-----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, TfeKiYqGVx2v6/DHte12VDtNDIk6bLGzTXYBUlvHSWWi7wuQz0muQLRbDBuR4C4g keZqP/yN/P+p6SI3NpSePg== 0000928385-96-000406.txt : 19960501 0000928385-96-000406.hdr.sgml : 19960501 ACCESSION NUMBER: 0000928385-96-000406 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960228 FILED AS OF DATE: 19960430 SROS: NASD 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: 1940 Act SEC FILE NUMBER: 811-07876 FILM NUMBER: 96553544 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 FORM N-30D Templeton China World Fund Dr. Mobius has been living overseas 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. Together with his team of Templeton analysts, Dr. Mobius currently oversees more than $8 billion in emerging markets investments for the Templeton Group of Funds. Your Fund's Objective: The Templeton China World Fund, Inc. seeks long-term capital appreciation through equity investments in "China companies." J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. ================================================================================ April 15, 1996 Dear Shareholder: We are pleased to bring you the third semi-annual report for the Templeton China World Fund, covering the six months ended February 29, 1996. This period marked the apparent end of fears that China's economy might be overheating as a result of explosive growth. In 1994, recognizing that excessively fast growth breeds inflation, causes income disparities and often leads to speculative bubbles in commodity markets, the Chinese government acted decisively to stamp out the potential for uncontrolled growth by imposing credit controls. As a result, growth of China's gross domestic product (GDP) slowed to 11.8% in 1994, and to an estimated rate of only 10.2% in 1995. The government, and many 1 economists, expect economic growth to fall further to the more sustainable rate of 8% or 9% during 1996. Slowing down growth and inflation was only one of China's economic achievements. During 1995, China's trade surplus rose to US$16.7 billion from US$5.3 billion in 1994; foreign currency reserves increased from US$52.9 billion in 1994 to almost US$75 billion; the renminbi/U.S. dollar exchange rate remained stable; and personal incomes rose 4% for urban workers and 5% for rural workers. During the period, the Chinese government reiterated its political commitment to open the economy further to foreign investment and trade. In an address to the Asia-Pacific Economic Cooperation forum (APEC) in November 1995, President Jiang Zemin said that China would begin slashing import tariffs in April 1996 to meet the requirements of the World Trade Organization. At the same time, the government announced changes in its value-added tax laws that removed special privileges for some companies, such as foreign investment incentives, to foster a more market-oriented business environment. Chinese officials are also pursuing plans to make the renminbi convertible into other currencies. Templeton China World Fund Geographic Distribution on 2/29/96 Based on Total Net Assets [PIE GRAPH APPEARS HERE] Restrictive credit policies contributed to poor performance of the Chinese stock market during this period. Nonetheless, your Fund provided a total return of 16.67% in market-price terms for the period, as you can see in the Performance Summary on page 5. We achieved these results by remaining heavily weighted in stocks of Hong Kong companies with significant mainland activities. As of February 29, 1996, 70.0% of the Fund's total net assets were invested in Hong Kong, 17.5% in mainland China, 1.9% in Taiwan, and the remaining 10.6% was held in cash and other liquid assets. Among the positions held 2 by the Fund, each of which represented more than 8% of the Fund's total net assets, were: New World Development Co. Ltd., which maintains varied commercial interests in Hong Kong and power plants and toll roads in China; HSBC Holdings, PLC, the holding company for the Hongkong Bank, with over 400 offices worldwide, and major subsidiaries in the U.S. and the United Kingdom; and Cheung Kong Holdings Ltd., a conglomerate with investments in Hong Kong and China, and interests in property development, telecommunications, trading, energy and finance. Looking forward, some loosening of credit restrictions, which may benefit key industrial sectors such as energy and infrastructure development, is expected during the second half of 1996. This may lead to better corporate performance in these areas, as companies borrow money for expansion of their operations. With strong fundamentals and an improving business climate, we think China continues to offer great potential for growth. Of course, China still faces problems in its relations with the U.S. These include the controversy over China's "most favored nation" trading status, the terms of its entry into the World Trade Organization, and differences over the status of Taiwan. In spite of these thorny issues, Templeton China World Fund
