<PAGE>
Templeton China
World Fund
- ---------------------
[PHOTO OF
J. MARK MOBIUS, PH.D.
APPEARS HERE]
- ---------------------
J. Mark Mobius, Ph.D.
President
Templeton China
World Fund
- ---------------------
Dr. Mobius has been living overseas since earning his Ph.D. in economics and
political science at Massachusetts Institute of Technology in 1964. During his
extensive travels, he has acquired a thorough knowledge of the business
practices and customs that are unique to developing nations. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $6 billion
in emerging market investments for the Templeton Group of Funds.
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton China World Fund seeks long-term capital appreciation through
equity investments in "China companies."
- --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
The fiscal year ended August 31, 1995, was a challenging period for the
Templeton China World Fund. During the last six months of 1994, the Chinese
stock market declined sharply, as rapid economic growth in China led to a steep
rise in inflation, and caused stock prices to plunge. Bearish market sentiment
was also fueled by the uncertain health of China's revered leader, Deng Xiao
Ping, and the possibility of a trade war with the United States. Hong Kong's
economy (closely linked to conditions in China) slowed, and the stock market was
adversely affected by rising interest rates, weakening prices of residential
property, and concerns about China's takeover of Hong Kong in 1997.
However, the second half of the period under review presented a different
picture. The impending trade war with
1
<PAGE>
the U.S. was averted on February 26, 1995, when China agreed to increase its
protection of copyrighted works by establishing courts to prosecute trademark
pirates. China's political arena became less confusing as Deng's influence waned
and President Jiang Zemin became more secure in his position. By August 31,
1995, Chinese economic growth stood at about 10%, and inflation had dropped to
20% from 25.2 % in October 1994, after the government tightened credit and
imposed price controls. In Hong Kong, the stock market rose when the real estate
market, an important storehouse for Hong Kong's private sector wealth, showed
signs of recovery. As of August 31, 1995, however, stock prices were still more
than 25% off their record January 1994 highs. Speculators who had driven
property prices to their overblown level of 18 months earlier appeared to be
absent, and residential property buyers seemed to be seeking apartments to live
in, rather than as investments.
Within this volatile environment, your Fund posted a return of -29.58% in
market-price terms, as shown in the Performance Summary on page 5. Based on the
change in actual net asset value (in contrast to market price), total return
was -11.13% for the same period.
- --------------------------------------------------------------------------------
Templeton China World Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Taiwan 1.8%
China 19.2%
Hong Kong 66.5%
Short-Term Obligations
& Other Net Assets 12.5%
</TABLE>
On August 31, 1995, 87.5% of the Fund's net assets were invested in equities,
with the remaining 12.5% in cash and other liquid assets. During the fiscal
year, we made several significant changes to the Fund's portfolio. As we found
bargains on the Shanghai and Shenzhen exchanges, we increased our Chinese
exposure from 14.9% of total net assets on August 31, 1994, to 19.2% on August
31, 1995. Taking advantage of a market correction and resulting bargains, we
increased our total exposure in Hong Kong from 37.8% on August 31, 1994, to
66.5% on August 31, 1995. Believing that the Taiwanese market
2
<PAGE>
was overvalued, we reduced our Fund's assets there, from 3% to 1.8%.
At the end of the reporting period, New World Development Co. Ltd., the
property-oriented conglomerate, was the Fund's largest single investment,
followed closely by HSBC Group, the holding company for Hong Kong and Shanghai
Banking Corporation's interests around the world. Two other Hong Kong property-
oriented companies, Sun Hung Kai Properties and Cheung Kong, were also heavily
weighted in the Fund's portfolio. In China, the Fund's largest investments
included China Bicycle Company, Tsann Kuen, a small-appliance manufacturer,
China Textile Machinery Company, Shanghai Lian Hua Fibre Corporation, and
Shanghai Yaohua Pilkington Glass Company.
