UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08394
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TEMPLETON DRAGON FUND, INC.
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
[PICTURE]
Contents
ANNUAL REPORT
Templeton Dragon Fund, Inc. ................................ 1
Performance Summary ........................................ 5
Important Notice to Shareholders ........................... 6
Financial Highlights and Statement of Investments .......... 7
Financial Statements ....................................... 12
Notes to Financial Statements .............................. 15
Report of Independent Registered Public Accounting Firm .... 23
Annual Meeting of Shareholders ............................. 24
Dividend Reinvestment and Cash Purchase Plan ............... 25
Tax Designation ............................................ 28
Board Members and Officers ................................. 29
Shareholder Information .................................... 34
Annual Report
Templeton Dragon Fund, Inc.
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Dragon Fund seeks long-term
capital appreciation by investing at least 45% of its total assets in equity
securities of "China companies," as defined in the Fund's prospectus.
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/08
[BAR CHART]
Dear Shareholder:
This annual report for Templeton Dragon Fund covers the fiscal year ended
December 31, 2008.
PERFORMANCE OVERVIEW
Templeton Dragon Fund had cumulative total returns of -39.68% in market price
terms and -42.17% in net asset value terms for the 12 months under review. You
can find the Fund's long-term performance data in the Performance Summary on
page 5.
ECONOMIC AND MARKET OVERVIEW
Global financial markets this past year experienced some of the worst volatility
since the 1930s. The current crisis began in the U.S. with the unraveling of the
highly leveraged derivative structure of subprime mortgages. Extreme risk
aversion and the resulting lack of liquidity were detrimental to companies that
relied on borrowing and eventually led to a series of major financial firm
collapses in the U.S. and Europe. Investor anxiety surged and market volatility
in developed and emerging markets reached historic levels.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 8.
Annual Report | 1
Recognizing the severity of the credit crunch, governments in the greater China
region implemented fiscal stimuli and loosened monetary policies to support
their domestic economies and ease liquidity conditions. China unveiled an
unprecedented US$586 billion stimulus package with a focus on infrastructure
development and social welfare, while Taiwan and Hong Kong also announced fiscal
measures to foster economic growth.
China's gross domestic product grew 9.0% year-over-year in the first nine months
of 2008.1 Although this is slower than the 11.5% rate for the same period in
2007, China remains one of the world's fastest growing economies.(1) Inflation
was a major concern in the earlier part of 2008, but as commodity price
corrections eased fuel and food prices, inflation fell to its lowest level in
nearly two years by period-end. In addition to the stimulus package, the Chinese
central bank slashed its borrowing and lending interest rates and lowered cash
reserve requirements to boost liquidity in the financial system and spur
lending.
The year 2008 marked the end of a long bull run in the region's equity markets
that started in 2003. Our experience has led us to believe the recent fall is
part of a natural bull and bear market cycle. In emerging markets we have found
that, in the past, bull markets have lasted longer than bear markets and bull
markets have tended to more than recover the losses of the previous bear
markets. Please remember, historical performance is no guarantee of future
results.
INVESTMENT STRATEGY
Our investment strategy employs a fundamental, value-oriented, long-term
approach. In selecting companies for investment, we will consider overall growth
prospects, competitive positions in export markets, technologies, research and
development, productivity, labor costs, raw material costs and sources.
Additional considerations include profit margins, returns on investment, capital
resources, government regulation, management and other factors in comparison to
other companies around the world that we believe are comparable.
Our approach to selecting investments emphasizes fundamental company-by-company
analysis (rather than broader analyses of specific industries or sectors of the
economy), to construct an "action list" from which we make our buy decisions.
Although we will consider historical value measures, the primary factor in
selecting securities for investment by the Fund will be the company's current
price relative to its long-term earnings potential.
1. Source: National Bureau of Statistics, China.
2 | Annual Report
MANAGER'S DISCUSSION
During the year under review, the most significant detractors from the Fund's
absolute performance included Sinopec (China Petroleum and Chemical), the
country's largest integrated energy company, China Mobile, China's dominant
mobile services provider, and PetroChina, the country's largest oil and gas
company in terms of reserves. All three stocks significantly declined in value
during 2008. Commodity price corrections drove investors to reduce exposure to
energy stocks, and shares of Sinopec and PetroChina suffered, while general
global equity declines pressured shares of China Mobile. Although we trimmed the
Fund's holdings in China Mobile and PetroChina to meet funding requirements, we
believed that these companies were well positioned to benefit from continued
demand for their products and services over the longer term.
On the other hand, contributors to Fund performance included Cheung Kong
Infrastructure Holdings, China Huiyuan Juice Group and Honghua Group. Hong
Kong's Cheung Kong Infrastructure Holdings has a strong diversification strategy
that enabled the company to build a portfolio of infrastructure investments with
defensive earnings. The company also has a substantial holding in Hong Kong
Electric, one of the city's two electric utilities. China Huiyuan Juice Group is
the country's leading fruit and vegetable juice producer. News of Coca-Cola's
interest in acquiring the company substantially pushed up China Huiyuan Juice
Group's stock price. Shares of China's Honghua Group, the world's second-largest
land rig manufacturer, appreciated as investors recognized the company's notable
cost advantage over its competitors and its potential to benefit from growing
demand from oil and gas exploration companies in China and Russia.
During the reporting period, we increased the Fund's holdings in
consumer-related sectors that included automobile manufacturing, packaged foods
and meats, and life and health insurance companies. Some key investments were
Jiangling Motors, China Foods and China Life Insurance. We believe the long-term
outlook for consumerism remains attractive due to relatively higher per capita
income growth and continued demand for consumer goods and services in emerging
markets.
Jiangling Motors, a commercial vehicles and light trucks manufacturer, serves as
The Ford Motor Company's commercial vehicle production base in China. In our
view, the company could benefit from Ford in terms of management, technology
know-how and the introduction of new models. Based on our analysis, we also
believe that Jiangling Motors could gain from continued demand for multipurpose
vehicles from China's logistics industry. China Foods is the food and beverages
flagship company of state-owned COFCO
TOP 10 HOLDINGS
12/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
------------------------------------------------------ ----------
Dairy Farm International Holdings Ltd. 18.8%
FOOD & STAPLES RETAILING, HONG KONG
China Mobile Ltd. 10.9%
WIRELESS TELECOMMUNICATION SERVICES, CHINA
Sinopec (China Petroleum and Chemical Corp.), H 8.3%
OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 6.8%
OIL, GAS & CONSUMABLE FUELS, CHINA
CNOOC Ltd. 4.7%
OIL, GAS & CONSUMABLE FUELS, CHINA
Cheung Kong Infrastructure Holdings Ltd. 4.4%
ELECTRIC UTILITIES, HONG KONG
China Construction Bank Corp., H 3.9%
COMMERCIAL BANKS, CHINA
Hopewell Holdings Ltd. 3.3%
REAL ESTATE MANAGEMENT & DEVELOPMENT, HONG KONG
TSMC (Taiwan Semiconductor Manufacturing Co. Ltd.) 3.1%
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT, TAIWAN
Datang International Power Generation Co. Ltd., H 2.6%
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS, CHINA
Annual Report | 3
Group. Its core businesses include winery, Coca-Cola bottling, packaged edible
oil and confectionery. With strong market shares in all of its major business
areas, we believe China Foods is well positioned to take advantage of the
country's 1.3 billion consumer base. China Life Insurance is the country's
leading life insurance company with a dominant market position, extensive
national presence and growth potential, which led us to maintain a positive view
on the company's prospects.
