<PAGE>
Templeton
China World Fund, Inc.
- --------------------------------------------------------------------------------
Your Fund's Objective
The Templeton China World Fund, Inc. seeks long-term capital appreciation
through equity investments in "China companies."
- --------------------------------------------------------------------------------
July 17, 1995
Dear Shareholder:
This update for the quarter ended May 31, 1995, includes your Fund's long-term
performance, a listing of its investments, and a brief discussion by Dr. Mark
Mobius on a topic of current interest. Please keep in mind that this summary is
one of four reports you will receive during the Fund's fiscal year.
Next quarter, you will receive the annual report, which is more comprehensive.
It will include a discussion of the financial markets and a summary of the
Fund's performance and investment direction during the fiscal year. The
portfolio manager's outlook and the Fund's financial statements and investment
portfolio will also be included.
If you have any questions regarding this report, you may call the Franklin
Templeton Fund Information Department, toll free, at 1-800/342-5236.
- --------------------------------------------------------------------------------
Templeton China World Fund
Cumulative Total Returns*
Periods ended May 31, 1995
Since
Inception
1-Year (9/8/93)
Based on change
in net asset value -9.94% -8.48%
Based on change
in market price -18.98% -11.93%
*Cumulative total return represents the change in value of an investment over
the specified periods. These calculations assume reinvestment of all
distributions and capital gains at net asset value or at market price on the
reinvestment date. Past performance is not predictive of future results.
Investing in geographically concentrated developing markets involves special
considerations, which may include increased risks related to market and currency
volatility, adverse social 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 1000% in the last 15
years, but has suffered nine declines of more than 20% during that time.
- --------------------------------------------------------------------------------
1
<PAGE>
A Closer Look at China
by Dr. Mark Mobius
It's hard to argue with Deng Xiaoping's overall economic record. During his time
in power, he's opened his country's doors to the world, and the world has
responded with foreign investment at record levels. In the process, he has paved
the way for the likely emergence of a 21st Century economic giant. Today, the
ultimate architect of all this progress sits in Beijing, an ailing 90 year-old
man widely believed to be in his final days. Although the political succession
issue has not been clearly defined, we can make some educated guesses regarding
what can be expected in the near term. One thing is clear: It may be extremely
difficult for China to sink back into a Communist centralist state. The
capitalist, entrepreneurial cat has been let out of the bag and it will probably
be impossible to get it back in. Despite the astounding growth of recent years,
I believe that China has only begun to scratch the surface of its economic
potential.
I can well remember my early years in the Far East, when China was cut off from
the rest of the world, keeping itself on the sidelines while Japan, Hong Kong,
Singapore, Taiwan, Korea and the other Pacific Rim economies were starting their
rapid economic ascents. When Mao died in 1976, it still had virtually no contact
with the international business community. Even after Deng began his market-
oriented reforms in 1978, it took several years for the world to notice an
across-the-board impact. But once Beijing began to unleash, rather than
suppress, the legendary natural entrepreneurship of its people, Gross National
Product (GNP) growth skyrocketed and began to average two-digit numbers, the
highest of all major countries in the world. Imagine a situation where people
talk about the economy "slowing down" when it is growing by 10.5% a year! That's
actually the case in China so far this year, where current growth has dipped a
bit from 12.8% in 1992, 13.4% in 1993 and 11.8% in 1994 -- figures which were
probably so high as to be unsustainable in the first place.
Deng's policies have made China the developing world's single largest recipient
of direct foreign investment, with a total of $90 billion attracted over the
last decade. Although the country was doing well in this regard prior to 1992,
these invest-
2
<PAGE>
[MAP OF CHINA APPEARS HERE]
ments rose appreciably that year, as the economic fallout from the 1989
Tienanmen Square massacres finally subsided and Deng gave his blessing to
Chinese business. Direct foreign investment in China -- and by that I mean
utilized, not just pledged -- rose from $4.4 billion to $11.2 billion between
1991 and 1992, then to $25.8 billion in 1993. 1994's figure was an astounding
$28.8 billion, which means China received about half of the total volume of
fixed investment that all private investors put into factories, machinery, and
other industrial needs in all the emerging markets of the world. Add to this the
approximately $2.5 billion in equity that Chinese companies raised
internationally from private portfolio investors through placement of shares on
the B (Shanghai and Shenzhen), H (Hong Kong) and N (New York) exchanges, and
China's overall 1994 foreign investment total reaches $31.3 billion. That's
larger than the entire GDPs of some developing nations.
