UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08874
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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)
MURRAY L. SIMPSON, 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: 6/30/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
JUNE 30, 2004
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SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION | INTERNATIONAL
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TEMPLETON DRAGON FUND, INC.
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[LOGO OMITTED]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
expertise in growth- and value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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NOT PART OF THE SEMIANNUAL REPORT
Contents
SEMIANNUAL REPORT
Templeton Dragon Fund, Inc. .................... 1
Performance Summary ............................ 5
Financial Highlights and
Statement of Investments ....................... 6
Financial Statements ........................... 10
Notes to Financial Statements .................. 13
Annual Meeting of Shareholders.................. 21
Dividend Reinvestment and
Cash Purchase Plan ............................. 22
Proxy Voting Policies and Procedures............ 23
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Semiannual 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.
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GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets as of 6/30/04
[PIE CHART OMITTED]
EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS:
China .............................................. 37.0%
Hong Kong .......................................... 32.5%
Taiwan ............................................. 23.3%
U.K. ............................................... 2.9%
Short-Term Investments & Other Net Assets .......... 4.3%
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Dear Shareholder:
This semiannual report for Templeton Dragon Fund covers the period ended June
30, 2004.
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 7.
Semiannual Report | 1
PERFORMANCE OVERVIEW
For the six months ended June 30, 2004, Templeton Dragon Fund posted cumulative
total returns of -18.89% in market price terms and +0.12% in net asset value
terms, as the Fund's market price declined more than the Fund's net asset value.
You can find the Fund's long-term performance in the Performance Summary
beginning on page 5.
ECONOMIC AND MARKET OVERVIEW
Overall, China's economy grew 9.8% in first quarter 2004 compared with first
quarter 2003 on the strength of investments in factories, real estate and other
fixed assets.1 During the six months under review, the Chinese government
implemented measures to cool the booming economy. These measures included
raising reserve requirements for some commercial banks and capping bank lending
for the funding of steel, aluminum and cement projects, as well as price
controls on provincial governments in a bid to stem inflation. Although
government officials said that reduced investment and credit tightening policies
slowed growth, an increase in lending rates was expected as inflation registered
4.4% in May 2004, slightly below the 5% threshold set by the Central Bank.
Taiwanese President Chen Shui-bian commenced his second term in office in May
2004. In his inaugural speech, Chen reiterated plans to amend the island's
constitution, but scrapped plans for a public referendum to impose a new
constitution. Aimed at improving Taiwan's infrastructure and service sectors,
the government approved plans to spend US$15 billion over the next five years.
Taiwan's first quarter 2004 gross domestic product (GDP) grew 6.3%, faster than
the 5.2% in fourth quarter 2003 as strengthening domestic demand and robust
exports boosted the economy.2
In 2004, Hong Kong continued its economic recovery as first quarter GDP grew
6.8%, mainly due to strengthening exports, booming tourism and rising domestic
spending. The government expected overall 2004 GDP growth to be 6%, up from 3.3%
last year. In line with the city's recovery, unemployment also improved, with
the rate falling to 7.0% in May 2004, down from a high of 8.7% in July 2003.
In early 2004, markets in the greater China region recorded positive
performances as investor optimism continued from 2003 into the new year.
However, concerns that China's economy could experience a hard landing, rising
interest rates in the
1. Source: National Bureau of Statistics, China.
2. Source: Financial Times Information.
2 | Semiannual Report
U.S., the situation in Iraq, and high and rising oil prices rattled investor
confidence. Thus, despite the continuation of generally positive economic
developments, stock market performances in the region declined in the second
half of the reporting period and ended the six-month period down overall.
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, profit
margins, returns on investment, capital resources, government regulation,
management and other factors in comparison to other companies around the world
which 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.
MANAGER'S DISCUSSION
During the six months under review, the Morgan Stanley Capital International
(MSCI) China Index (the Index) posted -10.76% return in U.S. dollar terms, as
China-related stocks' performance belied the bright economic growth statistics.3
Our decision to hold Dairy Farm International and Hang Lung Group, which are not
in the Index, as well as the Fund's underweighted position in China Life
Insurance (sold by period-end) relative to the Index, benefited the Fund's
relative performance during the period. However, the Fund's overweighted
positions in TCL International Holdings and Sinopec hindered relative
performance. TCL is one of the largest manufacturers of television sets,
telecommunications products, personal computers and other electronic products in
China. Consistent with our strategy, we continued to hold TCL because we
believed the company is well positioned to benefit over the long term from
China's growing demand for consumer goods. Regarding Sinopec, our concerns over
the sustainability of high oil prices had already led us to reduce and then
eliminate our exposure to the company during the reporting period.