To raise funds for dividend payments during the reporting period, we sold a
number of holdings. We sold some other stocks as they reached sale price
targets. As a result, the Fund's exposure to diversified banking, industrial
conglomerates and telecommunication services companies fell. Major sales
included part of China Mobile, Cheung Kong Infrastructure Holdings and leading
commercial bank China Construction Bank.
Thank you for your continued participation in Templeton Dragon Fund. We look
forward to serving your future investment needs.
Sincerely,
[PHOTO OF MARK MOBIUS]
-s- Mark Mobius
Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
4 | Annual Report
Performance Summary as of 12/31/08
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. Total
returns do not reflect any taxes that a shareholder would pay on Fund dividends,
capital gain distributions, if any, or any unrealized gains on the sale of Fund
shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: TDF CHANGE 12/31/08 12/31/07
------------------------------------- -------- -------- --------
Net Asset Value (NAV) -$ 15.94 $ 18.79 $ 34.73
Market Price (NYSE) -$ 13.68 $ 17.26 $ 30.94
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $ 0.5786
Short-Term Capital Gain $ 0.0567
Long-Term Capital Gain $ 1.0539
TOTAL $ 1.6892
PERFORMANCE
1-YEAR 5-YEAR 10-YEAR
-------- -------- -------
Cumulative Total Return (1)
Based on change in NAV (2) -42.17% +56.90% +271.12%
Based on change in market price (3) -39.68% +36.03% +411.25%
Average Annual Total Return (1)
Based on change in NAV (2) -42.17% +9.42% +14.01%
Based on change in market price (3) -39.68% +6.34% +17.72%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE
THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME
FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND
LESSER LIQUIDITY. ALSO, AS A NONDIVERSIFIED INVESTMENT COMPANY INVESTING IN
"CHINA COMPANIES," THE FUND MAY INVEST IN A RELATIVELY SMALL NUMBER OF ISSUERS
AND, AS A RESULT, BE SUBJECT TO A GREATER RISK OF LOSS WITH RESPECT TO ITS
PORTFOLIO SECURITIES.
1. Total return calculations represent the cumulative and average annual
changes in value of an investment over the periods indicated.
2. Assumes reinvestment of distributions based on net asset value.
3. Assumes reinvestment of distributions based on the dividend reinvestment
and cash purchase plan.
Annual Report | 5
Important Notice to Shareholders
SHARE REPURCHASE PROGRAM
The Fund's Board previously authorized management to implement an
open-market share repurchase program pursuant to which the Fund may
purchase Fund shares, from time to time, in open-market transactions, at
the discretion of management. This authorization remains in effect.
6 | Annual Report
Templeton Dragon Fund, Inc.
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
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2008 2007 2006 2005 2004
--------- ----------- ----------- --------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 34.73 $ 26.95 $ 21.80 $ 18.70 $ 16.62
--------- ----------- ----------- --------- ---------
Income from investment operations:
Net investment income (a) ........................... 0.55 0.58 0.38 0.59 0.25
Net realized and unrealized gains (losses) .......... (14.80) 10.44 7.12 3.28 2.39
--------- ----------- ----------- --------- ---------
Total from investment operations ...................... (14.25) 11.02 7.50 3.87 2.64
--------- ----------- ----------- --------- ---------
Less distributions from:
Net investment income ............................... (0.58) (0.33) (0.37) (0.41) (0.16)
Net realized gains .................................. (1.11) (2.91) (1.98) (0.36) (0.40)
--------- ----------- ----------- --------- ---------
Total distributions ................................... (1.69) (3.24) (2.35) (0.77) (0.56)
--------- ----------- ----------- --------- ---------
Net asset value, end of year .......................... $ 18.79 $ 34.73 $ 26.95 $ 21.80 $ 18.70
========= =========== =========== ========= =========
Market value, end of year (b) ......................... $ 17.26 $ 30.94 $ 26.26 $ 19.18 $ 17.47
========= =========== =========== ========= =========
Total return (based on market value per share) ........ (39.68)% 31.69% 49.56% 14.08% 0.36%
RATIOS TO AVERAGE NET ASSETS
Expenses (c) .......................................... 1.51% 1.47% 1.49% 1.52% 1.52%
Net investment income ................................. 2.05% 1.85% 1.61% 2.92% 1.45%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 711,753 $ 1,315,377 $ 1,017,910 $ 823,243 $ 706,138
Portfolio turnover rate ............................... 7.90% 15.66% 18.83% 8.84% 19.42%
(a) Based on average daily shares outstanding.
(b) Based on the last sale on the New York Stock Exchange.
(c) Benefit of expense reduction rounds to less than 0.01%.
Annual Report | The accompanying notes are an integral part of these
financial statements. | 7
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
COUNTRY SHARES/UNITS VALUE
--------- ------------ ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 98.8%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H ................................ China 4,063,000 $ 786,367
------------
AUTO COMPONENTS 1.8%
Cheng Shin Rubber Industry Co. Ltd. .............. Taiwan 12,778,099 10,994,429
Norstar Founders Group Ltd. ...................... Hong Kong 13,376,000 1,639,596
(a) Zhejiang Glass Co. Ltd., H ....................... China 2,154,000 383,541
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13,017,566
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AUTOMOBILES 1.9%
(a,b) Chongqing Changan Automobile Co. Ltd., B ......... China 4,395,302 952,764
Denway Motors Ltd. ............................... China 2,776,000 863,224
Dongfeng Motor Corp., H .......................... China 27,354,000 8,823,643
Great Wall Motor Co. Ltd., H ..................... China 2,496,000 869,552
Jiangling Motors Corp. Ltd., B ................... China 3,818,520 1,980,652
------------
13,489,835
------------
BEVERAGES 0.1%
Yantai Changyu Pioneer Wine Co. Ltd., B .......... China 182,800 641,552
------------
COMMERCIAL BANKS 8.1%
Bank of China Ltd., H ............................ China 56,321,000 15,406,122
China Construction Bank Corp., H ................. China 50,251,000 27,556,289
Industrial and Commercial Bank of China
Ltd., H ......................................... China 27,510,000 14,482,310
------------
57,444,721
------------
COMMUNICATIONS EQUIPMENT 0.3%
ZTE Corp., H ..................................... China 876,337 2,295,378
------------
COMPUTERS & PERIPHERALS 3.6%
Acer Inc. ........................................ Taiwan 3,245,905 4,218,934
Advantech Co. Ltd. ............................... Taiwan 1,813,561 2,628,349
Asustek Computer Inc. ............................ Taiwan 14,656,504 16,456,426
Lite-On IT Corp. ................................. Taiwan 6,206,598 2,499,682
------------
25,803,391
------------
DISTRIBUTORS 1.8%
China Resources Enterprise Ltd. .................. Hong Kong 5,818,000 10,149,333
Dah Chong Hong Holdings Ltd. ..................... Hong Kong 16,316,520 2,231,621
(c) Dah Chong Hong Holdings Ltd., 144A ............... Hong Kong 550,000 75,224
------------
12,456,178
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DIVERSIFIED TELECOMMUNICATION SERVICES 1.7%
China Telecom Corp. Ltd., H ...................... China 18,936,000 7,061,113
China Unicom (Hong Kong) Ltd. .................... China 4,430,752 5,316,765