Top 10 Holdings as of 2/29/96 Based on Total Net Assets % of Total Company, Industry, Country Net Assets - -------------------------------------------------------------------------------- Cheung Kong Holdings Ltd.; Multi-Industry, Hong Kong 9.0% HSBC Holdings PLC; Banking, Hong Kong 8.5% New World Development Co. Ltd.; Real Estate, Hong Kong 8.2% Sun Hung Kai Properties Ltd.; Real Estate, Hong Kong 7.0% Hang Lung Development Co. Ltd.; Real Estate, Hong Kong 6.1% Hopewell Holdings Ltd.; Construction & Housing, Hong Kong 2.9% Dairy Farm International Holdings Ltd.; Merchandising, Hong Kong 2.5% Jardine Strategic Holdings Ltd.; Multi-Industry, Hong Kong 2.3% Goldlion Holdings Ltd.; Textiles & Apparel, Hong Kong 2.0% Jardine Matheson Holdings Ltd.; Multi-Industry, Hong Kong 2.0%
For a complete list of portfolio holdings, please see page 11 of this report. many analysts believe the success of financial reforms to date have contributed to a solid foundation for China to maintain growth and economic stability in 1996 and beyond. This outlook complements Templeton's long-term investment strategy. We have worked hard to identify the "China companies" we consider well-positioned to take advantage of any uptick in commercial activity in China. 3 Stable economic conditions would seem to be just the ingredient these firms need, if they are to blossom and achieve their potential. This discussion reflects the strategies we employed for the Fund during the past six-month period, and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies, and our evaluations, conclusions and decisions regarding portfolio holdings, may change as new circumstances arise. Although past performance of a specific investment or sector cannot guarantee future performance, such information can be useful in analyzing securities we purchase or sell for the Fund. We believe that China is, and likely will remain, one of the world's most interesting growth stories. However, investing in any emerging market means putting up with a certain amount of volatility and, in some cases, severe market corrections. Investing in China companies is no exception, entailing other special considerations, including risks related to currency volatility, adverse social and political developments, and the relatively small size and lesser liquidity of the markets involved. 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 700% in the last 15 years, but has suffered six declines of more than 20% during that time.2 Thank you for investing in the Templeton China World Fund. We appreciate your confidence and look forward to any comments you may have. 2. Source: Bloomberg. Based on quarterly percentage change over the 15 years ended March 31, 1996. 4 Performance Summary In market-price terms, the Templeton China World Fund produced a total return of 16.67% for the six-month period ended February 29, 1996. Based on the change in net asset value (in contrast to market price), the Fund delivered a total return of 12.39% for the same period. Both total return figures assume reinvestment of dividends and capital gains in accordance with the dividend reinvestment plan. During the reporting period, the Fund's closing price on the New York Stock Exchange (NYSE) increased from $10.50 per share on August 31, 1995 to $11.875 on February 29, 1996, while the net asset value increased from $12.07 to $13.15. Shareholders received combined distributions of 33.5 cents ($0.335) per share, including short-term capital gains of 1 cent ($0.01) per share and dividend income totaling 32.5 cents ($0.325) per share. Distributions will vary, however, depending on income earned by the Fund and any profits realized from the sale of securities in the portfolio. - -------------------------------------------------------------------------------- Templeton China World Fund
Cumulative Total Returns* Period Ended 2/29/96 Since Inception Six-Month One-Year (9/9/93) Based on change in net asset value 12.39% 19.58% 5.25% Based on change in market price 16.67% 19.53% -10.08%
*Cumulative total return calculations show the change in value of an investment over the period indicated. These calculations assume reinvestment of all distributions and capital gains, either at net asset value or at market price on the reinvestment date. Past performance is not predictive of future results. 5 The Following Letter was Written by Dr. Mobius After a Recent trip to China. As you travel around China, the description that most often springs to mind is "messy." The streets are full of dust, and windows are caked with grime. In this country where everything was owned for so long by the state, there seems to be no pride of ownership. But not all the mess can be blamed on a lack of pride. Much of it results from rapid development. Hazy cement dust on new highways, land being readied for a factory or office tower, and an abundance of unsightly cranes and steel reinforcing rods all indicate the tremendous potential presently being unlocked in China. In the coastal areas we visited during the first part of this trip, development was proceeding at a fast pace. As we drove to the hotel in Nanjing it was clear that the city was experiencing a construction boom. The glass-encased lobby of our hotel, which was built in 1982, was huge, featuring