-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VAugp7HcwtVj20n41+nTr8nouJwJAQBgemoLHjYtgEtt2iDwrKCcf6imbXcQnM32 t8u2SyVHLury5y8C1iZo9Q== 0000909226-98-000008.txt : 19980508 0000909226-98-000008.hdr.sgml : 19980508 ACCESSION NUMBER: 0000909226-98-000008 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980507 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON CHINA WORLD FUND INC CENTRAL INDEX KEY: 0000909226 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 593192206 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07876 FILM NUMBER: 98612230 BUSINESS ADDRESS: STREET 1: BROWARD FINANCIAL CENTRE STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 BUSINESS PHONE: 3055277500 MAIL ADDRESS: STREET 1: 500 EAST BROWARD BLVD SUITE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394 N-30D 1 2/28/98 SEMI-ANNUAL REPORTS SEMI ANNUAL REPORT FEBRUARY 28, 1998 TEMPLETON CHINA WORLD FUND, INC. [FRANKLIN TEMPLETON LOGO] PAGE [FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS LOGO] Thank you for investing with Franklin Templeton. We encourage our investors to maintain a long-term perspective, and to expect that mixed in with the good years can be some bad years. It's important to remember that all securities markets move both up and down, as do mutual fund share prices. We appreciate your past support and look forward to serving your investment needs in the years ahead. In 1992, Sir John Templeton retired after a 50-year career of helping investors manage their money. Currently he devotes all of his time and efforts to the John Templeton Foundation. A major portion of his assets remain invested in the Templeton funds, which are managed by many of the investment professionals he selected and trained. [PHOTO OF J. MARK MOBIUS] J. MARK MOBIUS, Ph.D. President Templeton China World Fund, Inc. Dr. Mobius, a German citizen, has been living in emerging market countries since earning his Ph.D. in economics and political science at Massachusetts Institute of Technology in 1964. During his extensive travels, he has acquired a thorough knowledge of the business practices and customs that are unique to developing nations. PAGE SHAREHOLDER LETTER Your Fund's Objective: The Templeton China World Fund, Inc. seeks long-term capital appreciation by investing primarily in equity securities of "China companies." Dear Shareholder: This semi-annual report of the Templeton China World Fund covers the period ended February 28, 1998. During the six months under review, mainland China's economy grew significantly and inflation remained relatively benign. However, China's equity markets could not avoid the negative effects of the Asian financial crisis, and stock prices on some of its exchanges suffered substantial declines. Asian currency problems hit Hong Kong particularly hard after several countries in the region were forced to devalue their currencies. Hong Kong's government defended its currency by raising overnight interbank interest rates substantially. This enabled the authorities to maintain the Hong Kong dollar's peg to the U.S. dollar, but precipitated a dramatic drop in property values. Consequently, the stock value of banks holding property You may find a complete listing of the Fund's portfolio holdings, including the number of shares and dollar value, on page 8 of this report. CONTENTS Shareholder Letter ........ 1 Performance Summary ....... 5 Financial Highlights & Statement of Investments .. 7 Financial Statements ...... 13 Notes to Financial Statements ................ 16 [FUND CATEGORY PYRAMID] PAGE GEOGRAPHIC DISTRIBUTION Based on Total Net Assets 2/28/98 Hong Kong Shares 79.0% China B-Shares 16.7% Other Shares 1.1% Short-Term Investments & Other Net Assets 3.2% as loan collateral fell, and the Hang Seng Index dropped by 40% between October 3, 1997 and October 28, 1997.(1) China's Shenzhen and Shanghai B-share markets were also hurt by the currency crisis. Between August 31, 1997 and February 28, 1998, each dropped 30%. In contrast, China's A-share markets were largely unaffected. During the reporting period, the Shenzhen A-share market rose 2% and the Shanghai A-share market was virtually unchanged.(2) One reason for the dichotomy between the performance of A and B shares is that ownership in A-shares is restricted to domestic residents who are less likely than foreign investors to sell their holdings. Perhaps the best reason, however, for the lack of a collapse in A-share prices is that the Chinese yuan is not fully convertible into other currencies and, therefore, appears to be protected from speculative attacks. Within this environment, the Fund posted a six-month cumulative total return of - -21.36% in market-price terms, and -32.31% in net asset value terms, as discussed in the Performance Summary on page 5. On February 28, 1998, 79.0% of the Fund's total net assets were invested in Hong Kong, 16.7% in mainland China and 1.1% elsewhere, with 3.2% in cash and other liquid assets. The Fund's largest single position continued to be its shares of HSBC Holdings Plc, the holding company for the Hongkong Bank. HSBC maintains over 400 offices worldwide and has major subsidiaries in the U.S. and the U.K. We also maintained our significant holdings of Cheung Kong Holdings Ltd. and New World Development Co. Ltd., companies with large real estate holdings and commercial interests in Hong Kong and mainland China. (1). Market returns are measured in U.S. dollars and include reinvested dividends. An index is an unmanaged group of securities that is used to measure market performance. One cannot invest directly in an index. (2). As measured in U.S. dollars. Market returns include reinvested dividends. 