Annual
Report
[graphic omitted]
DECEMBER 31, 2001
TEMPLETON DRAGON FUND, INC.
[logo omitted]
FRANKLIN TEMPLETON INVESTMENTS
[photo omitted]
MARK MOBIUS, PH.D.
PRESIDENT
TEMPLETON DRAGON FUND, INC.
Mark Mobius has been living in emerging market countries since earning his Ph.D.
in economics and political science at Massachusetts Institute of Technology in
1964. During his extensive travels, he has acquired a thorough knowledge of
business practices and customs unique to developing nations.
SHAREHOLDER LETTER
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YOUR FUND'S GOAL: TEMPLETON DRAGON FUND SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING AT LEAST 45% OF ITS TOTAL ASSETS IN THE EQUITY SECURITIES OF "CHINA
COMPANIES," AS DEFINED IN THE FUND'S PROSPECTUS.
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Dear Shareholder:
This annual report for Templeton Dragon Fund covers the period ended December
31, 2001. During the year under review, China entered the World Trade
Organization (WTO) in December, ending its 15-year quest. Many observers expect
China's accession to bring with it a wide range of reforms, which we believe
would further open its economy and lead to greater global integration and
increased access for foreign investors. We expect the country's entry to the WTO
may bode well for its stock markets if reforms follow that lead to better
corporate governance, particularly in regard to increased transparency and
protection for minority shareholders. The government announced that foreign
firms would eventually be allowed to sell shares in a type of depositary receipt
system, foreign fund managers would be able to establish joint ventures with
local firms to manage mutual funds for Chinese investors, and foreign investors
would be able to buy mutual funds invested in the domestic, Chinese stock
market. Another positive change, in our view,
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 11.
CONTENTS
Shareholder Letter .................. 1
Performance Summary ................. 7
Important Notice to
Shareholders ........................ 8
Financial Highlights &
Statement of Investments ............ 10
Financial Statements ................ 14
Notes to
Financial Statements ................ 17
Independent
Auditors' Report .................... 21
Tax Designation ..................... 25
Directors and Officers .............. 26
[graphic omitted]
FUND CATEGORY
Global
was President Bush's certification to grant permanent normal trade relations to
China with the U.S., which should further support Chinese businesses.
Despite slowing global economic growth during the reporting period, China's
economy grew an annualized 7% in the third quarter after expanding an annualized
7.9% in the first half of 2001./1/ Moreover, according to government estimates,
China's successful bid to host the 2008 Olympic Games could add an average of
0.3% to 0.4% to its annual growth in the next seven years./2/ During 2001,
foreign direct investment into China rose 14.9% to US$46.8 billion as firms
sought to enter the market in hopes of benefiting from the nation's entry into
the WTO./3/
Soon after China's approval into the WTO, Taiwan's entry also was approved. In a
move aimed at improving the island's economic status, Taiwan officially lifted a
50-year ban on direct trade and investment in China. But trade flows between
Taiwan and China fell 10.1% during the first nine months of 2001 compared with
the same period in 2000./4/ Taiwan's gross domestic product (GDP) contracted
4.2% in third quarter 2001 compared with third quarter 2000, as global demand
for exports continued to deteriorate, compared with a 2.4% decline in the second
quarter of 2001 versus the second quarter of 2000./5/ October exports declined
more than 12% compared to a year earlier, after falling a record 27% in
September.
Hong Kong's third quarter 2001 GDP contracted 0.3% versus third quarter 2000,
compared to a 0.8% expansion in second quarter 2001 versus second quarter 2000.
In our view, if falling export revenues, low domestic demand and persistent
deflation and unemployment continue, these trends may lead to slower
1. Source: Kyodo News Service.
2. Source: CBNet; Asian Information Resources Limited.
3. Source: ChinaOnline.
4. Source: AFX News Limited.
5. Source: Finanical Times Information; China Economic News Service.
2
economic growth. Hong Kong's government cut its 2001 growth forecast from 1% to
0%. Third quarter unemployment jumped to 5.3% from 4.5% in the preceding
quarter.4 On the brighter side, Hong Kong was named the world's freest economy
in the Heritage Foundation survey for the eighth consecutive year./6/
In November 2001 elections, Taiwanese President Chen Shui-bian's Democratic
Progressive Party replaced the Kuomintang as the largest party in the
legislature with 87 out of 225 seats. The market considered this positive news
because it should make Taiwan politics more transparent. While urging China to
accept the people's choice for independence, Chen reassured China that he would
not make any major cross-strait policy changes. Mainland leaders have refused to
negotiate with Chen unless he concedes to the One China policy.
In early November, Hu Jintao, Vice President of the Chinese government and Vice
Chairman of the Central Military Commissions, made his first visits to England,
France, Germany and several other European countries to promote trade and
bilateral relationships. According to the THE ECONOMIST, Hu may succeed
President Jiang Zemin when Jiang retires as the Communist party's political
leader, possibly by 2003. Many believe Hu's trip was aimed at exposing him to
western leaders, which could in turn help lead to a smooth transition of
leadership. China successfully hosted the Asia-Pacific Economic Cooperation
(APEC) summit in Shanghai in October. During the summit, Asian leaders discussed
the challenges and benefits of globalization and the new economy brought forth
by advanced technologies. Additionally, for the first time, the leaders issued a
joint statement on countering terrorism.