a free-floating red marble ball two feet in diameter revolving in a fountain. The building was well maintained and the service was even better than in Shanghai, which is regarded as the most "international" of China's cities. I tried out my Mandarin but was quickly met with responses in good English. We drove from Nanjing to Maanshan City, where we visited Maanshan Iron & Steel Company Limited, which produced 2.91 million tons of pig iron, 2.41 million tons of crude steel and 2.07 million tons of steel products in 1994. Although demand for steel products has decreased due to the implementation by the Chinese government of macro-economic adjustments, the company's management has responded actively to changing market conditions, and is, we believe, well positioned for an eventual pick-up in demand for its products. Dalian, another coastal city, also appeared to be a big construction site, with lots of 20-, 30- and 40-story buildings being erected. 6 [MAP OF CHINA AND TAIWAN APPEARS HERE] However, it is not just China's coastal areas which are undergoing rapid change and development. The inland province of Sichuan is one of China's main agricultural areas and supports 10% of the country's population. Once a province of peasants and landlords, Sichuan now boasts two important cities: Chongqing and Chengdu. An urban center more than 2,000 years ago, and the capital of kingdoms in the region for a number of years, Chengdu is a bustling city with street hawkers, huge department stores, and a population of about three million people. At the end of the main thoroughfare is a huge statue of Chairman Mao, with his hand raised in blessing. From Chengdu, we traveled two hours by car to Mianyang, 124 miles north of Chengdu. The road between Chengdu and Mianyang is like a washboard with intervals of nice, cement-paved highway. When we arrived there, we saw a 50-story skyscraper under construction on the outskirts of 7 the city. We had been told to expect the worst in this remote part of China, but were ushered into lavishly decorated suites complete with American-made whirlpool baths. Notwithstanding this, the interior decoration and quality, as in other parts of China, leave much to be desired. Mianyang, like so many other cities in China, is being rebuilt and redeveloped, with a number of high-rise towers under way. At the entrance to the city, we passed an industrial zone where some factories were complete and more were under construction. Since it has a reputation as an electronics center and center of high-tech military work, it is not surprising that Mianyang is being promoted as a high-tech zone. While in town, we visited Sichuan Changhong Electric Co., Ltd., a manufacturer of TV sets which produces three million units annually and has 17% of the national market. The company, which has ties to Siemens and Philips, already has sales branches in all the provinces and it plans to further expand into coastal cities and overseas markets with its brand name. After leaving Mianyang, we went to Deyang, to visit Dongfang Electrical Machinery Co., Ltd., a major manufacturer of steam turbine generators and hydro- turbine generators, whose "H" shares, listed on the Hong Kong Stock Exchange, are potential investments for the Fund. Chongqing, Sichuan's other main city, was the Chinese capital during World War II. It is in the southeast part of Sichuan Province and hangs on the deep gorges made by the Yangtze and Jialing Rivers. Sometimes referred to as one of the "three furnaces" of China (the others are Wuhan and Nanjing), it gets hot here in the summer, and when we stepped off the plane, we really felt the heat. Chongqing's airport is quite unusual and beautiful, in a strange sort of way. The control tower is like an onion standing on its stem. It has few straight corners and curves around the site like a white caterpillar. The architect must have admired Salvador Dali's paintings because he gave another-worldly feeling to the building. It is done in white tiles and has blue windows in the hallway. 8 Driving into the city, we saw that Chongqing has not escaped China's building boom. As we crossed the Jialing River bridge, we counted no fewer than 12 cranes on top of high-rise buildings. Chongqing is the home town of Qingling Motors Company Limited, a company engaged in the production, assembly and sale of Isuzu light-duty trucks, pickup trucks and minibuses. Through its long-standing and close relationship with Isuzu, it has access to the most up-to-date international technology. The construction we noticed throughout our trip is one indication of the progress of China's reform program. While some aspects of this process may not appeal to all foreign investors, there's no doubting the government's general commitment to economic development and expansion of trade. If it continues, the country's economic picture could improve substantially, which may be good news for investors in the Templeton China World Fund. Although it's impossible to predict the future, we are optimistic about potential long-term investment opportunities in China and will continue to utilize our disciplined, value oriented approach in our efforts to achieve the best possible results for our shareholders. Sincerely, /s/ J. Mark Mobius, Ph.D. J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. 9 Templeton China World Fund, Inc. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
