-----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, GN9mo7gIj5ehF/fOtNS/0Fjg4HUCj4i0tBJtXK4F44ZCw37Alblrdskg20tkP1SG EreM9RtO8nenduSx4Obcng== 0000950149-96-001730.txt : 19961106 0000950149-96-001730.hdr.sgml : 19961106 ACCESSION NUMBER: 0000950149-96-001730 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961105 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: 96654187 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 RPT 8/31/96 1 TEMPLETON CHINA WORLD FUND, INC. ANNUAL REPORT AUGUST 31, 1996 Templeton China World Fund, Inc. 700 Central Avenue St. Petersburg, Florida 33701-3628 Auditors McGladrey & Pullen, LLP 555 Fifth Avenue New York, New York 10017-2416 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] FRANKLIN TEMPLETON 2 TEMPLETON CHINA WORLD FUND [PHOTOGRAPH] 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 $9 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." October 15, 1996 Dear Shareholder: We are pleased to bring you the third annual report for the China World Fund, which covers the fiscal year ended August 31, 1996. Throughout the reporting period, stock prices of "China companies" were buffeted by the political turmoil typical of the region. In the spring, China's human rights record, abuse of intellectual property rights, and conditions for the renewal of its "most-favored-nation" trading status were subjects under discussion in the U.S. Congress. Although the Chinese government threatened military action against Taiwan, investors appeared encouraged by the fairness and openness of elections in Taiwan. 1 3 During this period, the Chinese government instituted an austerity program intended to slow the extraordinarily fast economic growth of 1993 and 1994, decrease the rate of inflation, and prevent speculative bubbles in commodity markets. By August 31, economic growth and inflation had been successfully reduced to more manageable levels, as gross domestic product declined from 11.8% in 1994 to an estimated annual rate under 9% in the first quarter of 1996, and inflation slowed from an annual rate of more than 25% in October 1994 to a rate of 8.3% for the twelve months ended July 31, 1996. When the Chinese government responded by cutting interest rates in May and again in August, many investors believed that more interest rate reductions would follow, and as a result, stock prices of many "China companies" moved higher. [GRAPH] TEMPLETON CHINA WORLD FUND
Geographic Distribution on 8/31/96 Based on Total Net Assets - ------------------------- Hong Kong . . . . . . . . . . . . . 68.8% China . . . . . . . . . . . . . . . 19.0% Taiwan . . . . . . . . . . . . . . . 2.0% Short-Term Obligations & Other Net Assets . . . . . . . . 10.2%
Within this environment, your Fund posted a one-year total return of 11.75% in market-price terms, as shown in the Performance Summary on page 5. Based on the change in actual net asset value, the total return was 14.44%. This compares with a 26% rise in Hong Kong's Hang Seng Index, a 32% increase in Taiwan's stock market, a 22% increase in China's Shenzhen "B" Share Index, and a 17% decrease in the Shanghai "B" Share Index for the same period. Although the Fund was outperformed by three of these averages, we believe this reflects the fact that our portfolio is made up of bargain stocks which were out of favor when we purchased them, some of which may have not yet regained favor in the market. On August 31, 1996, 68.8% of the Fund's total net assets were invested in Hong Kong, 19.0% in mainland China, 2.0% in Taiwan, and the remaining 10.2% was 2 4 held in cash and other liquid assets. Since we believed that Hong Kong-listed stocks were selling at bargain prices due to the political uncertainty surrounding Hong Kong's imminent handover to China, we increased our holdings during the period by 2.3% of total net assets. Two of our largest individual holdings continued to be 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 are generally optimistic about the financial markets in China, Hong Kong and Taiwan. We believe that the recent slowdown in China's inflation rate may lead to a further decline in interest rates there. Additionally, in our opinion, the concerns about Hong Kong's future are already reflected in equity prices, as indicated by the narrowing gap between bond yields in the U.S. and in Hong Kong. We believe we have been able to pick up numerous bargains in Hong Kong, and have a positive outlook for the Fund as the transfer of political power to the Chinese approaches. TEMPLETON CHINA WORLD FUND Top Ten Holdings as of 8/31/96 Based on Total Net Assets