Although some of that external capital (we don't know exactly how much) was
actually domestic Chinese money being recycled through Hong Kong for tax
reasons, these are impressive numbers by any standard. And they may be just the
tip of the iceberg, considering China's market of 1.2 billion people, natural
resource base, strong educational
3
<PAGE>
traditions, rising consumer culture, rapidly growing technological
sophistication, natural links with the influential Chinese community in the rest
of Asia, and the unleashing of a liberal, entrepreneurial wave after so many
years of economic oppression and central planning.
Despite the exciting economic environment of the first half of the 1990s, China
still has not made many of the fundamental reforms that other emerging markets
have adopted. That's why, given the uncertainty of what form of political
leadership will follow Deng, and what its economic policies will be, the coming
months are so important.
What are the big differences between China and other emerging markets? For one
thing, the central bank has no autonomy. It is firmly under the aegis of the
ruling State Council, and thus does not have the independence it needs to set a
non-political monetary policy. Like almost everything else of importance in the
Chinese economy, commercial banking remains in state hands and thus in a state
of extreme inefficiency with loans seemingly made on the basis of political
rather than commercial considerations. The People's Construction Bank of China,
the Agricultural Bank of China, the Bank of China, and the Industrial and
Commercial Bank of China, four specialized governmental lenders, dominate the
national financial system and are often subject to political considerations.
In many other developing countries, privately owned banks are among the key blue
chips listed on the local exchanges and appear in our portfolios, but this is
not yet possible in China. Although Beijing took some initial steps last year
towards making the big banks operate on a more commercial basis, it will
probably take several years before the impact of these reforms is felt. In the
meantime, we have to invest in China without the benefit of a fully convertible
currency,
4
<PAGE>
something that so many other emerging markets in Asia, Latin America and
elsewhere have wisely adopted in recent years.
A broader and more aggressive privatization program is another important
ingredient I find missing in China. Although the role of the local, private
sector has risen considerably in recent years, the big, state-owned enterprises
still account for 70% of all fixed-capital investment in China and employ nearly
half of the industrial labor force. Vice-Premier Zhu Rongji, the top reformer in
the government, has said that 40% of the enterprises lost money last year, which
means the big banks that lend them money must be feeling the impact. If this is
the case, I wouldn't be surprised if the Chinese learn something from the recent
experience of Russia, where we saw such a serious problem when people finally
take note of the uncollectible debts that these big behemoths owe each other.
At this time, government entities or former government entities are practically
the only listed Chinese equities foreigners can buy. Although many of these
companies have first-class products and impressive management, experience in
other parts of the world has shown us that privatization is inevitable. It's
difficult, however, to imagine how complex a task this would be in the world's
most populous country. Government enterprises play an important social welfare
role in China, giving large numbers of employees housing, health care and steady
jobs even when this may not be economically viable. Reforming these enterprises
would involve increased urban unemployment. For now, the government seems
willing to accept high inflation as the cost of not incurring the political
consequences of such action. But time may be running out.
Acceptance into the new World Trade Organization (WTO) would also tend to be a
big plus for China's reformers and companies since it would lower trade
5
<PAGE>
barriers for both imports and exports and apply new pressure for
competitiveness. When China was allowed to join the World Bank and the
International Monetary Fund (IMF) in 1980, those multilateral institutions
gained a vital tool for influencing the reform process. The WTO could play a
similar role in the late 1990s and beyond -- especially now that the U.S.
appears to be willing to relax its long-standing objections on this issue so
long as China keeps improving its record on the vital issue of intellectual
property rights protection.
These are just some of the crucial decision areas facing China at a time of
impending leadership change. If its new leaders keep up or accelerate the
momentum already established, China's economic picture could improve
substantially. Although no one can know for sure of what will happen, we are
excited about investment opportunities there, and will continue to apply our
disciplined, value-oriented selection process in whatever new environment
emerges in our efforts to seek the best possible results for our shareholders.
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
Templeton China World Fund, Inc.