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
12/31/01
[pie chart omitted]
China 42.2%
Hong Kong 41.3%
Taiwan 10.1%
Short-Term Investments & Other Net Assets 6.4%
6. Source: South China Morning Post Ltd.
3
TOP 10 HOLDINGS
12/31/01
COMPANY
SECTOR/INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
-----------------------------------------------------------------
Dairy Farm International
Holdings Ltd. 9.5%
FOOD & DRUG RETAILING,
HONG KONG
China Petroleum &
Chemical Corp. 5.3%
OIL & GAS, CHINA
Zhejiang Expressway Co. Ltd. 5.0%
TRANSPORTATION
INFRASTRUCTURE, CHINA
Hang Lung Development
Co. Ltd. 4.3%
REAL ESTATE, HONG KONG
Cheung Kong Infrastructure Holdings Ltd. 4.1%
CONSTRUCTION MATERIALS,
HONG KONG
China Merchants Holdings International Co. Ltd. 3.4%
INDUSTRIAL CONGLOMERATES,
HONG KONG
Citic Pacific Ltd. 3.2%
INDUSTRIAL CONGLOMERATES,
HONG KONG
Premier Image
Technology Corp. 3.2%
LEISURE EQUIPMENT &
PRODUCTS, TAIWAN
Huaneng Power
International Inc. 3.1%
ELECTRIC UTILITIES, CHINA
Jiangsu Expressway Co. Ltd. 3.1%
TRANSPORTATION
INFRASTRUCTURE, HONG KONG
Within this environment, Templeton Dragon Fund produced a +16.95% cumulative
total return in market-price terms and +0.75% in net asset value terms for the
year ended December 31, 2001, as shown in the Performance Summary on page 7.
During the reporting period, we identified a number of value stocks in the China
H (Hong Kong listed Chinese companies) and Red Chip (Hong Kong listed companies
with significant exposure to China) categories, and we increased our weighting
in such companies. We believe that many of these China- related companies may
benefit from China's accession into the WTO, especially if reforms are
subsequently implemented. We sold the Fund's holdings in China's Shanghai and
Shenzhen B markets as stock prices exceeded our estimation of their fair value
after experiencing substantial price rises earlier in 2001.
We increased our exposure to Taiwan as we found stocks in the technology sector
selling at what we considered attractive prices. The technology crash and
reduced electronics products export demand, particularly from the U.S., resulted
in substantial share price declines. We now believe that many stocks are trading
below their intrinsic value. As a result of the above changes, the Fund's
short-term investments and other net assets decreased to 6.4% of total net
assets on December 31, 2001, from 13.5% a year earlier.
Within the Fund's top 10 holdings, China H and Red Chip companies tended to
replace Hong Kong companies during the 12-month period. For example, China
Petroleum & Chemical, Cheung Kong Infrastructure, China Merchants, Citic
Pacific, Premier Image Technology and Jiangsu Expressway replaced Cheung Kong
Holdings, Hutchison Whampoa, China
4
Everbright, Swire Pacific, Hong Kong & Shanghai Hotels and Ng Fung Hong. At the
end of the period, multi-sector holdings or conglomerates dominated the
portfolio, followed by the road transportation and food sectors.
Looking forward, we believe China's and Taiwan's accessions into the WTO may
lead to many positive developments for the region. Greater political stability
in Taiwan has already begun to lead to an inflow of investment into the island's
stock market, and we expect this to continue over the long term. We also believe
Hong Kong's strategic position could allow it to benefit from China's evolving
position in the global arena. Furthermore, Hong Kong's reputation as the world's
freest economy could further support its quest for foreign investment. We will
continue our search for opportunities that we believe will allow the Fund to
benefit from these conditions.
Of course, investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
For example, Hong Kong's equity market has increased 491% in the last 20 years,
but has suffered 8 quarterly declines of more than 20% each during that time./7/
Investing in emerging markets, particularly "China companies," also entails
special considerations, including risks related to market and currency
volatility, adverse economic, social and political developments, and the
markets' relatively small size and lesser liquidity. Also, as a non-diversified
investment company, the Fund may invest in a
7. Source: Hong Kong's Hang Seng Index. Based on quarterly percentage price
change over 20 years ended 12/31/01. Market return is measured in U.S. dollar
terms and does not include reinvested dividends. The unmanaged Hang Seng Index
is a capitalization-weighted index of 33 companies that represent approximately
70% of the total market capitalization of the Stock Exchange of Hong Kong. The
components of the index are divided into four subindexes: Finance, Utilities,
Properties and Commerce and Industry.
5
relatively small number of issuers, which could result in a greater risk of
loss. While short-term volatility can be disconcerting, declines exceeding 50%
are not unusual in emerging markets.
Thank you for investing in Templeton Dragon Fund. We appreciate your confidence
and welcome your comments.
Sincerely,
/s/MARK MOBIUS
Mark Mobius
President
Templeton Dragon Fund, Inc.
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This discussion reflects our views, opinions and portfolio holdings as of
December 31, 2001, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Fund. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
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6
PERFORMANCE SUMMARY AS OF 12/31/01
ALTHOUGH THE BOARD OF DIRECTORS ADOPTED A MANAGED DISTRIBUTION POLICY FOR THE
FUND, DISTRIBUTIONS WILL VARY BASED ON EARNINGS OF THE FUND'S PORTFOLIO AND ANY
PROFITS REALIZED FROM THE SALE OF THE PORTFOLIO'S SECURITIES, AS WELL AS THE
LEVEL OF THE FUND'S OPERATING EXPENSES. ALL TOTAL RETURNS INCLUDE REINVESTED
DISTRIBUTIONS ACCORDING TO THE TERMS SPECIFIED IN THE FUND'S DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN AND DO NOT REFLECT ANY SALES CHARGES PAID AT
INCEPTION OR BROKERAGE COMMISSIONS PAID ON SECONDARY MARKET PURCHASES.
PRICE AND DISTRIBUTION INFORMATION
CHANGE 12/31/01 12/31/00
---------------------------------------------------------------
Net Asset Value (NAV) -$1.09 $8.82 $9.91
Market Price (NYSE) +$0.24 $7.49 $7.25
DISTRIBUTIONS (1/1/01-12/31/01)
Dividend Income $0.2270
Return of Capital $0.7542
-------
Total $0.9812
PERFORMANCE
COMMENCEMENT
OF OPERATIONS
1-YEAR 5-YEAR (9/20/94)
-----------------------------------------------------------------
Cumulative Total Return/1/
Based on change in NAV +0.75% -19.02% +21.01%
Based on change in market price +16.95% -17.52% -3.41%
Average Annual Total Return/1/
Based on change in NAV +0.75% -4.13% +2.65%
Based on change in market price +16.95% -3.78% -0.47%
During the 12 months ended December 31, 2001, the Fund distributed $0.9812 in
accordance with the Fund's managed distribution policy. A portion of the Fund's
quarterly distributions exceeded the Fund's actual net investment income and net
capital gains for the Fund's fiscal year, resulting in a return of capital for
tax purposes. In general, return-of-capital distributions are not taxable.
