inc.; Senior Vice President,
since 1996 Templeton Global Investors, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of
Funds; and formerly, Vice President and Associate General
Counsel, Kidder Peabody & Co. Inc. (1989-1990), Assistant
General Counsel, Gruntal & Co., Inc. (1988), Vice President
and Associate General Counsel, Shearson Lehman Hutton
Inc. (1988), Vice President and Assistant General Counsel,
E.F. Hutton & Co. Inc. (1986-1988), and Special Counsel of
the Division of Investment Management, U.S. Securities and
Exchange Commission (1984-1986). Age 43.
BARBARA J. GREEN Senior Vice President, Templeton Worldwide, Inc. and
Secretary since 1996 Templeton Global Investors, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of
Funds; and formerly, Deputy Director of the Division of
Investment Management, Executive Assistant and Senior
Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995), Attorney, Rogers & Wells, and
Judicial Clerk, U.S. District Court (District of Massachusetts).
Age 50.
JAMES R. BAIO Certified Public Accountant; Treasurer, Franklin Mutual
Treasurer since 1994 Advisers, Inc.; Senior Vice President, Templeton Worldwide,
Inc., Templeton Global Investors, Inc. and Templeton Funds
Trust Company; officer of 22 of the investment companies in
the Franklin Templeton Group of Funds; and formerly, Senior
Tax Manager, Ernst & Young (certified public accountants)
(1977-1989). Age 44.
</TABLE>
17
PAGE
PROPOSAL 2: RATIFICATION OR REJECTION OF INDEPENDENT AUDITORS
HOW ARE INDEPENDENT AUDITORS SELECTED?
The Board has a standing Audit Committee consisting of Messrs. Galbraith,
Hines and Millsaps, all of whom are Independent Directors. The Audit
Committee reviews the maintenance of the Fund's records and the safekeeping
arrangements of the Fund's custodian, reviews both the audit and non-audit
work of the Fund's independent auditors, and submits a recommendation to
the Board as to the selection of independent auditors.
WHICH INDEPENDENT AUDITORS DID THE BOARD SELECT?
For the current fiscal year, the Board selected as auditors the firm of
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017.
McGladrey & Pullen, LLP has been the auditors of the Fund since its
inception in 1994, and has examined and reported on the fiscal year-end
financial statements, dated March 31, 1998, and certain related Securities
and Exchange Commission filings. Neither the firm of McGladrey & Pullen,
LLP nor any of its members have any material direct or indirect financial
interest in the Fund.
Representatives of McGladrey & Pullen, LLP are not expected to be present
at the Meeting, but have been given the opportunity to make a statement if
they wish, and will be available should any matter arise requiring their
presence.
PROPOSAL 3: SHAREHOLDER PROPOSAL THAT THE BOARD CONSIDER APPROVING, AND
SUBMITTING FOR SHAREHOLDER APPROVAL, A PROPOSAL TO CONVERT THE FUND FROM A
CLOSED-END FUND TO AN OPEN-END FUND
WHAT IS BEING CONSIDERED UNDER THIS ITEM?
At the meeting, a shareholder of the Fund will ask you to vote on its
proposal that the Board consider approving, and submitting for approval at
a future shareholder meeting, a proposal to convert the Fund from a
closed-end fund to an open-end fund. THE DIRECTORS UNANIMOUSLY RECOMMEND
THAT YOU VOTE AGAINST THIS PROPOSAL.
18
PAGE
The Directors believe that the Fund's investment objective is most likely
to be realized in a closed-end structure. A closed-end fund can keep all of
its assets invested toward meeting its goals. Because an open-end fund is
required to redeem its shares at any time, it must keep on hand cash or
securities that can be readily sold to raise cash. The Directors continue
to believe that the best way for the Fund to pursue long-term capital
appreciation is to continue to follow the Investment Manager's investment
approach: to invest in the China region on a company-by-company basis and
hold these investments for a sufficiently long period of time to allow them
to appreciate in value. The Investment Manager's investment philosophy and
the less-liquid nature of the Chinese securities market led to the original
organization of the Fund as a closed-end fund. The Board and management
continue to believe that the closed-end structure remains the best
structure for the Fund.
WHAT ARE THE DIFFERENCES BETWEEN A CLOSED-END FUND AND AN OPEN-END FUND?
Closed-end funds are not obliged to redeem their shares and, typically, do
not engage in the continuous sale of new shares. Closed-end funds thus
operate with a relatively fixed capitalization. The stock of closed-end
funds ordinarily is traded on a securities exchange; the Fund's shares
since inception have been traded on the NYSE and are also listed on the
Osaka Stock Exchange.