Given the improving outlook in China, and Hong Kong's strong economy, we remain
optimistic about the prospects for the Templeton China World Fund. A large
measure of political uncertainty about the future of Hong Kong has been removed
by agreement between Britain
- --------------------------------------------------------------------------------
Templeton China World Fund
Top 10 Equity Holdings on 8/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
New World Development Co. Ltd., Real Estate,
Hong Kong 8.3%
- --------------------------------------------------------------------------------
HSBC Holdings PLC, Banking,
Hong Kong 7.7%
- --------------------------------------------------------------------------------
Sung Hung Kai Properties Ltd., Real Estate,
Hong Kong 7.1%
- --------------------------------------------------------------------------------
Cheung Kong Holdings Ltd., Multi-Industry,
Hong Kong 7.0%
- --------------------------------------------------------------------------------
Hang Lung Development Co. Ltd., Real Estate,
Hong Kong 5.5%
- --------------------------------------------------------------------------------
Jardine Strategic Holdings Ltd., Multi-Industry,
Hong Kong 2.2%
- --------------------------------------------------------------------------------
Jardine Matheson Holdings Ltd., Multi-Industry,
Hong Kong 1.9%
- --------------------------------------------------------------------------------
Goldlion Holdings Ltd., Textiles & Apparel,
Hong Kong 1.9%
- --------------------------------------------------------------------------------
Dairy Farm International Holdings Ltd.,
Multi-Industry, Hong Kong 1.8%
- --------------------------------------------------------------------------------
Hopewell Holdings Ltd.,
Construction & Housing, Hong Kong 1.8%
- --------------------------------------------------------------------------------
</TABLE>
For a detailed listing of portfolio holdings, please see page 10 of this report.
and China on a supreme court for the territory after it reverts to Chinese
sovereignty in 1997, and on financing the construction of Hong Kong's new
airport, which is to be completed early in 1998. Moreover, the Chinese
3
<PAGE>
government has made substantial investments in Hong Kong through intermediary
firms, a number of provincial governments have large investments there, and many
Hong Kong businessmen have poured sizable sums of money into China. Most
importantly, President Jiang appears to be a moderate, and the nation's leaders
have made it clear that they want Hong Kong to continue as a successful
international trade center.
It should be remembered, of course, that investing in an emerging market such as
China 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. 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
763% in the last 15 years, but has suffered six declines of more than 20% during
that time./1/
In closing, we would like to mention that, although Sir John Templeton has not
been involved in investment management of the Templeton funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
has elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We thank you for your participation in the Fund and welcome your comments and
suggestions.
1. Source: Bloomberg. Based on quarterly percentage change over 15 years
ended June 30, 1995.
4
<PAGE>
- --------------------------------------------------------------------------------
Performance Summary
In market-price terms, the Templeton China World Fund produced a total return
of -29.58% for the one-year period ended August 31, 1995. Based on the change in
actual net asset value (in contrast to market price), total return was -11.13%
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 per share on the New York
Stock Exchange decreased from $16.38 on August 31, 1994 to $10.50 on August 31,
1995, while the net asset value decreased from $14.92 to $12.07 for the same
period. Shareholders received combined distributions totaling $1.265 per share,
including short-term capital gains of $1.07 and dividend income totaling 19.5
cents ($0.195) per share. Distributions will vary, however, depending on income
earned by the Fund and any profits realized from the sale of securities in the
portfolio. Past performance is not predictive of future results.
- --------------------------------------------------------------------------------
Templeton China World Fund
Cumulative Total Returns*
Periods Ended August 31, 1995
<TABLE>
<CAPTION>
Since
Inception
Six-Month One-Year (09/09/93)
<S> <C> <C> <C>
Based on change
in net asset value 7.10% -11.13% -5.64%
Based on change
in market price 2.43% -29.58% -22.86%
</TABLE>
*Cumulative total return calculations show the change in value of an investment
over the periods indicated. These calculations assume reinvestment of all
distributions and capital gains, 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
<PAGE>
The Following Letter
was Written by Dr. Mobius
During a Recent Visit to China.
As you know, investing in emerging markets offers the potential for greater
returns than investing in developed economies. At the same time, investors in
these markets may be subject to greater risks. One of the most important of
these risks is underdeveloped regulations. So, when the Chinese government
recently issued its first explicit guidelines on foreign investment, it was an
important step forward for China and for the Templeton China World Fund.
China's stock exchange structure and regulatory system are still being
formulated and tested. In China, control is fragmented among several bodies.
The China Securities Regulatory Commission (CSRC) is responsible for day-to-day
regulation of stock exchanges and stock brokers, new share issues, commodity
trading, and listing of bonds. The People's Bank of China regulates mutual
funds, is responsible for approval of bond issues by financial institutions or
companies, and also licenses and supervises securities dealers.
