- Certified annual shareholder report for management investment companies (N-CSR)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-08394

TEMPLETON DRAGON FUND, INC.
(Exact name of registrant as specified in charter)

500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Name and address of agent for service)

Registrant's telephone number, including area code: (954) 527-7500 Date of fiscal year end: 12/31

Date of reporting period: 12/31/09

ITEM 1. REPORTS TO STOCKHOLDERS.

DECEMBER 31, 2009

ANNUAL REPORT

(GRAPHIC)

INTERNATIONAL

TEMPLETON DRAGON FUND, INC.

(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)

Franklin - TEMPLETON - Mutual Series

Franklin Templeton Investments

GAIN FROM OUR PERSPECTIVE(R)

 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 recognized
 leader in fixed income investing and also brings
 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 offices in over 25 countries, Templeton offers
 investors a truly global perspective.

 MUTUAL SERIES. Founded in 1949, Mutual Series is
 dedicated to a unique style of value investing,
 searching aggressively for opportunity among what it
 believes are undervalued stocks, as well as
 arbitrage situations and distressed securities.

TRUE DIVERSIFICATION Because our management groups work independently and
 adhere to different investment approaches, Franklin,
 Templeton and Mutual Series funds typically have
 distinct portfolios. That's why our funds can be
 used to build truly diversified allocation plans
 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, accurate and personal service that has
 helped us become one of the most trusted names in
 financial services.

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

(GRAPHIC)

Not part of the annual report

Contents

ANNUAL REPORT
Templeton Dragon Fund, Inc. ............................................... 1
Performance Summary ....................................................... 5
Important Notice to Shareholders .......................................... 6
Financial Highlights and Statement of Investments ......................... 7
Financial Statements ...................................................... 12
Notes to Financial Statements ............................................. 15
Report of Independent Registered Public Accounting Firm ................... 22
Annual Meeting of Shareholders ............................................ 23
Dividend Reinvestment and Cash Purchase Plan .............................. 24
Tax Designation ........................................................... 27
Board Members and Officers ................................................ 29
Shareholder Information ................................................... 34

Annual Report

Templeton Dragon Fund, Inc.

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Dragon Fund seeks long-term capital appreciation by investing at least 45% of its total assets in equity securities of "China companies," as defined in the Fund's prospectus.

GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 12/31/09

(BAR CHART)

China 62.6%
Hong Kong 25.7%
Taiwan 10.7%
Cambodia 0.2%
U.S. 0.1%
Singapore 0.1%
Short-Term Investments & Other Net Assets 0.6%

Dear Shareholder:

We are pleased to bring you Templeton Dragon Fund's annual report for the fiscal year ended December 31, 2009.

PERFORMANCE OVERVIEW

Templeton Dragon Fund delivered cumulative total returns of +63.60% in market price terms and +58.85% in net asset value terms for the 12 months under review. You can find the Fund's long-term performance data in the Performance Summary on page 5.

ECONOMIC AND MARKET OVERVIEW

After falling dramatically at the end of 2008, equity markets in the greater China region experienced a tremendous surge in 2009 and the Morgan Stanley Capital International (MSCI) Golden Dragon Index ended the reporting period with a +67.12% total return in U.S. dollar terms.(1) The substantial rally

(1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The MSCI Golden Dragon Index is an aggregate of the MSCI Hong Kong Index, the MSCI China Free Index and the MSCI Taiwan@65% Index. The MSCI Taiwan Index has an inclusion weight at 65% of its market capitalization in the MSCI index series.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 8.

Annual Report | 1

was a result of many factors but most significantly the rapid increase in money supply and liquidity supplied by governments globally to prevent an economic depression.

Despite the global downturn's severity, China reported encouraging economic data in 2009. Largely due to government stimulus measures and robust bank lending, China's gross domestic product (GDP) growth accelerated 10.7% year-over-year in the fourth quarter compared to 9.1% in the third quarter.(2) For 2009, the economy grew 8.7% year-over-year.(2) The country's foreign exchange reserves also continued to grow and totaled US$2.4 trillion at the end of December, which gave China the largest reserves in the world.(3) In the trade sector, exports steadily improved during the reporting period and resumed growth at 18% in December, which made China the world's top exporter in 2009.(4) Imports jumped 56% during the same month due to healthy consumer demand and raw materials imports.(4) Aimed at improving relations with its global trading partners, China signed a number of agreements with the European Union, Russia, Brazil and Taiwan in 2009.

INVESTMENT STRATEGY

Our investment strategy employs a fundamental, value-oriented, long-term approach. In selecting companies for investment, we will consider overall growth prospects, competitive positions in export markets, technologies, research and development, productivity, labor costs, raw material costs and sources. Additional considerations include profit margins, returns on investment, capital resources, government regulation, management and other factors in comparison to other companies around the world that we believe are comparable.

Our approach to selecting investments emphasizes fundamental company-by-company analysis (rather than broader analyses of specific industries or sectors of the economy), to construct an "action list" from which we make our buy decisions. Although we will consider historical value measures, the primary factor in selecting securities for investment by the Fund will be the company's current price relative to its long-term earnings potential.

(2.) Source: National Bureau of Statistics, China.

(3.) Source: The People's Bank of China.

(4.) Source: Ministry of Foreign Trade and Economic Cooperation, China.

