ANNUAL REPORT
[FRANKLIN TEMPLETON GLOBAL LOGO]
AUGUST 31, 2000
TEMPLETON CHINA
WORLD FUND, INC.
[FRANKLIN TEMPLETON LOGO]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
<PAGE>
[MARK MOBIUS PHOTO]
MARK MOBIUS
President
Templeton China World Fund, Inc.
Mark Mobius 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
business practices and customs unique to developing nations.
<PAGE>
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
YOUR FUND'S GOAL: TEMPLETON CHINA WORLD FUND SEEKS LONG-TERM CAPITAL
APPRECIATION. UNDER NORMAL MARKET CONDITIONS, THE FUND INVESTS PRIMARILY IN
EQUITY SECURITIES OF "CHINA COMPANIES."
--------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to bring you this annual report for Templeton China World Fund,
which covers the 12 months ended August 31, 2000 -- a period of significant
economic progress for China, Hong Kong and Taiwan. Taiwan recorded its fastest
growth in eight years during the first quarter of 2000. And its stock market
benefited from the government's announcement that it would shelve tax plans for
the next three years.
In Hong Kong, the government announced plans to further liberalize the region's
telecommunications market, build a Cyberport, and partially privatize the Mass
Transit Railway. It also took steps to improve corporate governance,
transparency and accountability. And, in an effort to attract foreign
investment, it introduced a new unit known as Invest Hong Kong, while preparing
for the launch of a U.S. dollar-clearing system.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ........... 1
Performance Summary .......... 5
Important Notice to
Shareholders ................. 6
Financial Highlights &
Statement of Investments ..... 7
Financial Statements ......... 11
Notes to the Financial
Statements ................... 14
Report of Independent
Accountants .................. 17
Tax Designation .............. 18
</TABLE>
FUND CATEGORY
[PYRAMID GRAPHIC]
Global
Growth
Growth & Income
Income
Tax-Free Income
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 8.
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
[PIE CHART]
Hong Kong 46.6%
Taiwan 18.9%
China 18.4%
Philippines 1.5%
Singapore 0.9%
Thailand 0.6%
Short-Term
Investments &
Other Net Assets
13.1%
This should provide real-time U.S. dollar settlement services and help to
strengthen Hong Kong's reputation as Asia's financial hub. These actions
appeared to instill greater investor confidence in Hong Kong and contributed to
gains in its stock market. Economically, the recession which began in 1997,
officially ended as Hong Kong's economy grew 14.3% during the first quarter of
2000 -- its fastest quarterly growth since 1987.(1)
China also showed signs of economic recovery during the reporting period.
Macroeconomic data indicated that its gross domestic product rose 8.2%
year-on-year in the first half of 2000, and foreign direct investment in Beijing
jumped over 85% in the first five months of 2000. The U.S. House of
Representatives approved and the Senate was ready to approve legislation that
would grant China permanent, normal trading relations. Both the U.S. and the
European Union finally signed deals with China, thereby removing the major
barriers to China's membership in the World Trade Organization. In preparation
for entering the World Trade Organization, China decided against increasing
corporate taxes for foreign-invested businesses and opened previously closed
mainland sectors to international investors. Plans to merge the Shanghai and
Shenzhen stock exchanges should also enhance liquidity and attract foreign
investors.
To further encourage investors, the Chinese government announced plans to review
and, if necessary, amend laws and regulations to make its economic and trade
systems more consistent with international practices. China also signed several
agreements with Russia aimed at promoting economic relations between the two
nations and embarked on numerous joint ventures with international entities in
fields such as utilities, fund management, scientific research and financial
leasing.
(1.) Source: Hong Kong constant gross domestic product. Year-over-year
percentage change from 9/30/85-6/30/00.
2
<PAGE>
Within this environment, the Fund posted a 7.86% one-year cumulative total
return in market-price terms and an 18.50% one-year cumulative total return in
net asset value terms, as shown in the Performance Summary on page 5.