The Finance Ministry is responsible for treasury bonds and treasury bills, and
the Foreign Exchange Control Bureau, an independent entity under the People's
Bank of China, oversees foreign bond issues and foreign exchange transactions.
At a higher level, the State Planning Commission decides annual quotas for both
local and foreign stock and bond issues. If a company wants to issue foreign
bonds, it must obtain approval from the Provincial Government, the CSRC, the
State Planning Commission, and the Foreign Exchange Control Bureau. If the bond
is to be convertible into shares, then the stock exchange where it will be
listed must also give approval.
Currently, there are only two officially recognized stock exchanges -- in
Shanghai and in Shenzhen,
6
<PAGE>
[MAP APPEARS HERE]
just across the border from Hong Kong. There are trading centers in other major
cities, including Dalian, Shenyang, Chendu, Chongking, Guangzhou, Fuzhou and
Nanjing. Most of them are under the auspices of the People's Bank of China.
Although trading occurs at the local share trading centers, all deals are
settled in Shanghai or Shenzhen, depending on where the traded company is
listed.
In purchasing shares, the Fund deals with brokers based in China. While some
securities firms are still in their infancy, others have grown up very quickly
and now undertake a diverse range of activities. At one of the securities firms
in Dalian, most of the business comes not from brokerage activities but from
short-term financing. The firm borrows money from banks and other securities
firms and undertakes bond repurchase agreements with firms needing short-term
(three-month, six-month or one-year) financing. These operations yield a margin
7
<PAGE>
of about 5%, the difference between the cost of funds and the rate of the
repurchase agreements. These deals all flow through the Shanghai Stock Exchange.
It acts as the counter-part for both sides, thus in effect, guaranteeing the
transaction.
Although a sound legal framework supporting the capital markets is important in
any country, the Fund does not depend solely on government protection when
investing in emerging markets, including China. We independently assess and
realistically seek to determine the risks before investing, and then try to
minimize them by investing in a wide range of stocks, a wide range of sectors,
and across several countries.
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
Templeton China World Fund, Inc.
8
<PAGE>
Templeton China World Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 9, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
AUGUST 31, 1995 AUGUST 31, 1994
--------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 14.92 $ 14.10
-------- --------
Income from investment operations:
Net investment income .33 .16
Net realized and unrealized gain (loss) (1.91) .79
-------- --------
Total from investment operations (1.58) .95
-------- --------
Underwriting expenses deducted from capital -- (.07)
Distributions:
Dividends from net investment income (.20) (.06)
Distributions from net realized gains (1.07) --
-------- --------
Total distributions (1.27) (.06)
-------- --------
Change in net asset value (2.85) .82
-------- --------
Net asset value, end of period $ 12.07 $ 14.92
======== ========
TOTAL RETURN*
Based on market value per share (29.58)% 9.54%
Based on net asset value per share (11.13)% 6.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $245,982 $297,835
Ratio of expenses to average net assets 1.65% 1.84%**
Ratio of net investment income to average
net assets 2.77% 1.09%**
Portfolio turnover rate 3.01% 81.81%
</TABLE>
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: 87.5%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 3.5%
Hualing Holdings Ltd. H.K. 1,330,500 $ 247,503
Semi-Tech (Global) Co. Ltd. H.K. 2,131,013 3,165,825
Shanghai Narcissus Electric
Appliances Co. Ltd., B Chn. 2,858,000 823,104
*Shanghai Vacuum Electron Devices
Co. Ltd., B Chn. 9,054,586 2,336,083
Shenzhen Huafa Electronics Co.
Ltd., B Chn. 1,906,000 400,110
*Shenzhen Konka Electronic Group
Co. Ltd., B Chn. 651,000 391,054
Tsann Kuen Enterprise Co. Ltd., B Chn. 5,834,000 1,356,569
------------
8,720,248
- -------------------------------------------------------------------------------
Automobiles: 2.1%
Jardine International Motor
Holdings Ltd. H.K. 3,704,000 3,875,778
Qing Ling Motors Co. Ltd., H Chn. 5,000,000 1,307,971
------------
5,183,749
- -------------------------------------------------------------------------------
Banking: 8.0%
HSBC Holdings PLC H.K. 1,402,263 18,839,343
JCG Holdings Ltd. H.K. 1,194,000 894,613
------------
19,733,956
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.1%
Leefung-Asco Printers Holdings Ltd. H.K. 1,071,000 175,710
- -------------------------------------------------------------------------------
Building Materials & Components: 2.3%
K Wah International Holdings Ltd. H.K. 14,459,789 2,353,615
Shanghai Yaohua Pilkington Glass, B Chn. 3,152,000 3,404,160
------------
5,757,775
- -------------------------------------------------------------------------------
Chemicals: 3.3%
Shanghai Chlor-Alkali Chemical Co.
