SEMI ANNUAL REPORT
FEBRUARY 28, 1998
TEMPLETON CHINA
WORLD FUND, INC.
[FRANKLIN TEMPLETON LOGO]
PAGE
[FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS LOGO]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds, which are managed by many of the investment professionals he
selected and trained.
[PHOTO OF J. MARK MOBIUS]
J. MARK MOBIUS, Ph.D.
President
Templeton China World Fund, Inc.
Dr. Mobius, a German citizen, has been living in emerging market countries 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.
PAGE
SHAREHOLDER LETTER
Your Fund's Objective: The Templeton China World Fund, Inc. seeks long-term
capital appreciation by investing primarily in equity securities of "China
companies."
Dear Shareholder:
This semi-annual report of the Templeton China World Fund covers the period
ended February 28, 1998. During the six months under review, mainland China's
economy grew significantly and inflation remained relatively benign. However,
China's equity markets could not avoid the negative effects of the Asian
financial crisis, and stock prices on some of its exchanges suffered substantial
declines.
Asian currency problems hit Hong Kong particularly hard after several countries
in the region were forced to devalue their currencies. Hong Kong's government
defended its currency by raising overnight interbank interest rates
substantially. This enabled the authorities to maintain the Hong Kong dollar's
peg to the U.S. dollar, but precipitated a dramatic drop in property values.
Consequently, the stock value of banks holding property
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, on page 8 of this report.
CONTENTS
Shareholder Letter ........ 1
Performance Summary ....... 5
Financial Highlights &
Statement of Investments .. 7
Financial Statements ...... 13
Notes to Financial
Statements ................ 16
[FUND CATEGORY PYRAMID]
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/28/98
Hong Kong Shares 79.0%
China B-Shares 16.7%
Other Shares 1.1%
Short-Term
Investments &
Other Net Assets 3.2%
as loan collateral fell, and the Hang Seng Index dropped by 40% between October
3, 1997 and October 28, 1997.(1)
China's Shenzhen and Shanghai B-share markets were also hurt by the currency
crisis. Between August 31, 1997 and February 28, 1998, each dropped 30%. In
contrast, China's A-share markets were largely unaffected. During the reporting
period, the Shenzhen A-share market rose 2% and the Shanghai A-share market was
virtually unchanged.(2) One reason for the dichotomy between the performance of
A and B shares is that ownership in A-shares is restricted to domestic residents
who are less likely than foreign investors to sell their holdings. Perhaps the
best reason, however, for the lack of a collapse in A-share prices is that the
Chinese yuan is not fully convertible into other currencies and, therefore,
appears to be protected from speculative attacks.
Within this environment, the Fund posted a six-month cumulative total return of
- -21.36% in market-price terms, and -32.31% in net asset value terms, as
discussed in the Performance Summary on page 5.
On February 28, 1998, 79.0% of the Fund's total net assets were invested in Hong
Kong, 16.7% in mainland China and 1.1% elsewhere, with 3.2% in cash and other
liquid assets. The Fund's largest single position continued to be its shares of
HSBC Holdings Plc, the holding company for the Hongkong Bank. HSBC maintains
over 400 offices worldwide and has major subsidiaries in the U.S. and the U.K.
We also maintained our significant holdings of Cheung Kong Holdings Ltd. and New
World Development Co. Ltd., companies with large real estate holdings and
commercial interests in Hong Kong and mainland China.
(1). Market returns are measured in U.S. dollars and include reinvested
dividends. An index is an unmanaged group of securities that is used to measure
market performance. One cannot invest directly in an index.
(2). As measured in U.S. dollars. Market returns include reinvested dividends.
2
PAGE
Looking forward, Hong Kong's authorities face a dilemma. Keeping their currency
pegged to the U.S. dollar could invite speculative attacks by foreign investors.
This could cause upward pressure on interest rates, falling property values, a
weak banking sector, and stock price declines. On the other hand, floating the
Hong Kong dollar could result in spiraling inflation and eventual recession.