6
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, May 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
COMMON STOCKS 83.8%
- -------------------------------------------------------------------------------------------------
Appliances & Household Durables: 2.5%
Semi-Tech (Global) Co., Ltd. H.K. 2,024,993 $ 3,246,146
Shanghai Narcissus Electric Appliances Co. Ltd., B Chn. 1,070,000 278,200
Shanghai Vacuum Electron Devices Co. Ltd., B Chn. 8,875,586 1,810,619
Shenzhen Huafa Electronics Co. Ltd., B Chn. 1,728,000 329,502
Shenzhen Konka Electronic Group Co. Ltd., B Chn. 651,000 319,807
------------
5,984,274
- -------------------------------------------------------------------------------------------------
Automobiles: 3.1%
Jardine International Motor Holdings Ltd. H.K. 3,704,000 3,782,865
President Enterprises Corp. Twn. 2,017,200 3,580,735
------------
7,363,600
- -------------------------------------------------------------------------------------------------
Banking: 7.8%
HSBC Holdings PLC H.K. 1,341,767 17,744,792
JCG Holdings Ltd. H.K. 1,194,000 872,119
------------
18,616,911
- -------------------------------------------------------------------------------------------------
Broadcasting & Publishing: 0.1%
Leefung-Asco Printers Holdings Ltd. H.K. 1,071,000 171,686
- -------------------------------------------------------------------------------------------------
Chemicals: 3.2%
Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 8,151,000 1,891,031
Shanghai Pechemical Co. Ltd., H Chn. 7,500,000 2,496,671
Shenzhen Petrochemical (Group) Shareholding Co. Ltd., B Chn. 4,240,600 1,233,482
Zhuhai Sez Lizhu Pharmaceutical, B Chn. 4,309,600 2,061,396
------------
7,682,580
- -------------------------------------------------------------------------------------------------
Construction & Housing: 3.1%
CTCI Corp. Twn. 600 1,232
Hopewell Holdings Ltd. H.K. 2,947,000 2,495,424
K-Wah International Holdings Ltd. H.K. 14,459,789 2,299,270
Shanghai Yaohua Pilkington Glass, B Chn. 2,670,000 2,616,600
Wai Kee Holdings Ltd. H.K. 386,000 68,364
------------
7,480,890
- -------------------------------------------------------------------------------------------------
Electrical & Electronics: 1.5%
China Treasure Telecomunications Holdings Ltd. H.K. 2,000,000 104,715
Gold Peak Industries (Holdings) Ltd. H.K. 1,812,000 773,028
Great Wall Electronic International Ltd. H.K. 12,668,000 949,858
Tsann Kuen (China) Enterprise Co. Ltd., B Chn. 5,834,000 1,715,815
------------
3,543,416
</TABLE>
7
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, May 31, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- --------------------------------------------------------------------------------------------
Electronic Components & Instruments: 0.2%
S. Megga International Holdings Ltd. H.K. 8,508,000 $ 483,953
- --------------------------------------------------------------------------------------------
Financial Services: 1.7%
Min Xin Holdings H.K. 1,000,000 243,042
Peregrine Investments Holdings Ltd. H.K. 1,581,000 2,002,999
Sun Hung Kai & Co. Ltd. H.K. 4,318,000 1,786,304
------------
4,032,345
- --------------------------------------------------------------------------------------------
Food & Household Products: 3.7%
C.P. Pokphand Co. Ltd. H.K. 10,234,000 3,638,320
Dairy Farm International Holdings Ltd. H.K. 4,193,425 4,151,491
Fairway Holdings Ltd. H.K. 4,530,000 445,076
Hualing Holdings Ltd. H.K. 1,053,500 157,985
Vitasoy International Holdings Ltd. H.K. 1,400,000 552,015
------------
8,944,887
- --------------------------------------------------------------------------------------------
Health & Personal Care: 0.1%
China Pharmaceutical Enterprise & Investment Corp. H.K. 1,000,000 107,300
- --------------------------------------------------------------------------------------------
Industrial Components: 0.8%
Shanghai Rubber Belt Co. Ltd., B Chn. 4,170,270 483,751
Shanghai Tyre & Rubber Co. Ltd., B Chn. 4,611,100 1,383,330
------------
1,867,081
- --------------------------------------------------------------------------------------------
Leisure & Tourism: 0.2%
Shanghai Jin Jiang Tower Co. Ltd., B Chn. 1,322,952 447,158
- --------------------------------------------------------------------------------------------
Machinery & Engineering: 2.1%
China Textile Machinery Co. Ltd., B Chn. 13,200,200 1,755,627
Guangzhou Shipyard International Co. Ltd., H Chn. 1,204,000 517,536
Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 7,434,100 1,263,797
Shanghai Industrial Sewing Machine Corp. Chn. 2,155,100 443,951
Shanghai Refrigerator Compressor Company., B Chn. 432,900 151,515
Shanghai Steel Tube Co. Ltd., B Chn. 5,263,500 894,795
------------
5,027,221
- --------------------------------------------------------------------------------------------
Merchandising: 2.8%
Dickson Concepts (International) Ltd. H.K. 2,689,000 1,520,869
Fortei Holdings Ltd. H.K. 9,582,000 569,819
Joyce Boutique Holdings Ltd. H.K. 2,896,000 651,434
Le Saunda Holdings Ltd. H.K. 1,776,000 123,982
Li & Fung Ltd. H.K. 1,826,000 1,439,970
</TABLE>
8
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, May 31, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Merchandising (cont.)