Ltd., B Chn. 8,859,000 2,781,726
Shanghai Petrochemical Co. Ltd., H Chn. 7,500,000 2,446,389
Shenzhen Petrochemical (Group)
Shareholding Co. Ltd., B Chn. 4,240,600 1,301,050
Zhuhai Sez Lizhu Pharmaceutical, B Chn. 4,309,600 1,670,172
------------
8,199,337
- -------------------------------------------------------------------------------
Construction & Housing: 2.0%
Hopewell Holdings Ltd. H.K. 6,249,344 4,520,905
Wai Kee Holdings Ltd. H.K. 2,386,000 326,723
------------
4,847,628
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.9%
*China Treasure Telecomunications
Holdings Ltd. H.K. 2,000,000 $ 103,346
Gold Peak Industries (Holdings)
Ltd. H.K. 1,812,000 836,830
Great Wall Electronic International
Ltd. H.K. 12,668,000 1,030,983
Shanghai Automation Instrumentation
Co., B Chn. 772,000 179,104
*Yaego Corp. Twn. 10,000 19,638
------------
2,169,901
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 0.2%
S. Megga International Holdings
Ltd. H.K. 8,508,000 500,083
- -------------------------------------------------------------------------------
Financial Services: 1.6%
Min Xin Holdings H.K. 1,000,000 189,898
Peregrine Investments Holdings Ltd. H.K. 1,581,000 2,256,821
Sun Hung Kai & Co. Ltd. H.K. 4,318,000 1,575,811
------------
4,022,530
- -------------------------------------------------------------------------------
Food & Household Products: 2.9%
C.P. Pokphand Co. Ltd. H.K. 7,186,000 2,831,327
Fairwood Holdings Ltd. H.K. 4,530,000 380,377
President Enterprises Corp. Twn. 2,622,360 3,032,622
*Shanghai New Asia Group Co. Ltd.,
B Chn. 384,000 198,912
Vitasoy International Holdings Ltd. H.K. 1,400,000 565,172
------------
7,008,410
- -------------------------------------------------------------------------------
Industrial Components: 1.2%
*Shanghai Refrigerator Compressor
Co. Ltd., B Chn. 574,900 315,045
*Shanghai Rubber Belt Co. Ltd., B Chn. 4,170,270 725,627
Shanghai Tyre & Rubber Co. Ltd., B Chn. 5,474,900 1,905,265
------------
2,945,937
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.4%
*Glynhill International Ltd. H.K. 886,000 28,385
Shanghai Jin Jiang Tower Co. Ltd.,
B Chn. 2,589,952 880,584
------------
908,969
- -------------------------------------------------------------------------------
Machinery & Engineering: 2.1%
China Textile Machinery Co. Ltd., B Chn. 13,612,200 2,069,054
Guangzhou Shipyard International
Co. Ltd., H Chn. 1,204,000 439,388
Shanghai Erfangji Textile Machinery
Co. Ltd., B Chn. 8,177,510 1,422,887
</TABLE>
11
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Machinery & Engineering (cont.)