This is a difficult choice, but given the economy's underlying health, we
believe keeping the currency pegged to the U.S. dollar would be the correct
decision. Possibly a better solution would be to reduce Hong Kong's inflation
rate, which could allow for lower interest rates, higher property values, and
increased investment, thereby creating more natural demand for the currency.
Another factor complicating Hong Kong's problem is the Chinese yuan. There has
been speculation that it may be devalued to maintain the competitiveness of
China's exports versus the region's other devalued currencies. However, the
relationship between the yuan and the Hong Kong dollar makes it difficult to
maintain the dollar peg if the yuan were to be rapidly devalued.
Of course, investing in emerging markets involves special considerations, which
may include risks related to market and currency volatility, adverse social,
economic and political developments and the relatively small size and lesser
liquidity of these markets. Investing in any emerging market means accepting a
certain amount of volatility and, in some cases, severe market corrections.
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 1,268% in the last 15 years, but has suffered five declines of more
than 20% during that time.(3)
(3). Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1997.
TOP 10 HOLDINGS
2/28/98
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------------------------------------
HSBC Holdings Plc
Banking, Hong Kong 15.4%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong 10.0%
New World Development
Co. Ltd.
Real Estate, Hong Kong 7.6%
Hang Lung Development
Co. Ltd.
Real Estate, Hong Kong 5.5%
Sun Hung Kai Properties Ltd.
Real Estate, Hong Kong 5.4%
Swire Pacific Ltd., A & B
Multi-Industry,
Hong Kong 4.4%
Dairy Farm International
Holdings Ltd.
Merchandising, Hong Kong 4.2%
Wheelock & Company Ltd.
Multi-Industry, Hong Kong 2.8%
Hong Kong Electric Holdings Ltd.
Utilities Electric & Gas,
Hong Kong 2.7%
Hong Kong & Shanghai
Hotels Ltd.
Leisure & Tourism, Hong Kong 2.7%
3
PAGE
This discussion reflects the strategies we employed for the Fund during the six
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. All figures shown are as of February 28,
1998, and the Fund's holdings can be expected to change with market developments
and management of the portfolio. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing the securities we purchase or sell for the Fund.
We remain generally optimistic about the long-term prospects for the Hong Kong
and China markets. In particular, we are very positive about the prospects for
China's B-share markets when the Asian currency crisis begins to subside.
Sincerely,
/s/ J. Mark Mobius
- --------------------------------
J. Mark Mobius, Ph.D.
President
Templeton China World Fund, Inc.
On October 23, 1997, the Board of Directors of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund,
from time to time, at the discretion of management may purchase up to an
aggregate of 2 million shares of the Fund's Common Stock (approximately 10% of
the shares outstanding on October 17, 1997) in open-market transactions.
4
PAGE
PERFORMANCE SUMMARY
In market-price terms, Templeton China World Fund produced a -21.36% cumulative
total return for the six-month period ended February 28, 1998. Based on the
change in net asset value (in contrast to market price), the Fund delivered a
cumulative total return of -32.31% for the same period. Both total return
figures assume reinvestment of dividends and capital gains, if any, in
accordance with the dividend reinvestment plan.
During the reporting period, the Fund's closing price on the New York Stock
Exchange decreased $3.625 per share, from $12.50 on August 31, 1997, to $8.875
on February 28, 1998, while the net asset value decreased $6.73 per share, from
$17.32 to $10.59.
Shareholders received combined distributions of 95.0 cents ($0.95) per share,
including long-term capital gains of 56.5 cents ($0.565), short-term capital
gains of 12.5 cents ($0.125) and dividend income totaling 26.0 cents ($0.26).
Distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the Fund's portfolio, as well as the
level of the Fund's operating expenses.
Past performance is not predictive of future results.
5
PAGE
TEMPLETON CHINA WORLD FUND
Periods ended 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (9/9/93)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in net asset value -28.27% 9.03% -4.04%
Based on change in market price -25.90% 3.38% -22.23%
Average Annual Total Return(2)
Based on change in net asset value -28.27% 2.92% -0.92%
Based on change in market price -25.90% 1.11% -5.46%
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the periods indicated.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated.
