-----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, ChpjOJpi36daCmsq7P4gxFDQqZgcDCJqoiocFbDazDWICe2rnTkCY6g1txsd5Zzh c5XWJP6mPaMGBCtf3Z9b8A== 0000950149-97-001049.txt : 19970520 0000950149-97-001049.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950149-97-001049 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970515 SROS: NONE 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: 97605891 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 TEMPLETON CHINA WORLD ANNUAL REPORT - 2/28/97 1 Templeton China World Fund [PICTURE OF J. MARK MOBIUS] J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. 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 $12 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." April 15, 1997 Dear Shareholder: We are pleased to bring you the fourth semi-annual report for the Templeton China World Fund, which covers the six months ending February 28, 1997. Strong economic fundamentals and large inflows of investment capital helped many emerging markets rally sharply during this period. Those in Hong Kong, China and Taiwan posted some of the best performances, as increased government spending and rising exports supported China's growing economy. The Hong Kong market was also buoyed by a recovery in its important retail and property sectors and the strong earnings of a number of companies listed on this exchange. 1 2 Although the full impact probably won't be felt for at least several months, one of the most important developments during this period was the death on February 19, 1997 of Deng Xiaoping, China's 92-year-old patriarch. Deng leaves a mixed legacy. His main accomplishment was the liberalization of China's economy, but he will also be remembered for his support of the brutal crackdown on pro-democracy demonstrators in Tiananmen Square in 1989. The Hong Kong, China and Taiwan markets fell briefly as Deng's health deteriorated, but rebounded after the apparently peaceful transfer of power to President Jiang Zemin and Premier Li Peng. On December 11, 1996, Tung Chee Hua was selected to be China's first Chief Executive of Hong Kong. Mr. Tung, a former shipping magnate, appears to combine a good personal relationship with the Communist Party leadership in Beijing with a commitment to preserving the capitalist economic structure in Hong Kong. However, it is possible that the future of Hong Kong will be subject to uncertainty until, and even following, the hand-over on July 1, 1997. During this six-month period, your Fund posted a total return of 21.87% in market-price terms, and 24.83% in net asset value terms, as discussed in the Performance Summary on page 5. On February 28, 1997, 64.6% of the Fund's total net assets were invested in Hong Kong, a decrease of 4.2% during the six months under review. We also had 18.6% invested in the markets of mainland China, 2.0% in Taiwan, and 14.8% 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, with over 400 offices worldwide and major subsidiaries in the U.S. and the United Kingdom. We also maintained significant positions in Templeton China World Fund Geographic Distribution on 2/28/97 Based on Total Net Assets [PIE CHART] Hong Kong 64.6% China 18.6% Taiwan 2.0% Short-Term Obligations & Other Net Assets 14.8%
2 3 New World Development Co. and Sun Hung Kai Properties, companies with large real estate holdings and commercial interests in Hong Kong and China. Looking forward, we believe that the prospects are generally positive for many emerging markets and that stock prices of companies in China, Hong Kong, and Taiwan have the potential to benefit should a rally of these markets be sustained. Since China's inflation rate has fallen to relatively low levels, the government may cut interest rates, and, in that event, we would expect its economy to perform well. However, even though it appears unlikely that Deng's economic reforms could be reversed, unexpected political developments could jeopardize China's improved relationship with Taiwan and the smooth handover of sovereignty in Hong Kong. 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. While short-term volatility can be disconcerting, declines of as much as 40% to 50% are not unusual in emerging markets. For example, the Hong Kong market has increased 857% in the last 15 years, but has suffered five declines of more than 20% during that time.(1) This discussion reflects the strategies we employed for the Fund during the six-month period under review, and includes our opinions as of the close of the period. Since economic and market conditions TEMPLETON CHINA WORLD FUND Top Ten Holdings as of 2/28/97 Based on Total Net Assets