In contrast, open-end funds, commonly referred to as "mutual funds," issue
redeemable shares. The holders of redeemable shares have the right to
surrender their shares to the mutual fund at any time and obtain in return
the net asset value of the shares (less any redemption fee charged by the
fund or contingent deferred sales charge imposed by the fund's
distributor). Because the cash outflows from redemptions eventually would
drain the investment capital from a fund, most mutual funds seek to offset
this by raising new capital from the sale of new shares to investors on a
continuous basis. However, given the uncertainties arising out of this
process, an open-end fund is likely to experience more volatility in the
size of the fund's asset base than is normally the case for closed-end
funds.
19
PAGE
WHAT IS THE SHAREHOLDER PROPOSAL?
The Fund has been informed by Newgate LLP ("Newgate"), 80 Field Point Road,
Greenwich, CT 06830, a shareholder who claims beneficial ownership of
approximately 1,809,000 shares of the Fund as of March 30, 1998, that
Newgate expects to present the following proposal:
RESOLVED, that the holders of the common stock of Templeton Dragon Fund,
Inc. (the "Fund") hereby recommend that the Fund's Board of Directors
take all necessary legal and other actions to convert the Fund from
closed-end status to open-end status.
Newgate has requested that the following statement be included in the proxy
statement in support of its proposal:
SUPPORTING STATEMENT
We are limited by Federal Law to a 500 word statement. Accordingly, we
hope that shareholders will carefully review the 4 points set forth
below.
FUND ACTIONS TO DATE:
The Fund's Board was authorized in its offering prospectus to take
action if the Fund traded at a substantial discount at any time after
March 31, 1996. Despite the Fund's trading at a persistent discount
after March 31, 1996, the Board did not initiate any action to address
the discount until October 17, 1997. The Board's decision to initiate a
share buyback program occurred less than a month after 47.19% of
shareholders voting, voted in favor of Newgate's prior proposal to
convert the Fund into an interval fund at last year's annual meeting.
Our conclusion: Shareholder activism is the only way this Fund will act
to enhance shareholder value.
20
PAGE
FUND PERFORMANCE:
According to ING Barings Country Funds Databook, dated March 6, 1998
published by ING Barings Securities Limited, a London brokerage and
research firm, the Fund's net asset value performance over the past
twelve months is down 26.9%.
This result puts Fund net asset value performance in 5th place, out of
the 6 US exchange listed China and Hong Kong funds. The only worse
performer was a related fund, the Templeton China World Fund. Over the
past three years, the Fund's performance ranks 3rd out of six funds.
Our Conclusion: Fund performance has been, at best, indifferent.
FUND DISCOUNT:
According to the ING Barings Country Fund Databook, over the past three
years the Fund has traded at an average discount of 16.5% to its net
asset value. Over the past twelve months, it has traded at an average
discount of 18.2%.
Our conclusion: The fund has consistently traded at double-digit
discounts to net asset value.
POTENTIAL CONFLICT OF INTEREST:
The Fund's Board of Directors is opposing this proposal. The average
annual fees paid by the Franklin Templeton Group to each independent
Fund Director, as reported in the Fund's 1997 annual proxy, was
$149,412. We believe that such a high level of remuneration is
sufficient to call into question the disinterestedness and independence
of these directors.
Our conclusion: We agree with John Rekenthaler, senior analyst at
Morningstar Inc., an industry research group: "Fund directors get paid
well if the company they work for supports the job they're doing . . .
Given this scenario, you, I and everybody this side of Mother Teresa
will back the fund company's suggestions."
21
PAGE
We believe, based on historical experience, that shareholder approval of
an open-ending resolution, and its implementation by the board, would
increase the value of stockholders' shares, immediately and
significantly.
FOR ALL OF THE FOREGOING REASONS, THE PROPONENT STRONGLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THIS PROPOSAL.
WHAT IS THE RECOMMENDATION OF THE DIRECTORS?
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.
Why do the Directors unanimously recommend a vote AGAINST this proposal?