During the 12 months under review, we attempted to profit from the region's
economic recovery by making several changes in the Fund's portfolio. We
liquidated all of our positions in the China Shenzhen market and decreased our
Hong Kong holdings. This, in turn, enabled us to increase our China 'H' (Hong
Kong-listed shares of Chinese state-owned companies) and Taiwanese holdings.
Selective purchases and sales also enhanced our greater exposure to the
electrical and electronics sectors and reduced our holdings in the real estate
and telecommunications sectors. As of August 31, 2000, real estate was the
portfolio's largest investment sector.
The changes listed above, plus changes in the value of individual stocks during
the reporting period led to the replacement of five of the Fund's top 10
holdings. Hon Hai Precision (Taiwan), Ritek Corp. (Taiwan), Pacific Century
Cyberworks (Hong Kong), Hutchison Whampoa (Hong Kong) and Zhejiang Expressway
(China 'H' market) replaced Hong Kong and China companies China Mobile (formerly
known as China Telecom), Citic Pacific, China Resources, Beijing Datang Power
Generation and The Hong Kong and Shanghai Hotels.
Looking forward, we are optimistic about the long-term prospects for Templeton
China World Fund. We expect the Hong Kong and Taiwan economies to continue to
perform well, and China appears to be on the right track. Its anticipated entry
into the World Trade Organization could stimulate more economic reform and
provide a boost to stock prices there, but
TOP 10 HOLDINGS
8/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
----------------------------------------
<S> <C>
Cheung Kong Holdings Ltd. 8.3%
Real Estate, Hong Kong
Hutchison Whampoa Ltd. 4.9%
Diversified Financials,
Hong Kong
Dairy Farm International
Holdings Ltd. 4.3%
Food & Drug Retailing,
Hong Kong
Jardine Matheson
Holdings Ltd. 4.2%
Food & Drug Retailing,
Hong Kong
Pacific Century
Cyberworks Ltd. 3.8%
Diversified Telecommunication
Services, Hong Kong
Hon Hai Precision
Industry Co. Ltd. 3.3%
Electronic Equipment &
Instruments, Taiwan
HSBC Holdings PLC 3.3%
Banks, Hong Kong
Ritek Corp. 3.1%
Computers &
Peripherals, Taiwan
Zhejiang Expressway
Co. Ltd., H 2.9%
Transportation
Infrastructure, China
Hang Lung
Development Co. Ltd. 2.4%
Real Estate, Hong Kong
</TABLE>
3
<PAGE>
we plan to keep an eye on future developments and invest with caution until we
see more substantial results.
Of course, investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
For example, Hong Kong's equity market has increased 924% in the last 15 years,
but has suffered 6 quarterly declines of more than 15% each during that time.
Investing in "China companies" also entails special considerations, including
risks related to market and currency volatility, adverse economic, social and
political developments, and the relatively small size and lesser liquidity of
these markets.(2) While short-term volatility can be disconcerting, declines
exceeding 50% are not unusual in emerging markets.
Thank you for your continued support. We welcome your comments and suggestions.
Sincerely,
/s/MARK MOBIUS
Mark Mobius
President
Templeton China World Fund, Inc.
(2.) Source: Hong Kong's Hang Seng Index. Based on quarterly percentage price
change over 15 years ended June 30, 2000. Market return is in U.S. dollar terms
and does not include reinvested dividends. The Hang Seng Index is a
capitalization-weighted index of 33 companies that represent approximately 70%
of the total market capitalization of the Stock Exchange of Hong Kong. The
components of the Index are divided into four subindexes: Commerce and Industry,
Finance, Utilities and Properties.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
4
<PAGE>
ONE-YEAR PERFORMANCE SUMMARY AS OF 8/31/00
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of the Fund's operating expenses. Past distributions are not indicative of
future trends. All total returns include reinvested distributions according to
the terms specified in the Fund's dividend reinvestment and cash purchase plan
and do not reflect any sales charges paid at inception or brokerage commissions
paid on secondary market purchases.