2 PAGE Looking forward, Hong Kong's authorities face a dilemma. Keeping their currency pegged to the U.S. dollar could invite speculative attacks by foreign investors. This could cause upward pressure on interest rates, falling property values, a weak banking sector, and stock price declines. On the other hand, floating the Hong Kong dollar could result in spiraling inflation and eventual recession. This is a difficult choice, but given the economy's underlying health, we believe keeping the currency pegged to the U.S. dollar would be the correct decision. Possibly a better solution would be to reduce Hong Kong's inflation rate, which could allow for lower interest rates, higher property values, and increased investment, thereby creating more natural demand for the currency. Another factor complicating Hong Kong's problem is the Chinese yuan. There has been speculation that it may be devalued to maintain the competitiveness of China's exports versus the region's other devalued currencies. However, the relationship between the yuan and the Hong Kong dollar makes it difficult to maintain the dollar peg if the yuan were to be rapidly devalued. Of course, investing in emerging markets involves special considerations, which may include risks related to market and currency volatility, adverse social, economic and political developments and the relatively small size and lesser liquidity of these markets. Investing in any emerging market means accepting a certain amount of volatility and, in some cases, severe market corrections. While short-term volatility can be disconcerting, declines of as much as 40% to 50% are not unusual in emerging markets. In fact, the Hong Kong market has increased 1,268% in the last 15 years, but has suffered five declines of more than 20% during that time.(3) (3). Source: Bloomberg. Based on quarterly percentage price change over 15 years ended December 31, 1997. TOP 10 HOLDINGS 2/28/98 COMPANY, % OF TOTAL INDUSTRY, COUNTRY NET ASSETS - ---------------------------------------------- HSBC Holdings Plc Banking, Hong Kong 15.4% Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong 10.0% New World Development Co. Ltd. Real Estate, Hong Kong 7.6% Hang Lung Development Co. Ltd. Real Estate, Hong Kong 5.5% Sun Hung Kai Properties Ltd. Real Estate, Hong Kong 5.4% Swire Pacific Ltd., A & B Multi-Industry, Hong Kong 4.4% Dairy Farm International Holdings Ltd. Merchandising, Hong Kong 4.2% Wheelock & Company Ltd. Multi-Industry, Hong Kong 2.8% Hong Kong Electric Holdings Ltd. Utilities Electric & Gas, Hong Kong 2.7% Hong Kong & Shanghai Hotels Ltd. Leisure & Tourism, Hong Kong 2.7% 3 PAGE This discussion reflects the strategies we employed for the Fund during the six months under review, and includes our opinions as of the close of the period. Because economic and market conditions are constantly changing, our strategies and our evaluations, conclusions and decisions regarding portfolio holdings may change as new circumstances arise. All figures shown are as of February 28, 1998, and the Fund's holdings can be expected to change with market developments and management of the portfolio. Although past performance of a specific investment or sector cannot guarantee future performance, such information can be useful in analyzing the securities we purchase or sell for the Fund. We remain generally optimistic about the long-term prospects for the Hong Kong and China markets. In particular, we are very positive about the prospects for China's B-share markets when the Asian currency crisis begins to subside. Sincerely, /s/ J. Mark Mobius - -------------------------------- J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. On October 23, 1997, the Board of Directors of the Fund authorized management to implement an open-market share repurchase program pursuant to which the Fund, from time to time, at the discretion of management may purchase up to an aggregate of 2 million shares of the Fund's Common Stock (approximately 10% of the shares outstanding on October 17, 1997) in open-market transactions. 4 PAGE PERFORMANCE SUMMARY In market-price terms, Templeton China World Fund produced a -21.36% cumulative total return for the six-month period ended February 28, 1998. Based on the change in net asset value (in contrast to market price), the Fund delivered a cumulative total return of -32.31% for the same period. Both total return figures assume reinvestment of dividends and capital gains, if any, in accordance with the dividend reinvestment plan. During the reporting period, the Fund's closing price on the New York Stock Exchange decreased $3.625 per share, from $12.50 on August 31, 1997, to $8.875 on February 28, 1998, while the net asset value decreased $6.73 per share, from $17.32 to $10.59. Shareholders received combined distributions of 95.0 cents ($0.95) per share, including long-term capital gains of 56.5 cents ($0.565), short-term capital gains of 12.5 cents ($0.125) and dividend income totaling 26.0 cents ($0.26). Distributions will vary depending on income earned by the Fund and any profits realized from the sale of securities in the Fund's portfolio, as well as the level of the Fund's operating expenses. Past performance is not predictive of future results. 5 PAGE TEMPLETON CHINA WORLD FUND Periods ended 2/28/98