PERIOD FROM SIX MONTHS SEPTEMBER 9, 1993 ENDED (COMMENCEMENT OF FEBRUARY 29, 1996 YEAR ENDED OPERATIONS) TO (UNAUDITED) AUGUST 31, 1995 AUGUST 31, 1994 ----------------- --------------- ----------------- Net asset value, beginning of period $ 12.07 $ 14.92 $ 14.10 -------- -------- -------- Income from investment op- erations: Net investment income .09 .33 .16 Net realized and unrealized gain (loss) 1.32 (1.91) .79 -------- -------- -------- Total from investment oper- ations 1.41 (1.58) CA0.95 -------- -------- -------- Underwriting expenses de- ducted from capital -- -- (.07) Distributions: Dividends from net invest- ment income (.32) (.20) (.06) Distributions from net re- alized gains (.01) (1.07) -- -------- -------- -------- Total distributions (.33) (1.27) (.06) -------- -------- -------- Change in net asset value 1.08 (2.85) .82 -------- -------- -------- Net asset value, end of pe- riod $ 13.15 $ 12.07 $ 14.92 ======== ======== ======== TOTAL RETURN* Based on market value per share 16.67% (29.58)% 9.54% Based on net asset value per share 12.39% (11.13)% 6.18% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $267,952 $245,982 $297,835 Ratio of expenses to aver- age net assets 1.67%** 1.65% 1.84%** Ratio of net investment in- come to average net assets 1.54%** 2.77% 1.09%** Portfolio turnover rate 6.42% 3.01% 81.81% Average commission rate paid (per share) $ .0022
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR. **ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 10 Templeton China World Fund, Inc. Investment Portfolio, February 29, 1996 (unaudited) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS: 89.4% - ------------------------------------------------------------------------------- Appliances & Household Durables: 3.3% Hualing Holdings Ltd. H.K. 1,330,500 $ 184,149 Semi-Tech (Global) Co. Ltd. H.K. 2,236,006 3,470,756 Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 2,858,000 537,304 Shanghai Shangling Electric Appliance, B Chn. 835,900 665,376 *Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 9,054,586 2,299,865 Shenzhen Huafa Electronics Co. Ltd., B Chn. 2,442,000 375,892 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 651,000 328,409 Tsann Kuen Enterprise Co. Ltd., B Chn. 5,834,000 1,131,951 ------------- 8,993,702 - ------------------------------------------------------------------------------- Automobiles: 2.4% Jardine International Motor Holdings Ltd. H.K. 3,508,000 4,855,269 Qing Ling Motors Co. Ltd., H Chn. 5,000,000 1,552,213 ------------- 6,407,482 - ------------------------------------------------------------------------------- Banking: 8.5% HSBC Holdings PLC H.K. 1,416,889 22,726,233 - ------------------------------------------------------------------------------- Broadcasting & Publishing: 0.1% Leefung-Asco Printers Holdings Ltd. H.K. 1,127,000 167,645 - ------------------------------------------------------------------------------- Building Materials & Components: 2.4% China Southern Glass Co. Ltd.,B Chn. 1,505,840 707,058 K Wah International Holdings Ltd. H.K. 15,755,348 2,506,704 *K Wah International Holdings Ltd., wts. H.K. 1,445,978 58,917 Shanghai Yaohua Pilkington Glass, B Chn. 3,152,000 3,152,000 ------------- 6,424,679 - ------------------------------------------------------------------------------- Chemicals: 3.2% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 9,459,000 2,421,504 Shanghai Pechemical Co. Ltd., H Chn. 15,480,000 5,156,062 Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 5,088,720 1,142,031 ------------- 8,719,597 - ------------------------------------------------------------------------------- Construction & Housing: 3.2% Hopewell Holdings Ltd. H.K. 10,559,579 7,717,293 Wai Kee Holdings Ltd. H.K. 3,702,336 885,967 ------------- 8,603,260 - ------------------------------------------------------------------------------- Electrical & Electronics: 0.8% *China Treasure Telecomunications Holdings Ltd. H.K. 1,748,000 71,223 *China Treasure Telecomunications Holdings Ltd., wts. H.K. 374,000 4,354 Gold Peak Industries (Holdings) Ltd. H.K. 1,110,000 570,729
11 Templeton China World Fund, Inc. Investment Portfolio, February 29, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Electrical & Electronics (cont.) *Great Wall Electronic International Ltd. H.K. 12,668,000 $ 1,032,330 Shanghai Automation Instrumentation Co., B Chn. 680,300 134,699 *Yaego Corp. Twn. 260,000 397,120 ------------- 2,210,455 - ------------------------------------------------------------------------------- Electronic Components & Instruments: 0.1% S. Megga International Holdings Ltd. H.K. 8,508,000 352,166 - ------------------------------------------------------------------------------- Financial Services: 1.9% JCG Holdings Ltd. H.K. 813,000 793,976 Min Xin Holdings H.K. 1,000,000 143,580 Peregrine Investments Holdings Ltd. H.K. 1,581,000 2,699,453 Sun Hung Kai & Co. Ltd. H.K. 4,318,000 1,354,454 ------------- 4,991,463 - ------------------------------------------------------------------------------- Food & Household Products: 1.4% C.P. Pokphand Co. Ltd. H.K. 163,000 85,918 *Fairwood Holdings Ltd. H.K. 4,530,000 462,909 *President Enterprises Corp. Twn. 2,622,360 3,023,086 *Shanghai New Asia Group Co. Ltd., B Chn. 384,000 233,472 ------------- 3,805,385 - ------------------------------------------------------------------------------- Health & Personal Care: 0.5% Zhuhai Sez Lizhu Pharmaceutical, B Chn. 4,309,600 1,393,628 - ------------------------------------------------------------------------------- Industrial Components: 0.9% *Shanghai Refrigerator Compressor Co. Ltd., B Chn. 574,900 233,409 *Shanghai Rubber Belt Co.Ltd., B Chn. 4,170,270 733,968 Shanghai Tyre & Rubber Co. Ltd., B Chn. 5,530,100 1,338,284 ------------- 2,305,661 - ------------------------------------------------------------------------------- Leisure & Tourism: 0.3% *Glynhill International Ltd. H.K. 1,950,000 59,275 Shanghai Jin Jiang Tower Co. Ltd., B Chn. 2,589,952 709,647 ------------- 768,922 - ------------------------------------------------------------------------------- Machinery & Engineering: 2.0% *China Textile Machinery Co. Ltd., B Chn. 13,612,200 2,273,237 Guangzhou Shipyard International Co. Ltd., H Chn. 1,316,000 344,708 *Northeast Electric Transmission & Transformation H.K. 34,000 6,377 Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 10,677,510 1,537,561 Shanghai Industrial Sewing Machine Corp. Chn. 2,155,100 331,885 Shanghai Steel Tube Co. Ltd., B Chn. 5,263,500 736,890 ------------- 5,230,658 - -------------------------------------------------------------------------------
12 Templeton China World Fund, Inc. Investment Portfolio, February 29, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Merchandising: 4.5% Dairy Farm International Holdings Ltd. H.K. 6,860,255 $ 6,688,749 Dickson Concepts (International) Ltd. H.K. 2,489,000 2,543,442 Fortei Holdings Ltd. H.K. 9,582,000 378,030 Joyce Boutique Holdings Ltd. H.K. 1,415,000 507,913 Linkful International Holdings Ltd. H.K. 1,700,000 92,357 Wo Kee Hong Holdings Ltd. H.K. 8,256,000 1,569,846 *Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 338,569 ------------- 12,118,906 - ------------------------------------------------------------------------------- Metals & Mining: 0.2% Maanshan Iron & Steel Co. Ltd., H Chn. 3,524,000 629,050 - ------------------------------------------------------------------------------- Miscellaneous Materials & Commodities: 0.1% Luoyang Glass Co. Ltd., H Chn. 500,000 168,156 - ------------------------------------------------------------------------------- Multi-Industry: 17.9% Cheung Kong Holdings Ltd. H.K. 3,468,000 24,111,682 CNT Group Ltd. H.K. 16,802,770 1,010,657 Jardine Matheson Holdings Ltd. H.K. 669,257 5,354,056 Jardine Strategic Holdings Ltd. H.K. 1,834,000 6,235,600 *Jardine Strategic Holdings Ltd., wts. H.K. 167,000 70,975 Lai Sun Garment International Ltd. H.K. 2,508,000 3,049,477 Shenzhen Gintian Industrial Co. Ltd., B Chn. 2,433,680 1,196,236 Shenzhen Tellus Machinery & Electronics Co. Ltd., B Chn. 3,036,720 471,364 Stelux International Holdings Ltd. H.K. 8,475,084 2,060,971 Swire Pacific Ltd., B H.K. 430,000 620,174 Wheelock & Co. Ltd. H.K. 1,820,000 3,707,848 ------------- 47,889,040 - ------------------------------------------------------------------------------- Real Estate: 25.5% China Overseas Land & Investment Ltd. H.K. 6,048,000 1,290,820 Hang Lung Development Co. Ltd. H.K. 8,729,000 16,315,571 Lai Sun Development Co. Ltd. H.K. 21,838,000 4,095,914 New World Development Co. Ltd. H.K. 4,503,121 21,959,625 *Prince Housing Development Corp. Twn. 2,184,600 1,612,749 Shanghai Jinqiao Export Processing Zone Development, B Chn. 4,421,560 1,653,663 Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd, B Chn. 894,000 518,520 Shanghai Outer Gaoqiao Free Trade Zone Development Co., B Chn. 616,000 200,816 Shenzhen Properties & Resources Development (Group) Ltd., B Chn. 4,802,600 969,105
13 Templeton China World Fund, Inc. Investment Portfolio, February 29, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Real Estate (cont.) Sun Hung Kai Properties Ltd. H.K. 2,095,100 $ 18,699,233 Tian An China Investments Co. Ltd. H.K. 6,869,750 959,698 ------------- 68,275,714 - ------------------------------------------------------------------------------- Recreation & Other Consumer Goods: 4.1% +China First Pencil Co. Ltd., B Chn. 10,224,440 4,110,225 *Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 5,382,000 161,511 KTP Holdings Ltd. H.K. 2,122,000 86,462 Phoenix Co. Ltd. Chn. 3,894,800 701,064 Shanghai Forever Bicycle Co. Ltd., B Chn. 5,726,000 824,544 Shanghai Wingsung Stationery Co. Ltd., B Chn. 3,835,400 759,409 Shenzhen China Bicycles Co. Holdings Ltd., B Chn. 7,520,400 1,264,603 Yue Yuen Industrial (Holdings) Ltd. H.K. 12,180,000 3,103,727 ------------- 11,011,545 - ------------------------------------------------------------------------------- Textiles & Apparel: 2.9% Goldlion Holdings Ltd. H.K. 6,421,000 5,440,188 *Laws International Holdings Ltd. H.K. 