TEMPLETON CHINA WORLD FUND INC, N-30D, 1996-04-30

TEMPLETON CHINA WORLD FUND INC
N-30D, 1996-04-30

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<PAGE>

Templeton
China World Fund

Dr. Mobius has been living overseas since earning his Ph.D. in economics and
political science at Massachusetts Institute of Technology in 1964. During his
extensive travels, he has acquired a thorough knowledge of the business
practices and customs that are unique to developing nations. Together with his
team of Templeton analysts, Dr. Mobius currently oversees more than $8 billion
in emerging markets investments for the Templeton Group of Funds.

Your Fund's Objective:
The Templeton China World Fund, Inc. seeks long-term capital appreciation
through equity investments in "China companies."

J. Mark Mobius, Ph.D.
President
Templeton China World Fund, Inc.
================================================================================

April 15, 1996

Dear Shareholder:

We are pleased to bring you the third semi-annual report for the Templeton China
World Fund, covering the six months ended February 29, 1996.

This period marked the apparent end of fears that China's economy might be
overheating as a result of explosive growth. In 1994, recognizing that
excessively fast growth breeds inflation, causes income disparities and often
leads to speculative bubbles in commodity markets, the Chinese government acted
decisively to stamp out the potential for uncontrolled growth by imposing credit
controls. As a result, growth of China's gross domestic product (GDP) slowed to
11.8% in 1994, and to an estimated rate of only 10.2% in 1995. The government,
and many

1
<PAGE>

economists, expect economic growth to fall further to the more sustainable rate
of 8% or 9% during 1996.

Slowing down growth and inflation was only one of China's economic achievements.
During 1995, China's trade surplus rose to US$16.7 billion from US$5.3 billion
in 1994; foreign currency reserves increased from US$52.9 billion in 1994 to
almost US$75 billion; the renminbi/U.S. dollar exchange rate remained stable;
and personal incomes rose 4% for urban workers and 5% for rural workers.

During the period, the Chinese government reiterated its political commitment to
open the economy further to foreign investment and trade. In an address to the
Asia-Pacific Economic Cooperation forum (APEC) in November 1995, President
Jiang Zemin said that China would begin slashing import tariffs in April 1996 to
meet the requirements of the World Trade Organization. At the same time, the
government announced changes in its value-added tax laws that removed special
privileges for some companies, such as foreign investment incentives, to foster
a more market-oriented business environment. Chinese officials are also
pursuing plans to make the renminbi convertible into other currencies.

Templeton China World Fund
Geographic Distribution on 2/29/96
Based on Total Net Assets

[PIE GRAPH APPEARS HERE]

Restrictive credit policies contributed to poor performance of the Chinese stock
market during this period. Nonetheless, your Fund provided a total return of
16.67% in market-price terms for the period, as you can see in the Performance
Summary on page 5. We achieved these results by remaining heavily weighted in
stocks of Hong Kong companies with significant mainland activities.

As of February 29, 1996, 70.0% of the Fund's total net assets were invested in
Hong Kong, 17.5% in mainland China, 1.9% in Taiwan, and the remaining 10.6% was
held in cash and other liquid assets. Among the positions held

2
<PAGE>

by the Fund, each of which represented more than 8% of the Fund's total net
assets, were: New World Development Co. Ltd., which maintains varied
commercial interests in Hong Kong and power plants and toll roads in China; HSBC
Holdings, PLC, the holding company for the Hongkong Bank, with over 400 offices
worldwide, and major subsidiaries in the U.S. and the United Kingdom; and Cheung
Kong Holdings Ltd., a conglomerate with investments in Hong Kong and China, and
interests in property development, telecommunications, trading, energy and
finance.

Looking forward, some loosening of credit restrictions, which may benefit key
industrial sectors such as energy and infrastructure development, is expected
during the second half of 1996. This may lead to better corporate performance
in these areas, as companies borrow money for expansion of their operations.
With strong fundamentals and an improving business climate, we think China
continues to offer great potential for growth.