Shanghai Industrial Sewing Machine
Corp. Chn. 2,155,100 $ 400,849
Shanghai Steel Tube Co. Ltd., B Chn. 5,263,500 831,633
------------
5,163,811
- -------------------------------------------------------------------------------
Merchandising: 2.4%
Dickson Concepts (International)
Ltd. H.K. 2,689,000 1,788,961
Fortei Holdings Ltd. H.K. 9,582,000 606,534
Joyce Boutique Holdings Ltd. H.K. 2,896,000 587,356
Le Saunda Holdings Ltd. H.K. 1,776,000 137,657
Li & Fung Ltd. H.K. 288,000 213,926
Linkful International Holdings Ltd. H.K. 1,700,000 144,942
Wo Kee Hong Holdings Ltd. H.K. 6,826,000 1,895,866
Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 480,496
------------
5,855,738
- -------------------------------------------------------------------------------
Metals & Mining: 0.1%
Maanshan Iron & Steel Co. Ltd., H Chn. 1,500,000 249,968
- -------------------------------------------------------------------------------
Multi-Industry: 17.4%
CNT Group Ltd. H.K. 16,802,770 987,632
Cheung Kong Holdings Ltd. H.K. 3,468,000 17,203,359
China Southern Glass Co. Ltd., B Chn. 905,840 511,371
Dairy Farm International Holdings
Ltd. H.K. 4,859,255 4,519,107
Jardine Matheson Holdings Ltd. H.K. 661,803 4,764,982
Jardine Strategic Holdings Ltd. H.K. 1,703,000 5,347,420
*Jardine Strategic Holdings Ltd.,
wts. H.K. 167,000 75,985
Lai Sun Garment International Ltd. H.K. 1,907,000 1,970,805
Shenzhen Gintian Industrial Co.
Ltd., B Chn. 2,309,680 1,038,327
Shenzhen Tellus Machinery &
Electronics Co. Ltd., B Chn. 2,908,720 601,208
Stelux International Holdings Ltd. H.K. 8,475,084 2,435,998
Swire Pacific Ltd., B H.K. 465,000 552,642
Wheelock & Co. Ltd. H.K. 1,820,000 2,762,563
------------
42,771,399
- -------------------------------------------------------------------------------
Real Estate: 25.7%
China Overseas Land & Investment
Ltd. H.K. 6,048,000 1,125,064
Hang Lung Development Co. Ltd. H.K. 8,729,000 13,531,585
*Hang Lung Development Co. Ltd.,
wts. H.K. 872,900 135,316
Lai Sun Development Co. Ltd. H.K. 21,838,000 2,595,396
New World Development Co. Ltd. H.K. 5,574,485 20,307,515
Prince Housing Development Corp. Twn. 2,184,600 1,326,744
Shanghai Jinqiao Export Processing
Zone Development, B Chn. 4,421,560 2,529,132
</TABLE>
12
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate (cont.)
Shanghai Lujiaxui Finance & Trade
Zn Dev Stock Co Ltd, B Chn. 894,000 $ 643,680
Shanghai Outer Gaoqiao Free Trade
Zone Develop. Co., B Chn. 616,000 257,488
*Shenzhen Properties & Resources
Develop. (Group) Ltd., B Chn. 4,802,600 1,333,883
Shenzhen Vanke Co. Ltd., B Chn. 2,492,026 901,392
Sun Hung Kai Properties Ltd. H.K. 2,395,100 17,404,001
Tian An China Investments Co. Ltd. H.K. 6,869,750 1,011,693
*Tian An China Investments Co.
Ltd., wts. H.K. 82,350 511
------------
63,103,400
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 4.6%
+China First Pencil Co. Ltd., B Chn. 10,261,440 3,345,229
*Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 5,382,000 278,104
KTP Holdings Ltd. H.K. 2,122,000 135,692
Shanghai Forever Bicycle Co. Ltd.,
B Chn. 5,726,000 858,900
Shanghai Phoenix Bicycle Co. Ltd.,
B Chn. 2,411,000 506,310
Shanghai Wingsung Stationery Co.
Ltd., B Chn. 3,835,400 939,673
Shenzhen China Bicycles Co.