SINCE INCEPTION 1-YEAR 3-YEAR (9/9/93) - -------------------------------------------------------------------------------- Cumulative Total Return(1) Based on change in net asset value -28.27% 9.03% -4.04% Based on change in market price -25.90% 3.38% -22.23% Average Annual Total Return(2) Based on change in net asset value -28.27% 2.92% -0.92% Based on change in market price -25.90% 1.11% -5.46%
(1). Cumulative total return represents the change in value of an investment over the periods indicated. (2). Average annual total return represents the average annual change in value of an investment over the periods indicated. All calculations assume reinvestment of dividends and capital gains, either at net asset value or at market price on the reinvestment date, in accordance with the dividend reinvestment plan and do not reflect sales charges that would have been paid at inception or brokerage commissions that would have been paid on secondary market purchases. Investment return and principal value will fluctuate with market conditions, currency volatility, and the economic, social, and political climates of the countries where investments are made. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. You may have a gain or loss when you sell your shares. Past performance is not predictive of future results. PAGE TEMPLETON CHINA WORLD FUND, INC. FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED AUGUST 31, FEBRUARY 28, 1998 -------------------------------------------------- (UNAUDITED) 1997 1996 1995 1994+ ----------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period) Net asset value, beginning of period............. $17.32 $13.39 $12.07 $14.92 $14.10 ----------------------------------------------------------------------- Income from investment operations: Net investment income........................... .10 .24 .27 .33 .16 Net realized and unrealized gain (loss)......... (5.88) 4.27 1.39 (1.91) .79 ----------------------------------------------------------------------- Total from investment operations................. (5.78) 4.51 1.66 (1.58) .95 ----------------------------------------------------------------------- Underwriting expenses deducted from capital...... -- -- -- -- (.07) ----------------------------------------------------------------------- Less distributions from: Net investment income........................... (.26) (.28) (.33) (.20) (.06) Net realized gains.............................. (.69) (.30) (.01) (1.07) -- ----------------------------------------------------------------------- Total distributions.............................. (.95) (.58) (.34) (1.27) (.06) ----------------------------------------------------------------------- Net asset value, end of period................... $10.59 $17.32 $13.39 $12.07 $14.92 ----------------------------------------------------------------------- Total Return* Based on market value per share................. (21.36)% 14.97% 11.75% (29.58)% 9.54% Based on net asset value per share.............. (32.31)% 35.33% 14.44% (11.13)% 6.18% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's)................ $215,914 $353,049 $272,996 $245,982 $297,835 Ratios to average net assets: Expenses........................................ 1.70%** 1.65% 1.65% 1.65% 1.84%** Net investment income........................... 1.66%** 1.55% 2.14% 2.77% 1.09%** Portfolio turnover rate.......................... 9.81% 19.51% 14.47% 3.01% 81.81% Average commission rate paid***.................. $.0020 $.0016 $.0025 -- --
* Total return is not annualized. ** Annualized. *** Relates to purchases and sales of equity securities. Prior to fiscal year 1996 disclosure of average commission rate was not required. + For the period September 9, 1993 (commencement of operations) to August 31, 1994. See Notes to Financial Statements. 7 PAGE TEMPLETON CHINA WORLD FUND, INC. STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED)
COUNTRY SHARES VALUE ---------------------------------------- COMMON STOCKS 96.8% APPLIANCES & HOUSEHOLD DURABLES 2.3% Semi-Tech Co. Ltd. ......................................... Hong Kong 10,477,522 $ 1,217,923 *Semi-Tech Co. Ltd., wts. .................................. Hong Kong 241,263 312 *Shanghai Shangling Electric Appliance, B................... China 5,787,780 1,527,974 *Shanghai Vacuum Electron Devices Co. Ltd., B............... China 9,817,545 1,668,983 Shenzhen Huafa Electronics Co. Ltd., B...................... China 826,998 162,355 Shenzhen Konka Electronic Group Co. Ltd., B................. China 453,600 456,383 ------------ 5,033,930 ------------ AUTOMOBILES .6% Jardine International Motor Holdings Ltd.................... Hong Kong 2,484,000 1,387,575 ------------ BANKING 16.0% HSBC Holdings Plc. ......................................... Hong Kong 1,148,619 33,230,953 Philippine Commercial International Bank Inc. .............. Philippines 24,000 84,475 Thai Farmers Bank Public Co. Ltd. .......................... Thailand 604,700 1,222,042 ------------ 34,537,470 ------------ BROADCASTING & PUBLISHING Times Publishing Ltd. ...................................... Singapore 9,000 17,772 ------------ Building Materials & Components 2.4% China Southern Glass Co. Ltd., B............................ China 7,199,340 1,692,321 K Wah International Holdings Ltd. .......................... Hong Kong 16,670,619 2,540,695 Shanghai Yaohua Pilkington Glass, B......................... China 4,720,000 896,800 Siam Cement Public Co. Ltd. ................................ Thailand 13,200 131,234 ------------ 5,261,050 ------------ CHEMICALS 2.5% Shanghai Chlor-Alkali Chemical Co. Ltd., B.................. China 9,756,000 1,678,032 Shanghai Petrochemical Co. Ltd., H.......................... China 15,490,000 2,560,827 *Shenzhen Petrochemical Shareholding Co. Ltd., B............ China 4,720,720 1,048,710 Singapore Petroleum Company, fgn. .......................... Singapore 2,000 1,086 ------------ 5,288,655 ------------ CONSTRUCTION & HOUSING 1.3% Hopewell Holdings Ltd. ..................................... Hong Kong 12,836,579 2,835,073 ------------ ELECTRICAL & ELECTRONICS .6% Great Wall Electronic International Ltd..................... Hong Kong 21,334,597 1,102,207 *Shanghai Automation Instrumentation Co., B................. China 1,381,340 226,540 ------------ 1,328,747 ------------ ENERGY SOURCES .1% *Inner Mongolia Yitai Coal Co. Ltd., B...................... China 484,250 205,322 ------------
8 PAGE TEMPLETON CHINA WORLD FUND, INC. STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE ---------------------------------------- COMMON STOCKS (CONT.) FINANCIAL SERVICES .4% JCG Holdings Ltd. .......................................... Hong Kong 813,000 $ 412,144 Sun Hung Kai & Co. Ltd. .................................... Hong Kong 2,783,200 352,281 *Sun Hung Kai & Co. Ltd, wts. .............................. Hong Kong 989,040 22,227 ------------ 786,652 ------------ FOOD & HOUSEHOLD PRODUCTS .7% Golden Resources Development International Ltd.............. Hong Kong 7,568,000 606,027 Shanghai New Asia Group Co. Ltd., B......................... China 1,221,766 322,546 Tingyi (Cayman Islands) Holding Corp. ...................... Hong Kong 5,414,000 615,346 ------------ 1,543,919 ------------ HEALTH & PERSONAL CARE .3% *Zhuhai Sez Lizhu Pharmaceutical Group Inc., B.............. China 2,570,529 680,605 ------------ INDUSTRIAL COMPONENTS 1.5% Kian Joo Can Factory Bhd. .................................. Malaysia 28,000 48,498 Leader Universal Holdings Bhd. ............................. Malaysia 118,000 73,770 *Shanghai Refrigerator Compressor Co. Ltd., B............... China 2,397,944 685,812 +*Shanghai Rubber Belt Co. Ltd., B.......................... China 4,795,811 738,555 Shanghai Tyre & Rubber Co. Ltd., B.......................... China 6,890,990 1,777,875 ------------ 3,324,510 ------------ LEISURE & TOURISM 3.1% Hong Kong & Shanghai Hotels Ltd. ........................... Hong Kong 6,792,000 5,833,620 Overseas Union Enterprise Ltd. ............................. Singapore 33,000 80,642 Republic Hotels & Resorts Ltd. ............................. Singapore 45,000 18,328 *Shanghai Jin Jiang Tower Co. Ltd., B....................... China 3,700,976 703,185 Shangri-La Hotels (Malaysia) Bhd. .......................... Malaysia 36,000 15,004 ------------ 6,650,779 ------------ MACHINERY & ENGINEERING 1.5% Chen Hsong Holdings Ltd. ................................... Hong Kong 30,000 11,043 +*China Textile Machinery Co. Ltd., B....................... China 8,105,794 745,733 Guangzhou Shipyard International Co. Ltd., H................ China 88,000 10,570 Northeast Electric Transmission & Transformation, H......... China 3,052,000 374,479 *Shanggong Co. Ltd., B...................................... China 2,526,630 257,716 *Shanghai Erfangji Textile Machinery Co. Ltd., B............ China 12,645,787 1,087,538 *Shanghai Steel Tube Co. Ltd., B............................ China 5,929,280 640,362 *Shanghai Zhenhua Port Machinery Co. Ltd., B................ China 73,000 53,144 ------------ 3,180,585 ------------ MERCHANDISING 4.9% Dairy Farm International Holdings Ltd. ..................... Hong Kong 7,616,357 9,139,628 Fortei Holdings Ltd. ....................................... Hong Kong 9,582,000 242,567
9 PAGE TEMPLETON CHINA WORLD FUND, INC. STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE ---------------------------------------- COMMON STOCKS (CONT.) MERCHANDISING (CONT.) Joyce Boutique Holdings Ltd. ............................... Hong Kong 10,181,000 $ 407,634 *Wo Kee Hong Holdings Ltd. ................................. Hong Kong 21,339,200 799,273 ------------ 10,589,102 ------------ METALS & MINING .5% *Bengang Steel Plates Co. Ltd. ............................. China 3,498,800 759,184 Maanshan Iron & Steel Co. Ltd., H........................... China 2,408,000 258,139 ------------ 1,017,323 ------------ MISCELLANEOUS MATERIALS & COMMODITIES .1% *Luoyang Glass Co. Ltd., H.................................. China 1,656,000 151,858 ------------ MULTI-INDUSTRY 22.5% Cheung Kong Holdings Ltd. .................................. Hong Kong 3,073,000 21,531,837 Jardine Matheson Holdings Ltd. ............................. Hong Kong 615,186 2,879,071 Jardine Strategic Holdings Ltd. ............................ Hong Kong 1,834,000 5,226,900 Lai Sun Garment International Ltd. ......................... Hong Kong 5,988,000 3,248,253 Swire Pacific Ltd., A....................................... Hong Kong 657,000 3,954,304 Swire Pacific Ltd., B....................................... Hong Kong 5,525,500 5,566,535 Wheelock and Company Ltd. .................................. Hong Kong 5,306,000 6,133,510 ------------ 48,540,410 ------------ REAL ESTATE 22.3% Hang Lung Development Co. Ltd. ............................. Hong Kong 8,155,000 11,954,698 *Lai Fung Holdings Ltd. .................................... Hong Kong 234,320 40,251 Lai Sun Development Co. Ltd. ............................... Hong Kong 11,816,000 4,654,672 *Lai Sun Development Co. Ltd., wts. ........................ Hong Kong 1,563,800 11,109 New World Development Co. Ltd. ............................. Hong Kong 4,433,182 16,347,090 Shanghai Jinqiao Export Processing Zone Dev., B............. China 3,707,328 1,408,785 *Shanghai Lujiaxui Finance & Trade Zone Dev. Stock Co Ltd, B......................................................... China 392,920 278,187 Shanghai Wai Gaoqiao Free Trade Zone Dev. Co., B............ China 543,800 234,922 *Shenzhen Properties & Resources Development Ltd., B........ China 4,750,860 944,956 Shenzhen Vanke Co. Ltd., B.................................. China 324,000 183,290 Sun Hung Kai Properties Ltd. ............................... Hong Kong 1,557,100 11,664,424 Tian An China Investments Co. Ltd. ......................... Hong Kong 1,887,750 108,498 United Industrial Corporation Ltd., fgn. ................... Singapore 271,000 109,537 United Overseas Land Ltd. .................................. Singapore 346,000 307,461 ------------ 48,247,880 ------------ RECREATION & OTHER CONSUMER GOODS 4.7% +China First Pencil Co. Ltd., B............................. China 14,306,036 3,261,776 KTP Holdings Ltd. .......................................... Hong Kong 223,250 26,239 *KTP Holdings Ltd., wts. ................................... Hong Kong 53,050 651 *Phoenix Co. Ltd. .......................................... China 6,036,980 579,550 *Shanghai Wingsung Co. Ltd., B.............................. China 5,072,317 882,583
10 PAGE TEMPLETON CHINA WORLD FUND, INC. STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
COUNTRY SHARES VALUE ---------------------------------------- COMMON STOCKS (CONT.) RECREATION & OTHER CONSUMER GOODS (CONT.) *Shenzhen China Bicycles Co. Ltd., B........................ China 7,454,900 $ 1,328,739 Yue Yuen Industrial (Holdings) Ltd. ........................ Hong Kong 2,110,200 4,060,960 ------------ 10,140,498 ------------ TELECOMMUNICATIONS Philippine Long Distance Telephone Co., ADR................. Philippines 3,000 79,125 ------------ TEXTILES & APPAREL 1.6% Goldlion Holdings Ltd. ..................................... Hong Kong 7,140,000 2,144,075 Laws International Holdings Ltd. ........................... Hong Kong 6,412,000 761,904 *Shanghai Kaikai Industrial Company Limited................. China 1,620,000 460,080 ------------ 3,366,059 ------------ TRANSPORTATION 3.0% Chiwan Wharf Holdings Ltd., B............................... China 3,346,000 985,325 Cross Harbour Tunnel Co. Ltd. .............................. Hong Kong 1,175,000 1,957,701 Delgro Corp. ............................................... Singapore 8,000 9,874 Guangshen Railway Co. Ltd., ADR............................. China 88,000 1,138,500 IMC Holdings Ltd. .......................................... Hong Kong 2,649,000 615,848 Malaysian Airline System Bhd. .............................. Malaysia 102,000 117,045 Neptune Orient Lines Ltd. .................................. Singapore 107,000 50,182 Orient Overseas International Ltd. ......................... Hong Kong 538,000 236,254 *SBS Bus Service Ltd., fgn. ................................ Singapore 5,500 2,138 *Shanghai Dazhong Taxi Shareholding Co. Ltd., B............. China 1,567,000 1,272,404 ------------ 6,385,271 ------------ UTILITIES ELECTRICAL & Gas 3.9% Guangdong Electric Power Development Co Ltd., B............. China 179,000 108,198 Hong Kong Electric Holdings Ltd. ........................... Hong Kong 1,647,600 5,851,986 Shandong Huaneng Power Development Co. Ltd., ADR............ China 196,200 1,655,437 Wing Shan International Ltd. ............................... Hong Kong 5,534,000 807,675 ------------ 8,423,296 ------------ WHOLESALE & INTERNATIONAL TRADE Metro Holdings Ltd., fgn. .................................. Singapore 29,000 39,728 ------------ TOTAL COMMON STOCKS (Cost $266,243,136)..................... 209,043,194 ------------
11 PAGE TEMPLETON CHINA WORLD FUND, INC. STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT** -------- SHORT TERM INVESTMENTS (COST $6,923,764) 3.2% U.S. Treasury Bills, 4.965% to 5.365%, with maturities to 6/25/98................................................... United States $ 6,991,000 $ 6,923,404 ------------ TOTAL INVESTMENTS (Cost $273,166,900) 100.0%................ 215,966,598 OTHER ASSETS, LESS LIABILITIES.............................. (52,241) ------------ TOTAL NET ASSETS 100.0%..................................... $215,914,357 ============
*Non-income producing. **Securities traded in U.S. dollars. +The Investment Company Act of 1940 defines "affiliated companies" as investments in portfolio companies in which the Fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" at February 28, 1998, were $4,746,064. See Notes to Financial Statements. 12 PAGE TEMPLETON CHINA WORLD FUND, INC. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1998 (UNAUDITED) Assets: Investments in securities, at value (cost $273,166,900).... $215,966,598 Cash....................................................... 46,127 Receivables: Investment securities sold................................ 456,635 Dividends and interest.................................... 28,128 Organization costs......................................... 2,600 ------------ Total assets.......................................... 216,500,088 ------------ Liabilities: Payable to affiliates...................................... 211,543 Accrued expenses........................................... 