% of Total Company, Industry, Country Net Assets HSBC Holdings PLC Banking, Hong Kong 9.5% Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong 9.3% New World Development Co. Ltd. Real Estate, Hong Kong 8.0% Sun Hung Kai Properties Ltd. Real Estate, Hong Kong 5.9% Hang Lung Development Co. Ltd. Real Estate, Hong Kong 4.8% Hopewell Holdings Ltd. Construction & Housing, Hong Kong 2.2% Hongkong Electric Holdings Ltd. Utilities - Electrical & Gas, Hong Kong 2.0% Jardine Strategic Holdings Ltd. Multi-Industry, Hong Kong 1.9% Lai Sun Development Co. Ltd. Real Estate, Hong Kong 1.9% China First Pencil Co. Ltd., B Recreation & Other Consumer Goods, China 1.7%
For a complete list of portfolio holdings, please see page 9 of this report. 1. Source: Bloomberg. Based on quarterly percentage change over 15 years ended December 31, 1996. 3 4 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 the securities we purchase or sell for the Fund. Thank you for investing in the Templeton China World Fund. We appreciate your confidence and look forward to any comments you may have. Sincerely, /s/ J. Mark Mobius - -------------------------------- J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. Celebrating 50 Years This year marks 50 years of business for Franklin Templeton. Over these years, we have experienced profound changes in technology, regulations and customer expectations within the mutual fund industry. As one of the largest mutual fund families, we're proud to be an innovative industry leader, providing people like you with an opportunity to invest in companies and governments around the globe. In addition, we want to stress that all securities markets move both up and down. Mixed in with the good years can be some bad years. Accordingly, mutual fund share prices also move up and down. Every investor should expect such fluctuations, which can be wide. When markets are going down, as well as up, we encourage investors to maintain a long-term perspective. We thank you for your past support and look forward to serving your investment needs in the years ahead. 4 5 PERFORMANCE SUMMARY In market-price terms, the Templeton China World Fund produced a total return of 21.87% for the six-month period ended February 28, 1997. Based on the change in actual net asset value (in contrast to market price), the Fund delivered a total return of 24.83% 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 by $1.875, from $11.375 per share on August 31, 1996 to $13.25 on February 28, 1997, while the net asset value increased by $2.67, from $13.39 to $16.06. Shareholders received combined distributions of 58.0 cents ($0.58) per share, including dividend income totaling 27.5 cents ($0.275), short-term capital gains of 1.0 cent ($0.01), and long-term capital gains of 29.5 cents ($0.295). Distributions will vary, however, depending on income earned by the Fund and any profits realized from the sale of securities in the portfolio. Past performance is not predictive of future results. TEMPLETON CHINA WORLD FUND Periods Ended 2/28/97
Since Inception One-Year Three-Year (9/9/93) Cumulative Total Return(1) Based on change in net asset value 27.11% 18.21% 33.77% Based on change in market price 16.74% -9.70% 4.96% Average Annual Total Return(2) Based on change in net asset value 27.11% 5.73% 8.73% Based on change in market price 16.74% -3.34% 1.40%
1. Cumulative total returns show the change in value of an investment over the periods indicated. 2. Average annual total returns represent the average annual change in value of an investment over the periods indicated. All total return 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. Investment return and principal value will fluctuate with market conditions, currencies and the political and economic climates of the countries where investments are made. Emerging markets involve heightened risks related to the same factors, in addition to those associated with the relatively small size and lesser liquidity of those markets. You may have a gain or loss when you sell your shares. Past performance is not predictive of future results. 