------------
12,377,878
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ELECTRIC UTILITIES 4.4%
Cheung Kong Infrastructure Holdings Ltd. ......... Hong Kong 8,364,000 31,458,620
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ELECTRONIC EQUIPMENT & INSTRUMENTS 0.2%
Yorkey Optical International Cayman Ltd. ......... China 11,491,000 1,364,058
------------
8 | Annual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008 (CONTINUED)
COUNTRY SHARES/UNITS VALUE
--------- ------------ -------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ENERGY EQUIPMENT & SERVICES 0.0% (d)
Honghua Group Ltd. ............................................. China 2,026,000 $ 240,500
-------------
FOOD & STAPLES RETAILING 18.9%
Beijing Jingkelong Supermarket Chain Group Co. Ltd., H ......... China 1,870,000 651,467
Dairy Farm International Holdings Ltd. ........................ Hong Kong 31,360,578 133,909,668
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134,561,135
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FOOD PRODUCTS 1.6%
China Foods Ltd. ............................................... China 15,224,000 5,676,932
China Huiyuan Juice Group Ltd. ................................. China 806,000 1,007,734
People's Food Holdings Ltd. .................................... China 3,574,000 1,733,982
(a) Uni-President China Holdings Ltd. .............................. Taiwan 2,340,000 606,875
Uni-President Enterprises Corp. ................................ Taiwan 1,290,692 1,138,093
Xiwang Sugar Holdings Co. Ltd. ................................. Hong Kong 6,112,000 946,350
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11,109,966
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HOTELS, RESTAURANTS & LEISURE 0.3%
NagaCorp Ltd. .................................................. Cambodia 17,265,000 2,383,622
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INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 3.4%
Datang International Power Generation Co. Ltd., H .............. China 34,592,000 18,299,812
Guangdong Electric Power Development Co. Ltd., B ............... China 10,224,960 3,351,061
Huadian Power International Corp. Ltd., H ...................... China 6,578,000 1,570,192
Huaneng Power International Inc., H ............................ China 1,454,000 1,050,605
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24,271,670
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INDUSTRIAL CONGLOMERATES 2.2%
Shanghai Industrial Holdings Ltd. .............................. China 6,850,000 15,644,112
-------------
INSURANCE 1.4%
China Life Insurance Co. Ltd., H ............................... China 3,372,000 10,246,265
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IT SERVICES 0.3%
Travelsky Technology Ltd., H ................................... China 5,574,000 2,445,305
-------------
MACHINERY 1.4%
China International Marine Containers (Group) Co. Ltd., B ...... China 11,778,895 6,383,237
Lonking Holdings Ltd. .......................................... China 3,020,000 1,546,979
Mirle Automation Corp. ......................................... Taiwan 679,000 363,584
Shin Zu Shing Co. Ltd. ......................................... Taiwan 714,637 1,787,955
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10,081,755
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MARINE 0.1%
Sinotrans Shipping Ltd. ........................................ Hong Kong 3,090,500 785,565
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MEDIA 0.1%
Next Media Ltd. ................................................ Hong Kong 5,588,000 648,912
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OIL, GAS & CONSUMABLE FUELS 22.8%
China Coal Energy Co., H ....................................... China 891,000 709,333
China Petroleum and Chemical Corp., H .......................... China 97,904,000 59,246,182
China Shenhua Energy Co. Ltd., H ............................... China 6,125,500 12,962,014
CNOOC Ltd. ..................................................... China 35,637,000 33,290,996
Annual Report | 9
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008 (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ -------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
PetroChina Co. Ltd., H ............................. China 55,370,000 $ 48,510,012
Yanzhou Coal Mining Co. Ltd., H .................... China 9,996,000 7,338,809
-------------
162,057,346
-------------
PHARMACEUTICALS 0.1%
Tong Ren Tang Technologies Co. Ltd., H ............. China 679,000 551,947
-------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 5.1%
Cheung Kong (Holdings) Ltd. ........................ Hong Kong 954,000 9,022,761
Hopewell Holdings Ltd. ............................. Hong Kong 7,088,000 23,321,205
Soho China Ltd. .................................... China 7,878,500 3,385,126
(c) Soho China Ltd., 144A .............................. China 764,000 328,265
-------------
36,057,357
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.9%
MediaTek Inc. ...................................... Taiwan 383,800 2,582,087
Novatek Microelectronics Corp. Ltd. ................ Taiwan 2,875,766 2,728,797
Taiwan Semiconductor Manufacturing Co. Ltd. ........ Taiwan 16,295,661 22,075,587
-------------
27,386,471
-------------
SOFTWARE 0.4%
Kingdee International Software Group Co. Ltd.,
fgn. .............................................. Hong Kong 8,862,000 914,763
(a) Shanda Interactive Entertainment Ltd., ADR ......... China 47,400 1,533,864
-------------
2,448,627
-------------
TEXTILES, APPAREL & LUXURY GOODS 0.2%
Tainan Enterprises Co. Ltd. ........................ Taiwan 1,657,443 864,753
Weiqiao Textile Co. Ltd., H ........................ China 1,556,000 538,061
-------------
1,402,814
-------------
TRANSPORTATION INFRASTRUCTURE 1.1%
Cosco Pacific Ltd. ................................. China 6,710,000 6,848,352
(c) Rickmers Maritime, 144A (Trust Units) .............. Singapore 2,904,000 790,618
-------------
7,638,970
-------------
WIRELESS TELECOMMUNICATION SERVICES 11.5%
China Mobile Ltd. .................................. China 7,731,500 77,612,281
Taiwan Mobile Co. Ltd. ............................. Taiwan 2,972,831 4,417,296
-------------
82,029,577
-------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $483,708,311) ................................ 703,127,460
-------------
SHORT TERM INVESTMENTS (COST $9,767,782) 1.4%
MONEY MARKET FUNDS 1.4%
(e) Franklin Institutional Fiduciary Trust Money Market
Portfolio, 0.55% .................................. United States 9,767,782 9,767,782
-------------
TOTAL INVESTMENTS (COST $493,476,093) 100.2% ....... 712,895,242
OTHER ASSETS, LESS LIABILITIES (0.2)% .............. (1,141,809)
-------------
NET ASSETS 100.0% .................................. $ 711,753,433
=============
10 | Annual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008 (CONTINUED)
See Abbreviations on page 22.
(a) Non-income producing for the twelve months ended December 31, 2008.
(b) Security has been deemed illiquid because it may not be able to be sold
within seven days. At December 31, 2008, the value of this security was
$952,764, representing 0.13% of net assets.
(c) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Directors. At December 31, 2008,
the aggregate value of these securities was $1,194,107, representing 0.17%
of net assets.
(d) Rounds to less than 0.1% of net assets.