The Directors recommend a vote AGAINST the shareholder proposal for the
following reasons, which are discussed in more detail below:
* Changing the Fund's structure would require a major change in the Fund's
investment strategy that would not be in the best interests of the Fund
and its shareholders;
* Significant market developments and economic conditions in China and Hong
Kong make converting to an open-end fund particularly inappropriate at
this time;
* The Board of Directors has taken action to address the Fund's discount to
net asset value, which has improved recently, and the Board regularly
considers whether further measures are feasible and in the Fund's best
interest;
* The level of the Fund's discount to net asset value and performance have
been in the same range as those of comparable closed-end funds;
* The Fund's expenses are likely to increase if the Fund is converted to an
open-end fund;
* Significant tax consequences for the Fund and its shareholders likely
would result from conversion to an open-end fund;
* The Fund would lose its listing on the NYSE if it converted to an open-end
fund; and
22
PAGE
* Fund shareholders would lose the current ability to reinvest dividends
and distributions at favorable rates under certain circumstances.
1. Conversion to an open-end fund would require changes to the Fund's
portfolio structure and investment strategy that are not in the best
interests of the Fund and its shareholders.
The Fund was originally established as a closed-end fund because of its
investment objective: seeking long-term appreciation by investing in China
Companies /1/. The long-term nature of the Fund's investment program was
described in the Fund's prospectus dated September 21, 1994. Presumably,
most shareholders have invested in Fund shares because of this program /2/.
The Investment Manager's approach to investing the Fund's assets is to
purchase shares of companies that are perceived to have potential to
benefit from the anticipated growth and opening of the Chinese markets and
from continuing economic integration in Asia. Realizing the full benefit of
these investments is a long-term process, and the Fund has been in
existence for fewer than four years.
The closed-end structure facilitates the Investment Manager's ability to
invest the Fund's assets in accordance with the Fund's long-term investment
objective. As a closed-end fund, the Fund can keep all of its assets
working toward its investment goals. This gives the Investment Manager the
flexibility to invest in less liquid securities that present attractive
long-term opportunities. Converting the Fund to an open-end fund would
require the Fund to focus on short-term considerations to anticipate and
facilitate redemptions. Of course, setting aside a portion of the Fund's
assets to redeem shares reduces the asset base which can be deployed to
realize the Fund's primary goals. In addition, if the Fund is converted to
an open-end fund, the Investment Manager, in light of the current declining
market in Asia, may be forced to sell portfolio securities before their
full potential has been reached in order to raise cash to meet redemptions
as they arise. This short-term focus would be disruptive to the
------------------------
1 China Companies are defined in the Fund's prospectus as equity securities
of companies (i) organized under the laws of, or with a principal office
in, the People's Republic of China ("China" or the "PRC") or Hong Kong, or
the principal business activities of which are conducted in China or Hong
Kong, or for which the principal equity securities trading market is in
China or Hong Kong, and (ii) that derive at least 50% of their revenues
from goods or services sold or produced, or have at least 50% of their
assets, in China or Hong Kong.
2 In this regard, it is worthy of note that a proposal submitted by the
same proponent last year to convert the Fund from a closed-end fund to an
interval fund only garnered the support of 23.90% of the Fund's
outstanding shares, which was less than a majority of the shares voting.
23
PAGE
Fund's "buy and hold" investment program and, therefore, not in the best
interests of the Fund and its shareholders. On the other hand, as a
closed-end fund, the Fund does not have to maintain cash reserves or sell
off investments to meet redemption requests and is protected from the
necessity of selling its investments at a time when market prices are
temporarily depressed.
2. Significant market developments and economic conditions in China and Hong
Kong make converting to an open-end fund particularly inappropriate at
this time.
As described more fully in the Fund's prospectus, investing in emerging
markets like China involves risks arising out of market and currency
volatility, unexpected economic, social, and political developments, and the
relatively small size and lesser liquidity of the markets involved. In China
and Hong Kong, recent political and economic events have created
uncertainties and increased volatility in the securities markets. For
example, United States-China relations, China-Taiwan relations, the political
future of China, the incorporation of Hong Kong into China, and the recent
upheavals in certain Asian economies and securities markets, including the
recent dramatic downturn in the Japanese economy, are all significant factors
which create an unpredictable and volatile marketplace and increase market
volatility for Chinese securities. In addition, foreign investors in
securities listed on Chinese exchanges are restricted to buying "B" shares,
which may only be owned by foreign investors and are less liquid than might
otherwise be the case. The Directors have considered these factors in
deciding how to address the discount and the Board continues to believe that
the Fund's closed-end structure is particularly well suited to investing in
the China region.
3. The Board of Directors has taken action to address the Fund's discount to
net asset value, which has improved recently, and the Board regularly
considers whether further measures are feasible and in the Fund's best
interest.