5 6 Many investors have asked us about the activities of Sir John Templeton, since his retirement from the funds. We asked Professor Robert Herrmann to update us on Sir John's current activities and his comments follow. THE NEW CAREER OF SIR JOHN TEMPLETON [PHOTO OF SIR JOHN TEMPLETON] By Professor Robert Herrmann 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 Templeton funds, managed by many of the investment professionals he selected and trained. For sentimental reasons, he allows his name to be associated with the funds, although he knows no more about their management and holdings than any other investor. Sir John Templeton established the Templeton Foundation in 1987, to foster the acquisition of spiritual information through scientific research. Working with scientists, theologians and others, he strives toward a new science that uses empirical and statistical scientific methods to discover and test spiritual knowledge. A crucial ingredient in his research is what Sir John calls "humility theology," an attitude of humility toward the Creator, combined with receptiveness to the theological significance of current scientific discoveries. Universal spiritual laws, or "laws of life," are among the areas of investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200 laws and proverbs from nearly all religions, and deeply embedded in human history. For example, the Golden Rule taught by Jesus in the Sermon on the Mount, states "Do unto others as you would have others do unto you," and is affirmed by all major religions as an acceptable, universal law of life. Other books which Sir John has authored or co-authored during the past few years include: The Humble Approach, Is God the Only Reality, Evidence of Purpose, Who's Who in Theology and Science and The God Who Would Be Known. With an annual budget of more than $30 million, the Templeton Foundation sponsors 60 programs focusing on spiritual progress and the benefits of freedom. Sir John's first sizable investment in the programs was the Templeton Prize for Progress in Religion. A panel of nine judges gives the annual award which now exceeds $1.2 million to individuals who have shown extraordinary originality in furthering the world's understanding of God or spirituality. Recipients of the prize include Professor Paul Davies, author of The Mind of God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former President of India, and Oxford professor of Eastern Religions and Ethics. To encourage young people's and their parents' appreciation of spiritual laws of life, Sir John established an essay contest for teenagers in his home county of Franklin, Tennessee. Students submit essays about the spiritual life principles they plan to follow, and prizes are offered semiannually. In 1996, more than 800 youth participated. Twenty-six similar programs 6 7 have been launched in various locations, with the support of generous local donors. The Foundation also sponsors a worldwide program that awards college-level faculty who teach courses integrating science and religion. During the program's first two years, more than 200 courses were created. The Foundation maintains an extensive program of research and education on the health benefits of spirituality, including prizes for medical schools providing courses on spirituality in medicine. Lastly, the Foundation publishes a newsletter with over 2,000 subscribers. Free subscriptions are available to Templeton shareholders by writing to the Foundation. To contact Sir John Templeton or receive the free newsletter subscription, please write to: The John Templeton Foundation 2 Radnor Corporate Center #320 100 Matsonford Road Radnor, PA 19087 7 8 TEMPLETON CHINA WORLD FUND, INC. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
PERIOD FROM SEPTEMBER 9, SIX MONTHS 1993 ENDED YEAR ENDED AUGUST 31 (COMMENCEMENT OF FEBRUARY 28, 1997 -------------------------------- OPERATIONS) TO (UNAUDITED) 1996 1995 AUGUST 31, 1994 ----------------- -------------- --------------- ---------------- Net asset value, beginning of period $ 13.39 $ 12.07 $ 14.92 $ 14.10 -------- -------- -------- Income from investment operations: Net investment income .07 .27 .33 .16 Net realized and unrealized gain (loss) 3.18 1.39 (1.91) .79 -------- -------- -------- Total from investment operations 3.25 1.66 (1.58) .95 -------- -------- -------- Underwriting expenses deducted from capital -- -- -- (.07) Distributions: Dividends from net investment income (.28) (.33) (0.20) (.06) Distributions from net realized gains (.30) (.01) (1.07) -- -------- -------- -------- Total distributions (.58) (.34) (1.27) (.06) -------- -------- -------- Change in net asset value 2.67 1.32 (2.85) .82 -------- -------- -------- Net asset value, end of period $ 16.06 $ 13.39 $ 12.07 $ 14.92 ======== ======== ======== TOTAL RETURN* Based on market value per share 21.87% 11.75% (29.58)% 9.54% Based on net asset value per share 24.83% 14.44% (11.13)% 6.18% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 327,274 $272,966 $ 245,982 $297,835 Ratio of expenses to average net assets 1.67%** 1.65% 1.65% 1.84%** Ratio of net investment income to average net assets 0.92%** 2.14% 2.77% 1.09%** Portfolio turnover rate 1.81% 14.47% 3.01% 81.81% Average commission rate paid (per share) $ .0021 $ .0025 -- --