(e) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
Annual Report | The accompanying notes are an integral part of these
financial statements. | 11
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................ $483,708,311
Cost - Sweep Money Fund (Note 7) ........................... 9,767,782
------------
Total cost of investments .................................. $493,476,093
============
Value - Unaffiliated issuers ............................... $703,127,460
Value - Sweep Money Fund (Note 7) .......................... 9,767,782
------------
Total value of investments ................................. 712,895,242
Foreign currency, at value (cost $134) ....................... 134
------------
Total assets ............................................ 712,895,376
------------
Liabilities:
Payables:
Affiliates ................................................. 826,940
Custodian fees (Note 4) .................................... 103,859
Professional fees .......................................... 147,247
Accrued expenses and other liabilities ....................... 63,897
------------
Total liabilities ....................................... 1,141,943
------------
Net assets, at value .................................. $711,753,433
============
Net assets consist of:
Paid-in capital .............................................. $458,954,780
Undistributed net investment income .......................... 20,640,217
Net unrealized appreciation (depreciation) ................... 219,419,149
Accumulated net realized gain (loss) ......................... 12,739,287
============
Net assets, at value .................................. $711,753,433
============
Shares outstanding ........................................... 37,873,327
============
Net asset value per share .................................... $ 18.79
============
12 | The accompanying notes are an integral part of these
financial statements. | Annual Report
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended December 31, 2008
Investment income:
Dividends (net of foreign taxes of $1,802,607)
Unaffiliated issuers ............................................. $ 35,852,483
Sweep Money Fund (Note 7) ........................................ 301,527
Interest ........................................................... 822
-------------
Total investment income ....................................... 36,154,832
-------------
Expenses:
Management fees (Note 3a) .......................................... 12,639,878
Administrative fees (Note 3b) ...................................... 1,528,925
Transfer agent fees ................................................ 233,861
Custodian fees (Note 4) ............................................ 464,488
Reports to shareholders ............................................ 66,345
Registration and filing fees ....................................... 35,708
Professional fees .................................................. 254,486
Directors' fees and expenses ....................................... 95,522
Other .............................................................. 42,677
-------------
Total expenses ................................................ 15,361,890
Expense reductions (Note 4) ................................... (3,282)
-------------
Net expenses ................................................ 15,358,608
-------------
Net investment income .................................... 20,796,224
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................................... 12,899,318
Foreign currency transactions .................................... (106,608)
-------------
Net realized gain (loss).................................. 12,792,710
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ...................................................... (573,236,324)
Translation of other assets and liabilities denominated in foreign
currencies ...................................................... (776)
-------------
Net change in unrealized appreciation (depreciation) ..... (573,237,100)
-------------
Net realized and unrealized gain (loss) ............................... (560,444,390)
-------------
Net increase (decrease) in net assets resulting from operations ....... $(539,648,166)
=============
Annual Report | The accompanying notes are an integral part of these
financial statements. | 13
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
----------------------------------
2008 2007
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 20,796,224 $ 21,951,375
Net realized gain (loss) from investments and foreign currency
transactions ............................................................... 12,792,710 118,772,230
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies ................................................................. (573,237,100) 276,726,468
----------------------------------
Net increase (decrease) in net assets resulting from operations ........ (539,648,166) 417,450,073
----------------------------------
Distributions to shareholders from:
Net investment income ....................................................... (21,913,507) (12,645,904)
Net realized gains .......................................................... (42,062,117) (110,120,527)
----------------------------------
Total distributions to shareholders ........................................... (63,975,624) (122,766,431)
----------------------------------
Capital share transactions from (Note 2) ...................................... -- 2,783,627
----------------------------------
Net increase (decrease) in net assets .................................. (603,623,790) 297,467,269
Net assets:
Beginning of year ............................................................. 1,315,377,223 1,017,909,954
----------------------------------
End of year ................................................................... $ 711,753,433 $ 1,315,377,223
==================================
Undistributed net investment income included in net assets:
End of year ................................................................... $ 20,640,217 $ 21,911,851
==================================
14 | The accompanying notes are an integral part of these
financial statements. | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (Fund) is registered under the Investment Company
Act of 1940, as amended, (1940 Act) as a closed-end investment company.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Fund's Board of Directors.
Annual Report | 15
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Directors.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
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 and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
16 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES (CONTINUED)
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of December 31, 2008, and has
determined that no provision for income tax is required in the Fund's financial
statements.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. Currently, the Fund expects the
risk of loss to be remote.
Annual Report | 17
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK
At December 31, 2008, there were 100 million shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2008 2007
-------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------- -----------
Shares issued in reinvestment
of distributions ........................ -- $ -- 103,212 $ 2,783,627
The Fund's Board of Directors previously authorized an open-market share
repurchase program pursuant to which the Fund may purchase, from time to time,
Fund shares in open-market transactions, at the discretion of management. This
authorization remains in effect. During the years ended December 31, 2008 and
December 31, 2007, there were no shares repurchased.
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
---------------------------------------------- ----------------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
------------------- ------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.15% per year of the
average weekly net assets, of which 0.10% is paid to Nomura Asset Management
U.S.A. Inc., for sub-administrative services.
18 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended December 31, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, realized capital losses and realized currency losses occurring
subsequent to October 31, may be deferred and treated as occurring on the first
day of the following fiscal year. At December 31, 2008, the Fund deferred
realized capital losses and realized currency losses of $1,119,925 and $11,962,
respectively.
The tax character of distributions paid during the years ended December 31, 2008
and 2007, was as follows:
2008 2007
------------ -------------
Distributions paid from:
Ordinary income ........... $ 24,060,925 $ 27,708,126
Long term capital gain .... 39,914,699 95,058,305
------------ -------------
$ 63,975,624 $ 122,766,431
============ =============
At December 31, 2008, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ........................ $ 493,905,413
=============
Unrealized appreciation .................... $ 311,528,019
Unrealized depreciation .................... (92,538,190)
-------------
Net unrealized appreciation
(depreciation) ............................ $ 218,989,829
=============
Undistributed ordinary income .............. $ 20,909,458
Undistributed long term capital gains ...... 14,031,255
-------------
Distributable earnings ..................... $ 34,940,713
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
Annual Report | 19
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended December 31, 2008, aggregated $80,126,110 and $120,126,815,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin
Advisers, Inc. (an affiliate of the investment manager). Management fees paid by
the Fund are reduced on assets invested in the Sweep Money Fund, in an amount
not to exceed the management and administrative fees paid by the Sweep Money
Fund.
8. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
9. REORGANIZATION TO A DELAWARE STATUTORY TRUST
On May 29, 2002, the Board of Directors approved an Agreement and Plan of
Reorganization (Agreement) whereby the Fund would be reorganized and its
domicile changed from a Maryland corporation to a Delaware statutory trust. The
completion of the reorganization is pending guidance from the National Tax
Agency in Japan relating to the tax treatment of the Plan under Japanese laws
with respect to the Fund's Japanese shareholders. If and when the reorganization
is completed, the Delaware statutory trust will be the successor to the Fund.
10. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.
20 | Annual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FAIR VALUE MEASUREMENTS (CONTINUED)
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates, prepayment speed,
credit risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of December 31, 2008, in
valuing the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- ------- --------- -------------
ASSETS:
Investments in
Securities $ 711,942,478 $ -- $ 952,764 $ 712,895,242
At December 31, 2008, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining fair value, is as
follows:
INVESTMENTS
IN SECURITIES
-------------
Beginning Balance - January 1, 2008 .................... $ --
Net realized gain (loss) ............................ --
Net change in unrealized appreciation
(depreciation) ..................................... 50
Net purchases (sales) ............................... --
Transfers in and/or out of Level 3 .................. 952,714
-------------
Ending Balance ......................................... $ 952,764
=============
Net change in unrealized appreciation (depreciation)
attributable to assets still held at end of year .... $ 50
=============
11. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Fund is currently evaluating the impact, if any, of
applying the various provisions of SFAS 161.