All calculations assume reinvestment of dividends and capital gains, either at
net asset value or at market price on the reinvestment date, in accordance with
the dividend reinvestment plan and do not reflect sales charges that would have
been paid at inception or brokerage commissions that would have been paid on
secondary market purchases. Investment return and principal value will fluctuate
with market conditions, currency volatility, and the economic, social, and
political climates of the countries where investments are made. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.
Past performance is not predictive of future results.
PAGE
TEMPLETON CHINA WORLD FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1998 --------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994+
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period............. $17.32 $13.39 $12.07 $14.92 $14.10
-----------------------------------------------------------------------
Income from investment operations:
Net investment income........................... .10 .24 .27 .33 .16
Net realized and unrealized gain (loss)......... (5.88) 4.27 1.39 (1.91) .79
-----------------------------------------------------------------------
Total from investment operations................. (5.78) 4.51 1.66 (1.58) .95
-----------------------------------------------------------------------
Underwriting expenses deducted from capital...... -- -- -- -- (.07)
-----------------------------------------------------------------------
Less distributions from:
Net investment income........................... (.26) (.28) (.33) (.20) (.06)
Net realized gains.............................. (.69) (.30) (.01) (1.07) --
-----------------------------------------------------------------------
Total distributions.............................. (.95) (.58) (.34) (1.27) (.06)
-----------------------------------------------------------------------
Net asset value, end of period................... $10.59 $17.32 $13.39 $12.07 $14.92
-----------------------------------------------------------------------
Total Return*
Based on market value per share................. (21.36)% 14.97% 11.75% (29.58)% 9.54%
Based on net asset value per share.............. (32.31)% 35.33% 14.44% (11.13)% 6.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)................ $215,914 $353,049 $272,996 $245,982 $297,835
Ratios to average net assets:
Expenses........................................ 1.70%** 1.65% 1.65% 1.65% 1.84%**
Net investment income........................... 1.66%** 1.55% 2.14% 2.77% 1.09%**
Portfolio turnover rate.......................... 9.81% 19.51% 14.47% 3.01% 81.81%
Average commission rate paid***.................. $.0020 $.0016 $.0025 -- --
</TABLE>
* Total return is not annualized.
** Annualized.
*** Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
+ For the period September 9, 1993 (commencement of operations) to August 31,
1994.
See Notes to Financial Statements.
7
PAGE
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 96.8%
APPLIANCES & HOUSEHOLD DURABLES 2.3%
Semi-Tech Co. Ltd. ......................................... Hong Kong 10,477,522 $ 1,217,923
*Semi-Tech Co. Ltd., wts. .................................. Hong Kong 241,263 312
*Shanghai Shangling Electric Appliance, B................... China 5,787,780 1,527,974
*Shanghai Vacuum Electron Devices Co. Ltd., B............... China 9,817,545 1,668,983
Shenzhen Huafa Electronics Co. Ltd., B...................... China 826,998 162,355
Shenzhen Konka Electronic Group Co. Ltd., B................. China 453,600 456,383
------------
5,033,930
------------
AUTOMOBILES .6%
Jardine International Motor Holdings Ltd.................... Hong Kong 2,484,000 1,387,575
------------
BANKING 16.0%
HSBC Holdings Plc. ......................................... Hong Kong 1,148,619 33,230,953
Philippine Commercial International Bank Inc. .............. Philippines 24,000 84,475
Thai Farmers Bank Public Co. Ltd. .......................... Thailand 604,700 1,222,042
------------
34,537,470
------------
BROADCASTING & PUBLISHING
Times Publishing Ltd. ...................................... Singapore 9,000 17,772