Of course, China still faces problems in its relations with the U.S. These
include the controversy over China's "most favored nation" trading status, the
terms of its entry into the World Trade Organization, and differences over the
status of Taiwan. In spite of these thorny issues,

Templeton China World Fund

<TABLE>
<CAPTION>
Top 10 Holdings as of 2/29/96
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Cheung Kong Holdings Ltd.;
Multi-Industry, Hong Kong 9.0%

HSBC Holdings PLC;
Banking, Hong Kong 8.5%

New World Development Co. Ltd.;
Real Estate, Hong Kong 8.2%

Sun Hung Kai Properties Ltd.;
Real Estate, Hong Kong 7.0%

Hang Lung Development Co. Ltd.;
Real Estate, Hong Kong 6.1%

Hopewell Holdings Ltd.;
Construction & Housing, Hong Kong 2.9%

Dairy Farm International Holdings Ltd.;
Merchandising, Hong Kong 2.5%

Jardine Strategic Holdings Ltd.;
Multi-Industry, Hong Kong 2.3%

Goldlion Holdings Ltd.;
Textiles & Apparel, Hong Kong 2.0%

Jardine Matheson Holdings Ltd.;
Multi-Industry, Hong Kong 2.0%
</TABLE>

For a complete list of portfolio holdings, please see page 11 of this report.

many analysts believe the success of financial reforms to date have contributed
to a solid foundation for China to maintain growth and economic stability in
1996 and beyond.

This outlook complements Templeton's long-term investment strategy. We have
worked hard to identify the "China companies" we consider well-positioned to
take advantage of any uptick in commercial activity in China.

3
<PAGE>

Stable economic conditions would seem to be just the ingredient these firms
need, if they are to blossom and achieve their potential.

This discussion reflects the strategies we employed for the Fund during the past
six-month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.

We believe that China is, and likely will remain, one of the world's most
interesting growth stories. However, investing in any emerging market means
putting up with a certain amount of volatility and, in some cases, severe market
corrections. Investing in China companies is no exception, entailing other
special considerations, including risks related to currency volatility, adverse
social and political developments, and the relatively small size and lesser
liquidity of the markets involved. While short-term volatility can be
disconcerting, declines of as much as 40% to 50% are not unusual in emerging
markets. In fact, the Hong Kong market has increased 700% in the last 15 years,
but has suffered six declines of more than 20% during that time.2

Thank you for investing in the Templeton China World Fund. We appreciate your
confidence and look forward to any comments you may have.

2. Source: Bloomberg. Based on quarterly percentage change over the 15 years
ended March 31, 1996.

4
<PAGE>

Performance Summary

In market-price terms, the Templeton China World Fund produced a total return of
16.67% for the six-month period ended February 29, 1996. Based on the change in
net asset value (in contrast to market price), the Fund delivered a total
return of 12.39% for the same period. Both total return figures assume
reinvestment of dividends and capital gains in accordance with the dividend
reinvestment plan.

During the reporting period, the Fund's closing price on the New York Stock
Exchange (NYSE) increased from $10.50 per share on August 31, 1995 to $11.875 on
February 29, 1996, while the net asset value increased from $12.07 to $13.15.
Shareholders received combined distributions of 33.5 cents ($0.335) per share,
including short-term capital gains of 1 cent ($0.01) per share and dividend
income totaling 32.5 cents ($0.325) per share. Distributions will vary, however,
depending on income earned by the Fund and any profits realized from the sale of
securities in the portfolio.
- --------------------------------------------------------------------------------

Templeton China World Fund
<TABLE>
<CAPTION>

Cumulative Total Returns*
Period Ended 2/29/96
Since
Inception
Six-Month One-Year (9/9/93)
<S> <C> <C> <C>
Based on change
in net asset value 12.39% 19.58% 5.25%

Based on change
in market price 16.67% 19.53% -10.08%
</TABLE>

*Cumulative total return calculations show the change in value of an investment
over the period indicated. These calculations assume reinvestment of all
distributions and capital gains, either at net asset value or at market price on
the reinvestment date. Past performance is not predictive of future results.

5
<PAGE>

The Following Letter
was Written by Dr. Mobius
After a Recent trip to China.

As you travel around China, the description that most often springs to mind is
"messy." The streets are full of dust, and windows are caked with grime. In this
country where everything was owned for so long by the state, there seems to be
no pride of ownership. But not all the mess can be blamed on a lack of pride.
Much of it results from rapid development. Hazy cement dust on new highways,
land being readied for a factory or office tower, and an abundance of unsightly
cranes and steel reinforcing rods all indicate the tremendous potential
presently being unlocked in China.

In the coastal areas we visited during the first part of this trip, development
was proceeding at a fast pace. As we drove to the hotel in Nanjing it was clear
that the city was experiencing a construction boom. The glass-encased lobby of
our hotel, which was built in 1982, was huge, featuring a free-floating red
marble ball two feet in diameter revolving in a fountain. The building was well
maintained and the service was even better than in Shanghai, which is regarded
as the most "international" of China's cities. I tried out my Mandarin but was
quickly met with responses in good English.