% of Total Company, Industry, Country Net Assets - -------------------------- ---------- HSBC Holdings PLC Banking, Hong Kong 9.2% Cheung Kong Holdings Ltd. Multi-Industry, Hong Kong 8.1% New World Development Co. Ltd. Real Estate, Hong Kong 7.5% Sun Hung Kai Properties Ltd. Real Estate, Hong Kong 7.0% Hang Lung Development Co. Ltd. Real Estate, Hong Kong 5.6% Jardine Strategic Holdings Ltd. Multi-Industry, Hong Kong 2.2% Hopewell Holdings Ltd. Construction & Housing, Hong Kong 2.1% Dairy Farm International Holdings Ltd. Merchandising, Hong Kong 2.1% Hongkong Electric Holdings Ltd. Utilities - Electrical & Gas, Hong Kong 2.1% Goldlion Holdings Ltd. Textiles & Apparel, Hong Kong 1.8%
For a complete list of portfolio holdings, please see page 9 of this report. This discussion reflects the strategies we employed for the Fund during the past fiscal year, and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies and 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. 3 5 Of course, investing in emerging markets involves special considerations, which may include risks related to market and currency volatility, adverse social and political developments, and the relatively small size and lesser liquidity of these markets. These special risks and other considerations are discussed in the Fund's prospectus. 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 535% in the last 15 years, but has suffered six declines of more than 20% during that time.(1) Thank you for investing in the Templeton China World Fund. We appreciate your confidence and look forward to any comments you may have. (1) Source: Bloomberg. Based on quarterly percentage change over 15 years ended June 30, 1996. 4 6 PERFORMANCE SUMMARY In market-price terms, the Templeton China World Fund produced a total return of 11.75% for the one-year period ended August 31, 1996. Based on the change in actual net asset value (in contrast to market price), the Fund delivered a total return of 14.44% 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 87.5 cents ($0.875), from $10.50 per share on August 31, 1995 to $11.375 on August 31, 1996, while the net asset value increased by $1.32, from $12.07 to $13.39. Shareholders received combined distributions of 33.5 cents ($0.335) per share, including short-term capital gains of 1 cent ($0.01) and dividend income totaling 32.5 cents ($0.325). 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 8/31/96
Since Inception One-Year (9/9/93) Cumulative Total Return(1) Based on change in net asset value 14.44% 7.99% Based on change in market price 11.75% -13.88% Average Annual Total Return(2) Based on change in net asset value 14.44% 2.61% Based on change in market price 11.75% -4.89%
(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 calculations assume reinvestment of dividend and capital gains distributions, either at net asset value or at market price on the reinvestment date, in accordance with the dividend reinvestment plan. Past performance is not predictive of future results. 5 7 THE FOLLOWING LETTER WAS WRITTEN BY DR. MOBIUS AFTER A RECENT TRIP TO SHANGHAI. We arrived in Shanghai, late in the evening, after a short flight from Hong Kong. As we drove to our hotel I had a chance to reflect on how the city had changed since I first visited it in 1987. Ever since Shanghai was opened to foreign trade in 1842, it has been at the forefront of China's relations with the outside world. Evidence of this is the architecturally staggering Bund, a boulevard along the Huangpu River lined with 19th century European-style stone buildings. The Bund was home to the British, French and Americans until they were expelled by Chinese forces in 1927. Today, Shanghai is embracing westernism like no other part of China. It has become a city that does not sleep, with construction work on skyscrapers continuing throughout the night, particularly in the section across the river from Old Shanghai. The rattle and hum of bowling alleys can be heard in many places; American fast-food restaurants are almost everywhere; and old factories have been replaced by those employing the latest technology. However, the government's austerity program has affected corporate earnings, and rents have recently started to drop as the supply of new buildings has begun to exceed demand. In my opinion, the economy should probably improve if restrictions on credit are eased next year. The People's Bank of China (PBoC), which controls the price and supply of money, has already cut lending rates, and further cuts may take place. While in Shanghai, we visited many companies and saw the impact of the government's austerity measures at first