2 | Annual Report

TOP 10 HOLDINGS
12/31/09

COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
------------------------ ----------
Dairy Farm International Holdings Ltd. 15.9%
 FOOD & STAPLES RETAILING, HONG KONG
Sinopec (China Petroleum and
 Chemical Corp.), H 8.0%
 OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 5.8%
 OIL, GAS & CONSUMABLE FUELS, CHINA
CNOOC Ltd. 5.6%
 OIL, GAS & CONSUMABLE FUELS, CHINA
China Mobile Ltd. 4.9%
 WIRELESS TELECOMMUNICATION SERVICES,
 CHINA
China Construction Bank Corp., H 3.5%
 COMMERCIAL BANKS, CHINA
China Shenhua Energy Co. Ltd., H 3.3%
 OIL, GAS & CONSUMABLE FUELS, CHINA
Yanzhou Coal Mining Co. Ltd., H 3.1%
 OIL, GAS & CONSUMABLE FUELS, CHINA
Shanghai Industrial Holdings Ltd. 3.1%
 INDUSTRIAL CONGLOMERATES, CHINA
TSMC (Taiwan Semiconductor Manufacturing Co. Ltd.) 3.0%
 SEMICONDUCTORS & SEMICONDUCTOR
 EQUIPMENT, TAIWAN

MANAGER'S DISCUSSION

During the year under review, among the most significant contributors to the Fund's absolute performance were Dairy Farm International Holdings, Sinopec (China Petroleum and Chemical) and Dongfeng Motor. Dairy Farm operates supermarkets, hypermarkets (department store and supermarket) as well as convenience, home furnishing, and health and beauty stores in Asia, and it benefited from the region's growing consumer demand for basic necessities and discretionary items. We trimmed the Fund's position in Dairy Farm by period-end to better diversify risk.

In addition, the Chinese government's fuel price increases served the country's largest integrated energy company Sinopec well. With China's strong economic recovery, rising fuel demand also improved Sinopec's prospects. Dongfeng Motor is the country's third-largest automaker in partnership with foreign automakers Honda Motor, Nissan Motor and PSA Peugeot-Citroen. Lower raw material costs early in 2009 and government stimulus measures in boosting car sales supported Dongfeng Motor and the automobile market, which the government encouraged to expand both organically and through acquisitions.

In contrast, some of the largest detractors from Fund performance included China Mobile, Hopewell Holdings and Datang International Power Generation. Shares of China Mobile, the country's market leader in wireless telecommunication services, ended the year with a small decline, as investors switched from defensive holdings to momentum-driven stocks in a rising market, and we reduced the Fund's position by period-end. Over the longer term, however, we believe the Fund's investment is well positioned to benefit from the region's recovery.

Another detractor was Hopewell Holdings, a real estate and infrastructure development company. Its stock posted a minor gain in value but lagged its regional peers during the reporting period. Concerns of higher costs resulting from rising coal prices weighed on shares of Datang International Power Generation, a major Chinese independent power producer. Consistent with our strategy, we used this opportunity to increase the Fund's position in Datang due to our assessment of the company's positive outlook and strong market position.

During the review period, we increased the Fund's holdings in coal and consumable fuels, diversified banking, and Internet software and services companies due to attractive fundamentals in our view. We also made select purchases in life and health insurance, steel, and oil and gas exploration and

Annual Report | 3

production companies. We believe these companies are well positioned to benefit from growing Chinese consumer demand as well as higher commodity prices. Among our key purchases were Yanzhou Coal Mining, one of China's largest coal exporters, BOC Hong Kong, the city's premier commercial banking group, and China Life Insurance, the country's leading life insurance company.

Conversely, we sold some stocks from wireless telecommunication services, automobile manufacturing, and tire and rubber companies. These sales allowed the Fund to focus on stocks we deemed to be relatively more attractively valued within our investment universe. We also sold some stocks as they reached their sale price targets. Major sales included CIMC (China International Marine Containers), a transportation equipment maker, and Cheng Shin Rubber Industry, Taiwan's largest tire manufacturer.

Thank you for your continued participation in Templeton Dragon Fund. We look forward to serving your future investment needs.

(PHOTO OF MARK MOBIUS)

Sincerely,

/s/ Mark Mobius

Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.

4 | Annual Report

Performance Summary as of 12/31/09

Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any unrealized gains on the sale of Fund shares.

PRICE AND DISTRIBUTION INFORMATION

SYMBOL: TDF CHANGE 12/31/09 12/31/08
----------- ------- -------- --------
Net Asset Value (NAV) +$10.06 $28.85 $18.79
Market Price (NYSE) +$9.99 $27.25 $17.26
DISTRIBUTIONS (1/1/09-12/31/09)
Dividend Income $0.5451
Short-Term Capital Gain $0.0072
Long-Term Capital Gain $0.3705
 TOTAL $0.9228

PERFORMANCE

 1-YEAR 5-YEAR 10-YEAR
 ------- ------- --------
Cumulative Total Return(1)
 Based on change in NAV(2) +58.85% +115.22% +320.41%
 Based on change in market price(3) +63.60% +123.80% +463.32%
Average Annual Total Return(1)
 Based on change in NAV(2) +58.85% +16.57% +15.44%
 Based on change in market price(3) +63.60% +17.48% +18.87%

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN.

ENDNOTES

SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. ALSO, AS A NONDIVERSIFIED INVESTMENT COMPANY INVESTING IN "CHINA COMPANIES," THE FUND MAY INVEST IN A RELATIVELY SMALL NUMBER OF ISSUERS AND, AS A RESULT, BE SUBJECT TO A GREATER RISK OF LOSS WITH RESPECT TO ITS PORTFOLIO SECURITIES.

(1.) Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated.

(2.) Assumes reinvestment of distributions based on net asset value.

(3.) Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.

Annual Report | 5

Important Notice to Shareholders

SHARE REPURCHASE PROGRAM

The Fund's Board previously authorized management to implement an open-market share repurchase program pursuant to which the Fund may purchase Fund shares, from time to time, in open-market transactions, at the discretion of management. This authorization remains in effect.

6 | Annual Report

Templeton Dragon Fund, Inc.