We drove from Nanjing to Maanshan City, where we visited Maanshan Iron & Steel
Company Limited, which produced 2.91 million tons of pig iron, 2.41 million tons
of crude steel and 2.07 million tons of steel products in 1994. Although demand
for steel products has decreased due to the implementation by the Chinese
government of macro-economic adjustments, the company's management has responded
actively to changing market conditions, and is, we believe, well positioned for
an eventual pick-up in demand for its products. Dalian, another coastal city,
also appeared to be a big construction site, with lots of 20-, 30- and 40-story
buildings being erected.

6
<PAGE>

[MAP OF CHINA AND TAIWAN APPEARS HERE]

However, it is not just China's coastal areas which are undergoing rapid change
and development. The inland province of Sichuan is one of China's main
agricultural areas and supports 10% of the country's population. Once a province
of peasants and landlords, Sichuan now boasts two important cities: Chongqing
and Chengdu. An urban center more than 2,000 years ago, and the capital of
kingdoms in the region for a number of years, Chengdu is a bustling city with
street hawkers, huge department stores, and a population of about three million
people. At the end of the main thoroughfare is a huge statue of Chairman Mao,
with his hand raised in blessing.

From Chengdu, we traveled two hours by car to Mianyang, 124 miles north of
Chengdu. The road between Chengdu and Mianyang is like a washboard with
intervals of nice, cement-paved highway. When we arrived there, we saw a
50-story skyscraper under construction on the outskirts of

7
<PAGE>

the city. We had been told to expect the worst in this remote part of China, but
were ushered into lavishly decorated suites complete with American-made
whirlpool baths. Notwithstanding this, the interior decoration and quality, as
in other parts of China, leave much to be desired.

Mianyang, like so many other cities in China, is being rebuilt and redeveloped,
with a number of high-rise towers under way. At the entrance to the city, we
passed an industrial zone where some factories were complete and more were under
construction. Since it has a reputation as an electronics center and center of
high-tech military work, it is not surprising that Mianyang is being promoted as
a high-tech zone. While in town, we visited Sichuan Changhong Electric Co.,
Ltd., a manufacturer of TV sets which produces three million units annually and
has 17% of the national market. The company, which has ties to Siemens and
Philips, already has sales branches in all the provinces and it plans to further
expand into coastal cities and overseas markets with its brand name.

After leaving Mianyang, we went to Deyang, to visit Dongfang Electrical
Machinery Co., Ltd., a major manufacturer of steam turbine generators and hydro-
turbine generators, whose "H" shares, listed on the Hong Kong Stock Exchange,
are potential investments for the Fund.

Chongqing, Sichuan's other main city, was the Chinese capital during World War
II. It is in the southeast part of Sichuan Province and hangs on the deep gorges
made by the Yangtze and Jialing Rivers. Sometimes referred to as one of the
"three furnaces" of China (the others are Wuhan and Nanjing), it gets hot here
in the summer, and when we stepped off the plane, we really felt the heat.
Chongqing's airport is quite unusual and beautiful, in a strange sort of way.
The control tower is like an onion standing on its stem. It has few straight
corners and curves around the site like a white caterpillar. The architect must
have admired Salvador Dali's paintings because he gave another-worldly feeling
to the building. It is done in white tiles and has blue windows in the hallway.

8
<PAGE>

Driving into the city, we saw that Chongqing has not escaped China's building
boom. As we crossed the Jialing River bridge, we counted no fewer than 12 cranes
on top of high-rise buildings. Chongqing is the home town of Qingling Motors
Company Limited, a company engaged in the production, assembly and sale of Isuzu
light-duty trucks, pickup trucks and minibuses. Through its long-standing and
close relationship with Isuzu, it has access to the most up-to-date
international technology.

The construction we noticed throughout our trip is one indication of the
progress of China's reform program. While some aspects of this process may not
appeal to all foreign investors, there's no doubting the government's general
commitment to economic development and expansion of trade. If it continues, the
country's economic picture could improve substantially, which may be good news
for investors in the Templeton China World Fund. Although it's impossible to
predict the future, we are optimistic about potential long-term investment
opportunities in China and will continue to utilize our disciplined, value
oriented approach in our efforts to achieve the best possible results for our
shareholders.

Sincerely,

/s/ J. Mark Mobius, Ph.D.