Instead, they reduce the cost basis of your Fund shares, and affect the
computation of a gain or loss when you sell your shares. Please see "Important
Notice to Shareholders" regarding recent board action to discontinue the Fund's
managed distribution policy.
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated.
--------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates 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 non-diversified 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. You may have
a gain or loss when you sell your shares.
--------------------------------------------------------------------------------
For updated performance figures, call Franklin Templeton Investments at
1-800/342-5236.
Past performance does not guarantee future results.
7
IMPORTANT NOTICE TO SHAREHOLDERS
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PROPOSED REORGANIZATION. On January 4, 2002, the Board of Directors of the Fund
approved a proposal providing for the reorganization of Templeton Vietnam and
Southeast Asia Fund, Inc. ("Vietnam Fund") into the Fund. The proposed
reorganization involves the Fund's acquisition of substantially all of the
assets of Vietnam Fund in exchange for shares of the Fund and the distribution
of shares of the Fund to shareholders of Vietnam Fund as a part of the
liquidation and dissolution of Vietnam Fund. This transaction, which is expected
to be tax-free, is subject to approval of the shareholders of the Fund and
Vietnam Fund. If approved, shares will be exchanged based on the respective net
asset values of Vietnam Fund and the Fund. In connection with the 2002 Annual
Meeting of Shareholders, currently scheduled for May 3, 2002, shareholders of
the Fund will receive a proxy statement describing the proposed reorganization
in greater detail.
TENDER OFFERS. Also on January 4, 2002, the Board of Directors of the Fund
approved a tender offer for up to 10% of the Fund's outstanding shares to be
made at not less than 90% of net asset value during an initial 12-month period,
to be followed by one or more subsequent tender offers aggregating up to 10% of
outstanding Fund shares during the following 12-month period. The tender offers
will be made regardless of whether the proposed reorganization with Vietnam Fund
takes place. If the proposed reorganization is approved by shareholders of both
the Fund and Vietnam Fund, the first tender offer of Fund shares will commence
within 90 days following completion of the reorganization. If approval of the
reorganization is not obtained at the Fund's shareholder meeting, the first
tender offer for Fund shares will commence within 90 days after the Fund's
shareholder meeting, or any adjournment thereof. If approval of the
reorganization is not obtained at the Vietnam Fund shareholder meeting, the
first tender offer for Fund shares will commence within 90 days after the
Vietnam shareholder meeting, or any adjournment thereof. The Board of Directors
of the Fund may consider recommending additional tender offers in subsequent
12-month periods, depending on market conditions and regulatory and tax
considerations. When it is available, shareholders will receive a tender offer
statement describing the tender offers in greater detail.
MANAGED DISTRIBUTION POLICY. On July 22, 1998, the Board of Directors of the
Fund adopted a managed distribution policy in an effort to address the market
discount of the Fund's share price to net asset value. Under the managed
distribution policy, the Fund made quarterly distributions to Fund shareholders
equal to 2.5% of the Fund's net asset value at the close of the New York Stock
Exchange on the Friday prior to the declaration date. A portion of the Fund's
quarterly distributions exceeded the Fund's actual net investment income and net
realized capital gains for the Fund's fiscal year, resulting in a return of
capital for tax purposes. Shareholders who participated in the Fund's dividend
reinvestment and cash purchase plan received their distributions in additional
shares of the Fund.
On January 4, 2002, the Board of Directors discontinued the Fund's managed
distribution policy in connection with the proposed reorganization of Vietnam
Fund into Dragon Fund.
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8
--------------------------------------------------------------------------------
MEASUREMENT PERIOD. In June 2001, in efforts to address the Fund's discount, the
Board of Directors of the Fund established a nine month measurement period for
evaluating the discount of the market value of the Fund's shares from their net
asset value. The Measurement Period began on August 1, 2001 and will end on
April 30, 2002. If the Fund's shares have traded at an average discount from net
asset value of 10% or more during the last 90 days of the Measurement Period
(based on the closing price of every trading day during those 90 days), then the
Board will take one of three potential actions. The Board, as soon as reasonably
practicable, but no later than 180 days from the last day of the Measurement
Period, will either commence a tender offer for a portion of the Fund's
outstanding shares ("Tender Offer Alternative"); or submit to shareholders a
proposal to reorganize the Fund with either an open-end or closed-end investment
company ("Merger Alternative"); or submit to shareholders a proposal to convert
the Fund to an open-end investment company ("Open-End Alternative"). The Board
may determine to take more than one of these actions.
In connection with the Tender Offer Alternative, any tender offer authorized by
the Board for a portion of the Fund's shares may be at net asset value less
expenses or at a discount to net asset value. In connection with the Merger
Alternative, if shareholders vote to reorganize the Fund with an open-end
investment company, shares of the reorganized fund would be continuously offered
for sale and redeemable at the option of the shareholder (except under limited
circumstances permitted under the federal securities laws) at their net asset
value less any redemption charge that the Board of the reorganized fund might
put into effect and would be payable by shareholders upon redemption. In
connection with the Open-End Alternative, if the shareholders vote to open-end
the Fund, the Fund will begin to continuously offer its shares for sale
following the effectiveness of a registration statement filed with the U.S.
Securities and Exchange Commission relating to the Fund's open-end shares.
Shares would be redeemable at the option of the shareholder (except under
limited circumstances permitted under the federal securities laws) at their net
asset value less any redemption charge that the Board of the reorganized fund
might put into effect and would be payable by shareholders upon redemption.
As described above, on January 4, 2002, the Board approved a proposed
reorganization of Vietnam Fund into the Fund, as well as a tender offer
currently scheduled to take place in 2002.
REPURCHASE PROGRAM. The Board of Directors of the Fund previously authorized an
open-market share repurchase program pursuant to which the Fund may purchase,
from time to time, shares of the Fund's common stock in open-market
transactions, at the discretion of management. This authorization remains in
effect.
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9
TEMPLETON DRAGON FUND, INC.