The Fund's Board has taken action to address the Fund's discount. The Board
adopted in October, 1997, a share repurchase program to help reduce the
Fund's discount. At the time the share repurchase program was adopted, the
Fund's discount was approximately 20.33%. Since that date, the Fund's
discount has dropped to approximately 13.14% as of July 3, 1998, and has
averaged approximately 13.81% during that period. The Board adopted the
share repurchase program because it believed that this program would
benefit the Fund and its shareholders.
24
PAGE
The Fund's Directors regularly review whether the Fund is managed and
operated in a manner consistent with the best interests of the Fund and its
shareholders. This review includes periodic consideration of measures to
reduce the discount, such as the possibility of increased share buy-backs,
tender offers, or conversion of the Fund into an open-end fund. The Board
has not adopted any of the other measures considered to date because the
Board believes that those measures, unlike the share repurchase program,
would have a negative impact on the Fund's portfolio management, expense
ratio and shareholders.
4. The level of the Fund's discount to net asset value and performance is in
the same range as that of comparable closed-end funds.
Although the Fund's shares have generally traded at a discount since the
fourth calendar quarter of 1994, the Fund is trading at a comparable
discount to other closed-end funds investing in the China region. According
to the ING Barings Country Fund Databook, as of May 29, 1998, among U.S.
registered closed-end funds that primarily invest in China and Hong Kong,
discounts ranged from 13.3% to 24.8%. The Fund's discount as of that date
was 13.3%, the lowest among the comparable funds, and its average discount
during the prior year and prior three years was 16.7%. This compares to a
range of 17.5%-18.4% for the comparable funds during the prior year, and
10.1%-14.9% for the three-year period.
As of the same date, according to the ING Barings Country Fund Databook,
the Fund's performance measured on the basis of net asset value was
comparable to the performance of other China and Hong Kong closed-end
funds, with the Fund's average annual total return performance earning it
the rank of third out of five comparable funds for the one- and three-year
periods. On the basis of market price, however, the Fund's one- and
three-year average annual total return was the best among comparable funds.
5. The Fund's expenses are likely to increase if the Fund is converted to an
open-end fund.
Shareholders who desire to sell their shares today can do so on the NYSE.
If the Fund, however, were to adopt an open-end format, shareholders could
only sell their shares through redemption. If the Fund were to experience
substantial redemptions, as a much smaller fund, it might have a higher
expense ratio. In order to protect against this possibility, the Fund would
be required to engage in a continuous public offering intended at a minimum
to offset redemptions. This, in turn, would subject the Fund to further
expenses and a corresponding reduction in the Fund's return to
shareholders. For example, in order to market the Fund's shares
effectively, it would be necessary for the Fund to conform generally to
sales practices
25
PAGE
of competing dealer-sold funds. For this reason, the Directors would likely
recommend that shareholders approve the adoption of a distribution plan in
accordance with Rule 12b-1 under the 1940 Act. Currently, Rule 12b-1 fees
for the open-end investment companies in the Franklin Templeton Group of
Funds range from an annual rate of 0.25% to 1.0% of a fund's average net
assets.
A continuous public offering would require the Fund to maintain a current
registration under federal securities laws, which involves additional
costs, and also to incur printing costs and other expenses in connection
with maintaining a current prospectus. If the continuous offering were not
successful in raising substantial new assets for the Fund, and redemptions
were significantly more than new sales, the Fund's expense ratio likely
would increase from its current level, as fixed costs would be paid out of
a smaller asset base.
6. Significant tax consequences for the Fund and its shareholders may result
from conversion to an open-end fund.
If the Fund were to convert to an open-end structure, it likely would be
required to sell portfolio securities to meet redemption requests. In the
event of a very large amount of redemptions, the Fund might be required to
sell appreciated securities to meet redemption requests, and capital and/or
ordinary gains might be generated, which would increase the amount of
taxable distributions to shareholders. If, on the other hand, the Fund were
required to sell depreciated securities, the Fund would incur a loss, which
might otherwise have been avoided had the Fund been able to retain the
securities pending realization of their investment potential. Moreover,
losses realized on the sale of a security generally reduce amounts
distributable to shareholders. In either event, if the Fund were to be
required to dispose of a significant amount of its assets to satisfy very
large redemption requests, it may be unable to satisfy certain
diversification requirements applicable for tax purposes.
7. The Fund would lose its listing on the NYSE if it is converted to an
open-end fund.
If the Fund converts to an open-end fund, its shares would be delisted from
the NYSE. The Investment Manager has advised the Board that the loss of the
NYSE listing could be disadvantageous for the Fund because some investors,
particularly foreign investors and certain institutional investors, such as
pension funds, subject to restrictions on the amount of their portfolio
that can be invested in non-listed securities, are believed to consider a
listing on the NYSE to be an important factor in their decision to buy or
retain shares of the Fund.