FINANCIAL HIGHLIGHTS

 YEAR ENDED DECEMBER 31,
 ----------------------------------------------------------
 2009 2008 2007 2006 2005
 ---------- -------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 18.79 $ 34.73 $ 26.95 $ 21.80 $ 18.70
 ---------- -------- ---------- ---------- --------
Income from investment operations:
 Net investment income(a) ...................... 0.32 0.55 0.58 0.38 0.59
 Net realized and unrealized gains (losses) .... 10.67 (14.80) 10.44 7.12 3.28
 ---------- -------- ---------- ---------- --------
Total from investment operations ................. 10.99 (14.25) 11.02 7.50 3.87
 ---------- -------- ---------- ---------- --------
Less distributions from:
 Net investment income ......................... (0.55) (0.58) (0.33) (0.37) (0.41)
 Net realized gains ............................ (0.38) (1.11) (2.91) (1.98) (0.36)
 ---------- -------- ---------- ---------- --------
Total distributions .............................. (0.93) (1.69) (3.24) (2.35) (0.77)
 ---------- -------- ---------- ---------- --------
Net asset value, end of year ..................... $ 28.85 $ 18.79 $ 34.73 $ 26.95 $ 21.80
 ========== ======== ========== ========== ========
Market value, end of year(b) ..................... $ 27.25 $ 17.26 $ 30.94 $ 26.26 $ 19.18
 ========== ======== ========== ========== ========
Total return (based on market value per share) ... 63.60% (39.68)% 31.69% 49.56% 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses(c) ...................................... 1.50% 1.51% 1.47% 1.49% 1.52%
Net investment income ............................ 1.34% 2.05% 1.85% 1.61% 2.92%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $1,092,713 $711,753 $1,315,377 $1,017,910 $823,243
Portfolio turnover rate .......................... 12.29% 7.90% 15.66% 18.83% 8.84%

(a) Based on average daily shares outstanding.

(b) Based on the last sale on the New York Stock Exchange.

The accompanying notes are an integral part of these financial statements.

Annual Report | 7

Templeton Dragon Fund, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2009

 COUNTRY SHARES/UNITS VALUE
 ------------- ------------ --------------
 COMMON STOCKS AND OTHER EQUITY INTERESTS 99.4%
 AIR FREIGHT & LOGISTICS 0.1%
 Sinotrans Ltd., H .................................... China 5,999,000 $ 1,578,338
 --------------
 AUTO COMPONENTS 1.8%
 Cheng Shin Rubber Industry Co. Ltd. .................. Taiwan 8,419,108 19,343,684
 --------------
 AUTOMOBILES 4.1%
 Chongqing Changan Automobile Co. Ltd., B ............. China 5,829,502 5,931,977
 Denway Motors Ltd. ................................... China 6,256,000 3,985,793
 Dongfeng Motor Corp., H .............................. China 18,312,000 26,403,931
 Great Wall Motor Co. Ltd., H ......................... China 2,382,538 2,974,447
 Jiangling Motors Corp. Ltd., B ....................... China 3,163,420 5,418,086
 --------------
 44,714,234
 --------------
 BEVERAGES 0.4%
 Yantai Changyu Pioneer Wine Co. Ltd., B .............. China 538,490 4,789,927
 --------------
 CHEMICALS 0.1%
(a, b) Yingde Gases Group Co. Ltd., 144A .................... Hong Kong 1,273,500 1,312,311
 --------------
 COMMERCIAL BANKS 9.4%
 Bank of China Ltd., H ................................ China 40,014,000 21,674,659
 (a) Bank of China Ltd., H, 144A .......................... China 9,420,000 5,102,596
 BOC Hong Kong (Holdings) Ltd. ........................ China 4,570,500 10,374,505
 China Construction Bank Corp., H ..................... China 44,293,000 38,102,365
(a, b) China Minsheng Banking Corp. Ltd., 144A .............. China 3,862,500 4,343,862
 Industrial and Commercial Bank of China Ltd., H ...... China 27,510,000 22,849,014
 --------------
 102,447,001
 --------------
 COMMUNICATIONS EQUIPMENT 0.7%
 D-Link Corp. ......................................... Taiwan 1,908,360 2,010,370
 ZTE Corp., H ......................................... China 830,158 5,139,170
 --------------
 7,149,540
 --------------
 COMPUTERS & PERIPHERALS 3.9%
 Advantech Co. Ltd. ................................... Taiwan 1,822,628 4,090,800
 Asustek Computer Inc. ................................ Taiwan 14,685,817 28,370,850
 LITE-ON IT Corp. ..................................... Taiwan 6,625,560 6,648,343
 Lite-On Technology Corp. ............................. Taiwan 629,835 946,032
 Simplo Technology Co. Ltd. ........................... Taiwan 380,000 2,256,955
 --------------
 42,312,980
 --------------
 CONSTRUCTION MATERIALS 0.2%
 Asia Cement China Holdings Corp. ..................... China 3,337,500 2,001,544
 --------------
 DISTRIBUTORS 2.7%
 China Resources Enterprise Ltd. ...................... Hong Kong 5,818,000 21,272,463
 Dah Chong Hong Holdings Ltd. ......................... Hong Kong 20,186,520 8,591,449
 --------------
 29,863,912
 --------------
 DIVERSIFIED TELECOMMUNICATION SERVICES 0.9%
 China Telecom Corp. Ltd., H .......................... China 10,694,000 4,468,648
 China Unicom (Hong Kong) Ltd. ........................ China 4,430,752 5,874,374
 --------------
 10,343,022
 --------------

8 | Annual Report

Templeton Dragon Fund, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)