Holdings Ltd., B Chn. 6,267,000 2,185,880
Yue Yuen Industrial (Holdings) Ltd. H.K. 12,346,000 3,157,871
------------
11,407,659
- -------------------------------------------------------------------------------
Textiles & Apparel: 3.0%
Goldlion Holdings Ltd. H.K. 9,210,000 4,640,098
Laws International Holdings Ltd. H.K. 4,282,000 685,916
Shanghai Lian Hua Fibre Corp., B Chn. 4,999,560 1,199,894
Top Form International Ltd., 144a H.K. 1,252,000 113,215
Tungtex Holdings Co. Ltd. H.K. 964,000 118,305
Victor Onward Textile Industrial
Co. Ltd., B Chn. 3,579,180 621,883
------------
7,379,311
- -------------------------------------------------------------------------------
Transportation: 1.8%
Chiwan Wharf Holdings Ltd., B Chn. 1,470,000 698,824
Cross Harbour Tunnel Co. Ltd. H.K. 973,000 1,910,554
IMC Holdings Ltd. H.K. 2,435,000 1,736,365
------------
4,345,743
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 1.6%
Hong Kong Electric Holdings Ltd. H.K. 642,000 2,226,805
Shandong Huaneng Power Chn. 132,000 1,105,500
Wing Shan International Ltd. H.K. 5,544,000 709,025
------------
4,041,330
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton China World Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.3%
East Asiatic Co. (Hong Kong)
Ltd. H.K. 6,598,000 $ 809,727
------------
TOTAL COMMON STOCKS (cost $259,260,876) 215,302,319
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM OBLIGATIONS: 8.5% (cost
$20,897,921)
- -------------------------------------------------------------------------------
U.S. Treasury Bills, 5.26% to
5.39% with
maturities to 10/12/95 U.S. 20,945,000 20,897,977
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.0% (cost
$280,158,797) 236,200,296
OTHER ASSETS, LESS LIABILITIES: 4.0% 9,782,185
------------
TOTAL NET ASSETS: 100.0% $245,982,481
============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton China World Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$280,158,797) $236,200,296
Cash--foreign currencies 12,095,557
Dividends receivable 389,884
Unamortized organization costs 14,456
------------
Total assets 248,700,193
------------
Liabilities:
Payables for investment
securities purchased 1,730,109
Accrued expenses 987,603
------------
Total liabilities 2,717,712
------------
Net assets, at value $245,982,481
============
Net assets consist of:
Undistributed net investment income $ 4,832,161
Net unrealized depreciation (44,389,968)
Accumulated net realized loss (173,436)
Net capital paid in on shares of
capital stock 285,713,724
------------
Net assets, at value $245,982,481
============
Shares outstanding 20,383,771
============
Net asset value per share ($245,982,481 / 20,383,771) $ 12.07
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $98,174
foreign taxes withheld)
Dividends $ 8,846,207
Interest 2,041,077
------------
Total income $ 10,887,284
Expenses:
Management fees (Note 3) 3,196,568
Administrative fees (Note 3) 491,800
Custodian fees 114,801
Transfer agent fees 134,561
Reports to shareholders 22,623
Audit fees 35,440
Directors' fees and expenses 38,463
Registration and filing fees 6,072
Legal fees (Note 3) 13,925
Amortization of
organization costs 4,745
Other 5,675
------------
Total expenses 4,064,673
------------
Net investment income 6,822,611
Realized and unrealized
gain (loss):
Net realized gain (loss) on:
Investments 110,214
Foreign currency transactions (35,135)
------------
75,079
------------
Net unrealized
depreciation on:
Investments (38,414,753)
Foreign currency translation of other assets and
liabilities (639,127)
------------
(39,053,880)
------------
Net realized and unrealized loss (38,978,801)
------------
Net decrease in net assets resulting from
operations $(32,156,190)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton China World Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 9, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1995 AUGUST 31, 1994
--------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,822,611 $ 3,137,784
Net realized gain on investment and
foreign currency transactions 75,079 21,107,798
Net unrealized depreciation (39,053,880) (5,336,088)
------------ ------------
Net increase (decrease) in net assets
resulting from operations (32,156,190) 18,909,494
Distributions to shareholders:
From net investment income (3,932,176) (1,196,058)
From net realized gains (21,356,313) --
Capital share transactions (Note 2) 5,592,621 280,021,092
------------ ------------
Net increase (decrease) in net assets (51,852,058) 297,734,528
Net assets:
Beginning of period 297,834,539 100,011
------------ ------------
End of period $245,982,481 $297,834,539
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
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 com-
menced operations on September 9, 1993 as a closed-end, non-diversified manage-
ment investment company registered under the Investment Company Act of 1940.
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 ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income from foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
e. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over five
years.
17
<PAGE>
Templeton China World Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
On September 9, 1993, the fund completed the initial public offering of
19,927,199 shares of its common stock; proceeds paid to the Fund amounted to
$279,624,231, after deduction of underwriting commissions and expenses of
$1,349,288.