One-Year Total Return 18.50% Based on change in Net Asset Value
7.86% Based on change in Market Price on
the New York Stock Exchange (NYSE)
<TABLE>
<S> <C> <C>
Net Asset Value (NAV) $11.33 (8/31/00) $9.83 (8/31/99)
Change in NAV +$1.50
Market Price (NYSE) $8.0000 (8/31/00) $7.6250 (8/31/99)
Change in Market Price +$0.3750
Distributions (9/1/99-8/31/00) Dividend Income $0.2183
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
1-YEAR 5-YEAR (9/9/93)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in
NAV 16.74% 5.42% 0.43%
Based on change in
market price 13.06% - 8.91% - 28.13%
Average Annual Total Return(2)
Based on change in
NAV 16.74% 1.06% 0.06%
Based on change in
market price 13.06% - 1.85% -4.57%
</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.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. Also, as
a non-diversified investment company investing in "China companies," the Fund
may invest in a relatively small number of issuers and, as a result, be subject
to a greater risk of loss with respect to its portfolio securities. You may have
a gain or loss when you sell your shares.
For updated performance figures, please call Franklin Templeton at
1-800/342-5236. Past performance does not guarantee future results.
5
<PAGE>
IMPORTANT NOTICE TO SHAREHOLDERS
DEFINITIONS OF "EMERGING MARKET" AND "EMERGING MARKET COMPANY." The Fund used
the following definitions of "emerging market" and "emerging market company" to
reflect the dynamic nature of what constitutes an "emerging market" or an
"emerging market company." The following definitions generally will be used in
managing the Fund's portfolio:
"Emerging market" countries are (i) countries that are generally considered low
or middle income countries by the International Bank of Reconstruction and
Development (commonly known as the World Bank) and the International Finance
Corporation; or (ii) countries that are classified by the United Nations or
otherwise regarded by their authorities as developing or (iii) countries with a
stock market capitalization of less than 3% of the Morgan Stanley Capital
International World Index.
"Emerging market companies" are (i) companies whose principal securities trading
markets are in emerging market countries or (ii) companies that derive a
significant share of their total revenue from either goods or services produced
or sales made in emerging market countries or (iii) companies that have a
significant portion of their assets in emerging market countries or (iv)
companies that are linked to currencies of emerging market countries or (v)
companies that are organized under the laws of or with principal offices in,
emerging market countries.
These definitions as used by the Fund's manager may differ from the definition
of the same terms as used in managing other Franklin Templeton funds. The Board
of Directors may change these definitions without shareholder approval.
REPURCHASE PROGRAM
In May 2000, the Board of Directors of the Fund approved expansion of the Fund's
open-market share repurchase program. Under the Fund's previously announced
open-market share repurchase program, the Fund was authorized to purchase, from
time to time, up to a maximum of 2 million shares of the Fund's common stock in
open-market transactions, at the discretion of management (approximately 10% of
the shares outstanding at the time the program was initially implemented).
The Board's recent action removed the 10% limitation on share repurchases in
order to give management greater flexibility to engage in an aggressive share
repurchase program in efforts to address the Fund's discount to net asset value.
The amount and timing of additional purchases, and the extent to which they may
exceed the previous limitation, will be at the discretion of the Fund's
management, taking into account various factors, including market conditions,
cash on hand and the availability of other attractive investments.
6
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $9.83 $6.30 $17.32 $13.39 $12.07
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .23 .10 .30 .24 .27
Net realized and unrealized gains (losses)................ 1.42 3.65 (10.45) 4.27 1.39
--------------------------------------------------------
Total from investment operations........................... 1.65 3.75 (10.15) 4.51 1.66
--------------------------------------------------------
Capital share repurchases.................................. .07 -- .08 -- --
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.22) (.21) (.26) (.28) (.33)
Net realized gains........................................ -- (.01) (.69) (.30) (.01)
--------------------------------------------------------
Total distributions........................................ (.22) (.22) (.95) (.58) (.34)
--------------------------------------------------------
Net asset value, end of year............................... $11.33 $9.83 $6.30 $17.32 $13.39
========================================================
Total Return
Based on market value per share........................... 7.86% 82.81% (61.83)% 14.97% 11.75%
Based on net asset value per share........................ 18.50% 61.12% (59.73)% 35.33% 14.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $213,953 $189,994 $121,697 $353,049 $272,996
Ratios to average net assets:
Expenses.................................................. 1.68% 1.69% 1.68% 1.65% 1.65%
Net investment income..................................... 2.21% 1.20% 2.88% 1.55% 2.14%
Portfolio turnover rate.................................... 142.49% 83.88% 34.75% 19.51% 14.47%
</TABLE>
+Based on average weighted shares outstanding effective year ended August 31,
1999.