------------
Building Materials & Components 2.4%
China Southern Glass Co. Ltd., B............................ China 7,199,340 1,692,321
K Wah International Holdings Ltd. .......................... Hong Kong 16,670,619 2,540,695
Shanghai Yaohua Pilkington Glass, B......................... China 4,720,000 896,800
Siam Cement Public Co. Ltd. ................................ Thailand 13,200 131,234
------------
5,261,050
------------
CHEMICALS 2.5%
Shanghai Chlor-Alkali Chemical Co. Ltd., B.................. China 9,756,000 1,678,032
Shanghai Petrochemical Co. Ltd., H.......................... China 15,490,000 2,560,827
*Shenzhen Petrochemical Shareholding Co. Ltd., B............ China 4,720,720 1,048,710
Singapore Petroleum Company, fgn. .......................... Singapore 2,000 1,086
------------
5,288,655
------------
CONSTRUCTION & HOUSING 1.3%
Hopewell Holdings Ltd. ..................................... Hong Kong 12,836,579 2,835,073
------------
ELECTRICAL & ELECTRONICS .6%
Great Wall Electronic International Ltd..................... Hong Kong 21,334,597 1,102,207
*Shanghai Automation Instrumentation Co., B................. China 1,381,340 226,540
------------
1,328,747
------------
ENERGY SOURCES .1%
*Inner Mongolia Yitai Coal Co. Ltd., B...................... China 484,250 205,322
------------
</TABLE>
8
PAGE
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES .4%
JCG Holdings Ltd. .......................................... Hong Kong 813,000 $ 412,144
Sun Hung Kai & Co. Ltd. .................................... Hong Kong 2,783,200 352,281
*Sun Hung Kai & Co. Ltd, wts. .............................. Hong Kong 989,040 22,227
------------
786,652
------------
FOOD & HOUSEHOLD PRODUCTS .7%
Golden Resources Development International Ltd.............. Hong Kong 7,568,000 606,027
Shanghai New Asia Group Co. Ltd., B......................... China 1,221,766 322,546
Tingyi (Cayman Islands) Holding Corp. ...................... Hong Kong 5,414,000 615,346
------------
1,543,919
------------
HEALTH & PERSONAL CARE .3%
*Zhuhai Sez Lizhu Pharmaceutical Group Inc., B.............. China 2,570,529 680,605
------------
INDUSTRIAL COMPONENTS 1.5%
Kian Joo Can Factory Bhd. .................................. Malaysia 28,000 48,498
Leader Universal Holdings Bhd. ............................. Malaysia 118,000 73,770
*Shanghai Refrigerator Compressor Co. Ltd., B............... China 2,397,944 685,812
+*Shanghai Rubber Belt Co. Ltd., B.......................... China 4,795,811 738,555
Shanghai Tyre & Rubber Co. Ltd., B.......................... China 6,890,990 1,777,875
------------
3,324,510
------------
LEISURE & TOURISM 3.1%
Hong Kong & Shanghai Hotels Ltd. ........................... Hong Kong 6,792,000 5,833,620
Overseas Union Enterprise Ltd. ............................. Singapore 33,000 80,642
Republic Hotels & Resorts Ltd. ............................. Singapore 45,000 18,328
*Shanghai Jin Jiang Tower Co. Ltd., B....................... China 3,700,976 703,185
Shangri-La Hotels (Malaysia) Bhd. .......................... Malaysia 36,000 15,004
------------
6,650,779
------------
MACHINERY & ENGINEERING 1.5%
Chen Hsong Holdings Ltd. ................................... Hong Kong 30,000 11,043
+*China Textile Machinery Co. Ltd., B....................... China 8,105,794 745,733
Guangzhou Shipyard International Co. Ltd., H................ China 88,000 10,570
Northeast Electric Transmission & Transformation, H......... China 3,052,000 374,479
*Shanggong Co. Ltd., B...................................... China 2,526,630 257,716
*Shanghai Erfangji Textile Machinery Co. Ltd., B............ China 12,645,787 1,087,538
*Shanghai Steel Tube Co. Ltd., B............................ China 5,929,280 640,362
*Shanghai Zhenhua Port Machinery Co. Ltd., B................ China 73,000 53,144
------------
3,180,585
------------
MERCHANDISING 4.9%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 7,616,357 9,139,628
Fortei Holdings Ltd. ....................................... Hong Kong 9,582,000 242,567
</TABLE>
9
PAGE
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING (CONT.)