Financial Highlights
YEAR ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------
2001 2000 1999 1998+ 1998 1997
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE++
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $9.91 $12.75 $10.00 $13.58 $18.25 $15.73
--------------------------------------------------------------
Income from investment operations:
Net investment income ......................... .25 .12 .31 .25 .37 .34
Net realized and unrealized gains (losses) .... (.37) (2.01) 3.58 (3.29) (3.58) 2.82
--------------------------------------------------------------
Total from investment operations ............... (.12) (1.89) 3.89 (3.04) (3.21) 3.16
Capital share repurchases ...................... .01 .22 -- .03 -- --
Less distributions from:
Net investment income ......................... (.23) (1.17) (.32) (.27) (.35) (.34)
Net realized gains ............................ -- -- -- -- (1.11) (.30)
Tax return of capital ......................... (.75) -- (.82) (.30) -- --
--------------------------------------------------------------
Total distributions ............................ (.98) (1.17) (1.14) (.57) (1.46) (.64)
Net asset value, end of year ................... $8.82 $9.91 $12.75 $10.00 $13.58 $18.25
==============================================================
Market value, end of year a .................... $7.4900 $7.2500 $9.8125 $7.3750 $11.3750 $14.5000
==============================================================
Total return (based on market value per share)* 16.95% (15.31)% 50.11% (30.08)% (11.82)% 7.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $429,889 $485,091 $673,869 $528,464 $733,533 $985,719
Ratios to average net assets:
Expenses ...................................... 1.54% 1.56% 1.59% 1.59%** 1.53% 1.50%
Net investment income ......................... 2.58% 1.04% 2.80% 3.21%** 2.14% 1.93%
Portfolio turnover rate ........................ 70.94% 132.74% 66.60% 39.92% 13.59% 8.73%
*Total return is not annualized.
**Annualized.
+For the period April 1, 1998 to December 31, 1998. Prior to this period, the
Fund's fiscal year end was March 31.
++Based on average weighted shares outstanding effective year ended December 31,
1999.
aBased on the last sale on the New York Stock Exchange.
See notes to financial statements.
10
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2001
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.0%
AIRLINES .7%
China Eastern Airline Corp. Ltd., H .................................. China 13,006,000 $ 1,567,822
*China Southern Airlines Co. Ltd., H .................................. China 4,456,000 1,285,739
------------
2,853,561
------------
AUTOMOBILES 1.3%
*Brilliance China Automotive Holdings Ltd. ............................ China 3,070,000 562,988
Qingling Motors Co. Ltd., H .......................................... China 35,106,000 5,222,332
------------
5,785,320
------------
BANKS .6%
*Bank Sinopac ......................................................... Taiwan 2,411,000 1,006,019
Chinatrust Commercial Bank ........................................... Taiwan 2,527,000 1,516,633
------------
2,522,652
------------
+BEVERAGES 2.4%
Tsingtao Brewery Co. Ltd., H ......................................... China 40,502,000 10,387,992
------------
CHEMICALS 2.3%
Sinopec Beijing Yanhua Petrochemical Co. Ltd. ........................ China 77,872,000 6,590,986
Sinopec Shanghai Petrochemical Co. Ltd. .............................. China 35,718,000 3,206,345
------------
9,797,331
------------
*COMMUNICATIONS EQUIPMENT .9%
Accton Technology Corp. .............................................. Taiwan 1,553,200 3,995,084
------------
COMPUTERS & PERIPHERALS .8%
Legend Holdings Ltd. .................................................Hong Kong 6,838,000 3,485,711
------------
CONSTRUCTION MATERIALS 4.1%
Cheung Kong Infrastructure Holdings Ltd. .............................Hong Kong 11,212,000 17,469,662
------------
DISTRIBUTORS 1.3%
China Resources Enterprise Ltd. ...................................... China 6,140,000 5,747,995
------------
DIVERSIFIED FINANCIALS 3.7%
China Everbright Ltd. ................................................ China 14,095,788 10,574,756
*Fubon Group Co. Ltd. ................................................. Taiwan 2,330,374 2,024,674
*Yuanta Core Pacific Securities Co. ................................... Taiwan 4,884,020 3,363,958
------------
15,963,388
------------
ELECTRIC UTILITIES 6.0%
Beijing Datang Power Generation Co. Ltd., H .......................... China 38,198,000 12,246,324
Huaneng Power International Inc., H .................................. China 22,184,000 13,370,968
------------
25,617,292
------------
FOOD & DRUG RETAILING 9.5%
Dairy Farm International Holdings Ltd. ...............................Hong Kong 62,945,478 40,914,561
------------
HOTELS RESTAURANTS & LEISURE 2.4%
Hong Kong & Shanghai Hotels Ltd. .....................................Hong Kong 28,147,000 10,467,796
------------
11
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2001 (CONT.)
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
HOUSEHOLD DURABLES 2.0%
TCL International Holdings Inc. ..................................... China 50,914,000 $ 8,488,006
------------
INDUSTRIAL CONGLOMERATES 9.7%
Beijing Enterprises Holdings Ltd. ................................... Hong Kong 2,824,000 3,476,651
China Merchants Holdings International Co. Ltd. ..................... Hong Kong 22,860,000 14,657,886
Citic Pacific Ltd. .................................................. Hong Kong 6,257,000 13,921,651
Hutchison Whampoa Ltd. .............................................. Hong Kong 622,000 6,002,360
Shanghai Industrial Holdings Ltd. ................................... Hong Kong 2,008,000 3,682,348
------------
41,740,896
------------
*IT CONSULTING & SERVICES .6%
Travelsky Technology Ltd., H ........................................ China 3,112,000 2,394,506
------------
LEISURE EQUIPMENT & PRODUCTS 3.4%
Giant Manufacturing Co. ............................................. Taiwan 947,000 906,673
Premier Image Technology Corp. ...................................... Taiwan 6,984,000 13,772,392
------------
14,679,065
------------
MARINE 1.6%
China Shipping Development Co. Ltd., H .............................. China 43,988,000 6,994,892
------------
+METALS & MINING 1.6%
Angang New Steel Company Ltd., H .................................... China 58,332,000 6,732,471
------------
OIL & GAS 7.4%
China Petroleum & Chemical Corp., H ................................. China 164,928,000 22,630,976
PetroChina Co. Ltd., H .............................................. China 50,880,000 9,004,328
------------
31,635,304
------------
*PHARMACEUTICALS 1.2%
China Pharmaceutical Enterprise & Investment Corp. Ltd. ............. China 55,914,000 5,019,307
------------
REAL ESTATE 8.6%
Cheung Kong Holdings Ltd. ........................................... Hong Kong 989,000 10,273,216
Hang Lung Development Co. Ltd. ...................................... Hong Kong 20,981,000 18,565,233
Henderson China Holdings Ltd. ....................................... Hong Kong 9,215,000 4,254,250
Henderson Investment Ltd. ........................................... Hong Kong 5,227,000 4,055,393
------------
37,148,092
------------
ROAD & RAIL 1.5%
Guangshen Railway Co. Ltd., H ....................................... China 27,326,000 4,485,503
MTR Corp. Ltd. ...................................................... Hong Kong 1,517,803 1,985,367
------------
6,470,870
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS 4.0%
*Siliconware Precision Industries Co. Ltd. ........................... Taiwan 6,567,000 5,799,380
*Taiwan Semiconductor Manufacturing Co. .............................. Taiwan 4,481,800 11,207,702
------------
17,007,082
------------
12
TEMPLETON DRAGON FUND, INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 2001 (CONT.)