26
PAGE
Delisting would save the Fund the annual NYSE fees of approximately
$48,000, but as an open-end company, the Fund would pay federal and state
registration and notification fees on sales of new shares, which could
offset or even exceed that savings.
8. Fund shareholders would lose the current ability to reinvest dividends
and distributions at favorable rates under certain circumstances.
Shareholders of the Fund currently have the option of participating in the
Fund's Dividend Reinvestment Plan which permits shareholders to elect to
reinvest their dividends and distributions on a different basis then would
be the case if the Fund converted to an open-end structure. When shares of
the Fund are trading at a discount from net asset value, cash distributions
paid by the Fund are generally reinvested through the purchase of
additional shares at market prices. This permits a reinvesting shareholder
to benefit by purchasing additional shares at a discount, and this buying
activity may tend to lessen any discount. At times when the Fund's shares
are trading at a premium over their net asset value, reinvestments are made
at the higher of net asset value or 95% of market value. In contrast, as an
open-end fund, all dividends and distributions would be reinvested at NAV.
WHAT ADDITIONAL MEASURE WOULD NEED TO BE TAKEN IN CONNECTION WITH
CONVERSION TO AN OPEN-END FUND?
If the shareholder proposal is approved by shareholders, the Directors
would, consistent with Maryland law, consider adopting a resolution
declaring it advisable to approve and present to shareholders a proposed
amendment to the Fund's Articles of Incorporation to convert the Fund to an
open-end investment company. After consideration of all the surrounding
circumstances, however, the Board may continue to hold its view that the
Fund's best interests are served by the Fund continuing as a closed-end
fund, and may therefore determine to take no further action to convert the
Fund to an open-end investment company.
In the event that shareholders vote, at a future meeting, to convert the
Fund from a closed-end fund to an open-end fund, a number of additional
actions would need to be taken not only to effect the conversion of the
Fund to an open-end investment company, but also to allow the Fund to
operate effectively as an open-end investment company. These actions would
include amending the Fund's Articles of Incorporation and reviewing
carefully the investment objective and policies of the Fund to ensure that
they conform to investment objectives and policies applicable to open-end
investment companies.
27
PAGE
The Directors also would consider the adoption of a distribution agreement
and a distribution plan. In the event the Directors approve a distribution
plan for the Fund, shareholder approval for the plan also would be
required. The Investment Manager would likely recommend that Franklin
Templeton Distributors, Inc., an affiliate of the Investment Manager and
principal underwriter for the Franklin Templeton Group of Funds, serve as
principal underwriter for the shares of the Fund.
If the Directors believe that immediately following a conversion to
open-end status there would likely be significant redemptions of shares
that would disrupt long-term portfolio management of the Fund and dilute
the interests of the remaining shareholders, the Directors may determine to
impose a temporary redemption fee. Imposition of a redemption fee may deter
certain redemptions and would compensate remaining long-term shareholders
for the costs of the liquidation of a significant percentage of the Fund's
portfolio. The Fund would notify shareholders in writing prior to the
imposition of any temporary redemption fee.
The Directors also would consider whether the Fund should reserve the right
to meet redemptions by delivering portfolio securities rather than paying
redemption proceeds in cash.
THE DIRECTORS BELIEVE THAT THE CONTINUED OPERATION OF THE FUND AS A
CLOSED-END FUND IS IN YOUR BEST LONG-TERM INTEREST, AND UNANIMOUSLY
RECOMMEND A VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4: OTHER BUSINESS
The Directors know of no other business to be presented at the Meeting.
However, if any additional matters should be properly presented, proxies
will be voted or not voted as specified. Proxies reflecting no
specification will be voted in accordance with the judgment of the persons
named in the proxy.
28
PAGE
* INFORMATION ABOUT THE FUND
WHAT HAVE THE DIRECTORS DONE TO ADDRESS THE SHARE PRICE MARKET DISCOUNT AT
WHICH THE FUND'S SHARES TRADE? As noted above in Proposal 3, the Board in
October, 1997 approved a share repurchase program as a means to help reduce
the discount. In addition, the Board determined at a July 22, 1998 meeting to
implement a managed distribution policy under which approximately 10% of the
Fund's average net asset value would be distributed to Fund shareholders on
an annual basis. Under this distribution policy, the Fund intends to make
quarterly distributions to Fund shareholders equal to 2.5% of the Fund's net
asset value at the close of the NYSE on the Friday prior to the declaration
date. If the total amount distributed exceeds the Fund's aggregate net
investment income and net realized capital gains with respect to a given
year, the excess amount distributed generally will constitute a return of
capital to shareholders. The first distribution under this new policy will be
payable on September 15, 1998.