Joyce Boutique Holdings Ltd. ............................... Hong Kong 10,181,000 $ 407,634
*Wo Kee Hong Holdings Ltd. ................................. Hong Kong 21,339,200 799,273
------------
10,589,102
------------
METALS & MINING .5%
*Bengang Steel Plates Co. Ltd. ............................. China 3,498,800 759,184
Maanshan Iron & Steel Co. Ltd., H........................... China 2,408,000 258,139
------------
1,017,323
------------
MISCELLANEOUS MATERIALS & COMMODITIES .1%
*Luoyang Glass Co. Ltd., H.................................. China 1,656,000 151,858
------------
MULTI-INDUSTRY 22.5%
Cheung Kong Holdings Ltd. .................................. Hong Kong 3,073,000 21,531,837
Jardine Matheson Holdings Ltd. ............................. Hong Kong 615,186 2,879,071
Jardine Strategic Holdings Ltd. ............................ Hong Kong 1,834,000 5,226,900
Lai Sun Garment International Ltd. ......................... Hong Kong 5,988,000 3,248,253
Swire Pacific Ltd., A....................................... Hong Kong 657,000 3,954,304
Swire Pacific Ltd., B....................................... Hong Kong 5,525,500 5,566,535
Wheelock and Company Ltd. .................................. Hong Kong 5,306,000 6,133,510
------------
48,540,410
------------
REAL ESTATE 22.3%
Hang Lung Development Co. Ltd. ............................. Hong Kong 8,155,000 11,954,698
*Lai Fung Holdings Ltd. .................................... Hong Kong 234,320 40,251
Lai Sun Development Co. Ltd. ............................... Hong Kong 11,816,000 4,654,672
*Lai Sun Development Co. Ltd., wts. ........................ Hong Kong 1,563,800 11,109
New World Development Co. Ltd. ............................. Hong Kong 4,433,182 16,347,090
Shanghai Jinqiao Export Processing Zone Dev., B............. China 3,707,328 1,408,785
*Shanghai Lujiaxui Finance & Trade Zone Dev. Stock Co Ltd,
B......................................................... China 392,920 278,187
Shanghai Wai Gaoqiao Free Trade Zone Dev. Co., B............ China 543,800 234,922
*Shenzhen Properties & Resources Development Ltd., B........ China 4,750,860 944,956
Shenzhen Vanke Co. Ltd., B.................................. China 324,000 183,290
Sun Hung Kai Properties Ltd. ............................... Hong Kong 1,557,100 11,664,424
Tian An China Investments Co. Ltd. ......................... Hong Kong 1,887,750 108,498
United Industrial Corporation Ltd., fgn. ................... Singapore 271,000 109,537
United Overseas Land Ltd. .................................. Singapore 346,000 307,461
------------
48,247,880
------------
RECREATION & OTHER CONSUMER GOODS 4.7%
+China First Pencil Co. Ltd., B............................. China 14,306,036 3,261,776
KTP Holdings Ltd. .......................................... Hong Kong 223,250 26,239
*KTP Holdings Ltd., wts. ................................... Hong Kong 53,050 651
*Phoenix Co. Ltd. .......................................... China 6,036,980 579,550
*Shanghai Wingsung Co. Ltd., B.............................. China 5,072,317 882,583
</TABLE>
10
PAGE
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
RECREATION & OTHER CONSUMER GOODS (CONT.)