See Notes to Financial Statements.
7
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 86.6%
AUTOMOBILES 1.2%
Qingling Motors Co. Ltd., H................................. China 15,274,000 $ 2,467,560
------------
BANKS 4.4%
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 223,700 231,225
HSBC Holdings PLC........................................... Hong Kong 492,395 7,007,788
Oversea Chinese Banking Corp. Ltd. ......................... Singapore 141,900 981,009
*Philippine National Bank................................... Philippines 719,200 884,556
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 426,400 260,795
------------
9,365,373
------------
BEVERAGES 2.1%
Fraser and Neave Ltd. ...................................... Singapore 251,600 935,479
Tsingtao Brewey Co. Ltd., H................................. China 12,259,000 3,536,567
------------
4,472,046
------------
CHEMICALS 2.0%
Beijing Yanhua Petrochemical Company Ltd., H................ China 28,218,000 4,233,080
------------
COMMERCIAL SERVICES & SUPPLIES 2.1%
Cosco Pacific Ltd. ......................................... Hong Kong 5,024,000 4,541,331
------------
COMPUTERS & PERIPHERALS 7.2%
*Accton Technology Corp. ................................... Taiwan 2,014,000 4,375,091
Advantech Co. Ltd. ......................................... Taiwan 386,000 2,236,061
*Compal Electronics Inc. ................................... Taiwan 1,139,000 2,181,044
*Ritek Corp. ............................................... Taiwan 1,682,000 6,631,105
------------
15,423,301
------------
CONSTRUCTION MATERIALS 2.1%
Cheung Kong Infrastructure Holdings Ltd. ................... Hong Kong 2,612,000 4,470,940
------------
DIVERSIFIED FINANCIALS 8.3%
Beijing Enterprises Holdings Ltd. .......................... Hong Kong 310,000 363,686
China Everbright Ltd. ...................................... China 5,024,000 4,702,371
Hutchison Whampoa Ltd. ..................................... Hong Kong 747,400 10,541,202
Swire Pacific Ltd., A....................................... Hong Kong 321,500 2,205,358
------------
17,812,617
------------
DIVERSIFIED TELECOMMUNICATION SERVICES 4.9%
*Pacific Century Cyberworks Ltd. ........................... Hong Kong 4,410,731 8,200,172
Philippine Long Distance Telephone Co., ADR................. Philippines 141,420 2,386,462
------------
10,586,634
------------
</TABLE>
8
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRIC UTILITIES 4.9%
Beijing Datang Power Generation Co. Ltd., H................. China 9,364,000 $ 2,197,136
*Huaneng Power International Inc., H........................ China 11,912,000 4,963,779
Shandong Huaneng Power Development Co. Ltd., ADR............ China 434,470 3,312,834
------------
10,473,749
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 6.0%
Hon Hai Precision Industry Co. Ltd. ........................ Taiwan 921,100 7,025,527
*United Epitaxy Co. Ltd. ................................... Taiwan 883,000 2,202,349
*Via Technologies Inc. ..................................... Taiwan 268,500 3,577,408
------------
12,805,284
------------
FOOD & DRUG RETAILING 10.5%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 20,016,434 9,207,560
Jardine Matheson Holdings Ltd. ............................. Hong Kong 1,825,837 8,946,601
Ng Fung Hong Ltd. .......................................... Hong Kong 7,730,000 4,237,015
------------
22,391,176
------------
FOOD PRODUCTS 1.9%