5,726,000 659,191 Shanghai Lian Hua Fibre Corp., B Chn. 4,999,560 939,917 Top Form International Ltd. H.K. 1,252,000 80,974 Tungtex (Holdings) Co. Ltd. H.K. 964,000 97,262 Victor Onward Textile Industrial Co. Ltd., B Chn. 3,579,180 555,565 ------------- 7,773,097 - ------------------------------------------------------------------------------- Transportation: 1.7% Chiwan Wharf Holdings Ltd., B Chn. 1,470,000 551,424 Cross Harbour Tunnel Co. Ltd. H.K. 1,052,000 2,061,571 IMC Holdings Ltd. H.K. 2,435,000 1,259,879 *Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 700,000 553,000 ------------- 4,425,874 - ------------------------------------------------------------------------------- Utilities Electrical & Gas: 1.2% Hongkong Electric Holdings Ltd. H.K. 419,000 1,419,990 Shandong Huaneng Power Chn. 132,000 1,270,500 Wing Shan International Ltd. H.K. 5,544,000 616,725 ------------- 3,307,215 - -------------------------------------------------------------------------------
14 Templeton China World Fund, Inc. Investment Portfolio, February 29, 1996 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------- Wholesale & International Trade: 0.3% East Asiatic Co. (Hong Kong) Ltd. H.K. 6,760,000 $ 821,948 ------------ TOTAL COMMON STOCKS (cost $259,269,360) 239,521,481 - ------------------------------------------------------------------------------- PRINCIPAL IN LOCAL CURRENCY** - ------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS: 4.3% (cost $11,564,139) - ------------------------------------------------------------------------------- U.S. Treasury Bills, 4.59% to 4.98% with maturities to 5/2/96 U.S. 11,600,000 11,563,841 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS: 93.7% (cost $270,833,499) 251,085,322 OTHER ASSETS, LESS LIABILITIES: 6.3% 16,866,640 ------------ TOTAL NET ASSETS: 100.0% $267,951,962 ============
*NON-INCOME PRODUCING. **CURRENCY OF COUNTRY INDICATED. +SEE NOTE 5. SEE NOTES TO FINANCIAL STATEMENTS. 15 Templeton China World Fund, Inc. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES February 29, 1996 (unaudited) Assets: Investments in securities, at value (identified cost $270,833,499) $251,085,322 Cash--foreign currencies 11,653,519 Receivables: Investment securities sold 5,830,357 Dividends and interest 60,075 Unamortized organization costs 12,090 ------------ Total assets 268,641,363 ------------ Liabilities: Accrued expenses 689,401 ------------ Net assets, at value $267,951,962 ============ Net assets consist of: Undistributed net investment income $ 128,441 Net unrealized depreciation (20,160,232) Accumulated net realized gain 2,270,029 Net capital paid in on shares of capital stock 285,713,724 ------------ Net assets, at value $267,951,962 ============ Shares outstanding 20,383,771 ============ Net asset value per share ($267,951,962 / 20,383,771) $ 13.15 ============
STATEMENT OF OPERATIONS for the six months ended February 29, 1996 (unaudited) Investment income: (net of $84,497 foreign taxes withheld) Dividends $3,507,543 Interest 494,143 ---------- Total income $ 4,001,686 Expenses: Management fees (Note 3) 1,627,282 Administrative fees (Note 3) 250,352 Custodian fees 49,727 Transfer agent fees 69,852 Reports to shareholders 16,031 Audit fees 19,411 Directors' fees and expenses 21,321 Registration and filing fees 16,082 Legal fees (Note 3) 1,982 Amortization of organization costs 2,366 Other 6,274 ---------- Total expenses 2,080,680 ----------- Net investment income 1,921,006 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 2,658,588 Foreign currency transactions (11,285) ---------- 2,647,303 ---------- Net unrealized appreciation on: Investments 24,210,324 Foreign currency translation of other assets and liabilities 19,412 ---------- 24,229,736 ---------- Net realized and unrealized gain 26,877,039 ----------- Net increase in net assets resulting from operations $28,798,045 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 16 Templeton China World Fund, Inc. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED FEBRUARY 29, 1996 YEAR ENDED (UNAUDITED) AUGUST 31, 1995 ----------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,921,006 $ 6,822,611 Net realized gain on investment and for- eign currency transactions 2,647,303 75,079 Net unrealized appreciation (depreciation) 24,229,736 (39,053,880) ------------ ------------ Net increase (decrease) in net assets re- sulting from operations 28,798,045 (32,156,190) Distributions to shareholders: From net investment income (6,624,726) (3,932,176) From net realized gains (203,838) (21,356,313) Capital share transactions (Note 2) -- 5,592,621 ------------ ------------ Net increase (decrease) in net assets 21,969,481 (51,852,058) Net assets: Beginning of period 245,982,481 297,834,539 ------------ ------------ End of period $267,951,962 $245,982,481 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 17 Templeton China World Fund, Inc. Notes to Financial Statements (unaudited) - -------------------------------------------------------------------------------- 1. SUMMARY OF ACCOUNTING POLICIES Templeton China World Fund, Inc. (the Fund) is a Maryland corporation and