*Shenzhen China Bicycles Co. Ltd., B........................ China 7,454,900 $ 1,328,739
Yue Yuen Industrial (Holdings) Ltd. ........................ Hong Kong 2,110,200 4,060,960
------------
10,140,498
------------
TELECOMMUNICATIONS
Philippine Long Distance Telephone Co., ADR................. Philippines 3,000 79,125
------------
TEXTILES & APPAREL 1.6%
Goldlion Holdings Ltd. ..................................... Hong Kong 7,140,000 2,144,075
Laws International Holdings Ltd. ........................... Hong Kong 6,412,000 761,904
*Shanghai Kaikai Industrial Company Limited................. China 1,620,000 460,080
------------
3,366,059
------------
TRANSPORTATION 3.0%
Chiwan Wharf Holdings Ltd., B............................... China 3,346,000 985,325
Cross Harbour Tunnel Co. Ltd. .............................. Hong Kong 1,175,000 1,957,701
Delgro Corp. ............................................... Singapore 8,000 9,874
Guangshen Railway Co. Ltd., ADR............................. China 88,000 1,138,500
IMC Holdings Ltd. .......................................... Hong Kong 2,649,000 615,848
Malaysian Airline System Bhd. .............................. Malaysia 102,000 117,045
Neptune Orient Lines Ltd. .................................. Singapore 107,000 50,182
Orient Overseas International Ltd. ......................... Hong Kong 538,000 236,254
*SBS Bus Service Ltd., fgn. ................................ Singapore 5,500 2,138
*Shanghai Dazhong Taxi Shareholding Co. Ltd., B............. China 1,567,000 1,272,404
------------
6,385,271
------------
UTILITIES ELECTRICAL & Gas 3.9%
Guangdong Electric Power Development Co Ltd., B............. China 179,000 108,198
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 1,647,600 5,851,986
Shandong Huaneng Power Development Co. Ltd., ADR............ China 196,200 1,655,437
Wing Shan International Ltd. ............................... Hong Kong 5,534,000 807,675
------------
8,423,296
------------
WHOLESALE & INTERNATIONAL TRADE
Metro Holdings Ltd., fgn. .................................. Singapore 29,000 39,728
------------
TOTAL COMMON STOCKS (Cost $266,243,136)..................... 209,043,194
------------
</TABLE>
11
PAGE
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $6,923,764) 3.2%
U.S. Treasury Bills, 4.965% to 5.365%, with maturities to
6/25/98................................................... United States $ 6,991,000 $ 6,923,404
------------
TOTAL INVESTMENTS (Cost $273,166,900) 100.0%................ 215,966,598
OTHER ASSETS, LESS LIABILITIES.............................. (52,241)
------------
TOTAL NET ASSETS 100.0%..................................... $215,914,357
============
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
+The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" at February
28, 1998, were $4,746,064.
See Notes to Financial Statements.
12
PAGE
TEMPLETON CHINA WORLD FUND, INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED)
Assets:
Investments in securities, at value (cost $273,166,900).... $215,966,598
Cash....................................................... 46,127
Receivables:
Investment securities sold................................ 456,635
Dividends and interest.................................... 28,128
Organization costs......................................... 2,600
------------
Total assets.......................................... 216,500,088
------------
Liabilities:
Payable to affiliates...................................... 211,543
Accrued expenses........................................... 374,188
------------
Total liabilities..................................... 585,731
------------
Net assets, at value........................................ $215,914,357
------------
------------
Net assets consist of:
Distributions in excess of net investment income........... $ (179,328)
Net unrealized depreciation................................ (57,199,079)
Accumulated net realized loss.............................. (12,420,960)
Capital shares............................................. 285,713,724
------------
Net assets, at value........................................ $215,914,357
------------
------------
Net asset value per share ($215,914,357 / 20,383,771 shares
outstanding).............................................. $10.59
------------
------------
See Notes to Financial Statements.
13
PAGE
TEMPLETON CHINA WORLD FUND, INC.
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<S> <C> <C>
Investment Income:
(net of foreign taxes of $83,129)
Dividends.................................................. $ 3,877,672
Interest................................................... 184,273
-------------
Total investment income............................... $ 4,061,945
Expenses:
Management fees (Note 3)................................... 1,526,736
Administrative fees (Note 3)............................... 305,347
Transfer agent fees........................................ 38,360
Custodian fees............................................. 98,089
Reports to shareholders.................................... 21,554
Registration and filing fees............................... 16,037
Professional fees (Note 3)................................. 28,010
Directors' fees and expenses............................... 15,195
Amortization of organization costs......................... 2,353
Other...................................................... 4,052
-------------
Total expenses........................................ 2,055,733
-------------
Net investment income........................... 2,006,212
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (10,641,685)
Foreign currency transactions............................. (213,081)
-------------
Net realized loss...................................... (10,854,766)
Net unrealized appreciation (depreciation) on:
Investments............................................... (109,253,553)
Translation of assets and liabilities denominated in
foreign currencies...................................... 331,652
-------------
Net unrealized depreciation............................ (108,921,901)
-------------
Net realized and unrealized loss............................ (119,776,667)
-------------
Net decrease in net assets resulting from operations........ $(117,770,455)
==============
</TABLE>
See Notes to Financial Statements.