374,188 ------------ Total liabilities..................................... 585,731 ------------ Net assets, at value........................................ $215,914,357 ------------ ------------ Net assets consist of: Distributions in excess of net investment income........... $ (179,328) Net unrealized depreciation................................ (57,199,079) Accumulated net realized loss.............................. (12,420,960) Capital shares............................................. 285,713,724 ------------ Net assets, at value........................................ $215,914,357 ------------ ------------ Net asset value per share ($215,914,357 / 20,383,771 shares outstanding).............................................. $10.59 ------------ ------------ See Notes to Financial Statements. 13 PAGE TEMPLETON CHINA WORLD FUND, INC. FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED) Investment Income: (net of foreign taxes of $83,129) Dividends.................................................. $ 3,877,672 Interest................................................... 184,273 ------------- Total investment income............................... $ 4,061,945 Expenses: Management fees (Note 3)................................... 1,526,736 Administrative fees (Note 3)............................... 305,347 Transfer agent fees........................................ 38,360 Custodian fees............................................. 98,089 Reports to shareholders.................................... 21,554 Registration and filing fees............................... 16,037 Professional fees (Note 3)................................. 28,010 Directors' fees and expenses............................... 15,195 Amortization of organization costs......................... 2,353 Other...................................................... 4,052 ------------- Total expenses........................................ 2,055,733 ------------- Net investment income........................... 2,006,212 ------------- Realized and unrealized gains (losses): Net realized loss from: Investments............................................... (10,641,685) Foreign currency transactions............................. (213,081) ------------- Net realized loss...................................... (10,854,766) Net unrealized appreciation (depreciation) on: Investments............................................... (109,253,553) Translation of assets and liabilities denominated in foreign currencies...................................... 331,652 ------------- Net unrealized depreciation............................ (108,921,901) ------------- Net realized and unrealized loss............................ (119,776,667) ------------- Net decrease in net assets resulting from operations........ $(117,770,455) ==============
See Notes to Financial Statements. 14 PAGE TEMPLETON CHINA WORLD FUND, INC. FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended February 28, 1998 Year Ended (unaudited) August 31, 1997 --------------------------------------- Increase (decrease) in net assets: Operations: Net investment income..................................... $ 2,006,212 $ 4,971,637 Net realized gain (loss) from investments and foreign currency transactions.................................... (10,854,766) 12,710,529 Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies....................................... (108,921,901) 74,192,489 ------------------------------- Net increase (decrease) in net assets resulting from operations............................................ (117,770,455) 91,874,655 Distributions to shareholders from: Net investment income..................................... (5,299,780) (5,605,537) Net realized gains........................................ (14,064,803) (6,215,883) ------------------------------- Net increase (decrease) in net assets................... (137,135,038) 80,053,235 Net assets: Beginning of period........................................ 353,049,395 272,996,160 ------------------------------- End of period.............................................. $ 215,914,357 $353,049,395 ------------------------------- ------------------------------- Undistributed net investment income/(Distributions in excess of net investment income) included in net assets: End of period.............................................. $ (179,328) $ 3,114,240 ------------------------------- -------------------------------
See Notes to Financial Statements. 15 PAGE TEMPLETON CHINA WORLD FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING CHANGES Templeton China World Fund, Inc. (the Fund) is registered under the Investment Company Act of 1940 as a closed-end, non-diversified investment company. The Fund seeks to achieve its objective by investing primarily in equity securities of China companies. The following summarizes the Fund's significant accounting policies. A. SECURITIES VALUATIONS: Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Directors. B. FOREIGN CURRENCY TRANSLATION: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. When the Fund purchases or sells foreign securities it will customarily enter into a foreign exchange contract to minimize foreign exchange risk from the trade date to the settlement date of such transactions. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign currency 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 income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute all of its taxable income. 