UNI-President Enterprises Corp. ............................ Taiwan 5,904,360 4,066,403
------------
HOTELS RESTAURANTS & LEISURE 2.1%
Hong Kong & Shanghai Hotels Ltd. ........................... Hong Kong 7,180,500 4,511,232
------------
HOUSEHOLD DURABLES 1.8%
Guangdong Kelon Electrical Holdings. Ltd., H................ China 6,813,000 2,249,365
*TCL International Holdings Inc. ........................... China 5,712,000 1,629,531
------------
3,878,896
------------
INDUSTRIAL CONGLOMERATES 1.8%
*China Aerospace International Holdings Ltd. ............... Hong Kong 10,249,000 1,576,911
China Merchants Holdings International Co. Ltd. ............ Hong Kong 2,788,000 2,198,428
------------
3,775,339
------------
INSURANCE .2%
*China Insurance International Holdings Co. Ltd. ........... Hong Kong 2,266,000 488,105
------------
MACHINERY 2.0%
*Procomp Informatics Co. Ltd. .............................. Taiwan 775,000 4,265,025
------------
MEDIA
Asia Satellite Telecommunications Hldgs. Ltd. .............. Hong Kong 33,000 96,470
------------
METALS & MINING 1.1%
*Angang New Steel Company Ltd., H........................... China 18,236,000 2,244,632
Yanzhou Coal Mining Co. Ltd., H............................. China 660,000 190,402
------------
2,435,034
------------
</TABLE>
9
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
PHARMACEUTICALS .6%
China Pharmaceutical Enterprise & Investment Corp. Ltd. .... China 9,810,000 $ 1,257,805
------------
REAL ESTATE 13.2%
Cheung Kong Holdings Ltd. .................................. Hong Kong 1,369,000 17,816,150
Hang Lung Development Co. Ltd. ............................. Hong Kong 5,552,000 5,160,976
Henderson China Holdings Limited............................ Hong Kong 2,719,000 1,307,329
Hong Kong Land Holdings Ltd. ............................... Hong Kong 1,922,200 3,844,400
United Industrial Corporation Ltd. ......................... Singapore 142,000 67,647
------------
28,196,502
------------
ROAD & RAIL
Guangshen Railway Co. Ltd., H............................... China 178,000 24,192
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS 1.8%
*Siliconware Precision Industries Co. Ltd. ................. Taiwan 2,493,840 3,852,420
------------
TRANSPORTATION INFRASTRUCTURE 4.4%
Anhui Expressway Co. Ltd. .................................. China 786,000 76,591
Jiangsu Expressway Company Ltd. ............................ Hong Kong 16,192,000 2,927,278
*Shenzhen Expressway Co. Ltd., H............................ China 408,000 59,113
Zhejiang Expressway Co. Ltd., H............................. China 33,822,000 6,244,622
------------
9,307,604
------------
TOTAL COMMON STOCKS (COST $177,049,905)..................... 185,198,118
------------
PREFERRED STOCKS (COST $1,594,281) .3%
*Siam Commercial Bank, 5.25%, cvt. pfd, 144A, fgn. ......... Thailand 1,634,000 719,560
------------
<CAPTION>
PRINCIPAL
AMOUNT**
-----------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $27,493,577) 12.8%
U.S. Treasury Bills, 5.550% to 6.295%, with maturities to
11/24/00.................................................. United States $27,748,000 27,493,067
------------
TOTAL INVESTMENTS (COST $206,137,763) 99.7%................. 213,410,745
OTHER ASSETS, LESS LIABILITIES .3%.......................... 542,365
------------
TOTAL NET ASSETS 100.0%..................................... $213,953,110
============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
See Notes to Financial Statements.