J. Mark Mobius, Ph.D.
President
Templeton China World Fund, Inc.

9
<PAGE>

Templeton China World Fund, Inc.
Financial Highlights

- --------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS SEPTEMBER 9, 1993
ENDED (COMMENCEMENT OF
FEBRUARY 29, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) AUGUST 31, 1995 AUGUST 31, 1994
----------------- --------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 12.07 $ 14.92 $ 14.10
-------- -------- --------
Income from investment op-
erations:
Net investment income .09 .33 .16
Net realized and
unrealized gain (loss) 1.32 (1.91) .79
-------- -------- --------
Total from investment oper-
ations 1.41 (1.58) CA0.95
-------- -------- --------
Underwriting expenses de-
ducted from capital -- -- (.07)
Distributions:
Dividends from net invest-
ment income (.32) (.20) (.06)
Distributions from net re-
alized gains (.01) (1.07) --
-------- -------- --------
Total distributions (.33) (1.27) (.06)
-------- -------- --------
Change in net asset value 1.08 (2.85) .82
-------- -------- --------
Net asset value, end of pe-
riod $ 13.15 $ 12.07 $ 14.92
======== ======== ========
TOTAL RETURN*
Based on market value per
share 16.67% (29.58)% 9.54%
Based on net asset value
per share 12.39% (11.13)% 6.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000) $267,952 $245,982 $297,835
Ratio of expenses to aver-
age net assets 1.67%** 1.65% 1.84%**
Ratio of net investment in-
come to average net assets 1.54%** 2.77% 1.09%**
Portfolio turnover rate 6.42% 3.01% 81.81%
Average commission rate
paid (per share) $ .0022
</TABLE>

*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.

SEE NOTES TO FINANCIAL STATEMENTS.

10
<PAGE>

Templeton China World Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS: 89.4%
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Appliances & Household Durables: 3.3%
Hualing Holdings Ltd. H.K. 1,330,500 $ 184,149
Semi-Tech (Global) Co. Ltd. H.K. 2,236,006 3,470,756
Shanghai Narcissus Electric
Appliances Co. Ltd., B Chn. 2,858,000 537,304
Shanghai Shangling Electric
Appliance, B Chn. 835,900 665,376
*Shanghai Vacuum Electron
Devices Co. Ltd., B Chn. 9,054,586 2,299,865
Shenzhen Huafa Electronics Co.
Ltd., B Chn. 2,442,000 375,892
Shenzhen Konka Electronic
Group Co. Ltd., B Chn. 651,000 328,409
Tsann Kuen Enterprise Co.
Ltd., B Chn. 5,834,000 1,131,951
-------------
8,993,702
- -------------------------------------------------------------------------------
Automobiles: 2.4%
Jardine International Motor
Holdings Ltd. H.K. 3,508,000 4,855,269
Qing Ling Motors Co. Ltd., H Chn. 5,000,000 1,552,213
-------------
6,407,482
- -------------------------------------------------------------------------------
Banking: 8.5%
HSBC Holdings PLC H.K. 1,416,889 22,726,233
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.1%
Leefung-Asco Printers Holdings
Ltd. H.K. 1,127,000 167,645
- -------------------------------------------------------------------------------
Building Materials & Components: 2.4%
China Southern Glass Co. Ltd.,B Chn. 1,505,840 707,058
K Wah International Holdings Ltd. H.K. 15,755,348 2,506,704
*K Wah International Holdings
Ltd., wts. H.K. 1,445,978 58,917
Shanghai Yaohua Pilkington
Glass, B Chn. 3,152,000 3,152,000
-------------
6,424,679
- -------------------------------------------------------------------------------
Chemicals: 3.2%
Shanghai Chlor-Alkali Chemical
Co. Ltd., B Chn. 9,459,000 2,421,504
Shanghai Pechemical Co. Ltd., H Chn. 15,480,000 5,156,062
Shenzhen Petrochemical (Group)
Shareholding Co. Ltd., B Chn. 5,088,720 1,142,031
-------------
8,719,597
- -------------------------------------------------------------------------------
Construction & Housing: 3.2%
Hopewell Holdings Ltd. H.K. 10,559,579 7,717,293
Wai Kee Holdings Ltd. H.K. 3,702,336 885,967
-------------
8,603,260
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.8%
*China Treasure Telecomunications
Holdings Ltd. H.K. 1,748,000 71,223
*China Treasure Telecomunications
Holdings Ltd., wts. H.K. 374,000 4,354
Gold Peak Industries
(Holdings) Ltd. H.K. 1,110,000 570,729
</TABLE>