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. Certain income from foreign securities is recorded as soon as 16 PAGE TEMPLETON CHINA WORLD FUND, INC. Notes to Financial Statements (unaudited) (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING CHANGES (cont.) D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (cont.) 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. E. ORGANIZATION COSTS: Organization costs are amortized on a straight-line basis over five years. f. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 2. CAPITAL STOCK At February 28, 1998, there were 100 million shares authorized ($0.01 par value). For the six months ended February 28, 1998 and for the year ended August 31, 1997 there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES Certain officers of the Fund are also officers or directors of Templeton Asset Management, Ltd. (TAML) and Franklin Templeton Services, Inc. (FT Services), the Fund's investment manager and administrative manager, respectively. 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 an administrative fee to FT Services of 0.25% per year of the average weekly net assets of the Fund, of which 0.20% is paid to Princeton Administrators, L.P., for sub-administrative services. Included in professional fees are legal fees of $15,426 that were paid to a law firm in which a partner is an officer of the Fund. 17 PAGE TEMPLETON CHINA WORLD FUND, INC. Notes to Financial Statements (unaudited) (continued) 4. INCOME TAXES At February 28, 1998, the net unrealized depreciation based on the cost of investments for income taxes purposes of $273,174,460 was as follows: Unrealized appreciation..................................... $ 33,696,463 Unrealized depreciation..................................... (90,904,325) ------------ Net unrealized depreciation................................. $(57,207,862) ============ Net realized capital losses differ for financial statement and tax purposes primarily due to differing treatments of wash sales. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the six months ended February 28, 1998 aggregated $27,267,078 and $23,555,602, respectively. 18 PAGE TEMPLETON CHINA WORLD FUND, INC. ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 17, 1998 An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 East Broward Boulevard, Ft. Lauderdale, Florida, on February 17, 1998. The purpose of the meeting was to elect three Directors of the Fund, to ratify the selection of McGladrey & Pullen, LLP, as the Fund's independent auditors for the fiscal year ending August 31, 1998, and in their discretion, to authorize the proxyholders to vote upon other such matters that may legally come before the meeting or any adjournment of the meeting. At the meeting, the following persons were elected by the shareholders to serve as Directors of the Fund: Andrew H. Hines, Jr., Charles B. Johnson and Charles E. Johnson.* The shareholders ratified the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent auditors for the fiscal year ending August 31, 1998. No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: 1. The election of three (3) Directors for the term set forth below:
% of % of Outstanding Outstanding Term Expiring 2001: For Shares Withheld Shares - ------------------------------------------------------------------------------------------------------------------------- Andrew H. Hines, Jr. ....................................... 12,590,200 61.77% 1,278,266 6.27% Charles B. Johnson.......................................... 12,606,337 61.85% 1,262,129 6.19% Charles E. Johnson.......................................... 12,566,941 61.65% 1,301,525 6.39%
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP, as independent auditors for the Fund for the fiscal year ending August 31, 1998: % of % of % of Outstanding Outstanding Outstanding For Shares Against Shares Abstain Shares - ----------------------------------------------------------------------- 12,957,702 63.57% 239,140 1.17% 671,624 3.30% *Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Galbraith, Edith E. Holiday, Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps are Directors of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders. 19 PAGE TEMPLETON CHINA WORLD FUND, INC. DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with the following features: -- Shareholders must affirmatively elect to participate in the Plan; Stock dividends and capital gains distributions will be reinvested automatically; ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938, will provide additional Plan information upon request. -- 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 Mellon Securities Trust Company (the "Plan Agent"), in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase of Fund shares for his or her account. These payments shall be made by check or money order payable to "Mellon Securities Trust Co." and sent to ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn: Templeton China World Fund, Inc. The Plan Agent shall apply such payments (less a $5.00 service charge and less a pro rata share of trading fees) to purchases of Fund shares in the open market. -- The automatic reinvestment of dividends and/or capital gains does not relieve the participant of any income tax which may be payable on dividends or distributions. -- The participant may withdraw from the Plan without penalty at any time by written notice to the Plan Agent sent to ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will receive, without charge, stock certificates issued in the participant's name for all full shares held by the Plan Agent; or, if the participant wishes, the Plan Agent will sell the participant's shares and send the proceeds, less a service fee of $5.00 and less trading fees. -- Whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of trading fees. Trading fees will be deducted from amounts to be invested. SHAREHOLDER INFORMATION Shares of Templeton China World Fund, Inc. are traded daily on the New York Stock Exchange under the symbol "TCH". 