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. **ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 8 9 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 85.2% - --------------------------------------------------------------------------------------------------------------------- APPLIANCES & HOUSEHOLD DURABLES: 3.3% Hualing Holdings Ltd. H.K. 2,566,500 $ 344,688 Semi-Tech (Global) Co. Ltd. H.K. 2,412,630 2,804,043 *Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 3,143,800 628,760 *Shanghai Shangling Electric Appliance, B Chn. 6,866,280 2,540,524 *Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 9,960,045 1,812,728 Shenzhen Huafa Electronics Co. Ltd., B Chn. 2,164,000 1,095,456 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 846,300 989,064 Tsann Kuen Enterprise Co. Ltd., B Chn. 1,074,002 524,262 ------------ 10,739,525 - --------------------------------------------------------------------------------------------------------------------- AUTOMOBILES: 1.0% Jardine International Motor Holdings Ltd. H.K. 2,484,000 3,191,730 - --------------------------------------------------------------------------------------------------------------------- BANKING: 9.5% HSBC Holdings PLC H.K. 1,278,145 31,195,605 - --------------------------------------------------------------------------------------------------------------------- BROADCASTING & PUBLISHING: 0.0% Leefung-Asco Printers Holdings Ltd. H.K. 1,127,000 123,707 - --------------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & COMPONENTS: 2.4% China Southern Glass Co. Ltd., B Chn. 2,752,152 1,794,797 K Wah International Holdings Ltd. H.K. 17,153,608 3,987,305 *K Wah International Holdings Ltd., wts. H.K. 1,445,978 80,294 *Shanghai Yaohua Pilkington Glass, B Chn. 4,720,000 1,972,960 ------------ 7,835,356 - --------------------------------------------------------------------------------------------------------------------- CHEMICALS: 3.3% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 9,459,000 3,007,962 Shanghai Pechemical Co. Ltd., H Chn. 18,370,000 5,218,952 Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 4,770,720 2,587,526 ------------ 10,814,440 - --------------------------------------------------------------------------------------------------------------------- CONSTRUCTION & HOUSING: 2.3% Hopewell Holdings Ltd. H.K. 12,319,579 7,357,988 - --------------------------------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS: 0.9% *CCT Telecom Holdings Ltd. H.K. 9,496,000 367,886 Great Wall Electronic International Ltd. H.K. 11,907,018 1,460,757 Shanghai Automation Instrumentation Co., B Chn. 782,345 162,728 *Yageo Corp. Twn. 364,000 899,419 ------------ 2,890,790 - --------------------------------------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS & INSTRUMENTS: 0.2% *S. Megga International Holdings Ltd. H.K. 8,508,000 510,895 - ---------------------------------------------------------------------------------------------------------------------
9 10 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: 1.5% JCG Holdings Ltd. H.K. 813,000 $ 677,176 Peregrine Investments Holdings Ltd. H.K. 1,430,000 2,613,027 *Peregrine Investments Holdings Ltd., wts. H.K. 158,100 54,614 Sun Hung Kai & Co. Ltd. H.K. 6,045,200 1,600,354 *Sun Hung Kai & Co. Ltd, wts. H.K. 1,209,040 104,608 ------------ 5,049,779 - --------------------------------------------------------------------------------------------------------------------- FOOD & HOUSEHOLD PRODUCTS: 1.9% *Fairwood Holdings Ltd. H.K. 6,795,000 342,220 *President Enterprises Corp. Twn. 3,146,832 5,568,703 Shanghai New Asia Group Co. Ltd., B Chn. 384,000 152,064 ------------ 6,062,987 - --------------------------------------------------------------------------------------------------------------------- HEALTH & PERSONAL CARE: 1.0% Zhuhai Sez Lizhu Pharmaceutical Group Inc., B Chn. 4,715,600 3,190,948 - --------------------------------------------------------------------------------------------------------------------- INDUSTRIAL COMPONENTS: 1.5% Shanghai Refrigerator Compressor Co. Ltd., B Chn. 1,649,880 890,935 Shanghai Rubber Belt Co. Ltd., B Chn. 4,170,270 925,800 Shanghai Tyre & Rubber Co. Ltd., B Chn. 6,730,990 3,096,255 ------------ 4,912,990 - --------------------------------------------------------------------------------------------------------------------- LEISURE & TOURISM: 0.2% Shanghai Jin Jiang Tower Co. Ltd., B Chn. 2,848,947 797,705 - --------------------------------------------------------------------------------------------------------------------- MACHINERY & ENGINEERING: 1.7% *China Textile Machinery Co. Ltd., B Chn. 4,608,200 829,476 Guangzhou Shipyard International Co. Ltd., H Chn. 2,724,000 657,810 Northeast Electric Transmission & Transformation H.K. 3,980,000 637,318 *Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 11,745,261 2,137,638 *Shanghai Industrial Sewing Machine Corp. Chn. 2,155,100 353,436 *Shanghai Steel Tube Co. Ltd., B Chn. 5,929,280 1,090,988 ------------ 5,706,666 - --------------------------------------------------------------------------------------------------------------------- MERCHANDISING: 2.6% Dairy Farm International Holdings Ltd. H.K. 7,395,777 5,731,727 Dickson Concepts (International) Ltd. H.K. 295,699 1,080,657 Fortei Holdings Ltd. H.K. 9,582,000 717,688 Joyce Boutique Holdings Ltd. H.K. 337,000 80,075 Wo Kee Hong Holdings Ltd. H.K. 9,856,000 700,027 *Wo Kee Hong Holdings Ltd., wts. H.K. 1,971,200 16,546 *Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 231,269 ------------ 8,557,989 - ---------------------------------------------------------------------------------------------------------------------
10 11 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- METALS & MINING: 0.3% Maanshan Iron & Steel Co. Ltd., H Chn. 3,733,000 $ 877,366 - --------------------------------------------------------------------------------------------------------------------- MISCELLANEOUS MATERIALS & COMMODITIES: 0.0% Luoyang Glass Co. Ltd., H Chn. 500,000 116,224 - --------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY: 16.0% Cheung Kong Holdings Ltd. H.K. 3,168,000 30,273,900 CNT Group Ltd. H.K. 12,404,770 1,153,381 Jardine Matheson Holdings Ltd. H.K. 605,971 3,666,125 Jardine Strategic Holdings Ltd. H.K. 1,834,000 6,015,520 *Jardine Strategic Holdings Ltd., wts. H.K. 167,000 56,780 Lai Sun Garment International Ltd. H.K. 2,636,000 3,846,585 Stelux International Holdings Ltd. H.K. 3,011,084 657,145 *Stelux International Holdings Ltd., wts. H.K. 602,216 31,107 Swire Pacific Ltd., B H.K. 1,009,000 1,374,659 Wheelock & Co. Ltd. H.K. 1,929,000 5,181,399 ------------ 52,256,601 - --------------------------------------------------------------------------------------------------------------------- REAL ESTATE: 23.3% China Overseas Land & Investment Ltd. H.K. 4,528,000 2,645,919 Hang Lung Development Co. Ltd. H.K. 7,811,000 15,735,579 Lai Sun Development Co. Ltd. H.K. 3,970,000 5,947,028 *Lai Sun Development Co. Ltd., wts. H.K. 2,183,800 276,370 New World Development Co. Ltd. H.K. 4,241,700 26,292,547 Shanghai Jinqiao Export Processing Zone Development, B Chn. 4,421,560 2,263,839 Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd,B Chn. 619,920 507,095 Shanghai Waigaoqiao Free Trade Zone Development Co., B Chn. 616,000 266,112 Shenzhen Properties & Resources Development (Group) Ltd., B Chn. 4,798,860 2,385,889 Sun Hung Kai Properties Ltd. H.K. 1,669,100 19,291,095 Tian An China Investments Co. Ltd. H.K. 6,019,750 707,410 ------------ 76,318,883 - --------------------------------------------------------------------------------------------------------------------- RECREATION & OTHER CONSUMER GOODS: 5.2% +China First Pencil Co. Ltd., B Chn. 11,246,884 5,735,911 *Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 5,122,000 509,310 KTP Holdings Ltd. H.K. 2,652,500 101,048 Phoenix Co. Ltd. Chn. 6,148,280 1,020,615