11
<PAGE>

Templeton China World Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Electrical & Electronics (cont.)
*Great Wall Electronic
International Ltd. H.K. 12,668,000 $ 1,032,330
Shanghai Automation
Instrumentation Co., B Chn. 680,300 134,699
*Yaego Corp. Twn. 260,000 397,120
-------------
2,210,455
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
S. Megga International
Holdings Ltd. H.K. 8,508,000 352,166
- -------------------------------------------------------------------------------
Financial Services: 1.9%
JCG Holdings Ltd. H.K. 813,000 793,976
Min Xin Holdings H.K. 1,000,000 143,580
Peregrine Investments Holdings
Ltd. H.K. 1,581,000 2,699,453
Sun Hung Kai & Co. Ltd. H.K. 4,318,000 1,354,454
-------------
4,991,463
- -------------------------------------------------------------------------------
Food & Household Products: 1.4%
C.P. Pokphand Co. Ltd. H.K. 163,000 85,918
*Fairwood Holdings Ltd. H.K. 4,530,000 462,909
*President Enterprises Corp. Twn. 2,622,360 3,023,086
*Shanghai New Asia Group Co.
Ltd., B Chn. 384,000 233,472
-------------
3,805,385
- -------------------------------------------------------------------------------
Health & Personal Care: 0.5%
Zhuhai Sez Lizhu
Pharmaceutical, B Chn. 4,309,600 1,393,628
- -------------------------------------------------------------------------------
Industrial Components: 0.9%
*Shanghai Refrigerator
Compressor Co. Ltd., B Chn. 574,900 233,409
*Shanghai Rubber Belt Co.Ltd., B Chn. 4,170,270 733,968
Shanghai Tyre & Rubber Co.
Ltd., B Chn. 5,530,100 1,338,284
-------------
2,305,661
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.3%
*Glynhill International Ltd. H.K. 1,950,000 59,275
Shanghai Jin Jiang Tower Co.
Ltd., B Chn. 2,589,952 709,647
-------------
768,922
- -------------------------------------------------------------------------------
Machinery & Engineering: 2.0%
*China Textile Machinery Co.
Ltd., B Chn. 13,612,200 2,273,237
Guangzhou Shipyard
International Co. Ltd., H Chn. 1,316,000 344,708
*Northeast Electric
Transmission & Transformation H.K. 34,000 6,377
Shanghai Erfangji Textile
Machinery Co. Ltd., B Chn. 10,677,510 1,537,561
Shanghai Industrial Sewing
Machine Corp. Chn. 2,155,100 331,885
Shanghai Steel Tube Co. Ltd., B Chn. 5,263,500 736,890
-------------
5,230,658
- -------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

Templeton China World Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Merchandising: 4.5%
Dairy Farm International
Holdings Ltd. H.K. 6,860,255 $ 6,688,749
Dickson Concepts
(International) Ltd. H.K. 2,489,000 2,543,442
Fortei Holdings Ltd. H.K. 9,582,000 378,030
Joyce Boutique Holdings Ltd. H.K. 1,415,000 507,913
Linkful International Holdings
Ltd. H.K. 1,700,000 92,357
Wo Kee Hong Holdings Ltd. H.K. 8,256,000 1,569,846
*Yaohan Hongkong Corp. Ltd. H.K. 6,888,000 338,569
-------------
12,118,906
- -------------------------------------------------------------------------------
Metals & Mining: 0.2%
Maanshan Iron & Steel Co.
Ltd., H Chn. 3,524,000 629,050
- -------------------------------------------------------------------------------
Miscellaneous Materials & Commodities:
0.1%
Luoyang Glass Co. Ltd., H Chn. 500,000 168,156
- -------------------------------------------------------------------------------
Multi-Industry: 17.9%
Cheung Kong Holdings Ltd. H.K. 3,468,000 24,111,682
CNT Group Ltd. H.K. 16,802,770 1,010,657
Jardine Matheson Holdings Ltd. H.K. 669,257 5,354,056
Jardine Strategic Holdings Ltd. H.K. 1,834,000 6,235,600
*Jardine Strategic Holdings
Ltd., wts. H.K. 167,000 70,975
Lai Sun Garment International
Ltd. H.K. 2,508,000 3,049,477
Shenzhen Gintian Industrial
Co. Ltd., B Chn. 2,433,680 1,196,236
Shenzhen Tellus Machinery &
Electronics Co. Ltd., B Chn. 3,036,720 471,364
Stelux International Holdings
Ltd. H.K. 8,475,084 2,060,971
Swire Pacific Ltd., B H.K. 430,000 620,174
Wheelock & Co. Ltd. H.K. 1,820,000 3,707,848
-------------
47,889,040
- -------------------------------------------------------------------------------
Real Estate: 25.5%
China Overseas Land &
Investment Ltd. H.K. 6,048,000 1,290,820
Hang Lung Development Co. Ltd. H.K. 8,729,000 16,315,571
Lai Sun Development Co. Ltd. H.K. 21,838,000 4,095,914
New World Development Co. Ltd. H.K. 4,503,121 21,959,625
*Prince Housing Development Corp. Twn. 2,184,600 1,612,749
Shanghai Jinqiao Export
Processing Zone Development, B Chn. 4,421,560 1,653,663
Shanghai Lujiaxui Finance &
Trade Zone Development Stock
Co. Ltd, B Chn. 894,000 518,520
Shanghai Outer Gaoqiao Free
Trade Zone Development Co., B Chn. 616,000 200,816
Shenzhen Properties &
Resources Development (Group)
Ltd., B Chn. 4,802,600 969,105
</TABLE>