10
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $206,137,763).... $213,410,745
Cash....................................................... 14,115
Receivables:
Investment securities sold................................ 1,248,856
Dividends and interest.................................... 413,482
------------
Total assets.......................................... 215,087,198
------------
Liabilities:
Payables:
Investment securities purchased........................... 711,014
To affiliates............................................. 268,393
Accrued expenses........................................... 154,681
------------
Total liabilities..................................... 1,134,088
------------
Net assets, at value........................................ $213,953,110
============
Net assets consist of:
Undistributed net investment income........................ $ 1,503,457
Net unrealized appreciation................................ 7,272,979
Accumulated net realized loss.............................. (69,280,963)
Capital shares............................................. 274,457,637
------------
Net assets, at value........................................ $213,953,110
============
Net asset value per share ($213,953,110 / 18,882,972 shares
outstanding).............................................. $11.33
============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $53,394)
Dividends.................................................. $ 6,288,461
Interest................................................... 1,585,621
------------
Total investment income............................... $ 7,874,082
Expenses:
Management fees (Note 3)................................... 2,531,021
Administrative fees (Note 3)............................... 506,205
Transfer agent fees........................................ 106,313
Custodian fees............................................. 94,158
Reports to shareholders.................................... 34,511
Registration and filing fees............................... 24,980
Professional fees.......................................... 46,280
Directors' fees and expenses............................... 34,950
Other...................................................... 22,539
------------
Total expenses........................................ 3,400,957
------------
Net investment income........................... 4,473,125
------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 40,283,939
Foreign currency transactions............................. 21,993
------------
Net realized gain..................................... 40,305,932
Net unrealized depreciation on:
Investments............................................... (13,285,113)
Translation of assets and liabilities denominated in
foreign currencies...................................... (1,184)
------------
Net unrealized depreciation........................... (13,286,297)
------------
Net realized and unrealized gain............................ 27,019,635
------------
Net increase in net assets resulting from operations........ $ 31,492,760
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 4,473,125 $ 1,964,750
Net realized gain (loss) from investments and foreign
currency transactions.................................... 40,305,932 (57,613,989)
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (13,286,297) 128,292,243
--------------------------------
Net increase in net assets resulting from operations.... 31,492,760 72,643,004
Distributions to shareholders from:
Net investment income..................................... (4,217,462) (4,057,110)
Net realized gains........................................ -- (289,794)
--------------------------------
Total distributions to shareholders........................ (4,217,462) (4,346,904)
Capital share transactions (Note 2)........................ (3,315,759) --
Net increase in net assets.............................. 23,959,539 68,296,100
Net assets:
Beginning of year.......................................... 189,993,571 121,697,471
--------------------------------
End of year................................................ $213,953,110 $ 189,993,571
================================
Undistributed net investment income included in net assets:
End of year................................................ $ 1,503,457 $ 1,225,801
================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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 long-term capital appreciation. Under normal market
conditions, the Fund invests primarily in equity securities of "China
companies." The following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
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. 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 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.
14
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. 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
On October 18, 1997, the Board of Directors of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund may
purchase, from time to time, up to 2 million shares of the Fund's common stock
in open-market transactions, at the discretion of management (approximately 10%
of the shares outstanding at the time the program was initially implemented).
Recent action by the Board of Directors has removed the 10% limitation on share
repurchases in order to give management greater flexibility to engage in an
aggressive share repurchase program.
At August 31, 2000, there were 100 million shares authorized ($0.01 par value).
During the year ended August 31, 2000, 436,600 shares were repurchased for
$3,315,759. The weighted average discount of market price to net asset value of
shares repurchased during the year ended August 31, 2000 was 28%. During the
year ended August 31, 1999, there were no share transactions; all reinvested
distributions were satisfied with previously issued shares purchased in the open
market. Through August 31, 2000, the Fund had repurchased a total of 1,500,800
shares.
3. TRANSACTIONS WITH AFFILIATES 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.
4. 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.
15
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At August 31, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $207,072,735 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 28,167,745
Unrealized depreciation..................................... (21,829,735)
------------
Net unrealized appreciation................................. $ 6,338,010
============
</TABLE>
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatments of wash sales.
At August 31, 2000, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
<TABLE>
<S> <C>
2007........................................................ $68,300,679
2008........................................................ 45,311
-----------
$68,345,990
===========
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $244,319,570 and $263,104,085, respectively.