TOP 10 HOLDINGS
6/30/04
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Dairy Farm International Holdings Ltd. 15.0%
FOOD & STAPLES RETAILING, HONG KONG
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China Petroleum & Chemical Corp., H 6.6%
OIL & GAS, CHINA
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China Mobile (Hong Kong) Ltd. 5.9%
WIRELESS TELECOMMUNICATION SERVICES,
CHINA
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Hang Lung Group Ltd. 4.3%
REAL ESTATE, HONG KONG
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Cheung Kong Infrastructure Holdings Ltd. 4.3%
CONSTRUCTION MATERIALS, HONG KONG
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Datang International Power
Generation Co. Ltd. 4.0%
ELECTRIC UTILITIES, CHINA
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HSBC Holdings PLC 2.9%
COMMERCIAL BANKS, U.K.
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Citic Pacific Ltd. 2.8%
INDUSTRIAL CONGLOMERATES, CHINA
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Mega Financial Holdings Co. Ltd. 2.7%
COMMERCIAL BANKS, TAIWAN
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China Merchants Holdings
(International) Co. Ltd. 2.6%
TRANSPORTATION INFRASTRUCTURE,
CHINA
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3. Source: Standard & Poor's Micropal. The MSCI China Index is market
capitalization weighted and measures total returns of equity securities
available to foreign (non-local) investors in China. The index is unmanaged and
includes reinvested dividends. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
Semiannual Report | 3
By industry, the Fund's overweighted position relative to the Index in the real
estate sector, as well as an underweighted position in the automobile sector,
contributed to the Fund's relative performance during the period. Alternatively,
underweighted positions in the wireless telecommunication services and oil and
gas sectors hindered performance relative to the Index.
We reduced the Fund's exposure to the oil and gas sector during the period as
holdings reached sell price targets. Key sales included the aforementioned
Sinopec, as well as PetroChina and Beijing Yanhua Petrochemical. We had concerns
regarding the sustainability of high commodity prices, especially oil, and we
believed selling these holdings was prudent. Largely as a result of such sales,
the Fund's exposure to China "H" shares decreased during the period. China H
shares are Hong Kong-listed Chinese companies. The Fund also divested its
Singapore Airlines position as the stock reached our price target, thereby
eliminating the Fund's exposure to Singapore by period-end.
The Fund increased its holdings in Taiwan through purchases in Mega Financial
Holdings, one of Taiwan's largest financial holding companies, and Acer, one of
the market leaders in Europe's notebook computer market. Elsewhere, key
purchases included HSBC Holdings, a U.K.-based global banking group with
significant businesses in emerging markets, especially Hong Kong; China Mobile,
the world's largest mobile telephone operator; and China International Marine
Containers, one of the world's dominant manufacturers of shipping containers.
We thank you for your interest in Templeton Dragon Fund, welcome your questions
and comments and look forward to serving your investment needs in the years
ahead.
Sincerely,
[PHOTO OMITTED]
/S/Mark Mobius
Mark Mobius
President and Chief Executive Officer - Investment Management
Templeton Dragon Fund, Inc.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
JUNE 30, 2004, 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 | Semiannual Report
Performance Summary as of 6/30/04
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 the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses. 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. The performance table does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
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CHANGE 6/30/04 12/31/03
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Net Asset Value (NAV) -$0.04 $16.58 $16.62
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Market Price (NYSE) -$3.45 $14.54 $17.99
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DISTRIBUTIONS (1/1/04-6/30/04)
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Dividend Income $0.0600
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PERFORMANCE
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COMMENCEMENT OF
6-MONTH 1-YEAR 5-YEAR OPERATIONS (9/20/94)
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Cumulative Total Return 1
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Based on change in NAV +0.12% +47.51% +88.81% +140.17%
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Based on change in market price -18.89% +34.44% +92.48% +97.98%
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Average Annual Total Return 1
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Based on change in NAV +0.12% +47.51% +13.55% +9.38%
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Based on change in market price -18.89% +34.44% +13.99% +7.24%
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PERFORMANCE DATA SHOWN REPRESENTS 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.
FOR MORE CURRENT PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT
1-800/342-5236.
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 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.
ENDNOTES
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated. Six-month return has not
been annualized.
Semiannual Report | 5
Templeton Dragon Fund, Inc.
FINANCIAL HIGHLIGHTS
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SIX MONTHS ENDED
JUNE 30, 2004 YEAR ENDED DECEMBER 31,
(UNAUDITED) 2003 2002 2001 2000 1999
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......... $16.62 $9.73 $8.82 $9.91 $12.75 $10.00
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Income from investment operations:
Net investment income a ..................... .13 .56 .17 .25 .12 .31
Net realized and unrealized gains (losses) .. (.11) 6.75 .81 (.37) (2.01) 3.58
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Total from investment operations ............. .02 7.31 .98 (.12) (1.89) 3.89
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Capital share repurchases .................... -- .14 .10 .01 .22 --
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Less distributions from:
Net investment income ....................... (.06) (.56) (.17) (.23) (1.17) (.32)
Tax return of capital ....................... -- -- -- (.75) -- (.82)
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Total distributions .......................... (.06) (.56) (.17) (.98) (1.17) (1.14)
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Net asset value, end of period ............... $16.58 $16.62 $9.73 $8.82 $9.91 $12.75
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Market value, end of period b ................ $14.54 $17.99 $8.92 $7.49 $7.25 $9.81
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Total return (based on market value per share) c (18.89)% 108.44% 21.22% 16.95% (15.31)% 50.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............ $626,289 $626,959 $431,779 $429,889 $485,091 $673,869
Ratios to average net assets:
Expenses .................................... 1.54%d 1.64%e 1.62% 1.54% 1.56% 1.59%
Net investment income ....................... 1.58%d 4.57% 1.80% 2.58% 1.04% 2.80%
Portfolio turnover rate ...................... 12.06% 29.91% 15.75% 70.94% 132.74% 66.60%
a Based on average daily shares outstanding.