13
<PAGE>

Templeton China World Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate (cont.)
Sun Hung Kai Properties Ltd. H.K. 2,095,100 $ 18,699,233
Tian An China Investments Co.
Ltd. H.K. 6,869,750 959,698
-------------
68,275,714
- -------------------------------------------------------------------------------
Recreation & Other Consumer Goods: 4.1%
+China First Pencil Co. Ltd., B Chn. 10,224,440 4,110,225
*Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 5,382,000 161,511
KTP Holdings Ltd. H.K. 2,122,000 86,462
Phoenix Co. Ltd. Chn. 3,894,800 701,064
Shanghai Forever Bicycle Co.
Ltd., B Chn. 5,726,000 824,544
Shanghai Wingsung Stationery
Co. Ltd., B Chn. 3,835,400 759,409
Shenzhen China Bicycles Co.
Holdings Ltd., B Chn. 7,520,400 1,264,603
Yue Yuen Industrial (Holdings)
Ltd. H.K. 12,180,000 3,103,727
-------------
11,011,545
- -------------------------------------------------------------------------------
Textiles & Apparel: 2.9%
Goldlion Holdings Ltd. H.K. 6,421,000 5,440,188
*Laws International Holdings
Ltd. H.K. 5,726,000 659,191
Shanghai Lian Hua Fibre Corp.,
B Chn. 4,999,560 939,917
Top Form International Ltd. H.K. 1,252,000 80,974
Tungtex (Holdings) Co. Ltd. H.K. 964,000 97,262
Victor Onward Textile
Industrial Co. Ltd., B Chn. 3,579,180 555,565
-------------
7,773,097
- -------------------------------------------------------------------------------
Transportation: 1.7%
Chiwan Wharf Holdings Ltd., B Chn. 1,470,000 551,424
Cross Harbour Tunnel Co. Ltd. H.K. 1,052,000 2,061,571
IMC Holdings Ltd. H.K. 2,435,000 1,259,879
*Shanghai Dazhong Taxi
Shareholding Co. Ltd., B Chn. 700,000 553,000
-------------
4,425,874
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 1.2%
Hongkong Electric Holdings Ltd. H.K. 419,000 1,419,990
Shandong Huaneng Power Chn. 132,000 1,270,500
Wing Shan International Ltd. H.K. 5,544,000 616,725
-------------
3,307,215
- -------------------------------------------------------------------------------
</TABLE>

14
<PAGE>

Templeton China World Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)

- --------------------------------------------------------------------------------

*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 5.

SEE NOTES TO FINANCIAL STATEMENTS.

15
<PAGE>

Templeton China World Fund, Inc.
Financial Statements

- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996 (unaudited)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$270,833,499) $251,085,322
Cash--foreign currencies 11,653,519
Receivables:
Investment securities sold 5,830,357
Dividends and interest 60,075
Unamortized organization costs 12,090
------------
Total assets 268,641,363
------------
Liabilities:
Accrued expenses 689,401
------------
Net assets, at value $267,951,962
============
Net assets consist of:
Undistributed net investment income $ 128,441
Net unrealized depreciation (20,160,232)
Accumulated net realized gain 2,270,029
Net capital paid in on shares of capital stock 285,713,724
------------
Net assets, at value $267,951,962
============
Shares outstanding 20,383,771
============
Net asset value per share ($267,951,962 / 20,383,771) $ 13.15
============
</TABLE>