11 12 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - --------------------------------------------------------------------------------------------------------------------- RECREATION & OTHER CONSUMER GOODS (cont.) Shanghai Wingsung Co. Ltd., B Chn. 4,410,710 $ 1,182,070 Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 7,520,400 3,447,631 Yue Yuen Industrial (Holdings) Ltd. H.K. 12,516,000 5,131,694 ------------ 17,128,279 - --------------------------------------------------------------------------------------------------------------------- TEXTILES & APPAREL: 1.4% Goldlion Holdings Ltd. H.K. 3,783,000 3,370,830 Laws International Holdings Ltd. H.K. 6,412,000 993,634 Tungtex (Holdings) Co. Ltd. H.K. 964,000 90,876 ------------ 4,455,340 - --------------------------------------------------------------------------------------------------------------------- TRANSPORTATION: 2.8% Chiwan Wharf Holdings Ltd., B Chn. 3,346,000 2,285,773 Cross Harbour Tunnel Co. Ltd. H.K. 1,191,000 2,606,951 *Guangshen Railway Co. Ltd., ADR Chn. 80,000 1,930,000 IMC Holdings Ltd. H.K. 2,477,000 1,151,543 Orient Overseas International Ltd. H.K. 52,000 28,875 Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 1,303,900 1,176,118 ------------ 9,179,260 - --------------------------------------------------------------------------------------------------------------------- UTILITIES ELECTRICAL & GAS: 2.7% Hong Kong Electric Holdings Ltd. H.K. 1,885,000 6,523,755 Shandong Huaneng Power Chn. 132,000 1,369,500 Wing Shan International Ltd. H.K. 5,544,000 980,833 ------------ 8,874,088 - --------------------------------------------------------------------------------------------------------------------- WHOLESALE & INTERNATIONAL TRADE: 0.2% *East Asiatic Co. (Hong Kong) Ltd. H.K. 6,760,000 794,401 ------------ TOTAL COMMON STOCKS (cost $240,724,866) 278,939,542 - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL IN LOCAL CURRENCY** - --------------------------------------------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS: 14.2% (cost $46,288,092) - --------------------------------------------------------------------------------------------------------------------- U. S. Treasury Bills, 4.78% to 5.06% with maturities to 5/29/97 U.S. 46,549,000 46,299,334 - --------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.4% (cost $287,012,958) 325,238,876 OTHER ASSETS, LESS LIABILITIES: 0.6% 2,035,503 ------------ TOTAL NET ASSETS: 100.0% $327,274,379 ============
*NON-INCOME PRODUCING. **CURRENCY OF COUNTRY INDICATED. +SEE NOTE 5. SEE NOTES TO FINANCIAL STATEMENTS. 12 13 TEMPLETON CHINA WORLD FUND, INC. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES February 28, 1997(unaudited) Assets: Investments in securities, at value (identified cost $287,012,958) $325,238,876 Cash--foreign currencies 2,188,226 Receivables: Investment securities sold 455,781 Dividends and interest 22,049 Unamortized organization costs 7,345 ------------ Total assets 327,912,277 ------------ Liabilities: Accrued expenses 637,898 ------------ Net assets, at value $327,274,379 ============ Net assets consist of: Distributions in excess of net investment income $ (463,164) Net unrealized appreciation 38,198,926 Accumulated net realized gain 3,824,893 Net capital paid in on shares of capital stock 285,713,724 ------------ Net assets, at value $327,274,379 ============ Shares outstanding 20,383,771 ============ Net asset value per share ($327,274,379 / 20,383,771) $ 16.06 ============
STATEMENT OF OPERATIONS for the six months ended February 28, 1997(unaudited) Investment income: (net of $43,199 foreign taxes withheld) Dividends $ 3,170,303 Interest 747,141 ----------- Total income $ 3,917,444 Expenses: Management fees (Note 3) 1,907,810 Administrative fees (Note 3) 381,563 Custodian fees 96,900 Transfer agent fees 52,824 Reports to shareholders 22,230 Audit fees 18,621 Registration and filing fees 16,037 Directors' fees and expenses 15,721 Legal fees 3,546 Amortization of organization costs 2,353 Other 5,606 ----------- Total expenses 2,523,211 ----------- Net investment income 1,394,233 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 4,039,924 Foreign currency transactions (3,110) ----------- 4,036,814 ----------- Net unrealized appreciation (depreciation) on: Investments 60,673,091 Foreign currency translation of other assets and liabilities (4,498) ----------- 60,668,593 ----------- Net realized and unrealized gain 64,705,407 ----------- Net increase in net assets resulting from operations $66,099,640 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 13 14 TEMPLETON CHINA WORLD FUND, INC. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED FEBRUARY 28, 1997 YEAR ENDED (UNAUDITED) AUGUST 31, 1996 ----------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,394,233 $ 5,540,705 Net realized gain on investment and foreign currency transactions 4,036,814 6,381,237 Net unrealized appreciation 60,668,593 21,920,301 ------------ ------------ Net increase in net assets resulting from operations 66,099,640 33,842,243 Distributions to shareholders: From net investment income (5,605,537) (6,624,726) From net realized gains (6,215,884) (203,838) ------------ ------------ Net increase in net assets 54,278,219 27,013,679 Net assets: Beginning of period 272,996,160 245,982,481 ------------ ------------ End of period $ 327,274,379 $ 272,996,160 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 14 15 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 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 or foreign stock exchange or NASDAQ are valued at the last reported sales prices on the principal exchange 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 in good faith by management and approved 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 currencies are translated into U.S. dollar amounts on the respective dates of such transactions. When the Fund purchases or sells foreign securities it customarily 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 foreign currencies, currency gains or losses realized between the trade and settlement 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 securities 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. 15 16 TEMPLETON CHINA WORLD FUND, INC. Notes to Financial Statements (unaudited) (cont.) - -------------------------------------------------------------------------------- 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK As of February 28,1997, there were 100,000,000 shares of capital stock authorized ($0.01 par value). For the six months ended February 28, 1997 and for the year ended August 31, 1996, there were no share transactions. 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 Franklin Templeton Services, Inc. (FTSI), 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 FTSI 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, L.P., for sub-administrative services. An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for the Fund, which firm received fees for the six months ended February 28, 1997. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the six months ended February 28, 1997, aggregated $4,945,760 and $35,892,036, respectively. The cost of securities for federal income tax purposes is $287,103,698. Realized gains and losses are reported on an identified cost basis. At February 28, 1997, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income taxes purposes, was as follows: Unrealized appreciation $ 76,079,959 Unrealized depreciation (37,944,781) ------------ Net unrealized appreciation $ 38,135,178 ============
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The Investment Company Act of 1940 defines "affiliated companies" as investments in portfolio companies in which the Fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" at February 28, 1997 amounted to $5,735,911. 16 17 TEMPLETON CHINA WORLD FUND, INC. Annual Meeting of Shareholders, February 25, 1997 - -------------------------------------------------------------------------------- An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 E. Broward Blvd., Ft. Lauderdale, Florida, on February 25, 1997. The purpose of the meeting was to elect five directors of the Fund, to ratify the selection of McGladrey & Pullen, LLP, as the Fund's independent public accountants for the fiscal year ending August 31, 1997 and in their discretion, to authorize the proxyholders to vote upon such other matters which may legally come before the meeting or any other adjournment thereof. At the meeting, the following persons were elected by the shareholders to serve as directors of the Fund: John Wm. Galbraith, Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Edith E. Holiday. 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, 1997. No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: 1. Election of five (5) Directors for the terms set forth below:
% OF % OF OUTSTANDING OUTSTANDING FOR SHARES WITHHELD SHARES ---------- ----------- -------- ----------- Term Expiring 2000: John Wm. Galbraith 13,272,241 65.11% 234,137 1.15% Betty P. Krahmer 13,273,739 65.12% 232,639 1.14% Gordon S. Macklin 13,275,448 65.13% 230,930 1.13% Fred R. Millsaps 13,275,652 65.13% 230,726 1.13% Term Expiring 1999: Edith E. Holiday 13,207,070 64.79% 299,308 1.47%
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent public accountants of the Fund for the fiscal year ending August 31, 1997:
% OF % OF % OF OUTSTANDING OUTSTANDING OUTSTANDING FOR SHARES AGAINST SHARES ABSTAIN SHARES ---------- ----------- ------- ----------- ------- ----------- 13,247,106 64.99% 95,891 0.47% 163,381 0.80%
17 18 TEMPLETON CHINA WORLD FUND, INC. - -------------------------------------------------------------------------------- DIVIDEND REINVESTMENT PLAN The Fund offers a Dividend Reinvestment Plan (the "Plan") with the following features: --Shareholders must affirmatively elect to participate in the Plan; Stock dividends will be reinvested automatically; Chemical Mellon Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pittsburgh, PA 15230, 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, participants 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 and 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. --The reinvestment of dividends and/or capital gains, even though no cash has been received, may be taxable. --The participant may withdraw from the Plan without penalty at any time by written notice to Chemical Mellon Securities Trust Company. Upon withdrawal, the participant will receive, without charge, stock certificates issued in the participant's name for all full shares; or, if the participant's wishes, Chemical Mellon Securities Trust Company will sell the participant's shares and send the proceeds, less a service fee of $5.00 and less brokerage commissions. --Whenever shares are purchased on the New York Stock Exchange, each participant will pay a pro rata portion of brokerage commissions. Brokerage commissions will be deducted from amounts to be invested. --The Plan does not offer a cash purchase plan option. 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 CH. For current information about the net asset value, call 1-800-357-0738. If any shareholder is not receiving copies of the Reports to the 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 Emerging Markets Income Fund, Inc., 700 Central Avenue, St. Petersburg, FL 33701. 18 19 FRANKLIN TEMPLETON GROUP OF FUNDS LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) 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. GLOBAL GROWTH INCOME FRANKLIN STATE-SPECIFIC FUNDS SEEKING Franklin Global Health Care Fund Franklin Adjustable Rate TAX-FREE INCOME Securities Fund Franklin Templeton Japan Fund Franklin Adjustable U.S. Alabama Templeton Developing Markets Trust Government Securities Fund Arizona* Templeton Foreign Fund Franklin's AGE High Income Fund Arkansas** Templeton Foreign Smaller Franklin Investment Companies Fund California* Grade Income Fund Templeton Global Infrastructure Fund Colorado Franklin Short-Intermediate U.S. Templeton Global Government Securities Fund Connecticut Opportunities Trust Franklin U.S. Government Florida* Templeton Global Real Estate Fund Securities Fund Georgia Templeton Global Smaller Franklin Money Fund Companies Fund Hawaii** Franklin Federal Money Fund Templeton Greater European Fund Indiana Templeton Growth Fund Kentucky FOR NON-U.S. INVESTORS: Templeton Latin America Fund Louisiana Franklin Tax-Advantaged High Yield Securities Fund Templeton Pacific Growth Fund Maryland Franklin Tax-Advantaged Templeton World Fund Massachusetts*** International Bond Fund Michigan* Franklin Tax-Advantaged U.S. GLOBAL GROWTH AND INCOME Minnesota*** Government Securities Fund Franklin Global Utilities Fund Missouri FOR CORPORATIONS: Franklin Templeton German New Jersey Franklin Corporate Qualified Government Bond Fund New York* Dividend Fund Franklin Templeton North Carolina Global Currency Fund Ohio*** Mutual European Fund FRANKLIN FUNDS SEEKING Oregon Templeton Global Bond Fund TAX-FREE INCOME Pennsylvania Templeton Growth and Income Fund Federal Intermediate-Term Tennessee** Tax-Free Income Fund Texas GLOBAL INCOME Federal Tax-Free Income Fund Virginia High Yield Tax-Free Income Fund Franklin Global Government Income Fund Washington** Insured Tax-Free Income Fund Franklin Templeton Hard Puerto Rico Tax-Free Income Fund VARIABLE ANNUITIES+ Currency Fund Tax-Exempt Money Fund Franklin Valuemark(R) Franklin Templeton High Income Currency Fund Franklin Templeton Valuemark Income Plus Templeton Americas (an immediate annuity) Government Securities Fund *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. FGF 02/97 GROWTH 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 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 20 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. [GRAPHIC] TEMPLETON CHINA WORLD FUND, INC. Semi-Annual Report February 28, 1997 [FRANKLIN TEMPLETON LOGO] -----END PRIVACY-ENHANCED MESSAGE-----