b Based on the last sale on the New York Stock Exchange.
c Total return is not annualized for periods less than one year.
d Annualized.
e Ratio of expenses to average net assets, excluding payments by affiliate were
1.78% (Note 8).
6 | See notes to financial statements. | Semiannual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2004 (UNAUDITED)
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COUNTRY SHARES VALUE
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COMMON STOCKS 95.7%
AIR FREIGHT & LOGISTICS .1%
Sinotrans Ltd. ......................................................... China 2,342,000 $ 840,740
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AUTO COMPONENTS 1.8%
a Cheng Shin Rubber Industry Co. Ltd. .................................... Taiwan 8,585,000 11,228,894
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BEVERAGES .1%
Kingway Brewery Holdings Ltd. .......................................... China 2,842,000 737,846
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CAPITAL MARKETS 1.0%
Yuanta Core Pacific Securities Co. ..................................... Taiwan 9,535,067 5,952,331
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COMMERCIAL BANKS 8.3%
Chinatrust Financial Holding Co. Ltd. .................................. Taiwan 7,674,540 8,555,150
HSBC Holdings PLC ...................................................... United Kingdom 1,216,981 18,333,197
Mega Financial Holdings Co. Ltd. ....................................... Taiwan 25,913,000 17,100,732
Sinopac Holdings ....................................................... Taiwan 15,781,423 8,256,630
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52,245,709
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COMMUNICATIONS EQUIPMENT .4%
D-Link Corp. ........................................................... Taiwan 1,953,000 2,281,596
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COMPUTERS & PERIPHERALS 5.7%
Acer Inc. .............................................................. Taiwan 11,644,000 16,372,212
Advantech Co. Ltd. ..................................................... Taiwan 2,790,865 5,682,945
Asustek Computer Inc. .................................................. Taiwan 2,621,375 5,961,212
Lenovo Group Ltd. ...................................................... China 7,604,000 2,120,400
Lite-on Technology Corp. ............................................... Taiwan 5,251,000 5,510,116
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35,646,885
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CONSTRUCTION MATERIALS 4.3%
Cheung Kong Infrastructure Holdings Ltd. ............................... Hong Kong 11,060,000 26,658,119
a China Resources Cement ................................................. China 872,000 226,391
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26,884,510
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DISTRIBUTORS 2.8%
China Resources Enterprise Ltd. ........................................ China 12,628,000 15,299,700
Test-Rite International Co. Ltd. ....................................... Taiwan 5,073,000 2,533,484
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17,833,184
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DIVERSIFIED TELECOMMUNICATION SERVICES .8%
China Telecom Corp. Ltd., H ............................................ China 14,280,000 4,988,974
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ELECTRIC UTILITIES 5.7%
Datang International Power Generation Co. Ltd. ......................... China 32,020,000 24,836,662
Guangdong Electric Power Development Co. Ltd., B ....................... China 4,371,100 2,824,476
Huadian Power International Corp. Ltd., H .............................. China 3,978,000 1,338,784
Huaneng Power International Inc., H .................................... China 7,198,000 6,413,767
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35,413,689
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ELECTRICAL EQUIPMENT .6%
a Phoenixtec Power Co. Ltd. .............................................. Taiwan 3,632,945 3,563,828
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ELECTRONIC EQUIPMENT & INSTRUMENTS 2.2%
Delta Electronics Inc. ................................................. Taiwan 10,812,952 13,564,405
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Semiannual Report | 7
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2004 (UNAUDITED) (CONTINUED)
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COUNTRY SHARES VALUE
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COMMON STOCKS (CONT.)