hand. In the Pudong area, we inspected the Xingfu Motorcycle Plant, a producer of motorcycles distributed through independent dealers. Because bank credit is tight, the company had to extend credit lines to these dealers so that they could operate effectively. Designed by the Shanghai Design Institute, this gleaming factory resembles modern factories found elsewhere in the world, while reflecting the cosmopolitan feel of Shanghai. It uses German, Japanese and local machines and is jointly owned by a Thai company and the Shanghai Automotive Industry Corporation. Xingfu means "happiness" in 6 8 Chinese, and in my opinion, the owners of this new plant should be very happy. From the Xingfu Motorcycle Plant we found our way, with some difficulty, to the Gold Peak factory. Roads and factories have sprung up so quickly in the Pudong area that even taxi drivers often cannot find them. When we visited this factory many years ago, it was producing batteries for the cheap end of the market. Now, it produces high technology batteries for watches, calculators and other small electronic devices. Most of the workers are women, paid about RMB800 (US$100) per month plus an allowance for housing and for lunch. Clean and well-lit, the factory is owned by a Singapore-listed company whose parent company, Gold Peak Industries Ltd., is listed on the Hong Kong Stock Exchange. [GRAPHIC - MAP OF CHINA] Located at the center of the fastest growing region of the fastest growing country in the world, Shanghai is a powerhouse of the Chinese economy. In my opinion, it will eventually bring China to the forefront of the world economy. For this fact alone, companies based in Shanghai will demand our close attention for a long time to come.* Sincerely, J. MARK MOBIUS J. Mark Mobius, Ph.D. President Templeton China World Fund, Inc. * The letter reflects the strategies employed for the Fund during the past fiscal year and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies and evaluations, conclusions and decisions regarding portfolio holdings may change as new circumstances arise. 7 9 TEMPLETON CHINA WORLD FUND, INC. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
PERIOD FROM SEPTEMBER 9, 1993 YEAR ENDED AUGUST 31 (COMMENCEMENT OF ----------------------------------- OPERATIONS) TO 1996 1995 AUGUST 31, 1994 ----------------- --------------- ---------------- Net asset value, beginning of period $ 12.07 $ 14.92 $ 14.10 -------- -------- -------- Income from investment operations: Net investment income .27 .33 .16 Net realized and unrealized gain (loss) 1.39 (1.91) .79 -------- -------- -------- Total from investment operations 1.66 (1.58) .95 -------- -------- -------- Underwriting expenses deducted from capital -- -- (.07) Distributions: Dividends from net investment income (.33) (0.20) (.06) Distributions from net realized gains (.01) (1.07) -- -------- -------- -------- Total distributions (.34) (1.27) (.06) -------- -------- -------- Change in net asset value 1.32 (2.85) .82 -------- -------- -------- Net asset value, end of period $ 13.39 $ 12.07 $ 14.92 ======== ======== ======== TOTAL RETURN* Based on market value per share 11.75% (29.58)% 9.54% Based on net asset value per share 14.44% (11.13)% 6.18% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 272,996 $ 245,982 $297,835 Ratio of expenses to average net assets 1.65% 1.65% 1.84%** Ratio of net investment income to average net assets 2.14% 2.77% 1.09%** Portfolio turnover rate 14.47% 3.01% 81.81% Average commission rate paid (per share) $ .0025 -- --
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR. **ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 8 10 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, August 31, 1996
- ------------------------------------------------------------------------------------------------------------------------- INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 89.8% - ------------------------------------------------------------------------------------------------------------------------- APPLIANCES & HOUSEHOLD DURABLES: 4.5% Hualing Holdings Ltd. H.K. 3,534,500 $ 342,823 Semi-Tech (Global) Co. Ltd. H.K. 2,367,406 3,995,428 *Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 3,143,800 433,844 *Shanghai Shangling Electric Appliance, B Chn. 6,066,280 2,717,694 *Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 9,960,044 1,414,326 Shenzhen Huafa Electronics Co. Ltd., B Chn. 2,442,000 540,035 Shenzhen Konka Electronic Group Co. Ltd., B Chn. 651,000 614,588 Tsann Kuen Enterprise Co. Ltd., B Chn. 7,584,200 2,206,848 ------------ 12,265,586 - ------------------------------------------------------------------------------------------------------------------------- AUTOMOBILES: 1.9% Jardine International Motor Holdings Ltd. H.K. 3,252,000 4,226,654 Qing Ling Motors Co. Ltd., H Chn. 2,280,000 877,207 ------------ 5,103,861 - ------------------------------------------------------------------------------------------------------------------------- BANKING: 9.2% HSBC Holdings PLC H.K. 1,449,194 25,020,032 - ------------------------------------------------------------------------------------------------------------------------- BROADCASTING & PUBLISHING: 0.0% Leefung-Asco Printers Holdings Ltd. H.K. 1,127,000 80,162 - ------------------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & COMPONENTS: 2.4% China Southern Glass Co. Ltd., B Chn. 2,752,152 1,103,352 K Wah International Holdings Ltd. H.K. 15,755,348 3,280,454 *K Wah International Holdings Ltd., wts. H.K. 1,445,978 62,645 *Shanghai Yaohua Pilkington Glass, B Chn. 4,040,000 2,020,000 ------------ 6,466,451 - ------------------------------------------------------------------------------------------------------------------------- CHEMICALS: 3.1% Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 9,459,000 2,118,816 Shanghai Pechemical Co. Ltd., H Chn. 18,370,000 4,751,374 Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 5,088,720 1,513,619 ------------ 8,383,809 - ------------------------------------------------------------------------------------------------------------------------- CONSTRUCTION & HOUSING: 2.2% Hopewell Holdings Ltd. H.K. 11,065,579 5,903,073 *Road King Infrastructure Ltd. H.K. 13,000 11,432 Wai Kee Holdings Ltd. H.K. 170,000 39,793 ------------ 5,954,298 - ------------------------------------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS: 0.6% *China Treasure Telecomunications Holdings Ltd. H.K. 4,748,000 171,929 *China Treasure Telecomunications Holdings Ltd., wts. H.K. 214,000 2,712 *Great Wall Electronic International Ltd. H.K. 12,668,000 810,949
9 11 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, August 31, 1996 (cont.)
- ------------------------------------------------------------------------------------------------------------------------- INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS (cont.) *Shanghai Automation Instrumentation Co., B Chn. 782,345 $ 132,999 *Yageo Corp. Twn. 364,000 662,601 ------------ 1,781,190 - ------------------------------------------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS & INSTRUMENTS: 0.1% *S. Megga International Holdings Ltd. H.K. 8,508,000 269,571 - ------------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES: 1.6% JCG Holdings Ltd. H.K. 813,000 693,928 Min Xin Holdings H.K. 1,580,000 347,365 Peregrine Investments Holdings Ltd. H.K. 1,430,000 2,015,778 *Peregrine Investments Holdings Ltd., wts. H.K. 158,100 25,762 Sun Hung Kai & Co. Ltd. H.K. 4,318,000 1,326,253 ------------ 4,409,086 - ------------------------------------------------------------------------------------------------------------------------- FOOD & HOUSEHOLD PRODUCTS: 2.4% C.P. Pokphand Co. Ltd. H.K. 23,000 7,808 *Fairwood Holdings Ltd. H.K. 4,530,000 322,211 NG Fund Hong Ltd. H.K. 2,784,000 1,350,145 *President Enterprises Corp. Twn. 3,146,832 4,765,931 Shanghai New Asia Group Co. Ltd., B Chn. 384,000 186,624 ------------ 6,632,719 - ------------------------------------------------------------------------------------------------------------------------- HEALTH & PERSONAL CARE: 0.8% Zhuhai Sez Lizhu Pharmaceutical Group Inc., B Chn. 5,977,600 2,125,884 - ------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL COMPONENTS: 1.2% Shanghai Refrigerator Compressor Co. Ltd., B Chn. 1,649,880 874,436 Shanghai Rubber Belt Co. Ltd., B Chn. 4,170,270 658,903 Shanghai Tyre & Rubber Co. Ltd., B Chn. 6,730,990 1,682,748 ------------ 3,216,087 - ------------------------------------------------------------------------------------------------------------------------- LEISURE & TOURISM: 0.3% *Glynhill International Ltd. H.K. 1,950,000 70,611 Shanghai Jin Jiang Tower Co. Ltd., B Chn. 2,848,947 649,560 ------------ 720,171 - ------------------------------------------------------------------------------------------------------------------------- MACHINERY & ENGINEERING: 1.9% *China Textile Machinery Co. Ltd., B Chn. 13,612,200 1,633,464 Guangzhou Shipyard International Co. Ltd., H Chn. 2,644,000 632,577 Northeast Electric Transmission & Transformation H.K. 3,980,000 700,006 *Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 11,745,261 1,244,998
10 12 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, August 31, 1996 (cont.)