Linkful International Holdings
Ltd. H.K. 1,700,000 $ 112,084
Wo Kee Hong (Holdings) Ltd. H.K. 6,826,000 1,553,108
Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 676,752
------------
6,648,018
- -------------------------------------------------------------------------------
Multi-Industry: 15.5%
CNT Group Ltd. H.K. 16,342,000 919,004
Cheung Kong Holdings Ltd. H.K. 3,468,000 17,081,535
China Southern Glass Co. Ltd., B Chn. 480,800 294,001
Jardine Matheson Holdings Ltd. H.K. 661,803 5,195,154
Jardine Strategic Holdings Ltd. H.K. 1,503,000 5,260,500
Jardine Strategic Holdings Ltd.,
wts. H.K. 167,000 84,335
Lai Sun Garment International
Ltd. H.K. 1,907,000 2,046,217
Shenzhen Gintian Industrial Co.
Ltd., B Chn. 1,852,067 634,491
Shenzhen Tellus Machinery &
Electronics Co. Ltd., B Chn. 2,455,200 599,890
Stelux International Holdings
Ltd. H.K. 8,475,084 2,328,229
Swire Pacific Ltd., B H.K. 465,000 565,072
Wheelock & Co. Ltd. H.K. 1,220,000 2,160,744
------------
37,169,172
- -------------------------------------------------------------------------------
Real Estate: 25.3%
China Overseas Land & Investment
Ltd. H.K. 6,048,000 1,172,805
Hang Lung Development Co. Ltd. H.K. 8,729,000 14,105,787
Hang Lung Development Co. Ltd.,
wts. H.K. 872,900 138,801
Lai Sun Development Co. Ltd. H.K. 21,838,000 2,653,772
New World Development Co. Ltd. H.K. 5,509,414 17,165,059
Prince Housing Development Corp. Twn. 1,986,000 1,622,904
Shanghai Jinqiao Export
Processing Zone Development, B Chn. 4,421,560 2,299,211
Shanghai Lujiaxui Finance & Trade
Zone Development Co., B Chn. 894,000 645,468
Shanghai Outer Gaoqiao Free Trade
Zone Develop. Co., B Chn. 616,000 294,448
Shenzhen Properties & Resources
Development (Group)
Ltd., B Chn. 4,366,000 1,411,064
Shenzhen Vanke Co. Ltd., B Chn. 1,935,675 675,646
Sun Hung Kai Properties Ltd. H.K. 2,395,100 17,339,418
Tian An China Investments Co.
Ltd. H.K. 6,869,750 1,083,487
Tian An China Investments Co.
Ltd., wts. H.K. 82,350 106
------------
60,607,976
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 3.9%
China First Pencil Co. Ltd., B Chn. 10,261,440 2,544,837
Fu Hui Jewellery Co. (HK) Ltd. H.K. 5,382,000 271,351
</TABLE>
9
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, May 31, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods (cont.)
Shanghai Forever Bicycle Co.
Ltd., B Chn. 5,726,000 $ 841,722
Shanghai Phoenix Bicycle Co.