FOOD & STAPLES RETAILING 15.0%
Dairy Farm International Holdings Ltd. ................................. Hong Kong 39,911,478 $ 93,791,973
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FOOD PRODUCTS 1.1%
UNI-President Enterprises Corp. ........................................ Taiwan 16,069,030 7,165,144
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HOTELS RESTAURANTS & LEISURE 2.1%
Hong Kong & Shanghai Hotels Ltd. ....................................... Hong Kong 21,534,000 13,044,969
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HOUSEHOLD DURABLES 3.5%
TCL International Holdings Inc. ........................................ China 48,960,000 15,221,929
Tsann Kuen Enterprise Co. Ltd. ......................................... Taiwan 5,572,000 6,956,718
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22,178,647
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INDUSTRIAL CONGLOMERATES 4.8%
Beijing Enterprises Holdings Ltd. ...................................... China 3,058,000 3,646,171
Citic Pacific Ltd. ..................................................... China 7,081,000 17,339,816
Shanghai Industrial Holdings Ltd. ...................................... China 4,954,000 9,114,323
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30,100,310
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IT SERVICES .3%
Travelsky Technology Ltd., H ........................................... China 2,589,000 1,692,851
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LEISURE EQUIPMENT & PRODUCTS .3%
Altek Corporation ...................................................... Taiwan 2,143,200 1,599,118
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MACHINERY 1.8%
China International Marine Containers .................................. China 7,773,185 10,035,638
Yung Tay Engineering Co. Ltd. .......................................... Taiwan 2,329,000 1,239,272
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11,274,910
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METALS & MINING
a China Oriental Group Co. Ltd., 144A .................................... China 422,000 77,910
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OIL & GAS 8.9%
China Petroleum & Chemical Corp., H .................................... China 113,752,000 41,564,296
PetroChina Co. Ltd., H ................................................. China 30,780,000 14,206,518
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55,770,814
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REAL ESTATE 9.4%
Cheung Kong Holdings Ltd. .............................................. Hong Kong 2,117,000 15,606,490
Hang Lung Group Ltd. ................................................... Hong Kong 19,889,000 26,774,340
Henderson China Holdings Ltd. .......................................... Hong Kong 9,215,000 4,430,402
Henderson Investment Ltd. .............................................. Hong Kong 7,485,000 9,068,598
Hong Kong Land Holdings Ltd. ........................................... Hong Kong 1,904,000 2,970,240
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58,850,070
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SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.1%
Elan Microelectronics Corp. ............................................ Taiwan 3,408,000 2,532,699
Faraday Technology Corp. ............................................... Taiwan 382,000 715,398
Sunplus Technology Co. Ltd. ............................................ Taiwan 5,694,900 9,903,438
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13,151,535
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8 | Semiannual Report
Templeton Dragon Fund, Inc.
STATEMENT OF INVESTMENTS, JUNE 30, 2004 (UNAUDITED) (CONTINUED)
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COUNTRY SHARES VALUE
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COMMON STOCKS (CONT.)
TEXTILES APPAREL & LUXURY GOODS .7%
Tack Fat Group International Ltd. ...................................... Hong Kong 26,080,000 $ 2,173,389
Tainan Enterprises Co. Ltd. ............................................ Taiwan 1,846,000 2,299,269
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4,472,658
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TRANSPORTATION INFRASTRUCTURE 5.0%
China Merchants Holdings (International) Co. Ltd. ...................... China 12,316,000 16,579,656
Cosco Pacific Ltd. ..................................................... Hong Kong 6,678,000 9,289,507
Jiangsu Expressway Co. Ltd., H ......................................... China 8,220,677 3,952,350
Zhejiang Expressway Co. Ltd., H ........................................ China 2,426,000 1,726,237
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31,547,750
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WIRELESS TELECOMMUNICATION SERVICES 6.9%
China Mobile (Hong Kong) Ltd. .......................................... China 12,162,000 36,798,790
Taiwan Cellular Corp. .................................................. Taiwan 7,047,764 6,704,175
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43,502,965
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TOTAL COMMON STOCKS (COST $429,179,652)................................. 599,404,215
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SHORT TERM INVESTMENTS (COST $24,835,149) 4.0%
b Franklin Institutional Fiduciary Trust Money Market Portfolio .......... United States 24,835,149 24,835,149
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TOTAL INVESTMENTS (COST $454,014,801) 99.7%.............................. 624,239,364
OTHER ASSETS, LESS LIABILITIES .3%....................................... 2,049,923
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NET ASSETS 100.0%........................................................ $626,289,287
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a Non-income producing.
b See Note 7 regarding investments in affiliated Money Market Portfolio.