14
PAGE
TEMPLETON CHINA WORLD FUND, INC.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
February 28, 1998 Year Ended
(unaudited) August 31, 1997
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,006,212 $ 4,971,637
Net realized gain (loss) from investments and foreign
currency transactions.................................... (10,854,766) 12,710,529
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (108,921,901) 74,192,489
-------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (117,770,455) 91,874,655
Distributions to shareholders from:
Net investment income..................................... (5,299,780) (5,605,537)
Net realized gains........................................ (14,064,803) (6,215,883)
-------------------------------
Net increase (decrease) in net assets................... (137,135,038) 80,053,235
Net assets:
Beginning of period........................................ 353,049,395 272,996,160
-------------------------------
End of period.............................................. $ 215,914,357 $353,049,395
-------------------------------
-------------------------------
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ (179,328) $ 3,114,240
-------------------------------
-------------------------------
</TABLE>
See Notes to Financial Statements.
15
PAGE
TEMPLETON CHINA WORLD FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING CHANGES
Templeton China World Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a closed-end, non-diversified investment company. The
Fund seeks to achieve its objective by investing primarily in equity securities
of China companies. The following summarizes the Fund's significant accounting
policies.
A. SECURITIES VALUATIONS:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
B. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
C. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as
16
PAGE
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING CHANGES (cont.)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (cont.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
E. ORGANIZATION COSTS:
Organization costs are 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.
2. CAPITAL STOCK
At February 28, 1998, there were 100 million shares authorized ($0.01 par
value). For the six months ended February 28, 1998 and for the year ended August
31, 1997 there were no share transactions; all reinvested distributions were
satisfied with previously issued shares purchased in the open market.
3. TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Asset
Management, Ltd. (TAML) and Franklin Templeton Services, Inc. (FT Services), the
Fund's investment manager and administrative manager, respectively.
The Fund pays an investment management fee to TAML of 1.25% per year of the
average weekly net assets of the Fund. The Fund pays an administrative fee to FT
Services of 0.25% per year of the average weekly net assets of the Fund, of
which 0.20% is paid to Princeton Administrators, L.P., for sub-administrative
services.
Included in professional fees are legal fees of $15,426 that were paid to a law
firm in which a partner is an officer of the Fund.
17
PAGE
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES
At February 28, 1998, the net unrealized depreciation based on the cost of
investments for income taxes purposes of $273,174,460 was as follows:
Unrealized appreciation..................................... $ 33,696,463
Unrealized depreciation..................................... (90,904,325)
------------
Net unrealized depreciation................................. $(57,207,862)
============
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatments of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1998 aggregated $27,267,078 and $23,555,602,
respectively.
18
PAGE
TEMPLETON CHINA WORLD FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 17, 1998
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 East Broward Boulevard, Ft. Lauderdale, Florida, on February 17, 1998. The
purpose of the meeting was to elect three Directors of the Fund, to ratify the
selection of McGladrey & Pullen, LLP, as the Fund's independent auditors for the
fiscal year ending August 31, 1998, and in their discretion, to authorize the
proxyholders to vote upon other such matters that may legally come before the
meeting or any adjournment of the meeting. At the meeting, the following persons
were elected by the shareholders to serve as Directors of the Fund: Andrew H.