a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940. The Fund seeks to achieve its objective by in- vesting primarily in equity securities of Chinese companies. The following sum- marizes the Fund's significant accounting policies. a. Securities Valuations: Securities listed or traded on a recognized national or foreign stock exchange or NASDAQ are valued at the last reported sales prices on the principal ex- change on which the securities are traded. Over-the-counter securities and listed securities for which no sale is reported are valued at the mean between the last current bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management and approved in good faith by the Board of Directors. b. Foreign Currency Transactions: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign curren- cies are translated into U.S. dollar amounts on the respective dates of such transactions. When the Fund purchases or sells foreign securities it customar- ily enters into foreign exchange contracts to minimize foreign exchange risk between the trade date and the settlement date of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of for- eign currencies, currency gains or losses realized between the trade and set- tlement dates on securities transactions, the differences between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at the end of the fiscal period, resulting from changes in the exchange rates. c. Income Taxes: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision has been made for income taxes. d. Security Transactions, Investment Income, Distributions and Expenses: Security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Certain dividend income from foreign secu- rities is recorded as soon as information is available to the Fund. Interest income and estimated expenses are accrued daily. Distributions to shareholders which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. e. Unamortized Organization Costs: Organization costs are being 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. 18 Templeton China World Fund, Inc. Notes to Financial Statements (unaudited) (cont.) - -------------------------------------------------------------------------------- 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK As of February 29, 1996, there were 100,000,000 shares of capital stock autho- rized ($0.01 par value). During the six months ended February 29, 1996, there were no share transactions. During the year ended August 31, 1995, 426,592 shares were issued for $5,592,621 from reinvested distributions. 3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Certain officers of the Fund are also directors or officers of Templeton Asset Management, Ltd. (TAML) and Templeton Global Investors, Inc. (TGII), the Fund's investment manager and administrative manager, respectively. The Fund pays monthly an investment management fee to TAML equal, on an annual basis, to 1.25% of the average weekly net assets of the Fund. The Fund pays TGII monthly a fee of 0.25% per annum of the Fund's average weekly net assets, of which 0.20% is paid to Princeton Administrators, LP., for sub-administrative servic- es. An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for the Fund, which firm received $1,982 for the six months ended February 29, 1996. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the six months ended February 29, 1996 aggregated $14,563,375 and $17,214,471, respec- tively. The cost of securities for federal income tax purposes is $270,924,141. Realized gains and losses are reported on an identified cost basis. At February 29, 1996, the aggregate gross unrealized appreciation and deprecia- tion of portfolio securities, based on cost for federal income taxes purposes, was as follows:
Unrealized appreciation $ 36,538,906 Unrealized depreciation (56,377,725) ------------ Net unrealized depreciation $(19,838,819) ============
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The Investment Company Act of 1940 defines "affiliated companies" as invest- ments in portfolio companies in which the Fund owns 5% or more of the outstand- ing voting securities. Investments in "affiliated companies" at February 29, 1996 amounted to $4,110,225. 19 Templeton China World Fund, Inc. Annual Meeting of Shareholders, February 20, 1996 - -------------------------------------------------------------------------------- An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 700 Central Avenue, St. Petersburg, Florida, on February 20, 1996. The purpose of the meeting was to elect five directors of the Fund and to ratify selection of McGladrey & Pullen, LLP, as the Fund's independent public accountants for the fiscal year ending August 31, 1996, and in their discretion to authorize the proxyholders to vote upon such other matters which may legally come before the meeting. At the meeting the following persons were elected by the share- holders to serve as directors of the Fund: Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Gailbraith and Charles B. Johnson. In addition the shareholders ratified the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent public accountants for the fiscal year ending August 31, 1996. No other business was transacted at the Annual meeting. The results of the voting at the Annual Meeting are as follows: 1. Election of five (5) Directors for the term set forth below:
% OF % OF % OF OUTSTANDING SHARES OUTSTANDING FOR SHARES VOTED WITHHELD SHARES ---------- ----------- ------ -------- ----------- Term expiring 1999: Harris J. Ashton 12,604,495 61.84% 98.14% 297,666 1.46% Nicholas F. Brady 12,625,364 61.94% 97.85% 276,797 1.36% S. Joseph Fortunato 12,621,729 61.92% 97.82% 280,432 1.38% Term expiring 1998: Charles B. Johnson 12,617,437 61.90% 97.79% 284,724 1.40% Term expiring 1997: John Wm. Galbraith 12,641,719 62.02% 97.98% 260,442 1.28% 2. Ratification of the selection of McGladrey & Pullen, LLP as independent public accountants of the Fund for the fiscal year ending August 31, 1996: % OF % OF % OF % OF OUTSTANDING SHARES OUTSTANDING OUTSTANDING FOR SHARES VOTED AGAINST SHARES ABSTAIN SHARES ---------- ----------- ------ -------- ----------- ------- ----------- 12,618,136 61.90% 97.80% 88,160 0.43% 195,865 0.96%
20 Templeton China World Fund, Inc. - -------------------------------------------------------------------------------- TRANSFER AGENT Chemical Mellon Shareholder Services Securities Transfer Services 450 West 33rd Street New York, NY 10001 800-526-0801 SHAREHOLDER INFORMATION Weekly comparative net asset value and market price information about Templeton China World Fund, Inc., shares is published each Monday in The Wall Street Journal, weekly in Barron's and each Saturday in The New York Times and other newspapers in a table called "Publicly Traded Funds". The Fund's New York Stock Exchange trading symbol is TCH. For current information about the net asset value, call 1-800-292-9293. If any shareholder is not receiving copies of the Reports to Shareholders be- cause 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., 700 Central Avenue, St. Petersburg, FL 33701. 21 Notes ----- THE FRANKLIN TEMPLETON GROUP Literature Request - Call today for a free descriptive brochure and prospectus on any of the funds listed below. The prospectus contains more complete information, including fees, charges and expenses, and should be read carefully before investing or sending money. Templeton Funds Americas Government Securities Fund Developing Markets Trust Foreign Fund Global Infrastructure Fund Global Opportunities Trust Greater European Fund Growth Fund Growth and Income Fund Income Fund Latin America Fund Real Estate Securities Fund Smaller Companies Growth Fund World Fund Franklin Funds Seeking Tax-Free Income Federal Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund*** Puerto Rico Tax-Free Income 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** Franklin Funds Seeking Capital Growth California Growth Fund DynaTech Fund Equity Fund Global Health Care Fund Gold Fund Growth Fund International Equity Fund Japan Fund Pacific Growth Fund Small Cap Growth Fund Franklin Funds Seeking Growth and Income Balance Sheet Investment Fund Convertible Securities Fund Equity Income Fund Global Utilities Fund Income Fund Natural Resources Fund Premier Return Fund Real Estate Securities Fund Rising Dividends Fund Strategic Income Fund Utilities Fund Franklin Funds Seeking High Current Income AGE High Income Fund Global Government Income Fund Investment Grade Income Fund U.S. Government Securities Fund Franklin Funds Seeking High Current Income and Stability of Principal Adjustable Rate Securities Fund Adjustable U.S. Government Securities Fund Short-Intermediate U.S. Government Securities Fund Franklin Funds for Non-U.S. Investors Tax-Advantaged High Yield Securities Fund Tax-Advantaged International Bond Fund Tax-Advantaged U.S. Government Securities Fund Franklin Templeton Global Currency Funds German Government Bond Fund Global Currency Fund High Income Currency Fund Hard Currency Fund Franklin Money Market Funds Money Fund Federal Money Fund Tax-Exempt Money Fund California Tax-Exempt Money Fund New York Tax-Exempt Money Fund IFT U.S. Treasury Money Market Portfolio Franklin Fund for Corporations Corporate Qualified Dividend Fund Franklin Tax-Deferred Annuity Franklin Valuemark Franklin Templeton Valuemark Income Plus (an immediate annuity) Fund Information: 1-800/342-5236 Shareholder Services: 1-800/632-2301 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. *Two or more fund options available: long-term portfolio, intermediate-term portfolio, a portfolio of insured municipal securities, and a high yield portfolio (CA). **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. - -------------------------- TEMPLETON CHINA WORLD FUND, INC. 700 Central Avenue St. Petersburg, Florida 33701-3628 Investors should be aware that the value of investments made for the Fund may go up as well as down 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 the risk of such losses 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. - -------------------------- [LOGO OF RECYCLED PAPER APPEARS HERE] TEMPLETON CHINA WORLD FUND, INC. Semi-Annual Report February 29, 1996 [LOGO OF FRANKLIN TEMPLETON APPEARS HERE] -----END PRIVACY-ENHANCED MESSAGE-----