- ------------------------------------------------------------------------------------------------------------------------- INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------------------------------------------------- MACHINERY & ENGINEERING (cont.) *Shanghai Industrial Sewing Machine Corp. Chn. 2,155,100 $ 273,698 *Shanghai Steel Tube Co. Ltd., B Chn. 5,263,500 684,255 ------------ 5,168,998 - ------------------------------------------------------------------------------------------------------------------------- MERCHANDISING: 3.8% Dairy Farm International Holdings Ltd. H.K. 7,201,307 5,689,033 Dickson Concepts (International) Ltd. H.K. 1,924,000 2,338,907 Fortei Holdings Ltd. H.K. 9,582,000 780,687 Joyce Boutique Holdings Ltd. H.K. 669,000 177,362 *Linkful International Holdings Ltd. H.K. 1,700,000 62,658 Wo Kee Hong Holdings Ltd. H.K. 9,856,000 943,219 *Wo Kee Hong Holdings Ltd., wts. H.K. 1,971,200 40,788 *Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 307,321 ------------ 10,339,975 - -------------------------------------------------------------------------------------------------------------------------- METALS & MINING: 0.2% Maanshan Iron & Steel Co. Ltd., H Chn. 3,524,000 638,034 - ------------------------------------------------------------------------------------------------------------------------- MISCELLANEOUS MATERIALS & COMMODITIES: 0.0% Luoyang Glass Co. Ltd., H Chn. 500,000 86,647 - ------------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY: 16.8% Cheung Kong Holdings Ltd. H.K. 3,168,000 22,226,188 *Cheung Kong Infrastructure Hldgs. Ltd. H.K. 676,000 1,105,904 CNT Group Ltd. H.K. 16,802,770 1,499,374 Jardine Matheson Holdings Ltd. H.K. 605,971 3,817,617 Jardine Strategic Holdings Ltd. H.K. 1,834,000 5,868,800 *Jardine Strategic Holdings Ltd., wts. H.K. 167,000 45,925 Lai Sun Garment International Ltd. H.K. 2,611,000 3,359,774 Shenzhen Gintian Industrial Co. Ltd., B Chn. 2,920,416 819,567 *Shenzhen Tellus Machinery & Electronics Co. Ltd., B Chn. 3,036,720 640,136 Stelux International Holdings Ltd. H.K. 8,475,084 1,753,655 Swire Pacific Ltd., B H.K. 596,500 833,133 Wheelock & Co. Ltd. H.K. 1,929,000 3,891,678 ------------ 45,861,751 - ------------------------------------------------------------------------------------------------------------------------- REAL ESTATE: 24.2% China Overseas Land & Investment Ltd. H.K. 6,048,000 1,896,722 Hang Lung Development Co. Ltd. H.K. 8,029,000 15,159,832 Lai Sun Development Co. Ltd. H.K. 19,850,000 4,158,681 *Lai Sun Development Co. Ltd., wts. H.K. 2,183,800 186,396 New World Development Co. Ltd. H.K. 4,241,700 20,570,805 Shanghai Jinqiao Export Processing Zone Development, B Chn. 4,421,560 1,680,193
11 13 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, August 31, 1996 (cont.)