STATEMENT OF OPERATIONS
for the six months ended
February 29, 1996 (unaudited)

<TABLE>
<S> <C> <C>
Investment income:
(net of $84,497
foreign taxes withheld)
Dividends $3,507,543
Interest 494,143
----------
Total income $ 4,001,686
Expenses:
Management fees (Note 3) 1,627,282
Administrative fees (Note 3) 250,352
Custodian fees 49,727
Transfer agent fees 69,852
Reports to shareholders 16,031
Audit fees 19,411
Directors' fees and expenses 21,321
Registration and filing fees 16,082
Legal fees (Note 3) 1,982
Amortization of organization costs 2,366
Other 6,274
----------
Total expenses 2,080,680
-----------
Net investment income 1,921,006
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,658,588
Foreign currency transactions (11,285)
----------
2,647,303
----------
Net unrealized appreciation on:
Investments 24,210,324
Foreign currency translation of other assets and
liabilities 19,412
----------
24,229,736
----------
Net realized and unrealized gain 26,877,039
-----------
Net increase in net assets resulting from operations $28,798,045
===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

16
<PAGE>

Templeton China World Fund, Inc.
Financial Statements (cont.)

- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,921,006 $ 6,822,611
Net realized gain on investment and for-
eign currency transactions 2,647,303 75,079
Net unrealized appreciation (depreciation) 24,229,736 (39,053,880)
------------ ------------
Net increase (decrease) in net assets re-
sulting from operations 28,798,045 (32,156,190)
Distributions to shareholders:
From net investment income (6,624,726) (3,932,176)
From net realized gains (203,838) (21,356,313)
Capital share transactions (Note 2) -- 5,592,621
------------ ------------
Net increase (decrease) in net assets 21,969,481 (51,852,058)
Net assets:
Beginning of period 245,982,481 297,834,539
------------ ------------
End of period $267,951,962 $245,982,481
============ ============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

17
<PAGE>

Templeton China World Fund, Inc.
Notes to Financial Statements (unaudited)

- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES

Templeton China World Fund, Inc. (the Fund) is a Maryland corporation and a
closed-end, non-diversified management investment company registered under the
Investment Company Act of 1940. The Fund seeks to achieve its objective by in-
vesting primarily in equity securities of Chinese companies. The following sum-
marizes the Fund's significant accounting policies.

a. Securities Valuations:

Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.

b. Foreign Currency Transactions:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.

c. Income Taxes:

It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.

d. Security Transactions, Investment Income, Distributions and Expenses:

Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income from foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.

e. Unamortized Organization Costs:

Organization costs are being amortized on a straight line basis over five
years.

f. Accounting Estimates:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.

18
<PAGE>

Templeton China World Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)

- --------------------------------------------------------------------------------

2. TRANSACTIONS IN SHARES OF CAPITAL STOCK

As of February 29, 1996, there were 100,000,000 shares of capital stock autho-
rized ($0.01 par value). During the six months ended February 29, 1996, there
were no share transactions. During the year ended August 31, 1995, 426,592
shares were issued for $5,592,621 from reinvested distributions.

3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Certain officers of the Fund are also directors or officers of Templeton Asset
Management, Ltd. (TAML) and Templeton Global Investors, Inc. (TGII), the Fund's
investment manager and administrative manager, respectively. The Fund pays
monthly an investment management fee to TAML equal, on an annual basis, to
1.25% of the average weekly net assets of the Fund. The Fund pays TGII monthly
a fee of 0.25% per annum of the Fund's average weekly net assets, of which
0.20% is paid to Princeton Administrators, LP., for sub-administrative servic-
es.

An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received $1,982 for the six months ended February 29,
1996.

4. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding short-term securities) for the six
months ended February 29, 1996 aggregated $14,563,375 and $17,214,471, respec-
tively. The cost of securities for federal income tax purposes is $270,924,141.
Realized gains and losses are reported on an identified cost basis.

At February 29, 1996, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income taxes purposes,
was as follows:

<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 36,538,906
Unrealized depreciation (56,377,725)
------------
Net unrealized depreciation $(19,838,819)
============
</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 February 29,
1996 amounted to $4,110,225.