 COUNTRY SHARES/UNITS VALUE
 ------------- ------------ --------------
 COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
 ELECTRIC UTILITIES 2.7%
 Cheung Kong Infrastructure Holdings Ltd. ............. Hong Kong 7,814,000 $ 29,779,808
 --------------
 ELECTRICAL EQUIPMENT 0.3%
 Dongfang Electric Co. Ltd., H ........................ China 570,000 3,058,153
 --------------
 ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 0.6%
 (b) China Security & Surveillance Technology Inc. ........ United States 202,800 1,549,392
 Hon Hai Precision Industry Co. Ltd. .................. Taiwan 970,000 4,593,779
 --------------
 6,143,171
 --------------
 FOOD & STAPLES RETAILING 16.1%
 Beijing Jingkelong Co. Ltd., H ....................... China 3,229,447 2,632,306
 Dairy Farm International Holdings Ltd. ............... Hong Kong 29,016,778 173,810,500
 --------------
 176,442,806
 --------------
 FOOD PRODUCTS 3.0%
 China Foods Ltd. ..................................... China 16,200,000 14,541,703
 China Yurun Food Group Ltd. .......................... China 1,084,000 3,215,497
 People's Food Holdings Ltd. .......................... China 3,574,000 1,589,292
(a, b) Shenguan Holdings Group Ltd., 144A ................... China 7,362,000 6,703,344
 Uni-President China Holdings Ltd. .................... Taiwan 2,340,000 1,723,229
 Uni-President Enterprises Corp. ...................... Taiwan 1,347,482 1,661,712
 (b) Xiwang Sugar Holdings Co. Ltd. ....................... Hong Kong 9,341,681 3,289,112
 --------------
 32,723,889
 --------------
 HOTELS, RESTAURANTS & LEISURE 0.2%
 NagaCorp Ltd. ........................................ Cambodia 18,008,875 1,997,451
 --------------
 INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.0%
(a, b) China Longyuan Power Group Corp., 144A ............... China 957,000 1,239,186
 Datang International Power Generation Co. Ltd., H .... China 34,992,000 15,118,356
 Guangdong Electric Power Development Co. Ltd., B ..... China 7,651,867 4,539,586
 Huaneng Power International Inc., H .................. China 1,454,000 823,228
 --------------
 21,720,356
 --------------
 INDUSTRIAL CONGLOMERATES 3.1%
 Shanghai Industrial Holdings Ltd. .................... China 6,539,000 33,438,404
 --------------
 INSURANCE 2.3%
 China Life Insurance Co. Ltd., H ..................... China 5,086,000 25,155,487
 --------------
 INTERNET SOFTWARE & SERVICES 0.6%
 (b) Sohu.com Inc. ........................................ China 107,800 6,174,784
 --------------
 IT SERVICES 0.5%
 Travelsky Technology Ltd., H ......................... China 5,629,706 5,685,105
 --------------
 LEISURE EQUIPMENT & PRODUCTS 0.2%
 Yorkey Optical International Cayman Ltd. ............. China 11,491,000 2,356,383
 --------------

Annual Report | 9

Templeton Dragon Fund, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)

 COUNTRY SHARES/UNITS VALUE
 ------------- ------------ --------------
 COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
 MACHINERY 0.9%
 Lonking Holdings Ltd. ................................ China 10,809,000 $ 7,513,898
(a, b) Sany Heavy Equipment International Holdings Co.
 Ltd., 144A ........................................ China 476,000 602,236
 Shanghai Prime Machinery Co. Ltd., H ................. China 500,000 95,438
 Shin Zu Shing Co. Ltd. ............................... Taiwan 420,504 2,096,605
 --------------
 10,308,177
 --------------
 MARINE 0.4%
 China Shipping Development Co. Ltd., H ............... China 1,550,000 2,330,887
 Sinotrans Shipping Ltd. .............................. Hong Kong 5,341,000 2,479,797
 --------------
 4,810,684
 --------------
 MEDIA 0.1%
 (b) Next Media Ltd. ...................................... Hong Kong 5,588,000 749,516
 --------------
 METALS & MINING 0.7%
 Angang Steel Co. Ltd., H ............................. China 3,276,000 7,233,336
 (b) China Zhongwang Holdings Ltd. ........................ China 857,600 690,177
 --------------
 7,923,513
 --------------
 OIL, GAS & CONSUMABLE FUELS 26.5%
 China Coal Energy Co., H ............................. China 3,237,000 5,944,888
 China Petroleum and Chemical Corp., H ................ China 97,904,000 87,250,814
 China Shenhua Energy Co. Ltd., H ..................... China 7,424,000 36,384,178
 CNOOC Ltd. ........................................... China 38,862,000 61,147,117
 (b) Inner Mongolia Yitai Coal Co. Ltd., B ................ China 163,900 1,417,571
 PetroChina Co. Ltd., H ............................... China 52,788,000 63,451,534
 Yanzhou Coal Mining Co. Ltd., H ...................... China 15,172,000 33,577,714
 --------------
 289,173,816
 --------------
 PHARMACEUTICALS 0.1%
 Tong Ren Tang Technologies Co. Ltd., H ............... China 713,000 1,285,546
 --------------
 REAL ESTATE MANAGEMENT & DEVELOPMENT 3.9%
 Agile Property Holdings Ltd. ......................... China 852,000 1,252,666
 Cheung Kong (Holdings) Ltd. .......................... Hong Kong 933,000 12,069,064
 Hopewell Holdings Ltd. ............................... Hong Kong 7,088,000 22,945,020
 Soho China Ltd. ...................................... China 12,384,000 6,708,127
 --------------
 42,974,877
 --------------
 SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.9%
 MediaTek Inc. ........................................ Taiwan 540,567 9,429,083
 Taiwan Semiconductor Manufacturing Co. Ltd. .......... Taiwan 16,377,136 33,020,484
 --------------
 42,449,567
 --------------
 SOFTWARE 0.7%
 Kingdee International Software Group Co. Ltd., fgn. .. Hong Kong 12,774,000 2,866,600
 (b) Shanda Interactive Entertainment Ltd., ADR ........... China 80,200 4,219,322
 --------------
 7,085,922
 --------------
 SPECIALTY RETAIL 0.2%
 (b) I.T Ltd. ............................................. Hong Kong 9,303,993 1,811,913
 --------------

10 | Annual Report

Templeton Dragon Fund, Inc.