As of August 31, 1995, there were 100,000,000 shares of capital stock autho-
rized ($0.01 par value). During the year ended August 31, 1995 and the period
ended August 31, 1994, 426,592 shares were issued for $5,592,621 and 22,887
shares were issued for $396,861, respectively, from reinvested distributions.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton In-
vestment Management (Hong Kong) Limited (TIML) and Templeton Global Investors,
Inc. (TGII), the Fund's investment manager and administrative manager, respec-
tively. The Fund pays monthly an investment management fee to TIML equal, on an
annual basis, to 1.25% of the average weekly net assets of the Fund. Effective
September 29, 1995, TIML has been reorganized as the Hong Kong office of Tem-
pleton Investment Management (Singapore) Pte. Ltd., an indirect wholly owned
subsidiary of Franklin Resources, Inc. 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 Middlesex Administrators L.P., an affiliate of Merrill Lynch, Pierce, Fenner
& Smith Incorporated, for sub-administration services.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received $13,925 for the year ended August 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995, aggregated $82,637,687 and $6,031,520, respective-
ly. The cost of securities for federal income tax purposes is $280,249,439. Re-
alized gains and losses are reported on an identified cost basis.
At August 31, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income taxes purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 12,738,010
Unrealized depreciation (56,787,153)
------------
Net unrealized depreciation $(44,049,143)
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. Investments in "affiliated companies" at August 31, 1995
amounted to $3,345,229. For the year ended August 31, 1995, dividend income
from affiliated companies was $203,005.
18
<PAGE>
Templeton China World Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
6. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NET INCREASE
NET GAIN (LOSS) (DECREASE)
ON INVESTMENT AND IN NET ASSETS
INVESTMENT NET INVESTMENT FOREIGN CURRENCY RESULTING FROM
INCOME INCOME TRANSACTIONS OPERATIONS
----------------- ----------------- -------------------- --------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
----------- ----- ---------- ----- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
For the period ended:
November 30, 1994 $ 2,619,334 $.13 $1,281,642 $ .06 $(36,609,484) $(1.80) $(35,327,842) $(1.74)
February 28, 1995 2,104,903 .10 1,318,653 .07 (14,237,355) (.70) (12,918,702) (.63)
May 31, 1995 3,952,400 .19 2,943,317 .14 6,215,547 .31 9,158,864 .45
August 31, 1995 2,210,647 .11 1,278,999 .06 5,652,491 .28 6,931,490 .34
----------- ---- ---------- ----- ------------ ------ ------------ ------
$10,887,284 $.53 $6,822,611 $ .33 $(38,978,801) $(1.91) $(32,156,190) $(1.58)
=========== ==== ========== ===== ============ ====== ============ ======
1994
For the period ended:
November 30, 1993 $ 2,039,067 $.10 $ 966,328 $ .05 $ 16,935,638 $ .85 $ 17,901,966 $ .90
February 28, 1994 1,187,223 .06 (332,525) (.02) 20,750,274 1.04 20,417,749 1.02
May 31, 1994 2,032,737 .10 701,892 .04 (33,091,784) (1.66) (32,389,892) (1.62)
August 31, 1994 3,185,578 .16 1,802,089 .09 11,177,582 .56 12,979,671 .65
----------- ---- ---------- ----- ------------ ------ ------------ ------
$ 8,444,605 $.42 $3,137,784 $ .16 $ 15,771,710 $ .79 $ 18,909,494 $ .95
=========== ==== ========== ===== ============ ====== ============ ======
</TABLE>
19
<PAGE>
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,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for the year
ended August 31, 1995 and for the period from September 9, 1993 (commencement
of operations) to August 31, 1994. 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 audit.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights 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 Au-
gust 31, 1995, 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton China World Fund, Inc. as of August 31, 1995, the results of its opera-
tions, the changes in its net assets and the financial highlights for the peri-
ods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
20
<PAGE>
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 mar-
ket price is equal to or exceeds net asset value at the valuation date, partic-
ipants 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 divi-
dends and/or capital gains distributions are payable only in cash, the partici-
pant 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, with-
out charge, stock certificates issued in the participant's name for all full
shares; or, if the participant's wishes, Chemical Mellon Securities Trust Com-
pany 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 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 shares is published each Monday in The Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other news-pa-
pers in a table called "Publicly Traded Funds". The Fund's New York Stock Ex-
change 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 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.
21
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
TEMPLETON
CHINA
WORLD
FUND, INC.
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
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.
[RECYCLED PAPER LOGO TLTCH A95 10/95
APPEARS HERE]