19
<PAGE>

Templeton China World Fund, Inc.
Annual Meeting of Shareholders, February 20, 1996

- --------------------------------------------------------------------------------

An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on February 20, 1996. The purpose
of the meeting was to elect five directors of the Fund and to ratify selection
of McGladrey & Pullen, LLP, as the Fund's independent public accountants for
the fiscal year ending August 31, 1996, and in their discretion to authorize
the proxyholders to vote upon such other matters which may legally come before
the meeting. At the meeting the following persons were elected by the share-
holders to serve as directors of the Fund: Harris J. Ashton, Nicholas F. Brady,
S. Joseph Fortunato, John Wm. Gailbraith and Charles B. Johnson. In addition
the shareholders ratified the selection of McGladrey & Pullen, LLP, to serve as
the Fund's independent public accountants for the fiscal year ending August 31,
1996. No other business was transacted at the Annual meeting.

The results of the voting at the Annual Meeting are as follows:

1. Election of five (5) Directors for the term set forth below:

<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED WITHHELD SHARES
---------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
Term expiring 1999:
Harris J. Ashton 12,604,495 61.84% 98.14% 297,666 1.46%
Nicholas F. Brady 12,625,364 61.94% 97.85% 276,797 1.36%
S. Joseph Fortunato 12,621,729 61.92% 97.82% 280,432 1.38%
Term expiring 1998:
Charles B. Johnson 12,617,437 61.90% 97.79% 284,724 1.40%
Term expiring 1997:
John Wm. Galbraith 12,641,719 62.02% 97.98% 260,442 1.28%

2. Ratification of the selection of McGladrey & Pullen, LLP as independent
public accountants of the Fund for the fiscal year ending August 31, 1996:

<CAPTION>
% OF % OF % OF % OF
OUTSTANDING SHARES OUTSTANDING OUTSTANDING
FOR SHARES VOTED AGAINST SHARES ABSTAIN SHARES
---------- ----------- ------ -------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
12,618,136 61.90% 97.80% 88,160 0.43% 195,865 0.96%
</TABLE>

20
<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. Petersburg, FL 33701.

21
<PAGE>

Notes
-----

<PAGE>

THE FRANKLIN TEMPLETON GROUP

Literature Request - Call today for a free descriptive brochure and prospectus
on any of the funds listed below. The prospectus contains more complete
information, including fees, charges and expenses, and should be read carefully
before investing or sending money.

Templeton Funds

Americas Government
Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Greater European Fund
Growth Fund
Growth and Income Fund
Income Fund
Latin America Fund
Real Estate
Securities Fund
Smaller Companies
Growth Fund
World Fund

Franklin Funds Seeking
Tax-Free Income

Federal Tax-Free
Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free
Income Fund***
Puerto Rico Tax-Free
Income Fund

Franklin State-Specific
Funds Seeking Tax-Free
Income

Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee
Texas
Virginia
Washington**

Franklin Funds
Seeking Capital Growth

California Growth Fund
DynaTech Fund
Equity Fund
Global Health
Care Fund
Gold Fund
Growth Fund
International
Equity Fund
Japan Fund
Pacific Growth Fund
Small Cap Growth Fund

Franklin Funds Seeking
Growth and Income

Balance Sheet
Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Natural Resources Fund
Premier Return Fund
Real Estate Securities Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund

Franklin Funds Seeking
High Current Income

AGE High Income Fund
Global Government
Income Fund
Investment Grade
Income Fund
U.S. Government
Securities Fund

Franklin Funds Seeking
High Current Income and
Stability of Principal

Adjustable Rate
Securities Fund
Adjustable U.S. Government
Securities Fund
Short-Intermediate U.S.
Government
Securities Fund

Franklin Funds for
Non-U.S. Investors

Tax-Advantaged High Yield
Securities Fund
Tax-Advantaged International
Bond Fund
Tax-Advantaged U.S.
Government Securities Fund

Franklin Templeton Global
Currency Funds

German Government
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Hard Currency Fund

Franklin Money
Market Funds

Money Fund
Federal Money Fund
Tax-Exempt Money
Fund
California Tax-Exempt
Money Fund
New York Tax-Exempt
Money Fund
IFT U.S. Treasury Money
Market Portfolio

Franklin Fund for
Corporations

Corporate Qualified
Dividend Fund

Franklin Tax-Deferred
Annuity

Franklin Valuemark
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)

Fund Information: 1-800/342-5236
Shareholder Services: 1-800/632-2301

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.

*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).

**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.

***Portfolio of insured municipal securities.
<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
departments may be
monitored, recorded,
and accessed. These
calls can be determined
by the presence of
a regular beeping tone.

- --------------------------

[LOGO OF RECYCLED PAPER APPEARS HERE]

TEMPLETON
CHINA
WORLD
FUND, INC.

Semi-Annual Report
February 29, 1996

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]