STATEMENT OF INVESTMENTS, DECEMBER 31, 2009 (CONTINUED)

 COUNTRY SHARES/UNITS VALUE
 ------------- ------------ --------------
 COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
 TEXTILES, APPAREL & LUXURY GOODS 0.3%
 Anta Sports Products Ltd. ............................ China 1,547,000 $ 2,298,443
 Weiqiao Textile Co. Ltd., H .......................... China 1,545,500 1,060,405
 --------------
 3,358,848
 --------------
 TRANSPORTATION INFRASTRUCTURE 0.9%
 Cosco Pacific Ltd. ................................... China 6,792,906 8,699,532
 Rickmers Maritime (Trust Units) ...................... Singapore 2,904,000 774,813
 --------------
 9,474,345
 --------------
 WIRELESS TELECOMMUNICATION SERVICES 4.9%
 China Mobile Ltd. .................................... China 5,676,000 53,328,940
 Taiwan Mobile Co. Ltd. ............................... Taiwan 337,831 658,976
 --------------
 53,987,916
 --------------
 TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
 (COST $495,971,248) ............................... 1,085,926,930
 --------------
 SHORT TERM INVESTMENTS (COST $7,233,770) 0.6%
 MONEY MARKET FUNDS 0.6%
(c) Institutional Fiduciary Trust Money Market Portfolio,
 0.00% ............................................. United States 7,233,770 7,233,770
 --------------
 TOTAL INVESTMENTS (COST $503,205,018) 100.0% ......... 1,093,160,700
 OTHER ASSETS, LESS LIABILITIES 0.0%(d) ............... (448,098)
 --------------
 NET ASSETS 100.0% $1,092,712,602
 ==============

See Abbreviations on page 21.

(a) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Fund's Board of Directors. At December 31, 2009, the aggregate value of these securities was $19,303,535, representing 1.77% of net assets.

(b) Non-income producing.

(c) See Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio. The rate shown is the annualized seven-day yield at period end.

(d) Rounds to less than 0.1% of net assets.

The accompanying notes are an integral part of these financial statements.

Annual Report | 11

Templeton Dragon Fund, Inc.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
December 31, 2009

Assets:
 Investments in securities:
 Cost - Unaffiliated issuers ............................. $ 495,971,248
 Cost - Sweep Money Fund (Note 7) ........................ 7,233,770
 --------------
 Total cost of investments ............................... $ 503,205,018
 ==============
 Value - Unaffiliated issuers ............................ $1,085,926,930
 Value - Sweep Money Fund (Note 7) ....................... 7,233,770
 --------------
 Total value of investments .............................. 1,093,160,700
 Receivables:
 Investment securities sold .............................. 1,085,432
 Dividends ............................................... 59,695
 --------------
 Total assets ......................................... 1,094,305,827
 --------------
Liabilities:
 Payables:
 Affiliates .............................................. 1,277,702
 Custodian fees .......................................... 112,677
 Professional fees ....................................... 143,594
 Accrued expenses and other liabilities ..................... 59,252
 --------------
 Total liabilities .................................... 1,593,225
 --------------
 Net assets, at value .............................. $1,092,712,602
 ==============
Net assets consist of:
 Paid-in capital ............................................ $ 458,954,780
 Undistributed net investment income ........................ 12,293,354
 Net unrealized appreciation (depreciation) ................. 589,965,304
 Accumulated net realized gain (loss) ....................... 31,499,164
 --------------
 Net assets, at value .............................. $1,092,712,602
 ==============
 Shares outstanding ......................................... 37,873,327
 --------------
 Net asset value per share .................................. $ 28.85
 ==============

The accompanying notes are an integral part of these financial statements.

12 | Annual Report

Templeton Dragon Fund, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended December 31, 2009

Investment income:
 Dividends: (net of foreign taxes of $2,324,753)
 Unaffiliated issuers .................................... $ 25,897,921
 Sweep Money Fund (Note 7) ............................... 5,670
 ------------
 Total investment income .............................. 25,903,591
 ------------
Expenses:
 Management fees (Note 3a) .................................. 11,363,321
 Administrative fees (Note 3b) .............................. 1,368,542
 Transfer agent fees ........................................ 166,709
 Custodian fees (Note 4) .................................... 399,880
 Reports to shareholders .................................... 68,966
 Registration and filing fees ............................... 35,186
 Professional fees .......................................... 160,718
 Directors' fees and expenses ............................... 92,103
 Other ...................................................... 38,559
 ------------
 Total expenses ....................................... 13,693,984
 Expense reductions (Note 4) .......................... (128)
 ------------
 Net expenses ...................................... 13,693,856
 ------------
 Net investment income .......................... 12,209,735
 ------------
Realized and unrealized gains (losses):
 Net realized gain (loss) from:
 Investments ............................................. 33,052,670
 Foreign currency transactions ........................... 100,116
 ------------
 Net realized gain (loss) ....................... 33,152,786
 ------------
Net change in unrealized appreciation (depreciation) on:
 Investments ................................................ 370,536,533
 Translation of other assets and liabilities denominated
 in foreign currencies ................................... 9,622
 ------------
 Net change in unrealized appreciation
 (depreciation) ............................... 370,546,155
 ------------
Net realized and unrealized gain (loss) ....................... 403,698,941
 ------------
Net increase (decrease) in net assets resulting from
 operations ................................................. $415,908,676
 ============

The accompanying notes are an integral part of these financial statements.

Annual Report | 13

Templeton Dragon Fund, Inc.

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

 YEAR ENDED DECEMBER 31,
 -------------------------------
 2009 2008
 -------------- --------------
Increase (decrease) in net assets:
 Operations:
 Net investment income ....................... $ 12,209,735 $ 20,796,224
 Net realized gain (loss) from investments and
 foreign currency transactions ............ 33,152,786 12,792,710
 Net change in unrealized appreciation
 (depreciation) on investments and
 translation of other assets and liabilities
 denominated in foreign currencies ........ 370,546,155 (573,237,100)
 -------------- --------------
 Net increase (decrease) in net assets
 resulting from operations ............. 415,908,676 (539,648,166)
 -------------- --------------
 Distributions to shareholders from:
 Net investment income ....................... (20,644,751) (21,913,507)
 Net realized gains .......................... (14,304,756) (42,062,117)
 -------------- --------------
 Total distributions to shareholders ............ (34,949,507) (63,975,624)
 -------------- --------------
 Net increase (decrease) in net assets .... 380,959,169 (603,623,790)
Net assets:
 Beginning of year .............................. 711,753,433 1,315,377,223
 -------------- --------------
 End of year .................................... $1,092,712,602 $ 711,753,433
 ============== ==============
Undistributed net investment income included in
 net assets:
 End of year .................................... $ 12,293,354 $ 20,640,217
 ============== ==============

The accompanying notes are an integral part of these financial statements.