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 dividends and shareholder accounts, call 1-800-292-9293. The daily closing net asset value may be obtained when available on a two business day delay basis by calling Franklin Templeton Fund Information after 10 a.m. Eastern Time any business day at 1-800-DIAL BEN (1-800-342-5236). If any shareholder is not receiving copies of the Reports to Shareholders because shares are registered in a broker's name or in a custodian's name, he or she can write and request that his or her name be added to the Fund's mailing list, by writing Templeton China World Fund, Inc., 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030. PAGE LITERATURE REQUEST For a free brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Fund Information, toll free, at 1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you invest or send money. 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 determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON GROUP GLOBAL GROWTH Franklin Global Health Care Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Global Infrastructure Fund Templeton Global Opportunities Trust Templeton Global Real Estate Fund Templeton Global Smaller Companies Fund Templeton Greater European Fund Templeton Growth Fund Templeton Latin America Fund Templeton Pacific Growth Fund Templeton World Fund GLOBAL GROWTH AND INCOME Franklin Global Utilities Fund Franklin Templeton German Government Bond Fund Franklin Templeton Global Currency Fund Mutual European Fund Templeton Global Bond Fund Templeton Growth and Income Fund GLOBAL INCOME Franklin Global Government Income Fund Franklin Templeton Hard Currency Fund Franklin Templeton High Income Currency Fund Templeton Americas Government Securities Fund GROWTH Franklin Biotechnology Discovery Fund Franklin Blue Chip Fund Franklin California Growth Fund Franklin DynaTech Fund Franklin Equity Fund Franklin Gold Fund Franklin Growth Fund Franklin MidCap Growth Fund Franklin Small Cap Growth Fund Mutual Discovery Fund GROWTH AND INCOME Franklin Asset Allocation Fund Franklin Balance Sheet Investment Fund* Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin MicroCap Value Fund* Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Strategic Income Fund Franklin Utilities Fund Franklin Value Fund Mutual Beacon Fund Mutual Financial Services Fund Mutual Qualified Fund Mutual Shares Fund Templeton American Trust, Inc. Fund Allocator Series Franklin Templeton Conservative Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton Growth Target Fund INCOME Franklin Adjustable Rate Securities Fund Franklin Adjustable U.S. Government Securities Fund Franklin's AGE High Income Fund Franklin Investment Grade Income Fund Franklin Short-Intermediate U.S. Government Securities Fund Franklin U.S. Government Securities Fund Franklin Money Fund Franklin Federal Money Fund For Corporations Franklin Corporate Qualified Dividend Fund FRANKLIN FUNDS SEEKING TAX-FREE INCOME Federal Intermediate-Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund Puerto Rico Tax-Free Income Fund Tax-Exempt Money Fund FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME Alabama Arizona** Arkansas*** California** Colorado Connecticut Florida** Georgia Hawaii*** Indiana Kentucky Louisiana Maryland Massachusetts+ Michigan** Minnesota+ Missouri New Jersey New York** North Carolina Ohio+ Oregon Pennsylvania Tennessee*** Texas Virginia Washington*** VARIABLE ANNUITIES++ Franklin Valuemark(R) Franklin Templeton Valuemark Income Plus (an immediate annuity) * These funds are now closed to new accounts, with the exception of retirement accounts. ** Two or more fund options available: long-term portfolio, intermediate-term portfolio, a portfolio of insured municipal securities, and/or a high yield portfolio (CA) and a money market portfolio (CA and NY). *** The fund may invest up to 100% of its assets in bonds that pay interest subject to the federal alternative minimum tax. + Portfolio of insured municipal securities. ++ Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by Allianz Life Insurance Company of North America or by its wholly owned subsidiary, Preferred Life Insurance Company of New York, and distributed by NALAC Financial Plans, LLC. 10/97.1 PAGE TEMPLETON CHINA WORLD FUND, INC. 100 Fountain Parkway P.O. Box 33030 St. Petersburg, Florida 33733-8030 TRANSFER AGENT Chase Mellon Shareholder Services 450 West 33rd Street New York, New York 10001 1-800/416-5585 SHAREHOLDER SERVICES 1-800/632-2301 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, and that the Investment Manager may make errors in selecting securities for the Fund's portfolio. Like any investment in securities, the Fund's portfolio will be subject to the risk of loss from market, currency, economic, political and other factors. The Fund and Fund 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 determined by the presence of a regular beeping tone. 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