Semiannual Report | See notes to financial statements. | 9
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ....................................................... $429,179,652
Cost - Sweep money fund (Note 7) .................................................. 24,835,149
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Value - Unaffiliated issuers ...................................................... 599,404,215
Value - Sweep money fund (Note 7) ................................................. 24,835,149
Cash................................................................................ 7,125
Foreign currency, at value (cost $431) ............................................. 429
Receivables:
Investment securities sold ........................................................ 1,163,533
Dividends and interest ............................................................ 1,841,047
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Total assets .................................................................. 627,251,498
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Liabilities:
Payables:
Affiliates ........................................................................ 727,834
Other liabilities .................................................................. 234,377
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Total liabilities ............................................................. 962,211
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Net assets, at value ................................................................ $626,289,287
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Net assets consist of:
Undistributed net investment income ................................................ $ 4,832,973
Net unrealized appreciation (depreciation) ......................................... 170,218,498
Accumulated net realized gain (loss) ............................................... (4,875,943)
Capital shares ..................................................................... 456,113,759
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Net assets, at value ................................................................ $626,289,287
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Shares outstanding .................................................................. 37,770,115
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Net asset value per share ........................................................... $16.58
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10 | See notes to financial statements. | Semiannual Report
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended June 30, 2004 (unaudited)
Investment income:
(net of foreign taxes of $254,234)
Dividends
Unaffiliated issuers ................................................................ $ 9,856,014
Sweep Money Fund (Note 7) ........................................................... 71,151
Interest ............................................................................. 549
-------------
Total investment income ......................................................... 9,927,714
-------------
Expenses:
Management fees (Note 3) ............................................................. 3,977,537
Administrative fees (Note 3) ......................................................... 481,172
Transfer agent fees .................................................................. 41,400
Custodian fees (Note 4) .............................................................. 226,500
Reports to shareholders .............................................................. 27,000
Registration and filing fees ......................................................... 35,800
Professional fees .................................................................... 89,600
Directors' fees and expenses ......................................................... 18,700
Other ................................................................................ 6,200
-------------
Total expenses .................................................................. 4,903,909
Expense reductions (Note 4) .................................................... (373)
-------------
Net expenses .................................................................. 4,903,536
-------------
Net investment income (loss) ................................................. 5,024,178
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments.......................................................................... 42,244,544
Foreign currency transactions ....................................................... (37,748)
-------------
Net realized gain (loss) ...................................................... 42,206,796
Net unrealized appreciation (depreciation) on:
Investments ......................................................................... (46,580,258)
Translation of assets and liabilities denominated in foreign currencies ............. (10,641)
-------------
Net unrealized appreciation (depreciation) .................................... (46,590,899)
-------------
Net realized and unrealized gain (loss) ............................................... (4,384,103)
-------------
Net increase (decrease) in net assets resulting from operations ....................... $ 640,075
-------------
Semiannual Report | See notes to financial statements. | 11
Templeton Dragon Fund, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended June 30, 2004 (unaudited)
and the year ended December 31, 2003
------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .......................................................... $ 5,024,178 $ 22,715,818
Net realized gain (loss) from investments and foreign currency transactions .... 42,206,796 53,980,898
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ...................... (46,590,899) 206,151,423
------------------------------------
Net increase (decrease) in net assets resulting from operations ............ 640,075 282,848,139
Distributions to shareholders from net investment income ........................ (2,168,005) (21,136,146)
Capital share transactions (Note 2) ............................................. 857,854 (66,531,693)
------------------------------------
Net increase (decrease) in net assets ...................................... (670,076) 195,180,300
Net assets:
Beginning of period ............................................................. 626,959,363 431,779,063
------------------------------------
End of period ................................................................... $626,289,287 $626,959,363
------------------------------------
Undistributed net investment income (loss) included in net assets:
End of period.................................................................... $ 4,832,973 $ 1,976,800
------------------------------------
12 | See notes to financial statements. | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
On May 29, 2002, the Fund's shareholders approved an Agreement and Plan of
Reorganization (the "Plan") that provides for the reorganization of the Fund
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.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing 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 by independent pricing services or recognized dealers in
such securities. Foreign securities are valued at the close of trading of the
foreign exchange or the NYSE, whichever is earlier. If events occur that
materially affect the values of securities after the prices or foreign exchange
rates are determined, but prior to 4:00 p.m. Eastern time or the close of
trading on the NYSE, whichever is earlier, or if market quotations are deemed
not readily available or reliable, the securities will be valued at fair value.
Investments in open-end mutual funds are valued at the closing net asset value.
All security valuation procedures are approved 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.
Semiannual Report | 13
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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 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.
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 substantially all of its taxable income. Fund distributions to
shareholders are determined on a tax basis and may differ from net investment
income and realized gains for financial reporting purposes.
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 expenses during the reporting period. Actual results could differ from those
estimates.
14 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liability 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. However, based on experience, the Fund expects the
risk of loss to be remote.
2. CAPITAL STOCK
At June 30, 2004, there were 100 million shares authorized ($.01 par value).
On May 22, 2003, the Fund, purchased pursuant to a tender offer, and retired
certain amounts of its outstanding common stock. The Fund incurred tender costs,
which were charged to additional paid-in-capital. Tender offer transactions were
as follows:
-------------
MAY 22, 2003*
-------------
Shares repurchased and retired ..... 6,656,425
Purchase price ..................... $9.97
Percentage of net asset value ...... 92.5%
Tender costs incurred .............. $167,136
*See Note 8 regarding Recent Litigation
During the period ended June 30, 2004, 50,373 shares were issued for $857,854
from reinvested distributions.
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers or directors of the following
entities:
----------------------------------------------------------------------------
ENTITY AFFILIATION
----------------------------------------------------------------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
The Fund pays an investment management fee to TAML of 1.25% per year of the
average weekly net assets of the 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
U.S.A., Inc., for sub-administrative services.