14 | Annual Report

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Dragon Fund, Inc. (Fund) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as a closed-end investment company.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Equity and other securities listed on a securities exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities and listed securities for which there is no reported sale are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. If no sale is reported at that time, the foreign equity security will be valued within the range of the most recent quoted bid and ask prices. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined.

The Fund has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. Methods for valuing these securities may include:
fundamental analysis based upon the underlying investment book value, anticipated future cash flows, market changes in comparable or similar securities, matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. Due to the inherent uncertainty of valuations of such securities, the fair values may differ significantly from the values that would have been used had a ready market for such investments existed. Occasionally, events occur between the time at which trading in a security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the Fund. The investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depository Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Fund's Board of Directors.

Annual Report | 15

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

B. FOREIGN CURRENCY TRANSLATION

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Fund's Board of Directors.

The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

C. INCOME TAXES

No provision has been made for U.S. income taxes because it is the Fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains.

The Fund has reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2009, and has determined that no provision for income tax is required in the Fund's financial statements.

Foreign securities held by the Fund may be subject to foreign taxation on dividend income received. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests.

D. 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. Estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign

16 | Annual Report

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)

securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

E. 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.

F. GUARANTEES AND INDEMNIFICATIONS

Under the Fund's organizational documents, its officers and directors are indemnified by the Fund against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At December 31, 2009, there were 100 million shares authorized ($0.01 par value). During the year ended December 31, 2009 and the year ended December 31, 2008 there were no shares issued; all reinvested distributions were satisfied with previously issued shares purchased in the open market.

The Fund's Board of Directors previously authorized an open-market share repurchase program pursuant to which the Fund may purchase, from time to time, Fund shares in open-market transactions, at the discretion of management. This authorization remains in effect. During the year ended December 31, 2009 and year ended December 31, 2008, there were no shares repurchased.

Annual Report | 17

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and directors of the Fund are also officers and/or directors of the following subsidiaries:

SUBSIDIARY AFFILIATION
---------- ----------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager

A. MANAGEMENT FEES

The Fund pays an investment management fee to TAML based on the average weekly net assets of the Fund as follows:

ANNUALIZED FEE RATE NET ASSETS
------------------- -------------------------------------------------
 1.250% Up to and including $1 billion
 1.200% Over $1 billion, up to and including $5 billion
 1.150% Over $5 billion, up to and including $10 billion
 1.100% Over $10 billion, up to and including $15 billion
 1.050% Over $15 billion, up to and including $20 billion
 1.000% In excess of $20 billion

B. ADMINISTRATIVE FEES

The Fund pays an administrative fee to FT Services of 0.15% per year of the average weekly net assets, of which 0.10% was paid to Nomura Asset Management U.S.A Inc., for sub-administrative services. On May 19, 2009, the Fund's Board of Directors approved the termination of its sub-administrative agreement with Nomura. Effective August 1, 2009, all administration fees are retained by FT Services.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended December 31, 2009, the custodian fees were reduced as noted in the Statement of Operations.

18 | Annual Report

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES

The tax character of distributions paid during the years ended December 31, 2009 and 2008, was as follows:

 2009 2008
 ----------- -----------
Distributions paid from:
Ordinary income............ $20,917,439 $24,060,925
Long term capital gain..... 14,032,068 39,914,699
 ----------- -----------
 $34,949,507 $63,975,624
 =========== ===========

At December 31, 2009, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:

Cost of investments ......................... $506,255,822
 ============
Unrealized appreciation ..................... $601,891,970
Unrealized depreciation ..................... (14,987,092)
 ------------
Net unrealized appreciation (depreciation) .. $586,904,878
 ============
Undistributed ordinary income ............... $ 14,599,196
Undistributed long term capital gains ....... 32,244,125
 ------------
Distributable earnings ...................... $ 46,843,321
 ============

Net investment income differs for financial statement and tax purposes primarily due to differing treatments of foreign currency transactions and corporate actions.

Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions and corporate actions.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended December 31, 2009, aggregated $110,144,403 and $130,934,135, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund may invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

Annual Report | 19

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

9. REORGANIZATION TO A DELAWARE STATUTORY TRUST

On May 22, 2002, the Board of Directors approved an Agreement and Plan of Reorganization (Agreement) whereby the Fund would be reorganized and its domicile changed from a Maryland corporation to a Delaware statutory trust. The completion of the reorganization was 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. As of December 31, 2009, such guidance had not been received and the Board approved the termination of the Agreement and the proposed reorganization will not proceed.

10. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund's investments and are summarized in the following fair value hierarchy:

- Level 1 - quoted prices in active markets for identical securities

- Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)

- Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

At December 31, 2009, all of the Fund's investments in securities carried at fair value were in Level 1 inputs. For detailed industry descriptions, see the accompanying Statement of Investments.

At December 31, 2009, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

 NET CHANGE IN
 BALANCE AT UNREALIZED TRANSFER
 BEGINNING OF NET REALIZED APPRECIATION NET PURCHASES IN (OUT) OF BALANCE AT
 YEAR GAIN (LOSS) (DEPRECIATION) (SALES) LEVEL 3 END OF YEAR
 ------------ ------------ -------------- ------------- ----------- -----------
ASSETS
 Automobiles .. $952,764 $-- $-- $-- $(952,764) $--
 -------- --- --- --- --------- ---
 TOTAL ........ $952,764 $-- $-- $-- $(952,764) $--
 ======== === === === ========= ===

20 | Annual Report

Templeton Dragon Fund, Inc.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. NEW ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6 enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Fund is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-6.

12. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through February 16, 2010, the issuance date of the financial statements and determined that no events have occurred that require disclosure.

ABBREVIATIONS

PORTFOLIO

ADR - American Depository Receipts

Annual Report | 21

Templeton Dragon Fund, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TEMPLETON DRAGON FUND, INC.

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Templeton Dragon Fund, Inc. (the "Fund") at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
February 16, 2010

22 | Annual Report

Templeton Dragon Fund, Inc.

ANNUAL MEETING OF SHAREHOLDERS, MAY 29, 2009

The Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 E. Broward Blvd., Fort Lauderdale, Florida, on May 29, 2009. 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: Ann Torre Bates, David W. Niemiec, Frank A. Olson and Robert E. Wade.* No other business was transacted at the meeting.

The results of the voting at the Annual Meeting are as follows:

The election of four Directors:

 % OF % OF SHARES % OF % OF SHARES
 OUTSTANDING PRESENT OUTSTANDING PRESENT
TERM EXPIRING 2012 FOR SHARES AND VOTING WITHHELD SHARES AND VOTING
------------------ ---------- ----------- ----------- --------- ----------- -----------
Ann Torre Bates ..... 26,931,523 71.11% 80.32% 6,599,612 17.43% 19.68%
David W. Niemiec .... 26,970,210 71.21% 80.43% 6,560,925 17.32% 19.57%
Frank A. Olson ...... 26,829,292 70.84% 80.01% 6,701,843 17.70% 19.99%
Robert E. Wade ...... 27,041,501 71.40% 80.65% 6,489,634 17.14% 19.35%

* Charles B. Johnson, Gregory E. Johnson, Harris J. Ashton, Frank J. Crothers, Edith E. Holiday, J. Michael Luttig (appointed effective December 1, 2009), Larry D. Thompson 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.

Annual Report | 23

Templeton Dragon Fund, Inc.

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with the following features:

If shares of the Fund are held in the shareholder's name, the shareholder will automatically be a participant in the Plan, unless he elects to withdraw. If shares are registered in the name of a broker-dealer or other nominee (i.e., in "street name"), the broker-dealer or nominee will elect to participate in the Plan on the shareholder's behalf unless the shareholder instructs them otherwise, or unless the reinvestment service is not provided by the broker-dealer or nominee.

Participants should contact BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA 15252-8015, to receive the Plan brochure.

To receive dividends or distributions in cash, the shareholder must notify The Bank of New York Mellon (the "Plan Administrator") at the address above or the institution in whose name the shares are held. The Plan Administrator must receive written notice ten business days before the record date for a distribution.

Whenever the Fund declares dividends in either cash or shares 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 new shares 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 can be made by check or money order payable to The Bank of New York Mellon and sent to BNY Mellon Shareowner Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attention: Templeton Dragon Fund, Inc. The Plan Administrator will apply such payments (less a $5.00 service charge and less a pro rata share of trading fees) to purchases of the Fund's shares on the open market.

Whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of trading fees. Trading fees will be deducted from amounts to be invested.

The automatic reinvestment of dividends and/or capital gains does not relieve the participant of any income tax which may be payable on dividends or distributions.

24 | Annual Report

Templeton Dragon Fund, Inc.

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)

A participant may withdraw from the Plan without penalty at any time by written notice to the Plan Administrator and sent to BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA 15252-8015. Upon withdrawal, the participant will receive, without charge, share 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 shares and send the proceeds to the participant, less a service charge of $15.00 and less trading fees of $0.12 per share. The Plan Administrator will convert any fractional shares held at the time of withdrawal to cash at current market price and send a check to the participant for the net proceeds.

DIRECT DEPOSIT SERVICE FOR REGISTERED SHAREHOLDERS

Cash distributions can now be electronically credited to a checking or savings account at any financial institution that participates in the Automated Clearing House ("ACH") system. The Direct Deposit service is provided for registered shareholders at no charge. To enroll in the service, access your account online by going to http://vault.bnymellon.com/isd or dial 1-800-416-5585 (toll free) and follow the instructions. Direct Deposit will begin with the next scheduled distribution payment date following enrollment in the service.

Annual Report | 25

Templeton Dragon Fund, Inc.

TRANSFER AGENT

BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-800-416-5585
www.bnymellon.com

DIRECT REGISTRATION

If you are a registered shareholder of the Fund, purchases of shares of the Fund can be electronically credited to your Fund account at BNY Mellon Shareowner Services through Direct Registration. This service provides shareholders with a convenient way to keep track of shares through book entry transactions, to electronically move book-entry shares between broker-dealers, transfer agents and DRS eligible issuers, and eliminates the possibility of lost certificates. For additional information, please contact BNY Mellon Shareowner Services at 1-800-416-5585.

SHAREHOLDER INFORMATION

Shares of Templeton Dragon Fund, Inc. are traded on the New York Stock Exchange under the symbol TDF. The Fund's shares were also listed and traded in Japan on the Osaka Securities Exchange Co., Ltd. until July 6, 2009. Information about the net asset value and the market price is published each Monday in the WALL STREET JOURNAL, weekly in BARRON'S and each Saturday in THE NEW YORK TIMES and other newspapers. Daily market prices for the Fund's shares are published in the New York Stock Exchange Composite Transactions section of newspapers.

For current information about distributions and shareholder accounts, call 1-800-416-5585. Registered shareholders can now access their Fund account on-line with INVESTOR SERVICE DIRECT(R). For information go to BNY Mellon Shareowner Services' web site at http://vault.bnymellon.com/isd and follow the instructions.

The daily closing net asset value as of the previous business day may be obtained when available by calling Franklin Templeton Fund Information after 7
a.m. Pacific time any business day at 1-800/DIAL BEN(R) (1-800-342-5236). The Fund's net asset value and dividends are also listed on the NASDAQ Stock Market, Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").

