SEMI ANNUAL REPORT
FEBRUARY 29,2000
TEMPLETON CHINA
WORLD FUND, INC.
[FRANKLIN TEMPLETON LOGO]
[GRAPHIC - CELEBRATING 50 YEARS]
[PHOTO - J. MARK MOBIUS, PH.D.]
J. MARK MOBIUS, PH.D.
President
Templeton China World Fund, Inc.
Dr. 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.
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:
This semiannual report for Templeton China World Fund covers the six months
ended February 29, 2000. In November 1999, China and the U.S. tentatively signed
an agreement, allowing China to become a member of the World Trade Organization
(WTO). If approved by the U.S. Congress, WTO membership could significantly
increase China's trading opportunities. Agreements concerning China's accession
to the WTO were also reached with Canada, Brazil, India and Sri Lanka. An
agreement with the 15-nation European Union appeared to be close at hand at the
end of the reporting period. However, lack of rapid economic reform and investor
concern over the possibility of military conflict with Taiwan hurt the
performance of
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the Fund's Statement of Investments (SOI), a complete listing of
the Fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 9.
CONTENTS
Shareholder Letter ........ 1
Performance Summary ....... 6
Important Notice
to Shareholders ........... 7
Financial Highlights &
Statement of Investments .. 8
Financial Statements ...... 12
Notes to the Financial
Statements ................ 15
[PYRAMID CHART]
[VERTICAL PIE CHART]
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/29/00
Hong Kong ................ 43.3%
China .................... 27.2%
Taiwan ................... 13.4%
Philippines .............. 2.0%
Singapore ................ 1.7%
Thailand ................. 1.0%
Short-Term
Investments &
Other Net Assets ......... 11.4%
mainland China's equity markets, and liquidity of the B Share markets, the only
markets open to foreign investors, remained low. To generate greater interest in
companies listed on these markets, the Chinese government announced it would
begin selling some of its state-owned enterprises (SOEs).
In contrast to China, Hong Kong's economy performed extremely well. Property
prices stabilized; tourism picked up; retail sales improved; and the recession
officially ended when Hong Kong's government reported two consecutive quarters
of economic growth.
Taiwan's economy also delivered impressive results, with gross domestic product
(GDP) rising 5.67% for 1999. Despite severe earthquakes and delays in microchip
production, GDP grew at an annualized rate of 6.77% in the fourth quarter,
indicating that Taiwan is on its way to economic recovery. Its stock market
performed well for most of the period but fell in late February, when the
Chinese government warned Taiwan not to pursue independence.
Within this environment, the Fund delivered a +5.34% cumulative total return in
market-price terms and a +16.30% return in net asset value terms for the period,
as shown in the Performance Summary on page 6.
2
Attempting to maximize the Fund's return, we made a number of changes to the
portfolio during the reporting period.
We divested our holdings in China's Shenzhen B Share markets to take advantage
of bargains found elsewhere. This rebalancing of the portfolio, as well as
varying performance of individual stocks during the period, resulted in a
greater exposure to holdings in the telecommunications sector, which made up
26.9% of total net assets on February 29, 2000, and lesser exposure to the
multi-industry and real estate sectors, comprising 29.3% and 5.7%, respectively,
of total net assets. On February 29, 2000, the Fund was virtually fully
invested, with 43.3% of total net assets represented by Hong Kong holdings,
13.4% by Taiwanese positions and 31.9% in other markets.
During the reporting period, a combination of natural disasters and political
tension temporarily depressed stock prices in Taiwan. We took advantage of this
situation to increase our exposure to that country by purchasing shares of
Taiwanese stocks at what we believed to be bargain prices. At the end of the
period, Taiwanese companies China Steel, Mitac International and UNI-President
Enterprises were among the Fund's top 10 holdings.
Looking forward, we intend to keep a watchful eye on developments in mainland
China. In our opinion, a number of economic and political problems such as the
restructuring of the nation's SOEs must be resolved if the economy is to
advance. Unfortunately, this might cause increased unemployment and heightened
societal stress. We will, therefore, be very selective about investing there.