Annual Report | 21
Templeton Dragon Fund, Inc.
ABBREVIATIONS
SELECTED PORTFOLIO
ADR - American Depository Receipt
22 | Annual Report
Templeton Dragon Fund, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON DRAGON FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Dragon Fund, Inc. (the
"Fund") at December 31, 2008, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2008 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2009
Annual Report | 23
Templeton Dragon Fund, Inc.
ANNUAL MEETING OF SHAREHOLDERS, MAY 30, 2008
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Fort Lauderdale, Florida on May 30, 2008. The purpose of
the meeting was to elect four Directors of the Fund and to consider the approval
or rejection of a shareholder proposal to request that the Board of Directors
consider approving, and submitting for shareholder approval at a future
shareholder meeting, a proposal to convert the Fund from a closed-end fund to an
open-end fund. At the meeting, the following persons were elected by the
shareholders to serve as Directors of the Fund: Harris J. Ashton, Ann Torre
Bates, Frank J. Crothers and Constantine D. Tseretopoulos.* Shareholders voted
to reject the proposal to request that the Board of Directors consider
approving, and submitting for shareholder approval at a future shareholder
meeting, a proposal to convert the Fund from a closed-end fund to an open-end
fund. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
Proposal 1 - The election of four Directors:
% OF % OF SHARES % OF % OF SHARES
OUTSTANDING PRESENT OUTSTANDING PRESENT
FOR SHARES AND VOTING WITHHELD SHARES AND VOTING
---------- ----------- ----------- --------- ----------- -----------
TERM EXPIRING 2011
Harris J. Ashton ................ 32,250,538 85.15% 96.67% 1,109,860 2.93% 3.33%
Frank J. Crothers ............... 32,264,767 85.19% 96.72% 1,095,631 2.89% 3.28%
Constantine D. Tseretopoulos .... 32,274,885 85.22% 96.75% 1,085,513 2.87% 3.25%
TERM EXPIRING 2009
Ann Torre Bates ................. 32,284,244 85.24% 96.77% 1,076,154 2.84% 3.23%
Proposal 2 - The rejection of a shareholder proposal to request that the Board
of Directors consider approving, and submitting for shareholder approval at a
future shareholder meeting, a proposal to convert the Fund from a closed-end
fund to an open-end fund:
% OF % OF SHARES
SHARES OUTSTANDING PRESENT
VOTED SHARES AND VOTING
---------- ----------- -----------
For .............................. 6,856,747 18.10% 42.03%
Against .......................... 9,458,807 24.97% 57.97%
Abstain .......................... 315,071 0.83% N/A
Broker Non-Votes ................. 21,242,699 56.09% N/A
Note: Due to rounding, totals may not necessarily agree with the arithmetic sum
of the figures.
* Edith E. Holiday, Charles B. Johnson, Gregory E. Johnson, David W.
Niemiec, Frank A. Olson, Larry D. Thompson and Robert E. Wade, are
Directors of the Fund who are currently serving and whose terms of office
continued after the Annual Meeting of Shareholders.
24 | Annual Report
Templeton Dragon Fund, Inc.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund offers a Dividend Reinvestment and Cash Purchase 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.
Shareholders holding their shares through Japan Securities Depository Center,
Inc., will not be enrolled in the Plan unless certain conditions are met and
they elect to participate. If 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 BNY Mellon Shareowner Services, P.O. Box 358035,
Pittsburgh, PA 15252-8035, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify The
Bank of New York Mellon (the "Plan Administrator") at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice within ten business days before the record date for a
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 at the valuation
date, the participant will receive the dividends entirely in stock at a price
equal to the net asset value, but not less than 95% of the then current market
price of the Fund's shares. If the market price is lower than net asset value or
if dividends and/or capital gains distributions are payable only in cash, the
participant will receive shares purchased on the New York Stock Exchange or
otherwise on the open market.
A participant has the option of submitting additional payments to the Plan
Administrator, in any amounts of at least $100, up to a maximum of $5,000 per
month, for the purchase of Fund shares for his or her account. These payments
shall be made by check or money order payable to The Bank of New York Mellon and
sent to BNY Mellon Shareowner Services, P.O. Box 382009, Pittsburgh, PA
15250-8009, Attention: Templeton Dragon Fund, Inc. The Plan Administrator will
apply such payments (less a $5.00 service charge and less a pro rata share of
trading fees) to purchases of the Fund's shares on the open market.
Whenever shares are purchased on the New York Stock Exchange or otherwise on the
open market, each participant will pay a pro rata portion of trading fees.
Trading fees will be deducted from amounts to be invested.
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.
Annual Report | 25
Templeton Dragon Fund, Inc.
DIRECT DEPOSIT SERVICE FOR REGISTERED SHAREHOLDERS
Cash distributions can now be electronically credited to a checking or savings
account at any financial institution that participates in the Automated Clearing
House ("ACH") system. The Direct Deposit service is provided for registered
shareholders at no charge. To enroll in the service, access your account online
by going to http://vault.bnymellon.com/isd or dial 1-800-416-5585 (toll free)
and follow the instructions. Direct Deposit will begin with the next scheduled
distribution payment date following enrollment in the service.
26 | Annual Report
Templeton Dragon Fund, Inc.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358035
Pittsburgh, PA 15252-8035
1-800-416-5585
www.bnymellon.com
DIRECT REGISTRATION
If you are a registered shareholder of the Fund, purchases of shares of the Fund
can be electronically credited to your Fund account at BNY Mellon Shareowner
Services through Direct Registration. This service provides shareholders with a
convenient way to keep track of shares through book entry transactions, to
electronically move book-entry shares between broker-dealers, transfer agents
and DRS eligible issuers, and eliminates the possibility of lost certificates.
For additional information, please contact BNY Mellon Shareowner Services at
1-800-416-5585.
SHAREHOLDER INFORMATION
Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange
under the symbol TDF. The Fund's shares are also listed and traded in Japan on
the Osaka Securities Exchange Co., Ltd. Information about the net asset value
and the market price is published each Monday in the WALL STREET JOURNAL, weekly
in BARRON'S and each Saturday in THE NEW YORK TIMES and other newspapers. Daily
market prices for the Fund's shares are published in the New York Stock Exchange
Composite Transactions section of newspapers.
For current information about distributions and shareholder accounts, call
1-800-416-5585. Registered shareholders can now access their Fund account
on-line with INVESTOR SERVICE DIRECT(R). For information go to BNY Mellon
Shareowner Services' web site at http://vault.bnymellon.com/isd and follow the
instructions.
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 7
a.m. Pacific time any business day at 1-800/DIAL BEN(R) (1-800-342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
Shareholders not receiving copies of the reports to shareholders because their
shares are registered in the name of a broker or a custodian can request that
they be added to the Fund's mailing list by writing Templeton Dragon Fund, Inc.,
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
Annual Report | 27
Templeton Dragon Fund, Inc.
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $39,914,699 as a long
term capital gain dividend for the fiscal year ended December 31, 2008.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $2,147,418 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2008.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $6,101,798 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
December 31, 2008. Distributions, including qualified dividend income, paid
during calendar year 2008 will be reported to shareholders on Form 1099-DIV in
January 2009. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $179,807 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended December 31, 2008.
28 | Annual Report
Templeton Dragon Fund, Inc.