Although the Board believes that the Fund benefits from its structure as a
closed-end fund, the Directors understand that many shareholders are
concerned about the discount to net asset value at which Fund shares trade.
The Board adopted the share repurchase program and the more recent managed
distribution policy in an effort to address the market discount of the
Fund's share price to net asset value. The Board believes that the managed
distribution policy, in particular, will benefit shareholders by providing
a regular payout from the Fund while still preserving for the Fund the
benefits of its closed-end structure. In addition, there is evidence
indicating that, over the long-term, funds with managed distribution
policies enjoy a more favorable market price in relation to net asset value
than do comparable funds without a managed distribution policy.
To facilitate continuation of the managed distribution policy, the Fund
will apply for an order from the Securities and Exchange Commission to
permit the Fund to use realized capital gains when making quarterly
distributions.
29
PAGE
THE INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton
Asset Management Ltd.-Hong Kong branch ("Asset Management Hong Kong"), a
Singapore company with a branch office at Two Exchange Square, Hong Kong.
Pursuant to an investment management agreement, Asset Management Hong Kong
manages the investment and reinvestment of Fund resources. Asset Management
Hong Kong is an indirect, wholly-owned subsidiary of Resources.
THE ADMINISTRATOR. The administrator of the Fund is Franklin Templeton
Services, Inc. ("FT Services") with offices at 777 Mariners Island
Boulevard, San Mateo, California 94403-7777. FT Services is an indirect,
wholly-owned subsidiary of Resources. Pursuant to an administration
agreement, FT Services performs certain administrative functions for the
Fund. In addition, FT Services has entered into a Japanese shareholder
servicing and administration agreement with Nomura Capital Management, Inc.
("Nomura") with offices at 180 Maiden Lane, Suite 2903, New York, New York
10038, an affiliate of the initial underwriter, Nomura International (Hong
Kong) Limited, under which Nomura performs certain administrative functions
in Japan, subject to FT Services' supervision.
THE TRANSFER AGENT. The transfer agent, registrar and dividend disbursement
agent for the Fund is ChaseMellon Shareholder Services, L.L.C., 120
Broadway, New York, New York 10271.
THE CUSTODIAN. The custodian for the Fund is The Chase Manhattan Bank, 1
Chase Manhattan Plaza, New York, New York 10081.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. U.S. securities
laws require that the Fund's Directors, Officers and shareholders owning
more than 10% of outstanding shares, as well as affiliated persons of its
Investment Manager, report their ownership of the Fund's shares and any
changes in that ownership. Specific due dates for these reports have been
established and the Fund is required to report in this proxy statement any
failure to file by these dates during the fiscal year ended March 31, 1998.
All of the filing dates of these reports were met except that two reports
involving 3 transactions filed on behalf of John Wm. Galbraith were
inadvertently filed late. In making this disclosure, the Fund relied upon
the written representations of the persons affected and copies of their
relevant filings.
30
PAGE
OTHER MATTERS. The Fund's last audited financial statements and annual
report, dated March 31, 1998, are available free of charge. To obtain a copy,
please call 1-800/DIAL BEN- or forward a written request to
Franklin/Templeton Investor Services, Inc., P.O. Box 33030, St. Petersburg,
Florida 33733-8030.
As of July 10, 1998, the Fund had 52,859,893 shares outstanding and net
assets of $505,691,590. The Fund's shares are listed on the NYSE (Symbol:
TDF) and on the Osaka Stock Exchange (Symbol: 8683). From time to time, the
number of shares held in "street name" accounts of various securities
dealers for the benefit of their clients may exceed 5% of the total shares
outstanding. To the knowledge of the Fund's management, as of June 16,
1998, there were no other entities holding beneficially or of record more
than 5% of the Fund's outstanding shares.
In addition, to the knowledge of the Fund's management, as of June 19,
1998, no nominee or Director of the Fund owned 1% or more of the
outstanding shares of the Fund, and the Officers and Directors of the Fund
owned, as a group, less than 1% of the outstanding shares of the Fund.
However, Martin L. Flanagan, Charles B. Johnson, Charles E. Johnson, Rupert
H. Johnson, Jr. and Mark G. Holowesko are administrators of a profit
sharing plan for employees of Franklin Templeton, and in that capacity
exercise discretionary voting authority on behalf of the Plan. As of the
Record Date, the profit sharing plan owned 263,886 shares or approximately
0.5% of the outstanding shares of the Fund.