Semiannual Report | 15
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 period ended June 30, 2004, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At June 30, 2004, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
Cost of investments ................................... $455,519,500
-------------
Unrealized appreciation ............................... $185,146,874
Unrealized depreciation ............................... (16,427,010)
-------------
Net unrealized appreciation (depreciation) ............ $168,719,864
-------------
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 treatment of wash sales and foreign currency
transactions.
At December 31, 2003, the Fund had tax basis capital losses of $45,572,045 which
may be carried over to offset future capital gains. Such losses expire in 2009.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended June 30, 2004 aggregated $74,739,391 and $97,740,384, respectively.
7. INVESTMENTS IN AFFILIATED MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers Inc. (an affiliate of the Fund's 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 fees paid by the Sweep
Money Fund.
16 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. RECENT LITIGATION
On January 29, 2003, the Fund, together with Templeton China World Fund, Inc.
("China Fund"), another closed-end management investment company in Franklin
Templeton Investments, and TAML, the investment adviser to the Fund and China
Fund, filed a complaint in the United States District Court for the District of
Maryland, Northern Division, against Harvard College, Harvard Management
Company, Inc. ("Harvard Management"), which is an investment advisor to Harvard
College, and Steven Alperin, an officer of Harvard Management (referred to
collectively as "Harvard"). The complaint alleged that Harvard violated several
provisions of the Federal securities laws and the rules of the SEC related to
Harvard's ownership of Fund shares and actions as a shareholder. On February 7,
2003, Harvard counterclaimed, alleging that the Fund, China Fund, TAML and each
fund's directors violated certain provisions of the Federal securities laws and
SEC rules. Harvard also asserted counterclaims of breach of fiduciary duty under
Maryland state law against TAML and each fund's directors. On March 20, 2003,
the parties announced a settlement of their claims.
DISMISSAL OF LAWSUIT. Pursuant to the Settlement Agreement between the Fund and
Harvard, the complaint brought by the Fund, China Fund and TAML against Harvard,
as well as the counterclaims brought by Harvard against the Fund, China Fund,
each fund's directors and TAML were dismissed without prejudice. The parties
have also entered into covenants not to sue each other with respect to the
claims that were made or could have been made in the litigation absent a breach
of the settlement agreements.
SHAREHOLDER PROPOSALS. As part of the settlement, Harvard College agreed to
withdraw all of its shareholder proposals for the Fund's 2003 Annual
Shareholders' meeting (the "Meeting.")
TENDER OFFERS. The Fund announced that as part of its settlement with Harvard,
it agreed to take, and the Board approved, the following actions:
o APRIL 2003 CASH TENDER OFFER--The Fund agreed to commence a cash tender
offer, which was required to be commenced on or prior to April 30, 2003,
for 15% of the Fund's outstanding shares at 92.5% of net asset value per
share as of the date the offer expires. Previously, the Board had approved
an April 2003 cash tender offer for not less than 10% of the Fund's
outstanding shares at not less than 90% of net asset value per share. On
April 24, 2003, the Fund commenced a tender offer for up to 6,656,425
shares, or 15%, of the Fund's outstanding shares at a price per share equal
to 92.5% of net asset value per share as of May 22, 2003, the expiration
date of the tender offer. In accordance with the terms of the tender offer,
6,656,425 shares were accepted by the Fund for a purchase price of $9.97
per share.
Semiannual Report | 17
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. RECENT LITIGATION (CONTINUED)
o IN-KIND TENDER OFFERS--The Fund has applied to the SEC for an exemptive
order allowing the Fund to make occasional, non-periodic tender offers,
each for up to 20% of the Fund's outstanding shares at a price equal to 95%
of net asset value per share as of the date the offer expires, to be paid
entirely in kind through a pro rata distribution of marketable portfolio
securities and available cash. Subject to certain conditions, the
settlement requires the Fund to commence such an in-kind tender offer for
20% of the Fund's shares within three months after obtaining the SEC
exemption. The Fund may also be required under the settlement to conduct,
on substantially identical terms, up to two additional in-kind tender
offers under certain circumstances. There is no assurance that the SEC will
issue the exemptive order, nor is it possible to predict the date when an
exemptive order might be granted.
o ADDITIONAL CASH TENDER OFFERS--If the SEC does not issue the exemptive
order for in-kind tender offers by March 26, 2004, the settlement provides
that the Fund may, but is not obligated to, conduct an additional cash
tender offer, and possibly later follow-on cash tender offers, each for 15%
of the Fund's outstanding shares at a price of 92.5% of net asset value per
share as of the date the offer expires. Under certain circumstances, if the
Fund does not conduct these tender offers, Harvard will be relieved of its
obligation to refrain from making shareholder proposals and taking other
actions with respect to the Fund. The exemptive application was not
received by March 26, 2004 and the Fund has not conducted a tender offer in
2004.