Shareholders not receiving copies of the reports to shareholders because their shares are registered in the name of a broker or a custodian can request that they be added to the Fund's mailing list by writing Templeton Dragon Fund, Inc., 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.

26 | Annual Report

Templeton Dragon Fund, Inc.

TAX DESIGNATION (UNAUDITED)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund designates the maximum amount allowable but no less than $14,032,068 as a long term capital gain dividend for the fiscal year ended December 31, 2009.

Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount allowable but no less than $272,688 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2009.

Under Section 854(b)(2) of the Code, the Fund designates the maximum amount allowable but no less than $5,796,285 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2009. Distributions, including qualified dividend income, paid during calendar year 2009 will be reported to shareholders on Form 1099-DIV in January 2010. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

At December 31, 2008, more than 50% of the Fund's total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund on these investments. As shown in the table below, the Fund designates to shareholders the foreign source income and foreign taxes paid, pursuant to Section 853 of the Code. This designation will allow shareholders of record on September 16, 2009, to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The following table provides a detailed analysis of foreign tax paid, foreign source income, and foreign qualified dividends as designated by the Fund to shareholders of record.

RECORD DATE: 9/16/2009

 FOREIGN TAX PAID FOREIGN SOURCE INCOME FOREIGN QUALIFIED
CLASS PER SHARE PER SHARE DIVIDENDS PER SHARE
----- ---------------- --------------------- -------------------
Class A .. $0.0476 $0.5932 $0.0961

Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit (assuming you held your shares in the Fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the Fund's distribution to which the foreign taxes relate), or, as a tax deduction.

Foreign Source Income Per Share (Column 2) is the amount per share of income dividends paid to you that is attributable to foreign securities held by the Fund, plus any foreign taxes withheld on these dividends. The amounts reported include foreign source qualified dividends that have not been adjusted for the rate differential applicable to such dividend income.(1)

Foreign Qualified Dividends Per Share (Column 3) is the amount per share of foreign source qualified dividends the Fund paid to you, plus any foreign taxes withheld on these dividends. These amounts represent the portion of the Foreign Source Income reported to you in column 2 that were derived from qualified foreign securities held by the Fund.(1)

Annual Report | 27

Templeton Dragon Fund, Inc.

TAX DESIGNATION (UNAUDITED) (CONTINUED)

In January 2010, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2009. The Foreign Source Income reported on Form 1099-DIV has not been adjusted for the rate differential on foreign source qualified dividend income. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their 2009 individual income tax returns.

(1) Qualified dividends are taxed at a maximum rate of 15% (5% for those in the 10% and 15% income tax bracket). In determining the amount of foreign tax credit that may be applied against the U.S. tax liability of individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limitation calculation to reflect the rate differential applicable to such dividend income. The rules however permit certain individuals to elect not to apply the rate differential adjustments for capital gains and/or dividends for any taxable year. Please consult your tax advisor and the instructions to Form 1116 for more information.

28 | Annual Report

Templeton Dragon Fund, Inc.

BOARD MEMBERS AND OFFICERS

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves a three-year term that continues until that person's successor is elected and qualified.

INDEPENDENT BOARD MEMBERS

 NUMBER OF
 PORTFOLIOS IN
 FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
HARRIS J. ASHTON (1932) Director Since 1994 133 Bar-S Foods (meat packing company).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).

ANN TORRE BATES (1958) Director Since 2008 31 SLM Corporation (Sallie Mae) and
500 East Broward Blvd. Allied Capital Corporation (financial
Suite 2100 services).
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Independent strategic and financial consultant; and FORMERLY, Executive Vice President and Chief Financial Officer, NHP
Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).

FRANK J. CROTHERS (1944) Director Since 1998 23 Fortis, Inc. (utility holding company)
500 East Broward Blvd. and AML Foods Limited (retail
Suite 2100 distributors).
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director and Vice Chairman, Caribbean Utilities Company, Ltd. and director of various other private business and nonprofit
organizations.

EDITH E. HOLIDAY (1952) Lead Director since 133 Hess Corporation (exploration and
500 East Broward Blvd. Independent 1996 and Lead refining of oil and gas), H.J. Heinz
Suite 2100 Director Independent Company (processed foods and allied
Fort Lauderdale, FL 33394-3091 Director since products), RTI International Metals,
 2007 Inc. (manufacture and distribution of
 titanium), Canadian National Railway
 (railroad) and White Mountains
 Insurance Group, Ltd. (holding
 company).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).

Annual Report | 29

 NUMBER OF
 PORTFOLIOS IN
 FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
J. MICHAEL LUTTIG (1954) Director Since 133 Boeing Capital Corporation (aircraft
500 East Broward Blvd. December 2009 financing).
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Executive Vice President, General Counsel and member of Executive Counsel, The Boeing Company; and FORMERLY, Federal Appeals
Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).

DAVID W. NIEMIEC (1949) Director Since 2005 23 Emeritus Corporation (assisted living)
500 East Broward Blvd. and OSI Pharmaceuticals, Inc.
Suite 2100 (pharmaceutical products).
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Advisor, Saratoga Partners (private equity fund); and FORMERLY, Managing Director, Saratoga Partners (1998-2001) and SBC
Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997);
and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).

FRANK A. OLSON (1932) Director Since 2003 133 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas).
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).

LARRY D. THOMPSON (1945) Director Since 2005 141 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow
of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).

CONSTANTINE D. TSERETOPOULOS Director Since 1998 23 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).

ROBERT E. WADE (1946) Director Since 2006 38 El Oro Ltd. (investments).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Attorney at law.

30 | Annual Report

INTERESTED BOARD MEMBERS AND OFFICERS

NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------- --------------- ------------------ -------------- --------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director and 133 None
One Franklin Parkway Chairman of Vice President
San Mateo, CA 94403-1906 the Board and since 1994 and
Vice President Chairman of the
Board since 1995