- ------------------------------------------------------------------------------------------------------------------------- INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------------------------------------------------- REAL ESTATE (cont.) Shanghai Lujiaxui Finance & Trade Zone Development Stock Co. Ltd, B Chn. 866,000 $ 798,452 Shanghai Waigaoqiao Free Trade Zone Development. Co., B Chn. 616,000 234,080 Shenzhen Properties & Resources Development (Group) Ltd., B Chn. 5,282,860 1,612,357 Sun Hung Kai Properties Ltd. H.K. 1,955,100 19,089,564 Tian An China Investments Co. Ltd. H.K. 6,869,750 737,393 ------------ 66,124,475 - ------------------------------------------------------------------------------------------------------------------------- RECREATION & OTHER CONSUMER GOODS: 4.0% +China First Pencil Co. Ltd., B Chn. 11,246,884 3,396,559 *Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 5,382,000 146,165 KTP Holdings Ltd. H.K. 2,122,000 65,862 Phoenix Co. Ltd. Chn. 4,284,280 548,388 *Shanghai Forever Bicycle Co. Ltd., B Chn. 5,548,400 676,905 *Shanghai Wingsung Co. Ltd., B Chn. 4,410,710 820,392 Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 7,520,400 1,721,449 Yue Yuen Industrial (Holdings) Ltd. H.K. 12,516,000 3,601,435 ------------ 10,977,155 - ------------------------------------------------------------------------------------------------------------------------- TEXTILES & APPAREL: 2.7% Goldlion Holdings Ltd. H.K. 5,547,000 4,985,664 *Laws International Holdings Ltd. H.K. 6,053,000 962,844 Shanghai Lian Hua Fibre Corp., B Chn. 4,999,560 574,949 *Top Form International Ltd. H.K. 1,252,000 44,526 Tungtex (Holdings) Co. Ltd. H.K. 964,000 88,515 Victor Onward Textile Industrial Co. Ltd., B Chn. 3,579,180 786,887 ------------ 7,443,385 - ------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION: 2.8% Chiwan Wharf Holdings Ltd., B Chn. 3,270,000 1,480,116 Cross Harbour Tunnel Co. Ltd. H.K. 1,170,000 2,564,694 *Guangshen Railway Co. Ltd., ADR Chn. 80,000 1,530,000 IMC Holdings Ltd. H.K. 2,464,000 1,402,082 Orient Overseas International Ltd. H.K. 12,000 8,846 Shanghai Dazhong Taxi Shareholding Co. Ltd., B Chn. 900,000 707,400 ------------ 7,693,138 - -------------------------------------------------------------------------------------------------------------------------
12 14 TEMPLETON CHINA WORLD FUND, INC. Investment Portfolio, August 31, 1996 (cont.) - --------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) - ------------------------------------------------------------------------------------------------------------------------- UTILITIES ELECTRICAL & GAS: 2.8% Hongkong Electric Holdings Ltd. H.K. 1,885,000 $ 5,631,232 Shandong Huaneng Power Chn. 132,000 1,237,500 Wing Shan International Ltd. H.K. 5,544,000 716,974 ------------ 7,585,706 - ------------------------------------------------------------------------------------------------------------------------- WHOLESALE & INTERNATIONAL TRADE: 0.3% *East Asiatic Co. (Hong Kong) Ltd. H.K. 6,760,000 830,520 ------------ TOTAL COMMON STOCKS ($267,629,806) 245,178,691 - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL IN LOCAL CURRENCY** - ------------------------------------------------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS: 9.5% (cost $25,791,810) - ------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bills, 4.925% to 5.13% with maturities to 11/21/96 U.S. 25,980,000 25,795,752 - ------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS: 99.3% (cost $293,421,616) 270,974,443 OTHER ASSETS, LESS LIABILITIES: 0.7% 2,021,717 ------------ TOTAL NET ASSETS: 100.0% $272,996,160 ============
*NON-INCOME PRODUCING. **CURRENCY OF COUNTRY INDICATED. +SEE NOTE 5. SEE NOTES TO FINANCIAL STATEMENTS. 13 15 TEMPLETON CHINA WORLD FUND, INC. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES August 31, 1996 Assets: Investments in securities, at value $270,974,443 (identified cost $293,421,616) Cash--foreign currencies 2,167,291 Receivables: Dividends 492,681 Investment securities sold 76,199 Unamortized organization costs 9,698 ------------ Total assets 273,720,312 ------------ Liabilities: Payable for investment securities purchased 190,394 Accrued expenses 533,758 ------------ Total liabilities 724,152 ------------ Net assets, at value $272,996,160 ============ Net assets consist of: Undistributed net investment income $ 3,748,140 Net unrealized depreciation (22,469,667) Accumulated net realized gain 6,003,963 Net capital paid in on shares of capital stock 285,713,724 ------------ Net assets, at value $272,996,160 ============ Shares outstanding 20,383,771 ============ Net asset value per share ($272,996,160 / 20,383,771) $ 13.39 ------------ ------------