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves a three-year term that continues until that person's
successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------- -------- ----------- ----------------------- -----------------------------------
HARRIS J. ASHTON (1932) Director Since 1994 138 Bar-S Foods (meat packing company).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank
holding company) (until 2002); and President, Chief Executive Officer and
Chairman of the Board, General Host Corporation (nursery and craft centers)
(Until 1998).
ANN TORRE BATES (1958) Director Since 2008 30 SLM Corporation (Sallie Mae) and
500 East Broward Blvd. Allied Capital Corporation (financial
Suite 2100 services).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Independent strategic and financial consultant; and FORMERLY, Executive Vice
President and Chief Financial Officer, NHP Incorporated (manager of multifamily
housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (Until
1995).
FRANK J. CROTHERS (1944) Director Since 1998 23 Fortis, Inc. (utility holding company), Victory
500 East Broward Blvd. Nickel Inc. (mineral exploration) and ABACO
Suite 2100 Markets Limited (retail distributors).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Vice Chairman, Caribbean Utilities Company, Ltd. and director of
various other private business And Nonprofit organizations.
EDITH E. HOLIDAY (1952) Lead Director since 1996 and 138 Hess Corporation (exploration and
500 East Broward Blvd. Independent Lead Independent Director refining of oil and gas), H.J. Heinz
Suite 2100 Director since 2007 Company (processed foods and allied
Fort Lauderdale, FL 33394-3091 products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National Railway
(railroad) and White Mountains Insurance
Group, Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, 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).
Annual Report | 29
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------- -------- ----------- ----------------------- ------------------------------------------------
DAVID W. NIEMIEC (1949) Director Since 2005 23 Emeritus Corporation (assisted living) and OSI
500 East Broward Blvd. Pharmaceuticals, Inc. (pharmaceutical products).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); and FORMERLY, Managing
Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon Read (investment
banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment
banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc.
(1982-1997).
FRANK A. OLSON (1932) Director Since 2003 138 Hess Corporation (exploration and refining of oil and gas)
500 East Broward Blvd. and Sentient Jet (private jet service).
Suite 2100
Fort Lauderdale,FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of
the Board (1980-2000) and Chief Executive Officer (1977-1999); and FORMERLY,
Chairman of the Board, President and Chief Executive Officer, UAL Corporation
(airlines).
LARRY D. THOMPSON (1945) Director Since 2005 145 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary,
PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines
(aviation) (2003-2005) and Providian Financial Corp. (credit card provider)
(1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting
Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
CONSTANTINE D. TSERETOPOULOS Director Since 1997 23 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit
organizations; and FORMERLY, Cardiology Fellow, University of Maryland
(1985-1987) and Internal Medicine Resident, Greater Baltimore Medical
Center (1982-1985).
ROBERT E. WADE (1946) Director Since 2006 37 El Oro and Exploration Co., p.l.c.
500 East Broward Blvd. (investments).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired, former practicing attorney.
30 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------- -------------- ----------- ----------------------- ------------------------
**CHARLES B. JOHNSON Director and Since 1994 138 None
(1933)
One Franklin Parkway Vice President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 42 of the investment companies in Franklin
Templeton Investments.
**GREGORY E. JOHNSON Director Since 2006 92 None
(1961)
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.;
President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.;
and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies
in Franklin Templeton Investments.
JENNIFER J. BOLT (1964) Chief Since Not Applicable Not Applicable
One Franklin Parkway Executive December 2008
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President - Operations and Technology, Franklin Resources, Inc.;
Director, Templeton Global Advisors Limited; officer and/or director, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; Officer of Some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
Companies in Franklin Templeton Investments; and FORMERLY, Director of
Compliance, Franklin Resources, Inc. (1994-2001).
LAURA F. FERGERSON (1962) Chief Financial Since Not Applicable Not Applicable
One Franklin Parkway Officer and February 2008
San Mateo, CA 94403-1906 Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Director
and Member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of Most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
Annual Report | 31
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------ -------------- ------------- ----------------------- ------------------------
JIMMY D. GAMBILL (1947) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. February 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton
Worldwide, Inc.; and officer of some of the Other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton
Investments.
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or
director, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton
INVESTMENTS.
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior
Vice President, Franklin Advisory Services, LLC; and Officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 44 of the investment companies in Franklin Templeton
Investments.
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin
Templeton Services, LLC; and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 32 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Vice President and Controller, Keystone
Group, Inc.
MARK MOBIUS (1936) President President since Not Applicable Not Applicable
17th Floor, and Chief 1994 and Chief
The Chater House Executive Executive Officer -
8 Connaught Road Officer - Investment
Central, Hong Kong Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Executive Chairman,
Templeton Asset Management Ltd.; and officer and/or director, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of
the investment companies in Franklin Templeton Investments; 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).
32 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------ -------------- ------------- ----------------------- ------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant
Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton
Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary
Trust International of the South; and officer of 14 of the investment companies
in Franklin Templeton Investments.
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 18 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Vice
President, JPMorgan Chase (2000-2004) and American General Financial Group
(1991-2000).
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer
of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Partner,
Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager. Gregory E.
Johnson is considered to be an interested person of the Fund under the
federal securities laws due to his position as an officer and director of
Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson and Jennifer J.
Bolt.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF ANN TORRE BATES AND DAVID W. NIEMIEC AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MS. BATES AND MR. NIEMIEC QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MS. BATES HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE JANUARY 2008.
SHE CURRENTLY SERVES AS A DIRECTOR OF SLM CORPORATION AND ALLIED CAPITAL
CORPORATION AND WAS FORMERLY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER OF NHP INCORPORATED AND VICE PRESIDENT AND TREASURER OF US AIRWAYS, INC.
MR. NIEMIEC HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005,
CURRENTLY SERVES AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY ITS
MANAGING DIRECTOR FROM 1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS
CORPORATION AND OSI PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS
FORMERLY MANAGING DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS
VICE CHAIRMAN FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF
DILLON, READ & CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD
BELIEVES THAT MS. BATES AND MR. NIEMIEC HAVE EACH ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MS. BATES AND MR. NIEMIEC ARE INDEPENDENT BOARD MEMBERS AS
THAT TERM IS DEFINED UNDER THE APPLICABLE U.S. SECURITIES AND EXCHANGE
COMMISSION RULES AND RELEASES OR THE LISTING STANDARDS APPLICABLE TO THE FUND.
Annual Report | 33
Templeton Dragon Fund, Inc.
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Fund uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Fund's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at (954) 527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling (800)
SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the U.S. Securities and Exchange Commission to provide certain certifications
with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's
annual and semiannual reports to shareholders) that are filed semiannually with
the Commission. The Fund has filed such certifications with its Form N-CSRS for
the six months ended June 30, 2008. Additionally, the Fund expects to file, on
or about February 28, 2009, such certifications with its Form N-CSR for the year
ended December 31, 2008.
34 | Annual Report
[FRANKLIN LOGO] 100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
ANNUAL REPORT AND SHAREHOLDER INFORMATION
TEMPLETON DRAGON FUND, INC.
INVESTMENT MANAGER
Templeton Asset Management Ltd.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Toll free number: (800) 416-5585
Hearing Impaired phone number: (800) 231-5469
Foreign Shareholders phone number: (201) 680-6578
www.bnymellon.com
Investors should be aware that the value of investments made for the Fund may
go down as well as up. Like any investment in securities, the value of the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors. The Fund and its investors are not
protected from such losses by the investment manager. Therefore, investors who
cannot accept this risk 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
identified by the presence of a regular beeping tone.