Ltd., B Chn. 2,411,000 556,941
Shanghai Wingsung Stationery Co.
Ltd., B Chn. 3,835,400 820,776
Shenzhen China Bicycles Co.
(Holdings) Ltd., B Chn. 5,827,000 1,468,935
Yue Yuen Industrial (Holdings)
Ltd. H.K. 12,346,000 2,936,750
------------
9,441,312
- -------------------------------------------------------------------------------
Telecommunications: 0.1%
Shanghai Posts &
Telecommunications Equipment Co.,
B Chn. 50,000 29,500
- -------------------------------------------------------------------------------
Textiles & Apparel: 2.4%
Goldlion Holdings Ltd. H.K. 9,210,000 2,827,783
Laws International Holdings Ltd. H.K. 3,332,000 577,208
Shanghai Lian Hua Fibre Corp., B Chn. 4,166,300 1,333,216
Top Form International Ltd. H.K. 1,252,000 103,587
Tungtex Holdings Co. Ltd. H.K. 964,000 168,242
Victor Onward Textile Industrial
Co. Ltd., B Chn. 3,253,800 681,442
------------
5,691,478
- -------------------------------------------------------------------------------
Transportation: 1.8%
Chiwan Wharf Holdings Ltd., B Chn. 1,470,000 703,140
Cross Harbour Tunnel Co. Ltd. H.K. 973,000 1,911,962
IMC Holdings Ltd. H.K. 2,435,000 1,747,088
------------
4,362,190
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 1.6%
Hongkong Electric Holdings Ltd. H.K. 642,000 2,282,394
Shandong Huaneng Power Chn. 132,000 973,500
Wing Shan International Ltd. H.K. 4,474,000 584,171
------------
3,840,065
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.3%
East Asiatic Co. (Hong Kong) Ltd. H.K. 6,170,000 829,548
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS: ($250,343,771) 200,372,561
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, May 31, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
INDUSTRY ISSUE COUNTRY AMOUNT* VALUE
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM OBLIGATIONS: 10.2% (cost
$24,438,927)
- ---------------------------------------------------------------------------
U.S. Treasury Bills, 5.46% to
5.65% with maturities
to 7/27/95 U.S. 24,522,000 $ 24,438,909
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS: 94.0% (cost
$274,782,698) 224,811,470
OTHER ASSETS, LESS LIABILITIES: 6.0% 14,239,529
------------
TOTAL NET ASSETS: 100.0% $239,050,999
============
</TABLE>
* CURRENCY OF COUNTRIES INDICATED.
11
<PAGE>
Templeton China World Fund, Inc.
Financial Highlights, May 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
----------------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period, March 1, 1995 $229,892,127 $11.28
Net investment income $2,911,471 $0.14
Net gain from security and foreign
currency transactions 6,247,401 0.31
---------- -------
Net decrease in net asset value 9,158,872 0.45
------------ --------
End of period, May 31, 1995 $239,050,999 $11.73
============ ========
</TABLE>
- ---
This report is sent to the shareholders of Templeton China World Fund, Inc.
for their information. It is not a prospectus, circular or representation in-
tended for use in the purchase or sale of shares of the Fund or of any securi-
ties mentioned in the report.
12
<PAGE>
Templeton China World Fund, Inc.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chemical Mellon Shareholder Services Securities Transfer Services 450 West 33rd
Street New York, NY 10001 800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
China World Fund, Inc., shares is published each Monday in The Wall Street
Journal, weekly in Barron's and each Saturday in The New York Times and other
newspapers in a table called "Publicly Traded Funds". The Fund's New York Stock
Exchange trading symbol is TCH.
For current information about the net asset value, call 1-800-292-9293.
If any shareholder is not receiving copies of the Reports to Shareholders be-
cause shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton China World Fund, Inc., 700 Central Avenue, St. Pe-
tersburg, FL 33701.
13
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
- --------------------------
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 de-
partments may be moni-
tored, recorded, and
accessed. These calls
can be determined by
the presence of a regu-
lar beeping tone.
- --------------------------
[LOGO OF RECYCLED PAPER APPEARS HERE]
TEMPLETON
CHINA
WORLD
FUND, INC.
Third Quarter Report
May 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TLTCH Q95 5/95