TOP 10 HOLDINGS*
2/29/00
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
-------------------------------------
China Telecom HK Ltd.
Telecommunications, China 24.0%
Citic Pacific Ltd.
Multi-Industry, Hong Kong 12.4%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong 7.2%
China Steel Corporation
Metals & Mining, Taiwan 4.4%
HSBC Holdings PLC
Banking, Hong Kong 4.1%
Mitac International Corp.
Data Processing &
Reproduction, Taiwan 3.4%
Hutchison Whampoa Ltd.
Multi-Industry, Hong Kong 3.4%
Dairy Farm International
Holdings Ltd.
Merchandising, Hong Kong 3.1%
Jardine Matheson
Holdings Ltd.
Multi-Industry, Hong Kong 2.7%
UNI-President
Enterprises Corp.
Food & Household
Products, Taiwan 2.0%
*Hong Kong reverted to the sovereignty of China on July 1, 1997.
3
On the other hand, we are optimistic about Hong Kong's economy. Tourism is on
the rise, and retail sales have shown a solid turnaround, which in our view
points toward a sustainable recovery in this important sector. We believe that
the announcement of two large construction projects and a multi-billion dollar
project designed to attract information technology and multimedia investment
could boost Hong Kong's stock market. We are also comfortable with its
government, which has a history of prudent management and adherence to law.
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 1,322% in the last 15
years, but has suffered five quarterly declines of more than 20% 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(1). While short-term volatility can be disconcerting,
declines exceeding 50% are not unusual in emerging markets.
1. Source: Hang Seng Index. Based on quarterly percentage price change over 15
years ended December 31, 1999. Market return is measured in U.S. dollar terms
and does not include reinvested dividends.
4
Thank you for your continued support. We welcome your comments and suggestions.
Sincerely,
/s/ J. Mark Mobius
Mark Mobius
President
Templeton China World Fund, Inc.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 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.
5
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 2/29/00
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 on secondary market purchases.
PERFORMANCE
Six-Month Total Return +16.30% (Based on change in Net Asset Value)
+5.34% (Based on change in Market Price)
Net Asset Value (NAV) $11.12 (2/29/00) $9.83 (8/31/99)
Change in NAV +$1.29
Market Price (NYSE) $7.8125 (2/29/00) $7.625 (8/31/99)
Change in Market Price +$0.1875
Distributions (9/1/99 - 2/29/00) Dividend Income $0.2183
ADDITIONAL PERFORMANCE
AS OF 3/31/00
INCEPTION
1-YEAR 5-YEAR (9/9/93)
- --------------------------------------------------------------------------------
Cumulative Total Return(1)
Based on change in
net asset value +51.28% +24.13% +10.71%
Based on change in
market price +36.19% -3.71% -25.79%
Average Annual Total Return(2)
Based on change in
net asset value +51.28% +4.42% +1.56%
Based on change in
market price +36.19% -0.75% -4.45%
For updated performance figures, please call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
6
IMPORTANT NOTICE TO SHAREHOLDERS
ADOPTION OF 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(R) 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. 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, 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. This authorization remains in effect.