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is David W. Niemiec and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $66,280 for the fiscal year ended December 31, 2008 and $57,775 for the
fiscal year ended December 31, 2007.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $4,000 for the fiscal year ended
December 31, 2008 and $46,000 for the fiscal year ended December 31, 2007. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $930 for the fiscal year ended December 31,
2008 and $0 for the fiscal year ended December 31, 2007. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $283,147 for the fiscal
year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007.
The services for which these fees were paid included review of materials
provided to the fund Board in connect with the investment management contract
renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $288,077 for the fiscal year ended December 31, 2008 and $46,000
for the fiscal year ended December 31, 2007.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Members of the Audit Committee are: Ann Torre Bates, Frank J. Crothers, David W.
Niemiec and Constantine D. Tseretopoulos
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The board of directors of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Templeton Asset Management Ltd. in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies. The manager votes proxies solely in the interests
of the Fund and its shareholders.
To assist it in analyzing proxies, the manager subscribes to RiskMetrics Group
(RiskMetrics), an unaffiliated third party corporate governance research service
that provides in-depth analyses of shareholder meeting agendas, vote
recommendations, recordkeeping and vote disclosure services. In addition, the
manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. As a matter of policy, the
officers, directors/trustees and employees of the manager and the Proxy Group
will not be influenced by outside sources whose interests conflict with the
interests of the Fund and its shareholders. Efforts are made to resolve all
conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client,
distributor, broker dealer and vendor lists, information periodically gathered
from directors and officers, and information derived from other sources,
including public filings. In situations where a material conflict of interest is
identified, the Proxy Group may defer to the voting recommendation of
RiskMetrics, Glass Lewis or those of another independent third party provider of
proxy services; or send the proxy directly to the Fund with the manager's
recommendation regarding the vote for approval. If the conflict is not resolved
by the Fund, the Proxy Group may refer the matter, along with the recommended
course of action by the manager, if any, to an interdepartmental Proxy Review
Committee (which may include portfolio managers and/or research analysts
employed by the manager), for evaluation and voting instructions. The Proxy
Review Committee may defer to the voting recommendation of RiskMetrics, Glass
Lewis or those of another independent third party provider of proxy services; or
send the proxy directly to the Fund. Where the Proxy Group or the Proxy Review
Committee refers a matter to the Fund, it may rely upon the instructions of a
representative of the Fund, such as the board of directors or a committee of the
board.
Where a material conflict of interest has been identified, but the items on
which the manager's vote recommendations differ from Glass Lewis, RiskMetrics,
or another independent third party provider of proxy services relate
specifically to (1) shareholder proposals regarding social or environmental
issues or political contributions, (2) "Other Business" without describing the
matters that might be considered, or (3) items the manager wishes to vote in
opposition to the recommendations of an issuer's management, the Proxy Group may
defer to the vote recommendations of the manager rather than sending the proxy
directly to the Fund for approval.
To avoid certain potential conflicts of interest, the manager will employ echo
voting, if possible, in the following instances: (1) when the Fund invests in an
underlying fund in reliance on any one of Sections 12(d)(1)(E), (F), or (G) of
the 1940 Act, or pursuant to an SEC exemptive order; (2) when the Fund invests
uninvested cash in affiliated money market funds pursuant to an SEC exemptive
order ("cash sweep arrangement"); or (3) when required pursuant to the Fund's
governing documents or applicable law. Echo voting means that the investment
manager will vote the shares in the same proportion as the vote of all of the
other holders of the Fund's shares.
The recommendation of management on any issue is a factor that the manager
considers in determining how proxies should be voted. However, the manager does
not consider recommendations from management to be determinative of the
manager's ultimate decision. As a matter of practice, the votes with respect to
most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager will consider
withholding votes from directors who have attended less than 75% of meetings
without a valid reason. While generally in favor of separating Chairman and CEO
positions, the manager will review this issue as well as proposals to restore or
provide for cumulative voting on a case-by-case basis, taking into consideration
factors such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. The manager will closely
scrutinize the role and performance of auditors. On a case-by-case basis, the
manager will examine proposals relating to non-audit relationships and non-audit
fees. The manager will also consider, on a case-by-case basis, proposals to
rotate auditors, and will vote against the ratification of auditors when there
is clear and compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with the shareholders' long-term interests. The manager
believes that executive compensation should be directly linked to the
performance of the company. The manager evaluates plans on a case-by-case basis
by considering several factors to determine whether the plan is fair and
reasonable, including the RiskMetrics quantitative model utilized to assess such
plans and/or the Glass Lewis evaluation of the plans. The manager will generally
oppose plans that have the potential to be excessively dilutive, and will almost
always oppose plans that are structured to allow the repricing of underwater
options, or plans that have an automatic share replenishment "evergreen"
feature. The manager will generally support employee stock option plans in which
the purchase price is at least 85% of fair market value, and when potential
dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. However, as
with all proxy issues, the manager conducts an independent review of each
anti-takeover proposal. On occasion, the manager may vote with management when
the research analyst has concluded that the proposal is not onerous and would
not harm the Fund or its shareholders' interests. The manager generally supports
proposals that require shareholder rights' plans ("poison pills") to be subject
to a shareholder vote and will closely evaluate such plans on a case-by-case
basis to determine whether or not they warrant support. In addition, the manager
will generally vote against any proposal to issue stock that has unequal or
subordinate voting rights. The manager generally opposes any supermajority
voting requirements as well as the payment of "greenmail." The manager generally
supports "fair price" provisions and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager realizes that a company's financing
decisions have a significant impact on its shareholders, particularly when they
involve the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase. The manager will generally not vote in favor of dual-class capital
structures to increase the number of authorized shares where that class of stock
would have superior voting rights. The manager will generally vote in favor of
the issuance of preferred stock in cases where the company specifies the voting,
dividend, conversion and other rights of such stock and the terms of the
preferred stock issuance are deemed reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether they would be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring proposals are also subject to a thorough examination on
a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
the manager's proxy voting decisions for international investments. However, the
manager must be flexible in these instances and must be mindful of the varied
market practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign issuers. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at (954)527-7678 or by sending a written request
to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500,
Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy
voting records are available online at franklintempleton.com and posted on the
SEC website at WWW.SEC.GOV. The proxy voting records are updated each year by
August 31 to reflect the most recent 12-month period ended June 30.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANY AND
AFFILIATED PURCHASERS.
(a)(1) As of February 28, 2009, the portfolio managers of the Fund are as
follows:
MARK MOBIUS, PH.D., EXECUTIVE CHAIRMAN OF TEMPLETON ASSET MANAGEMENT LTD.
Dr. Mobius has been a manager of the Fund since inception. He has overall
authority for supervising the team allocating the investments of the Fund. He
has final responsibility over all aspects of the Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which he may
perform these functions, and the nature of these functions, may change from time
to time. Dr. Mobius joined Franklin Templeton Investments in 1987.
EDDIE CHOW, INVESTMENT ANALYST OF TEMPLETON ASSET MANAGEMENT LTD.
Mr. Chow heads the team with primary responsibility for allocation of
investments for the Fund. He has been working on the Fund since 2000 providing
research and advice on the purchases and sales of individual securities, and
portfolio risk assessment. Mr. Chow joined Franklin Templeton Investments in
1994.