Hines, Jr., Charles B. Johnson and Charles E. Johnson.* The shareholders
ratified the selection of McGladrey & Pullen, LLP, to serve as the Fund's
independent auditors for the fiscal year ending August 31, 1998. No other
business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of three (3) Directors for the term set forth below:
<TABLE>
<CAPTION>
% of % of
Outstanding Outstanding
Term Expiring 2001: For Shares Withheld Shares
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew H. Hines, Jr. ....................................... 12,590,200 61.77% 1,278,266 6.27%
Charles B. Johnson.......................................... 12,606,337 61.85% 1,262,129 6.19%
Charles E. Johnson.......................................... 12,566,941 61.65% 1,301,525 6.39%
</TABLE>
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP, as
independent auditors for the Fund for the fiscal year ending August 31, 1998:
% of % of % of
Outstanding Outstanding Outstanding
For Shares Against Shares Abstain Shares
- -----------------------------------------------------------------------
12,957,702 63.57% 239,140 1.17% 671,624 3.30%
*Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Galbraith,
Edith E. Holiday, Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps are
Directors of the Fund who are currently serving and whose terms of office
continued after the Annual Meeting of Shareholders.
19
PAGE
TEMPLETON CHINA WORLD FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with
the following features: -- Shareholders must affirmatively elect to participate
in the Plan; Stock dividends and capital gains distributions will be reinvested
automatically; ChaseMellon Shareholder Services, Investor Services, P.O. Box
3338, South Hackensack, NJ 07606-1938, will provide additional Plan information
upon request. -- Whenever the Fund declares dividends in either cash or common
stock of the Fund, if the market price is equal to or exceeds net asset value at
the valuation date, the participant 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 or if dividends and/or capital gains distributions are payable only
in cash, the participant will receive shares purchased on the New York Stock
Exchange or otherwise on the open market. -- A participant has the option of
submitting additional payments to Mellon Securities Trust Company (the "Plan
Agent"), in any amounts of at least $100, up to a maximum of $5,000 per month,
for the purchase of Fund shares for his or her account. These payments shall be
made by check or money order payable to "Mellon Securities Trust Co." and sent
to ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009,
Pittsburgh, PA 15250-8009, Attn: Templeton China World Fund, Inc. The Plan Agent
shall apply such payments (less a $5.00 service charge and less a pro rata share
of trading fees) to purchases of Fund shares in the open market. -- The
automatic reinvestment of dividends and/or capital gains does not relieve the
participant of any income tax which may be payable on dividends or
distributions. -- The participant may withdraw from the Plan without penalty at
any time by written notice to the Plan Agent sent to ChaseMellon Shareholder
Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938.
Upon withdrawal, the participant will receive, without charge, stock
certificates issued in the participant's name for all full shares held by the
Plan Agent; or, if the participant wishes, the Plan Agent will sell the
participant's shares and send the proceeds, less a service fee of $5.00 and less
trading fees. -- 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
trading fees. Trading fees will be deducted from amounts to be invested.
SHAREHOLDER INFORMATION
Shares of Templeton China World Fund, Inc. are traded daily on the New York
Stock Exchange under the symbol "TCH". Information about the net asset value and
the market price is published each Monday in the Wall Street Journal, weekly in
Barron's and each Saturday in The New York Times and other newspapers. Daily
market prices for the Fund's shares are published in the New York Stock Exchange
Composite Transactions section of newspapers.
For current information about dividends and shareholder accounts, call
1-800-292-9293.
The daily closing net asset value may be obtained when available on a two
business day delay basis by calling Franklin Templeton Fund Information after 10
a.m. Eastern Time any business day at 1-800-DIAL BEN (1-800-342-5236).
If any shareholder is not receiving copies of the Reports to Shareholders
because shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton China World Fund, Inc., 100 Fountain Parkway, P.O.
Box 33030, St. Petersburg, FL 33733-8030.
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone calls
to or from our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
Fund Allocator Series
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
For Corporations
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money 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***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
* These funds are now closed to new accounts, with the exception of retirement
accounts.
** Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
*** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+ Portfolio of insured municipal securities.
++ Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
10/97.1
PAGE
TEMPLETON CHINA WORLD FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
Chase Mellon Shareholder Services
450 West 33rd Street
New York, New York 10001
1-800/416-5585
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of investments made for the Fund may go
down as well as up, 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 this risk 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.
[RECYCLE LOGO] Printed on recycled paper
TLTCH S98 04/98