STATEMENT OF OPERATIONS for the year ended August 31, 1996 Investment income: (net of $89,192 foreign taxes withheld) Dividends $ 8,614,550 Interest 1,187,185 ----------- Total income $ 9,801,735 Expenses: Management fees (Note 3) 3,366,950 Administrative fees (Note 3) 517,994 Custodian fees 104,020 Transfer agent fees 124,543 Reports to shareholders 19,446 Audit fees 37,646 Directors' fees and expenses 35,607 Registration and filing fees 32,340 Legal fees (Note 3) 3,962 Amortization of organization costs 4,758 Other 13,764 ----------- Total expenses 4,261,030 ----------- Net investment income 5,540,705 Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 6,809,141 Foreign currency transactions (427,904) ----------- 6,381,237 ----------- Net unrealized appreciation on: Investments 21,511,328 Foreign currency translation of other assets and liabilities 408,973 ----------- 21,920,301 ----------- Net realized and unrealized gain 28,301,538 ----------- Net increase in net assets resulting from operations $33,842,243 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 14 16 TEMPLETON CHINA WORLD FUND, INC. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS for the years ended August 31, 1996 and 1995
1996 1995 ----------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 5,540,705 $ 6,822,611 Net realized gain on investment and foreign currency transactions 6,381,237 75,079 Net unrealized appreciation (depreciation) 21,920,301 (39,053,880) ------------ ------------ Net increase (decrease) in net assets resulting from operations 33,842,243 (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 27,013,679 (51,852,058) Net assets: Beginning of year 245,982,481 297,834,539 ------------ ------------ End of year $ 272,996,160 $ 245,982,481 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 15 17 TEMPLETON CHINA WORLD FUND, INC. Notes to Financial Statements - -------------------------------------------------------------------------------- 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 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 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. 16 18 TEMPLETON CHINA WORLD FUND, INC. Notes to Financial Statements (cont.) - -------------------------------------------------------------------------------- 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK As of August 31, 1996, there were 100,000,000 shares of capital stock authorized ($0.01 par value). During the year ended August 31, 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, 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 $3,962 for the year ended August 31, 1996. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the year ended August 31, 1996 aggregated $35,258,168 and $33,699,098, respectively. The cost of securities for federal income tax purposes is $293,512,357. Realized gains and losses are reported on an identified cost basis. At August 31, 1996, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income taxes purposes, was as follows: Unrealized appreciation $ 39,328,570 Unrealized depreciation (61,866,484) ------------ Net unrealized depreciation $(22,537,914) ============