(a)(2) This section reflects information about the portfolio managers as of
December 31, 2008.
The following table shows the number of other accounts managed by each portfolio
manager and the total assets in the accounts managed within each category:
--------------------------------------------------------------------------------------------------------
ASSETS ASSETS OF
NUMBER OF OTHER OTHER POOLED ASSETS OF
OF OTHER REGISTERED NUMBER OF INVESTMENTS OTHER
REGISTERED INVESTMENT OTHER POOLED VEHICLES NUMBER OF ACCOUNTS
INVESTMENT COMPANIES INVESTMENT MANAGED OTHERS MANAGED
COMPANIES MANAGED VEHICLES (X $1 ACCOUNTS (X $1
NAME MANAGED (x $1 MILLION) MANAGED/1 MILLION)/1 MANAGED/1 MILLION)/1
-----------------------------------------------------------------------------------------------------------
Mark Mobius 11 4,848.4 30 9,282.2 6 933.9
-----------------------------------------------------------------------------------------------------------
Eddie Chow 1 506.9 2 554.8 N/A 0
-----------------------------------------------------------------------------------------------------------
1. The various pooled investment vehicles and accounts listed are managed by a
team of investment professionals. Accordingly, the portfolio manager listed
would not be solely responsible for managing such listed amounts.
Portfolio managers that provide investment services to the Fund may also provide
services to a variety of other investment products, including other funds,
institutional accounts and private accounts. The advisory fees for some of such
other products and accounts may be different than that charged to the Fund and
may include performance based compensation. This may result in fees that are
higher (or lower) than the advisory fees paid by the Fund. As a matter of
policy, each fund or account is managed solely for the benefit of the beneficial
owners thereof. As discussed below, the separation of the trading execution
function from the portfolio management function and the application of
objectively based trade allocation procedures help to mitigate potential
conflicts of interest that may arise as a result of the portfolio managers
managing accounts with different advisory fees.
CONFLICTS. The management of multiple funds, including the Fund, and accounts
may also give rise to potential conflicts of interest if the funds and other
accounts have different objectives, benchmarks, time horizons, and fees as the
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. The manager seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment strategies
that are used in connection with the management of the Fund. Accordingly,
portfolio holdings, position sizes, and industry and sector exposures tend to be
similar across similar portfolios, which may minimize the potential for
conflicts of interest. As noted above, the separate management of the trade
execution and valuation functions from the portfolio management process also
helps to reduce potential conflicts of interest. However, securities selected
for funds or accounts other than the Fund may outperform the securities selected
for the Fund. Moreover, if a portfolio manager identifies a limited investment
opportunity that may be suitable for more than one fund or other account, the
Fund may not be able to take full advantage of that opportunity due to an
allocation of that opportunity across all eligible funds and other accounts. The
manager seeks to manage such potential conflicts by using procedures intended to
provide a fair allocation of buy and sell opportunities among funds and other
accounts.
The structure of a portfolio manager's compensation may give rise to potential
conflicts of interest. A portfolio manager's base pay and bonus tend to increase
with additional and more complex responsibilities that include increased assets
under management. As such, there may be an indirect relationship between a
portfolio manager's marketing or sales efforts and his or her bonus.
Finally, the management of personal accounts by a portfolio manager may give
rise to potential conflicts of interest. While the funds and the manager have
adopted a code of ethics which they believe contains provisions reasonably
necessary to prevent a wide range of prohibited activities by portfolio managers
and others with respect to their personal trading activities, there can be no
assurance that the code of ethics addresses all individual conduct that could
result in conflicts of interest.
The manager and the Fund have adopted certain compliance procedures that are
designed to address these, and other, types of conflicts. However, there is no
guarantee that such procedures will detect each and every situation where a
conflict arises.
COMPENSATION. The manager seeks to maintain a compensation program that is
competitively positioned to attract, retain and motivate top-quality investment
professionals. Portfolio managers receive a base salary, a cash incentive bonus
opportunity, an equity compensation opportunity, and a benefits package.
Portfolio manager compensation is reviewed annually and the level of
compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no financial incentive to favor one fund or
account over another. Each portfolio manager's compensation consists of the
following three elements:
BASE SALARY Each portfolio manager is paid a base salary.
ANNUAL BONUS Annual bonuses are structured to align the interests of
the portfolio manager with those of the Fund's shareholders. Each
portfolio manager is eligible to receive an annual bonus. Bonuses
generally are split between cash (50% to 65%) and restricted shares of
a Franklin Templeton fund which vest over a three-year period (17.5% to
25%) and other mutual fund shares (17.5% to 25%). The deferred
equity-based compensation is intended to build a vested interest of the
portfolio manager in the financial performance of both Franklin
Resources and mutual funds advised by the manager. The bonus plan is
intended to provide a competitive level of annual bonus compensation
that is tied to the portfolio manager achieving consistently strong
investment performance, which aligns the financial incentives of the
portfolio manager and Fund shareholders. The Chief Investment Officer
of the manager and/or other officers of the manager, with
responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining
bonuses under the plan:
o INVESTMENT PERFORMANCE. Primary consideration is given to the
historic investment performance over the 1, 3 and 5 preceding
years of all accounts managed by the portfolio manager. The
pre-tax performance of each fund managed is measured relative to a
relevant peer group and/or applicable benchmark as appropriate.
o NON-INVESTMENT PERFORMANCE. The more qualitative contributions of
a portfolio manager to the manager's business and the investment
management team, including business knowledge, contribution to
team efforts, mentoring of junior staff, and contribution to the
marketing of the Fund, are evaluated in determining the amount of
any bonus award.
o RESEARCH. Where the portfolio management team also has research
responsibilities, each portfolio manager is evaluated on the
number and performance of recommendations over time.
o RESPONSIBILITIES. The characteristics and complexity of funds
managed by the portfolio manager are factored in the manager's
appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION Portfolio managers may
also be awarded restricted shares or units of one or more mutual funds,
and options to purchase common shares of a Franklin Templeton fund.
Awards of such deferred equity-based compensation typically vest over
time, so as to create incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
OWNERSHIP OF FUND SHARES. The manager has a policy of encouraging portfolio
managers to invest in the funds they manage. Exceptions arise when, for example,
a fund is closed to new investors or when tax considerations or jurisdictional
constraints cause such an investment to be inappropriate for the portfolio
manager. The following is the dollar range of Fund shares beneficially owned by
each portfolio manager (such amounts may change from time to time):
----------------------------------------------------------
Dollar Range of Fund Shares
Portfolio Manager Beneficially Owned
----------------------------------------------------------
Mark Mobius None
----------------------------------------------------------
Eddie Chow None
----------------------------------------------------------
Note: Because the portfolio managers are all foreign nationals, they do not hold
shares in this U.S. registered fund, however they own shares in other similar
Franklin Templeton funds managed by them, registered offshore and appropriate
for foreign nationals.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Directors that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON DRAGON FUND, INC.
By /s/JENNIFER J. BOLT
-----------------------------------
Jennifer J. Bolt
Chief Executive Officer -
Finance and Administration
Date February 25, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JENNIFER J. BOLT
-----------------------------------
Jennifer J. Bolt
Chief Executive Officer -
Finance and Administration
Date February 25, 2009
By /s/LAURA F. FERGERSON
----------------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date February 25, 2009