* FURTHER INFORMATION ABOUT VOTING AND
THE SHAREHOLDERS MEETING
SOLICITATION OF PROXIES. The cost of soliciting proxies, including the fees
of a proxy soliciting agent, are borne by the Fund. The Fund reimburses
brokerage firms and others for their expenses in forwarding proxy material to
the beneficial owners and soliciting them to execute proxies. In addition,
the Fund may retain a professional proxy solicitation firm to assist with any
necessary solicitation of proxies. The Fund expects that the solicitation
would be primarily by mail, but also may include telephone, telecopy or oral
solicitations. If the Fund does not receive your proxy by a certain time you
may receive a telephone call from Shareholder Communications Corporation
asking you to vote. If professional proxy solicitors are retained, it is
expected that soliciting fees and expenses would be approximately $99,000.
The Fund does not reimburse Directors and Officers of the Fund, and regular
employees and agents of the Investment Manager involved in the solicitation
of proxies. The Fund intends to pay all costs associated with the
solicitation and the Meeting.
31
PAGE
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card originally sent
with your proxy statement or attend in person. Any proxy given by you,
whether in writing, by telephone or through the internet is revocable.
VOTING BY BROKER-DEALERS. The Fund expects that, before the Meeting,
broker-dealer firms holding shares of the Fund in "street name" for their
customers, as well as the Japan Securities Clearing Corporation ("JSCC")
holding shares of the Fund for its beneficial owners, will request voting
instructions from their customers and beneficial owners. If these
instructions are not received by the date specified in the broker-dealer
firms' or JSCC's proxy solicitation materials, the Fund understands that
NYSE Rules permit broker-dealers and JSCC to vote on Proposals 1, 2 and 4
on behalf of their customers and beneficial owners. With regard to
Proposals 1, 2 and 4, certain broker-dealers may exercise discretion over
shares held in their name for which no instructions are received by voting
these shares in the same proportion as they vote shares for which they
received instructions.
QUORUM. A majority of the shares entitled to vote--present in person or
represented by proxy--constitutes a quorum at the Meeting. The shares over
which broker-dealers and JSCC have discretionary voting power, the shares
that represent "broker non-votes" (i.e., shares held by brokers or nominees
as to which (i) instructions have not been received from the beneficial
owners or persons entitled to vote and (ii) the broker or nominee does not
have discretionary voting power on a particular matter), and the shares
whose proxies reflect an abstention on any item are all counted as shares
present and entitled to vote for purposes of determining whether the
required quorum of shares exists.
METHODS OF TABULATION. Proposal 1, the election of Directors, requires the
affirmative vote of the holders of a plurality of the Fund's shares present
and voting on the Proposal at the Meeting. Proposal 2, ratification of the
selection of the independent auditors, requires the affirmative vote of a
majority of the Fund's shares present and voting on the Proposal at the
Meeting. Proposal 3, the shareholder proposal that the Board of Directors
consider approving, and submitting for shareholder approval, a proposal to
convert the Fund from a closed-end fund to an open-end fund, requires the
affirmative vote of a majority of the Fund's shares present and voting on
the Proposal at the Meeting. Proposal 4, the transaction of any other
business, is expected to require the affirmative vote of a majority of the
Fund's shares present and voting on the Proposal at the Meeting.
Abstentions and broker non-votes will be treated as votes not cast and,
therefore, will not be counted for purposes of obtaining approval of
Proposals 1, 2, 3, and 4.
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PAGE
ADJOURNMENT. In the event that a quorum is not present at the Meeting, the
Meeting will be adjourned to permit further solicitation of proxies. In the
event that a quorum is present, but sufficient votes have not been received
to approve one or more of the proposals, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further
solicitation of proxies with respect to those proposals. The persons named
as proxies will vote in their discretion on questions of adjournment those
shares for which proxies have been received that grant discretionary
authority to vote on matters that may properly come before the Meeting.
SHAREHOLDER PROPOSALS. The Fund anticipates that its next annual meeting
will be held in September, 1999. Shareholder proposals to be presented at
the next annual meeting must be received at the Fund's offices, 500 East
Broward Boulevard, Ft. Lauderdale, Florida 33394-3091, no later than April
1, 1999.