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
TRANSPORTATION INFRASTRUCTURE 9.6%
Cosco Pacific Ltd. ................................................ Hong Kong 13,462,000 $ 6,948,652
Jiangsu Expressway Co. Ltd. ....................................... Hong Kong 59,838,000 13,121,948
+Zhejiang Expressway Co. Ltd., H ................................... China 86,468,000 21,290,299
------------
41,360,899
------------
WIRELESS TELECOMMUNICATION SERVICES 5.8%
*China Mobile (Hong Kong) Ltd. ..................................... China 3,226,000 11,356,169
*China Unicom Ltd. ................................................. China 8,736,000 9,634,656
Smartone Telecommunications Holdings Ltd. ......................... Hong Kong 3,380,000 4,031,111
------------
25,021,936
------------
TOTAL COMMON STOCKS (COST $423,821,342) ........................... 399,701,671
------------
PRINCIPAL
AMOUNT
------------
BONDS (COST $6,937,154) .6%
Qingling Motors Co. Ltd., cvt., 3.50%, 1/22/02 .................... China $ 7,306,000 2,600,205
------------
SHARES
------------
aSHORT TERM INVESTMENTS (COST $22,016,079) 5.1%
Franklin Institutional Fiduciary Trust Money Market Portfolio ..... United States 22,016,079 22,016,079
------------
TOTAL INVESTMENTS (COST $452,774,575) 98.7% ....................... 424,317,955
OTHER ASSETS LESS LIABILITIES 1.3% ................................ 5,571,275
------------
TOTAL NET ASSETS 100.0% ........................................... $429,889,230
============
*Non-income producing.
+See note 6 regarding holdings of 5% voting securities.
aSee note 3 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
See notes to financial statements.
13
TEMPLETON DRAGON FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2001
Assets:
Investments in securities, at value:
Unaffiliated issuers (cost $408,072,231) .................................. $363,891,114
Non controlled affiliates (cost $22,686,265) .............................. 38,410,762
Other affiliates (cost $22,016,079) ....................................... 22,016,079 $ 424,317,955
------------
Foreign cash, at value (cost $6,030,410) ................................... 6,049,368
Receivables:
Investment securities sold ................................................ 104,082
Interest .................................................................. 240,083
--------------
Total assets .......................................................... 430,711,488
--------------
Liabilities:
Payables to affiliates ..................................................... 499,030
Accrued expenses ........................................................... 323,228
--------------
Total liabilities ..................................................... 822,258
--------------
Net assets, at value ........................................................ $ 429,889,230
==============
Net assets consist of:
Net unrealized depreciation ............................................... $ (28,437,664)
Accumulated net realized loss ............................................. (104,951,475)
Capital shares ............................................................ 563,278,369
--------------
Net assets, at value ........................................................ $429,889,230
==============
Net asset value per share ($429,889,230 / 48,741,093 shares outstanding) .... $8.82
==============
See notes to financial statements.
14
TEMPLETON DRAGON FUND, INC.
Financial Statements (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
Investment Income:
(net of foreign taxes of $458,982)
Dividends ................................................................... $ 15,089,743
Interest .................................................................... 4,335,097
-------------
Total investment income ................................................ $ 19,424,840
Expenses:
Management fees (Note 3) .................................................... 5,837,933
Administrative fees (Note 3) ................................................ 713,933
Transfer agent fees ......................................................... 237,400
Custodian fees .............................................................. 214,130
Registration and filing fees ................................................ 41,130
Professional fees ........................................................... 144,020
Directors' fees and expenses ................................................ 50,200
Other ....................................................................... 4,650
-------------
Total expenses ......................................................... 7,243,396
-------------
Net investment income ............................................. 12,181,444
-------------
Realized and unrealized gains (losses): Net realized loss from:
Investments ................................................................ (35,306,674)
Foreign currency transactions .............................................. (542,963)
-------------
Net realized loss (35,849,637) Net unrealized appreciation on:
Investments ................................................................ 17,994,979
Translation of assets and liabilities denominated in foreign currencies .... 18,956
-------------
Net unrealized appreciation ............................................ 18,013,935
-------------
Net realized and unrealized loss ............................................. (17,835,702)
-------------
Net decrease in net assets resulting from operations ......................... $ (5,654,258)
=============
See notes to financial statements.
15
TEMPLETON DRAGON FUND, INC.
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
----------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 12,181,444 $ 6,192,385
Net realized gain (loss) from investments and foreign currency transactions ........... (35,849,637) 89,849,291
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ............................... 18,013,935 (191,806,709)
----------------------------
Net decrease in net assets resulting from operations .............................. (5,654,258) (95,765,033)
Distributions to shareholders from:
Net investment income ................................................................. (11,028,205) (59,635,315)
Tax return of capital ................................................................. (36,831,606) --
----------------------------
Total distributions to shareholders ..................................................... (47,859,811) (59,635,315)
Capital share transactions (Note 2) .................................................... (1,688,066) (33,376,986)
----------------------------
Net decrease in net assets ........................................................ (55,202,135) (188,777,334)
Net assets (there is no undistributed net investment income at beginning or end of year):
Beginning of year ...................................................................... 485,091,365 673,868,699
----------------------------
End of year ............................................................................ $429,889,230 $ 485,091,365
============================
See notes to financial statements.