Harvard announced that it intends to tender all of the shares it then owns into
each tender offer described above that is commenced.
The Settlement Agreement provides that the Fund will not be obligated to
commence in-kind tender offers or additional cash tender offers under certain
circumstances or conditions. These relate to, among other things, the number of
shares tendered by shareholders into preceding tender offers as well as the
beneficial ownership percentages of the Fund's shareholders.
STANDSTILL. As part of the settlement, Harvard agreed not to submit any
proposals for consideration by shareholders of the Fund, or any other closed-end
fund or similar investment vehicle managed by TAML or its affiliates, or for
consideration by shareholders of Franklin Resources, nor to encourage others to
do so, for a period of four years. Harvard also has agreed not at any time to
acquire additional shares of the Fund or any other closed-end fund or similar
investment vehicle managed by TAML or its affiliates.
18 | Semiannual Report
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company")
claiming violations of the Massachusetts Uniform Securities Act ("Massachusetts
Act") with respect to an alleged arrangement to permit market timing (the "Mass.
Proceeding"). On February 17, 2004, the Company filed an answer denying all
violations of the Massachusetts Act.
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT
On August 2, 2004, the Company announced that an agreement had been reached by
an affiliate of the Fund's investment manager with the SEC that resolved the
issues resulting from the SEC's investigation of market timing activity. The SEC
issued an "order instituting administrative and cease-and-desist proceedings
pursuant to sections 203(e) and 203(k) of the Investment Advisers Act of 1940
and sections 9(b) and 9(f) of the Investment Company Act of 1940, making
findings and imposing remedial sanctions and a cease and desist order" (the
"Order"). The SEC's Order concerns the activities of a limited number of third
parties that ended in 2000 and those that are the subject of the Mass.
Proceeding described above.
Under the terms of the SEC's Order, pursuant to which an affiliate of the Fund's
investment manager neither admits nor denies any wrongdoing, an affiliate of the
Fund's investment manager has agreed to pay $50 million, of which $20 million is
a civil penalty, to be distributed to certain fund shareholders in accordance
with a plan to be developed by an Independent Distribution Consultant. At this
time, it is unclear whether shareholders of all funds will receive distributions
or whether all shareholders of any particular fund will receive distributions.
The SEC Order also requires an affiliate of the Fund's investment manager to,
among other things, enhance and periodically review compliance policies and
procedures.
OTHER GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the SEC, the U.S. Attorney for the Northern
District of California, the New York Attorney General, the California Attorney
General, the U.S. Attorney for the District of Massachusetts, the Florida
Department of Financial Services and the Commissioner of Securities, the West
Virginia Attorney General, the Vermont Department of Banking, Insurance,
Securities, and Health Care Administration and the National Association of
Securities Dealers, relating to certain practices in the mutual fund industry,
including late trading, market timing and payments to securities dealers who
sell fund shares, the Company and its subsidiaries, as well as certain current
or former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company has
been providing documents and information in response to these requests and
subpoenas. In addition, the Company has responded to requests for similar kinds
of information from regulatory authorities in some of the foreign countries
where the Company conducts its global asset management business.
Semiannual Report | 19
Templeton Dragon Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER GOVERNMENTAL INVESTIGATIONS (CONTINUED)
The Staff of the SEC has also informed the Company that it is considering
recommending a civil action or proceeding against an affiliate of the Fund's
investment manager and Franklin Templeton Distributors, Inc. concerning payments
to securities dealers who sell fund shares (commonly referred to as "revenue
sharing"). The staff of the California Attorney General's Office (CAGO) also has
advised the Company that it is authorized to bring a civil action against
Franklin Resources, Inc. and Franklin Templeton Distributors, Inc. arising from
the same events. Even though the Company currently believes that the charges the
SEC staff and CAGO staff are contemplating are unwarranted, it also believes
that it is in the best interest of the Company and fund shareholders to resolve
these issues voluntarily, to the extent the Company can reasonably do so.
OTHER LEGAL PROCEEDINGS
The Company, in addition to other entities within Franklin Templeton
Investments, including certain of its subsidiaries, other funds, and current and
former officers, employees, and directors have been named in multiple lawsuits
in different federal courts in Nevada, California, Illinois, New York and
Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Specifically, the lawsuits claim
breach of duty with respect to alleged arrangements to permit market timing
and/or late trading activity, or breach of duty with respect to the valuation of
the portfolio securities of certain funds managed by Company subsidiaries,
resulting in alleged market timing activity. The majority of these lawsuits
duplicate, in whole or in part, the allegations asserted in the Mass. Proceeding
detailed above. The lawsuits are styled as class actions or derivative actions
on behalf of either the named funds or the Company.
In addition, the Company and its subsidiaries, as well as certain current and
former officers, employees, and directors have been named in multiple lawsuits
alleging violations of various securities laws and pendent state law claims
relating to the disclosure of directed brokerage payments and/or payment of
allegedly excessive commissions and advisory fees. These lawsuits are styled as
class actions and derivative actions.