By order of the Board of Directors,
Barbara J. Green
Secretary
July 30, 1998
33
PAGE
PROXY
TEMPLETON DRAGON FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 29, 1998
The undersigned hereby evokes all previous proxies for his shares and
appoints BARBARA J. GREEN, JAMES R. BAIO and JOHN R. KAY, and each of them,
proxies of the undersigned with full power of substitution to vote for share of
Templeton Emerging Markets Appreciation Fund, Inc. (the "Fund") which the
undersigned is entitled to vote at the Fund's Annual Meeting to be held at 500
East Broward Blvd., 12th Floor, Ft. Lauderdale, Florida at 2:00 P.m.., EDT, on
the 29th day of September 1998, including any adjournment thereof, upon the
matters set forth below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR PROPOSALS
1 (INCLUDING ALL NOMINEES FOR DIRECTORS) AND 2, AGAINST PROPOSAL 3, AND WITHIN
THE DISCRETION OF THE PROXYHOLDERS AS TO ANY OTHER MATTER PURSUANT TO PROPOSAL
4.
CONTINUED AND TO SIGN ON REVERSE SIDE SEE REVERSE SIDE
FOLD AND DETACH HERE
PAGE
X PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE
1 - Election of Directors
Nominees: Frank J. Crothers, Martin L. Flanagan, Andrew H. Hines, Jr. Edith E.
Holiday, Charles B. Johnson and Constantine Dean Tserelopoulos.
FOR all nominees WITHHOLD
listed (except as AUTHORITY
marked to the right) to vote for all
nominees listed
above
[ ] [ ]
To withhold authority to vote for any indivdual nominee, write that nominee's
name on the line below.
------------------------------------------------------------------------
2 - Ratification of the selection of McGladrey & Pullen, LLP, as independent
auditors for the Fund for the fiscal year ending March 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
|-----------------------------------------------------------------------------|
|THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST PROSPOSAL 3 |
|-----------------------------------------------------------------------------|
3. To request and recommend that the Board of Directors consider, approving,
and submitting for shareholder apporval, a proposal to convert the Fund from a
closed-end fund to an open-end fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4- In their descretion, the Proxyholders are authorized to vote upon such other
matters which may legally come before the Meeting or any adjournments thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
YES NO
I PLAN TO ATTEND THE MEETING. [ ] [ ]
Signature(s): Date: ,1998
------------------------------------------------ --------
Please sign exactly as your name appears on the proxy. If signing for estates,
trusts or corporations, title or capacity should be stated. If shares are held
jointly, each holders must sign.
FOLD AND DETACH HERE
TEMPLETON DRAGON FUND, INC.
500 East Broward Boulevard
Ft. Lauderdale, Florida 33394-3091
July 30, 1998
Dear Shareholder:
We are writing to you to ask for your vote on important questions that could
affect your investment in Templeton Dragon Fund Inc. (the "Fund"). Please
review the attached proxy statement, cast your vote, and return the enclosed
proxy card in the envelope provided.
In addition to electing directors and selecting auditors, you are being asked
to vote on a proposal submitted by a shareholder. This proposal requests that
the Board of Directors seek shareholder approval to convert the Fund from a
closed-end fund to an open-end mutual fund. The Directors unanimously recommend
that you vote "AGAINST" this proposal.
The Directors believe that the best way for the Fund to pursue its investment
objective is as a closed-end fund. To fully take advantage of China's enormous
economic potential requires a long-term investment strategy. The Fund's
investment objective is long-term capital appreciation, and the Fund pursues
this objective by identifying investments in the China region on a
company-by-company basis and holding these investments for a sufficiently long
period of time to allow them to appreciate in value. A short-term investment
strategy created for short-term economic gain is inconsistent with the Fund's
long-term objective. Given this and the relatively volatile nature of the
Chinese securities market, the Board originally determined to organize the Fund
as a closed-end fund, and the Directors continue to feel that this is the best
format for the Fund's long-term success.
The Board has recently adopted a managed distribution policy under which the
Fund intends to distribute approximately 10% of its net asset value each year,
payable in quarterly distributions. Under this policy, shareholders will
receive a regular, predictable payout on their investment while preserving the
benefits of the Fund's closed-end structure. Based on the experience of other
closed-end investment companies that have adopted similar policies, and
consistent with its ongoing efforts to enhance shareholder value, the Board
adopted this policy in an effort to address the market discount of the Fund's
share price to net asset value.
PAGE
If you are not already taking advantage of the Fund's dividend reinvestment
plan, and you wish to do so, please contact Mellon Securities Trust Company at
(800) 416-5585.
We appreciate your participation and prompt response in this matter, and thank
you for your support.
J. MARK MOBIUS
President
PAGE