16
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Dragon Fund, Inc. (the Fund), is registered under the Investment
Company Act of 1940 as a closed-end, non-diversified investment company. The
Fund seeks long-term capital appreciation by investing at least 45% of its total
assets in the equity securities of "China companies", as defined in the Fund's
prospectus. The following summarizes the Fund's significant accounting policies.
On January 4, 2002, the Board of Directors of the Fund approved a proposal to
merge Templeton Vietnam and Southeast Asia Fund, Inc. into the Fund subject to
approval by both the shareholders of the Fund, and of Templeton Vietnam and
Southeast Asia Fund, Inc.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
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 and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
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.
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 on a specified date. Realized and unrealized gains and losses 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.
17
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
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.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
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 expense during the reporting period. Actual results could differ from those
estimates.
2. CAPITAL STOCK
On October 18, 1997, the Board of Directors of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund may
purchase, from time to time, up to 5.4 million shares of the Fund's common stock
in open-market transactions, at the discretion of management (approximately 10%
of the shares outstanding at the time the program was initially implemented). In
May 2000, the Board of Directors removed the 10% limitation on share repurchases
in order to give management greater flexibility to engage in an aggressive share
repurchase program.
At December 31, 2001, there were 100 million shares authorized ($0.01 par
value). During the year ended December 31, 2001, 207,100 shares were repurchased
for $1,688,066. The weighted average discount of market price to net asset value
of shares repurchased during the year ended December 31, 2001 was 20%. During
the year ended December 31, 2000, 3,911,700 shares were repurchased for
$33,376,986. Through December 31, 2001, the Fund had repurchased a total of
5,266,000 shares.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Asset
Management Ltd. (TAML) and Franklin Templeton Services, LLC (FT Services), the
Fund's investment manager and administrative manager, respectively.
18
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Franklin Advisers Inc. The
Fund earned $1,181,437 of dividend income from investment in the Sweep Money
Fund.
The Fund pays an investment management fee to TAML of 1.25% per year of the
average weekly net assets of the Fund. Management fees were reduced on assets
invested in the Sweep Money Fund. The Fund pays FT Services an administrative
fee of 0.15% per year of the Fund's average weekly net assets, of which 0.10% is
paid to Nomura Asset Management, Inc.
4. INCOME TAXES
At December 31, 2001, the cost of investments and net unrealized depreciation
for income tax purposes were as follows:
Cost of investments ....................... $456,456,538
-------------
Unrealized appreciation ................... 43,098,720
Unrealized depreciation ................... (75,237,303)
-------------
Net unrealized depreciation ............... $(32,138,583)
=============
The tax character of distributions paid during the year ended December 31, 2001,
was the same for financial statements and tax purposes.
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of wash sales,
foreign currency transactions, and losses realized subsequent to October 31, on
the sales of foreign currencies.
At December 31, 2001, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
2006 ..............................$ 4,270,183
2007 .............................. 49,694,430
2009 .............................. 47,221,414
------------
$101,186,027
============
At December 31, 2001, the Fund had deferred foreign currency losses occurring
subsequent to October 31, 2001 of $83,486. For tax purposes, such losses will be
reflected in the year ended December 31, 2002.
19
TEMPLETON DRAGON FUND, INC.
Notes to Financial Statements (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 2001 aggregated $308,800,119 and $315,715,141, respectively.
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the Fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies" at December 31, 2001
were as shown below.
NUMBER OF NUMBER OF REALIZED
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME CAPITAL
NAME OF ISSUER DEC. 31, 2000 ADDITIONS REDUCTIONS DEC. 31, 2001 DEC. 31, 2001 1/1/01-12/31/01 GAINS(LOSSES)
-----------------------------------------------------------------------------------------------------------------------------------
NON CONTROLLED AFFILIATES
Angang New Steel Company Ltd., H .. 52,920,000 20,864,000 15,452,000 58,332,000 $ 6,732,471 $667,874 $ 954,726
Tsingtao Brewery Co. Ltd., H ...... 39,854,000 752,000 104,000 40,502,000 10,387,992 481,447 (859)
Zhejiang Expressway Co. Ltd., H ...102,052,000 1,700,000 17,284,000 86,468,000 21,290,299 1,213,320 408,279
----------------------------------------
TOTAL NON CONTROLLED AFFILIATES $38,410,762 $2,362,641 $1,362,146
========================================
20
TEMPLETON DRAGON FUND, INC.
INDEPENDENT AUDITORS' REPORT
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, 2001, 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 three 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 auditing standards
generally accepted in the United States of America, which 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, 2001 by correspondence with the custodian, provide a reasonable
basis for our opinion. The financial highlights for each of the periods prior to
January 1, 1999 were audited by other independent accountants whose report dated
January 28, 1999 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 31, 2002
21
TEMPLETON DRAGON FUND, INC.
Annual Meeting of Shareholders, August 30, 2001
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on August 30, 2001. The purpose
of the meeting was to elect four Directors of the Fund. At the meeting, the
following persons were elected by the shareholders to serve as Directors of the
Fund: Martin L. Flanagan, Andrew H. Hines, Jr., Edith E. Holiday and Charles B.
Johnson.* No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
The election of four (4) Directors:
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
TERM EXPIRING 2004: FOR SHARES SHARES WITHHELD SHARES SHARES
----------------------------------------------------------------------------------------------------------
Martin L. Flanagan 44,352,390 90.99% 98.75% 560,635 1.15% 1.25%
Andrew H. Hines, Jr. 44,101,464 90.47% 98.19% 811,561 1.67% 1.81%
Edith E. Holiday 44,189,513 90.65% 98.39% 723,512 1.49% 1.61%
Charles B. Johnson 44,355,100 90.99% 98.76% 557,925 1.15% 1.24%
*Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato,
Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Constantine D.