The Company's management strongly believes that the claims made in each of these
lawsuits are without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
Mass. Proceeding, other governmental investigations or other legal proceedings.
The impact, if any, of these matters on the Fund is uncertain at this time. If
the Company determines that it bears responsibility for any unlawful or
inappropriate conduct that caused losses to the Fund, it is committed to making
the Fund or its shareholders whole, as appropriate.
20 | Semiannual Report
Templeton Dragon Fund, Inc.
ANNUAL MEETING OF SHAREHOLDERS, MAY 25, 2004
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Boulevard, Fort Lauderdale, Florida on May 25, 2004. 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, Edith E. Holiday, Charles B. Johnson and Frank A.
Olson.* 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 2006: FOR SHARES SHARES WITHHELD SHARES SHARES
-----------------------------------------------------------------------------------------------------
Frank A. Olson ....... 32,884,878.0431 87.07% 97.78% 747,259.2115 1.98% 2.22%
TERM EXPIRING 2007:
Martin L. Flanagan.... 33,092,417.0431 87.62% 98.40% 539,720.2115 1.43% 1.60%
Edith E. Holiday...... 32,973,566.0431 87.30% 98.04% 658,571.2115 1.74% 1.96%
Charles B. Johnson.... 33,024,331.0431 87.44% 98.19% 607,806.2115 1.61% 1.81%
* Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato,
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.
Semiannual Report | 21
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 Bank, N.A. (the "Plan Administrator") 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
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 "Mellon Bank, N.A." and sent to
Mellon Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn:
Templeton Dragon Fund, Inc. The Plan Administrator 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.
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.
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Administrator 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 Administrator; or, if the participant
wishes, the Plan Administrator will sell the participant's shares and send the
proceeds, less a service charge and less trading fees. Effective April 23, 2004,
the fees for the sale of shares through the Plan are $15.00 per transaction plus
a $0.12 per share trading fee. All other terms and conditions of the Plan remain
in effect and have not been modified or amended.
22 | Semiannual Report
Templeton Dragon Fund, Inc.
PROXY VOTING POLICIES AND PROCEDURES
The Fund 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 1-954/847-2268 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 Securities and Exchange Commission's
website at http://www.sec.gov and reflect the 12-month period beginning July 1,
2003, and ending June 30, 2004.
Semiannual Report | 23
Templeton Dragon Fund, Inc.
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-416-5585
www.melloninvestor.com
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. 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 Mellon Investor
Services' web site at http://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 | Semiannual Report
Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, we may
monitor, record and access telephone calls to or from our service departments.
These calls can be identified by the presence of a regular beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5, 6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC 7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 10
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
3. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
7. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
8. Portfolio of insured municipal securities.
9. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 NOT PART OF THE SEMIANNUAL REPORT
[LOGO OMITTED]
FRANKLIN[R] TEMPLETON[R] 100 Fountain Parkway
INVESTMENTS P.O. Box 33030
St. Petersburg, Fl 33733-8030
SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION
TEMPLETON DRAGON FUND, INC.
INVESTMENT MANAGER
Templeton Asset Management Ltd.
TRANSFER AGENT
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
Toll free number: 1-800-416-5585
Hearing Impaired phone number: 1-800-231-5469
Foreign Shareholders phone number: 201-329-8660
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
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.
TLTDF S2004 08/04
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 11(a), 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 experts are Fred R. Millsaps and Frank A.
Olson and they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Members of the Audit Committee are: Frank J. Crothers, Fred R. Millsaps; Frank
A. Olson 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.
To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), 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 ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors and employees of the Fund, 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. All conflicts are resolved in
the interests of the manager's clients. In situations where the manager
perceives a material conflict of interest, the manager may: disclose the
conflict to the Fund's board of directors; defer to the voting recommendation of
the Fund's board of directors, ISS, Glass Lewis or those of another independent
third party provider of proxy services; or take such other action in good faith
(in consultation with counsel) which would protect the interests of the Fund and
its shareholders.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not 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 may withhold 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. In light of several high profile accounting scandals,
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 & DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. 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 ISS
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. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. 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. 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 will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. 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 each will 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 and reincorporation 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
proxy voting decisions for international companies. However, the manager must be
more 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 proxies. 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. 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 on-line at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954/847-2268 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 on-line at franklintempleton.com and posted
on the SEC website at www.sec.gov and reflect the twelve-month period beginning
July 1, 2003, and ending June 30, 2004.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Threa 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 10. 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 11. EXHIBITS.
(A) Code of Ethics for Principal Executive and Senior Financial Officers
(B) (1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(B) (2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial 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/JIMMY D. GAMBILL
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August 31, 2004
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/JIMMY D. GAMBILL
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August 31, 2004
By /s/GALEN G. VETTER
-----------------------------
Galen G. Vetter
Chief Financial Officer
Date: August 31, 2004