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 August 31, 1996 amounted to $3,396,559. For the year ended August 31, 1996, dividend income from affiliated company was $270,130 and net realized gains from disposition of affiliated companies were $142. 17 19 TEMPLETON CHINA WORLD FUND, INC. Independent Auditor's Report - -------------------------------------------------------------------------------- The Board of Directors and Shareholders Templeton China World Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Templeton China World Fund, Inc., as of August 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated in the accompanying financial statements. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 1996 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Templeton China World Fund, Inc. as of August 31, 1996, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. /s/McGladrey & Pullen, LLP [McGladrey & Pullen, LLP] New York, New York September 27, 1996 18 20 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 share and send the proceeds, less a service fee of $5.00 and less brokerage commissions. --Whenever share are purchased on the New York Stock Exchange or otherwise on the open market, 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 TCH. For current information about the net asset value, call 1-800-357-0738. If any shareholder is not receiving copies of the Reports to Shareholders because shares are registered in a broker's name or in a custodian's name, he or she can write and request that his or her name be added to the Fund's mailing list, by writing Templeton China World Fund, Inc., 700 Central Avenue, St. Petersburg, FL 33701. 19 21 NOTES 22 LITERATURE REQUEST - -------------------------------------------------------------------------------- For a free brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Fund Information, toll free, at 1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you invest or send money. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON GROUP GLOBAL GROWTH GLOBAL INCOME INCOME FRANKLIN STATE-SPECIFIC FUNDS SEEKING Franklin Global Health Franklin Global Government Franklin Adjustable Rate TAX-FREE INCOME Care Fund Income Fund Securities Fund Alabama Franklin Templeton Franklin Templeton Hard Franklin Adjustable U.S. Arizona* Japan Fund Currency Fun Government Securities Fund Arkansas** Templeton Developing Franklin Templeton High Franklin's AGE High California* Markets Trust Income Currency Fund Income Fund Colorado Templeton Foreign Fund Templeton Americas Franklin Investment Grade Connecticut Templeton Foreign Smaller Government Securities Fund Income Fund Florida* Companies Fund Franklin Short-Intermediate U.S. Georgia Templeton Global GROWTH Government Securities Fund Hawaii** Infrastructure Fund Franklin Blue Chip Fund Franklin U.S. Government Indiana Templeton Global Franklin California Growth Fund Securities Fund Kentucky Opportunities Trust Franklin DynaTech Fund Franklin Money Fund Lousiana Templeton Global Franklin Equity Fund Franklin Federal Money Fund Maryland Real Estate Fund Franklin Gold Fund Massachesetts*** Templeton Global Smaller Franklin Growth Fund FOR NON-U.S. INVESTORS: Michigan* Companies Fund Franklin MidCap Growth Fund Franklin Tax-Advantaged Minnesota*** Templeton Greater Franklin Small Cap Growth Fund High Yield Securities Fund Missouri European Fund Franklin Tax-Advantaged New Jersey Templeton Growth Fund GROWTH AND INCOME International Bond Fund New York* Templeton Latin America Franklin Asset Allocation Fund Franklin Tax-Advantaged U.S. North Carolina Fund Franklin Balance Sheet Government Securities Fund Ohio*** Templeton Pacific Investment Fund Oregon Growth Fund Franklin Convertible FOR CORPORATIONS: Pennsylvania Templeton World Fund Securities Fund Franklin Corporate Qualified Tennessee** Franklin Equity Income Fund Dividend Fund Texas GLOBAL GROWTH AND INCOME Franklin Income Fund Virginia** Franklin Global Utilities Fund Franklin MicroCap Value Fund FRANKLIN FUNDS SEEKING Washington** Franklin Templeton German Franklin Natural Resources Fund TAX-FREE INCOME Government Bond Fund Franklin Real Estate Federal Intermediate-Term VARIABLE ANNUTIES Franklin Templeton Securities Fund Tax-Free Income Fund Franklin Valuemark(SM) Global Currency Fund Franklin Rising Dividends Fund Federal Tax-Free Income Fund Franklin Templeton Templeton Global Bond Fund Franklin Strategic Income Fund High Yield Tax-Free Valuemark Income Plus Templeton Growth and Franklin Utilities Fund Income Fund (an immediate annuity) Income Fund Franklin Value Fund Insured Tax-Free Income Fund Templeton American Trust, Inc. 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*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. -----END PRIVACY-ENHANCED MESSAGE-----