Tseretopoulos are Directors of the Fund who are currently serving and whose
terms of office continued after the Annual Meeting of Shareholders.
22
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 (other than shareholders holding
their shares through Japan Securities Clearing Corporation, who will not be
enrolled in the Plan unless certain conditions are met and they elect to
participate), unless he elects to withdraw. If the shares are registered in the
name of a broker-dealer or other nominee (i.e., in "street name"), the
broker-dealer or nominee will elect to participate in the Plan on the
shareholder's behalf unless the shareholder instructs them otherwise, or unless
the reinvestment service is not provided by the broker-dealer or nominee.
Participants should contact Mellon Investor Services LLC, P.O. Box 3338, South
Hackensack, NJ 07606-1938, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify
Mellon Securities Trust Company (the "Plan Agent") at the address above or the
institution in whose name the shares are held. The Plan Agent must receive
written notice within 10 business days before the record date for the
distribution.
Whenever the Fund declares dividends in either cash or common stock of the Fund,
if the market price is equal to or exceeds net asset value 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
Agent, 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 "Mellon Securities Trust Company" and sent to
Mellon Investor Services LLC, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn:
Templeton Dragon Fund, Inc. The Plan Agent shall 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 in the open market.
The automatic reinvestment of dividends and/or capital gains does not relieve
the participant of any income tax which may be payable on dividends or
distributions.
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Agent sent to Mellon Investor Services LLC, P.O. Box
3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will
receive, without charge, stock certificates issued in the participant's name for
all full shares held by the Plan Agent; or, if the participant wishes, the Plan
Agent will sell the participant's shares and send the proceeds, less a service
charge of $5.00 and less trading fees.
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.
23
TEMPLETON DRAGON FUND, INC.
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
1-800/416-5585
www.melloninvestor.com
SHAREHOLDER INFORMATION
Shares of Templeton Dragon Fund, Inc. are traded daily 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. 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 DIRECTSM. For information go to Mellon Investor
Services' web site at https://vault.melloninvestor.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.
24
TEMPLETON DRAGON FUND, INC.
Tax Designation
At December 31, 2001, more than 50% of the Templeton Dragon Fund, Inc.'s assets
were invested in securities of foreign issuers. In most instances, foreign taxes
were withheld from dividends paid to the Fund on these investments. The Fund
intends to make an election under Section 853 of the Internal Revenue Code. This
election will allow shareholders to treat their proportionate share of foreign
taxes paid by the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund, to shareholders of record on
December 13, 2001.
FOREIGN TAX PAID FOREIGN SOURCE
COUNTRY PER SHARE INCOME PER SHARE
------------------------------------------------------------
China $0.0000 $0.1542
Hong Kong 0.0000 0.0751
Taiwan 0.0094 0.0076
----------------------------------------------
TOTAL $0.0094 $0.2369
==============================================
In January 2002, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 2001. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
25
DIRECTORS AND OFFICERS
The name, age 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 portfolios overseen in the Franklin Templeton fund
complex are shown below. Each director will serve until that person's successor
is elected and qualified.
INDEPENDENT DIRECTORS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (69) Director Since 1994 139 Director, RBC Holdings, Inc. (bank holding company)
500 East Broward Blvd. and Bar-S Foods (meat packing company).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, President, Chief Executive Officer
and Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
---------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (57) Director Since 1998 20 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Caribbean Electric Utility Services Corporation and Atlantic Equipment
& Power Ltd.; Vice Chairman, Caribbean Utilities Co., Ltd.; and Director and
President, Provo Power Company Ltd. and director of various other business and
nonprofit organizations.
---------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (69) Director Since 1994 140 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Member of the law firm of Pitney, Hardin, Kipp & Szuch.
---------------------------------------------------------------------------------------------------------------------------
ANDREW H. HINES, JR. (78) Director Since 1994 31 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Consultant, Triangle Consulting Group; and Executive-in-Residence, Eckerd
College (1991-present); and FORMERLY, Chairman and Director, Precise Power
Corporation (1990-1997), Director, Checkers Drive-In Restaurant, Inc.
(1994-1997), and Chairman of the Board and Chief Executive Officer, Florida
Progress Corporation (holding company in the energy area) (1982-1990) and
director of various of its subsidiaries.
---------------------------------------------------------------------------------------------------------------------------
26
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (49) Director Since 1996 85 Director, Amerada Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas), Hercules Incorporated
Suite 2100 (chemicals, fibers and resins), Beverly
Fort Lauderdale, FL 33394-3091 Enterprises, Inc. (health care), H.J. Heinz Company
(processed foods and allied products), RTI
International Metals, Inc. (manufacture and
distribution of titanium), Digex Incorporated (web
hosting provider), and Canadian National Railway
(railroad).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; 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).
---------------------------------------------------------------------------------------------------------------------------
BETTY P. KRAHMER (72) Director Since 1994 25 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or trustee of various civic associations; and FORMERLY, Economic
Analyst, U.S. government.
---------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (73) Director Since 1994 139 Director, Martek Biosciences Corporation, WorldCom,
500 East Broward Blvd. Inc. (communications services), MedImmune, Inc.
Suite 2100 (biotechnology), Overstock.com (Internet services),
Fort Lauderdale, FL 33394-3091 and Spacehab, Inc. (aerospace services).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and Chairman,
White River Corporation (financial services) (until 1998) and Hambrecht & Quist
Group (investment banking) (until 1992), and President, National Association of
Securities Dealers, Inc. (until 1987).
---------------------------------------------------------------------------------------------------------------------------
FRED R. MILLSAPS (72) Director Since 1994 31 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various business and nonprofit organizations, and manager of
personal investments (1978-present); and formerly, Chairman and Chief Executive
Officer, Landmark Banking Corporation (1969-1978), Financial Vice President,
Florida Power and Light (1965-1969), and Vice President, Federal Reserve Bank of
Atlanta (1958-1965).
---------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. Director Since 1998 21 None
TSERETOPOULOS (47)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present), and director of various nonprofit
organizations and FORMERLY, Cardiology Fellow, University of Maryland
(1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center
(1982-1985).