16
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton China World Fund,
Inc. (the "Fund") at August 31, 2000, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at August 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The financial highlights for each of the
three years ending August 31, 1998 were audited by other independent accountants
whose report dated September 29, 1998 expressed an unqualified opinion on those
financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 29, 2000
17
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Tax Designation
At August 31, 2000, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the fund on these investments. The Fund intends to make
an election under Section 853 of the Internal Revenue Code. This election will
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund to shareholders in November 2000.
<TABLE>
<CAPTION>
FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE
----------------------------------------------------------------------
<S> <C> <C>
China....................................................... $0.0000 $0.0113
Hong Kong................................................... 0.0000 0.1633
Philippines................................................. 0.0001 0.0005
Singapore................................................... 0.0000 0.0038
Taiwan...................................................... 0.0027 0.0077
United Kingdom.............................................. 0.0000 0.0074
----------------------------------
TOTAL....................................................... $0.0028 $0.1940
----------------------------------
----------------------------------
</TABLE>
In January 2001, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 2000. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
18
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
Annual Meeting of Shareholders, March 7, 2000
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on March 7, 2000. The purpose of
the meeting was to elect four Directors of the Fund; to ratify the selection of
PricewaterhouseCoopers LLP as the Fund's independent auditors for the fiscal
year ending August 31, 2000; and to authorize the proxyholders, in their
discretion, to vote upon such other matters that may properly come before the
meeting or any adjournments of the meeting. At the meeting, the following
persons were elected by the shareholders to serve as Directors of the Fund: John
Wm. Galbraith, Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps.*
Shareholders also ratified the selection of PricewaterhouseCoopers LLP to serve
as the Fund's independent auditors for the fiscal year ending August 31, 2000.
No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of four (4) Directors:
<TABLE>
<CAPTION>
% OF % OF % OF
TERM EXPIRING 2003: FOR OUTSTANDING SHARES VOTED SHARES WITHHELD OUTSTANDING SHARES
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John Wm. Galbraith........ 13,526,544 70.02% 97.48% 350,192 1.81%
Betty P. Krahmer.......... 13,532,752 70.05% 97.52% 343,984 1.78%
Gordon S. Macklin......... 13,526,213 70.01% 97.47% 350,523 1.81%
Fred R. Millsaps.......... 13,534,798 70.06% 97.54% 341,938 1.77%
<CAPTION>
% OF
TERM EXPIRING 2003: VOTED SHARES
----------------------------------------
<S> <C>
John Wm. Galbraith........ 2.52%
Betty P. Krahmer.......... 2.48%
Gordon S. Macklin......... 2.53%
Fred R. Millsaps.......... 2.46%
</TABLE>
2. The ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of the Fund for the fiscal year ending August 31, 2000:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
For....................... 13,470,239 69.72% 97.07%
Against................... 195,211 1.01% 1.41%
Abstain................... 211,286 1.10% 1.52%
<CAPTION>
</TABLE>
3. The transaction of any other business that may properly come before the
meeting or any adjournments thereof:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
For....................... 10,682,615 55.30% 76.98%
Against................... 2,987,620 15.46% 21.53%
Abstain................... 206,501 1.07% 1.49%
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato,
Andrew H. Hines, Jr., Edith E. Holiday, Charles B. Johnson, Charles E. Johnson
and Constantine D. Tseretopoulos 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 that 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 charge 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.
20
<PAGE>
TEMPLETON CHINA WORLD FUND, INC.
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
1-800/416-5585.
The daily closing net asset value may be obtained when available on a one
business day delay basis by calling Franklin Templeton Fund Information after 7
a.m. pacific time any business day at 1-800/DIAL BEN(R) (1-800/342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS") on a one business day delay
basis.
Shareholders not receiving copies of the Reports to Shareholders because their
shares are registered in the name of a broker or a custodian can request that
they 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.
21
<PAGE>
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
TEMPLETON CHINA WORLD FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
1-800/416-5585
chasemellon.com
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. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. The Fund and its 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.
TLTCH A00 10/00 [LOGO] Printed on recycled paper