---------------------------------------------------------------------------------------------------------------------------
27
INDEPENDENT DIRECTORS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
**NICHOLAS F. BRADY (71) Director Since 1994 66 Director, Amerada Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas), C2, Inc. (operating and
Suite 2100 investment business), and H.J. Heinz Company
Fort Lauderdale, FL 33394-3091 (processed foods and allied products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Templeton Emerging Markets Investment Trust PLC, Darby Overseas
Investments, Ltd. and Darby Emerging Markets Investments LDC (investment firms)
(1994-present); Director, Templeton Capital Advisors Ltd., and Franklin
Templeton Investment Fund; and FORMERLY, Secretary of the United States
Department of the Treasury (1988-1993), Chairman of the Board, Dillon, Read &
Co., Inc. (investment banking) (until 1988) and U.S. Senator, New Jersey (April
1982-December 1982).
---------------------------------------------------------------------------------------------------------------------------
**MARTIN L. FLANAGAN (41) Director Since 1994 7 None
One Franklin Parkway and Vice
San Mateo, CA 94403-1906 President
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC;
Executive Vice President and Director, Franklin Advisers, Inc.; Executive Vice
President, Franklin Investment Advisory Services, Inc. and Franklin Templeton
Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of
some of the other subsidiaries of Franklin Resources, Inc.
---------------------------------------------------------------------------------------------------------------------------
**+CHARLES B. JOHNSON (68) Director Since 1994 139 None
One Franklin Parkway and Vice
San Mateo, CA 94403-1906 President
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc.
---------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (56) Vice Since 1996 Not None
One Franklin Parkway President Applicable
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 51
investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------
JEFFERY A. EVERETT (37) Vice Since 2001 Not None
P.O. Box N-7759 President Applicable
Lyford Cay, Nassau, Bahamas
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; officer of 18 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Investment
Officer, First Pennsylvania Investment Research (until 1989).
---------------------------------------------------------------------------------------------------------------------------
28
INDEPENDENT DIRECTORS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (54) Vice Since 2000 Not None
One Franklin Parkway President Applicable
San Mateo, CA 94403-1906 and Assistant
Secretary
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive
Officer and Director, Property Resources, Inc. and Franklin Properties, Inc.;
officer and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in Franklin Templeton
Investments; and FORMERLY, President, Chief Executive Officer and Director,
Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust
(until 2000).
---------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (54) Vice Vice President Not None
One Franklin Parkway President since 2000 Applicable
San Mateo, CA 94403-1906 and Secretary since
Secretary 1996
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior
Vice President, Templeton Worldwide, Inc.; officer of 53 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director,
Division of Investment Management, Executive Assistant and Senior Advisor to the
Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995), Attorney, Rogers & Wells (until
1986), and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
---------------------------------------------------------------------------------------------------------------------------
+CHARLES E. JOHNSON (45) Vice Since 1996 Not None
One Franklin Parkway President Applicable
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.; Chairman of
the Board, President and Director, Franklin Investment Advisory Services, Inc.;
and officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be, of
34 of the investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------
+RUPERT H.JOHNSON, JR.(61) Vice Since 1996 Not None
One Franklin Parkway President Applicable
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (61) Vice Since 1994 Not None
500 East Broward Blvd. President Applicable
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; Senior Vice President, Franklin Templeton
Services, LLC; officer of 23 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
---------------------------------------------------------------------------------------------------------------------------
29
INDEPENDENT DIRECTORS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
MARK MOBIUS (65) President Since 1994 Not None
Two Exchange Square Applicable
39th Floor, Suite 3905-08
Hong Kong
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director,
Templeton Asset Management Ltd.; Executive Vice President and Director,
Templeton Global Advisors Limited; officer of eight of the investment companies
in Franklin Templeton Investments; officer and/or director as the case may be of
some of the subsidiaries of Franklin Resources, Inc.; 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).
--------------------------------------------------------------------------------------------------------------------------
BRUCE S. ROSENBERG (40) Treasurer Since 2000 Not None
500 East Broward Blvd. Applicable
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC, and officer of 19 of the
investment companies in Franklin Templeton Investments.
---------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (64) Vice Since 2000 Not None
One Franklin Parkway President Applicable
San Mateo, CA 94403-1906 and Assistant
Secretary
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until 2000) and Director, Templeton Asset
Management Ltd. (until 1999).
---------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the registered
investment companies comprising the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson is considered an interested person of the Fund under the
federal securities laws due to his position as an officer and director and major
shareholder of Franklin Resources, Inc., which is the parent company of the
Fund's adviser and distributor. Mr. Flanagan's status as an interested person
results from his position as an officer of Franklin Resources, Inc. Mr. Brady's
status as an interested person results from his business affiliations with
Franklin Resources, Inc. and Templeton Global Advisors Limited. Mr. Brady and
Franklin Resources, Inc. are both limited partners of Darby Overseas Partners,
L.P. (Darby Overseas). Mr. Brady is Chairman and shareholder of Darby Overseas
Investments, Ltd., which is the corporate general partner of Darby Overseas. In
addition, Darby Overseas and Templeton Global Advisors Limited are limited
partners of Darby Emerging Markets Fund, L.P. (DEMF). Mr. Brady serves as
Chairman of the corporate general partner of DEMF, and Darby Overseas and its
general partner own 100% of the stock of the general partner of DEMF. Mr. Brady
is also a director of Templeton Capital Advisors Ltd. (TCAL), which serves as
investment manager to certain unregistered funds. TCAL and Templeton Global
Advisors Limited are both indirect subsidiaries of Franklin Resources, Inc.
+Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and
uncle, respectively, of Charles E. Johnson.
30
[logo omitted]
FRANKLIN TEMPLETON INVESTMENTS
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
ANNUAL REPORT
TEMPLETON DRAGON FUND, INC.
AUDITORS
PricewaterhouseCoopers LLP
333 Market Street
San Francisco, CA 94105
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
1-800/416-5585
www.melloninvestor.com
FUND INFORMATION
1-800/342-5236
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
the risk of such losses should not invest in the 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.
TLTDF A2001 02/02 [recycled symbol omitted] Printed on recycled paper