7
TEMPLETON CHINA WORLD FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 --------------------------------------------------------
(UNAUDITED)+ 1999+ 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $9.83 $6.30 $17.32 $13.39 $12.07 $14.92
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .13 .10 .30 .24 .27 .33
Net realized and unrealized gains
(losses)............................... 1.38 3.65 (10.37) 4.27 1.39 (1.91)
-----------------------------------------------------------------------------
Total from investment operations.......... 1.51 3.75 (10.07) 4.51 1.66 (1.58)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.22) (.21) (.26) (.28) (.33) (.20)
Net realized gains....................... -- (.01) (.69) (.30) (.01) (1.07)
-----------------------------------------------------------------------------
Total distributions....................... (.22) (.22) (.95) (.58) (.34) (1.27)
-----------------------------------------------------------------------------
Net asset value, end of period............ $11.12 $9.83 $6.30 $17.32 $13.39 $12.07
=============================================================================
Total Return*
Based on market value per share.......... 5.34% 82.81% (61.83)% 14.97% 11.75% (29.58)%
Based on net asset value per share....... 16.30% 61.12% (59.73)% 35.33% 14.44% (11.13)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $214,828 $189,994 $121,697 $353,049 $272,996 $245,982
Ratios to average net assets:
Expenses................................. 1.68%** 1.69% 1.68% 1.65% 1.65% 1.65%
Net investment income.................... 2.50%** 1.20% 2.88% 1.55% 2.14% 2.77%
Portfolio turnover rate................... 31.72% 83.88% 34.75% 19.51% 14.47% 3.01%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
8
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.2%
BANKING 6.2%
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 341,000 $ 550,217
HSBC Holdings PLC........................................... Hong Kong 760,507 8,721,186
Oversea Chinese Banking Corp. Ltd. ......................... Singapore 232,900 1,472,768
*Philippine National Bank................................... Philippines 727,000 1,170,864
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 506,700 478,583
United Overseas Bank Ltd. .................................. Singapore 128,912 815,189
------------
13,208,807
------------
BEVERAGES & TOBACCO 1.2%
Fraser and Neave Ltd. ...................................... Singapore 379,800 1,057,632
*Tsingtao Brewey Co. Ltd., H................................ China 6,347,000 1,549,481
------------
2,607,113
------------
BUILDING MATERIALS & COMPONENTS
Siam Cement Public Co. Ltd., fgn. .......................... Thailand 3,420 61,733
------------
DATA PROCESSING & REPRODUCTION 3.7%
Compal Electronics Inc. .................................... Taiwan 79,000 275,073
Mitac International Corp. .................................. Taiwan 4,492,000 7,279,583
tom.com Ltd................................................. Hong Kong 1,192,000 272,622
------------
7,827,278
------------
ELECTRICAL & ELECTRONICS 1.0%
Hon Hai Precision Industry Co. Ltd. ........................ Taiwan 62,000 577,026
Sunplus Technology Company Ltd. ............................ Taiwan 344,000 1,645,558
------------
2,222,584
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.1%
Picvue Electronics Ltd. .................................... Taiwan 265,000 323,381
*Siliconware Precision Industries Co Ltd. .................. Taiwan 1,115,000 2,322,161
*United Epitaxy Co. Ltd. ................................... Taiwan 1,000 2,717
*WUS Printed Circuit Co. Ltd. .............................. Taiwan 1,157,000 1,833,580
------------
4,481,839
------------
FINANCIAL SERVICES .2%
China Everbright Ltd. ...................................... China 386,000 272,781
*Cosco International Hldgs Ltd. ............................ Hong Kong 584,000 57,028
HKCB Bank Holding Company Ltd............................... Hong Kong 373,000 81,475
------------
411,284
------------
FOOD & HOUSEHOLD PRODUCTS 2.4%
Standard Foods Taiwan Ltd. ................................. Taiwan 964,000 862,675
UNI-President Enterprises Corp. ............................ Taiwan 4,570,000 4,193,752
------------
5,056,427
------------
</TABLE>
9
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
LEISURE & TOURISM 1.3%
Hong Kong & Shanghai Hotels Ltd............................. Hong Kong 5,990,000 $ 2,636,037
Shangri-La Asia Ltd......................................... Hong Kong 247,000 198,354
------------
2,834,391
------------
MERCHANDISING 3.0%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 11,591,034 6,548,934
------------
METALS & MINING 4.4%
China Steel Corporation..................................... Taiwan 12,226,000 9,468,884
------------
MULTI-INDUSTRY 29.3%
Beijing Datang Power Generation Co. Ltd., H................. China 8,693,800 1,061,200
Cheung Kong Holdings Ltd.................................... Hong Kong 1,167,000 15,519,415
Cheung Kong Infrastructure Holdings Ltd. ................... Hong Kong 1,145,000 1,566,820
*China Everbright Technology Ltd. .......................... China 1,532,000 224,403
China Resources Enterprises Ltd. ........................... China 1,509,000 1,948,585
*China Travel International Investment Hong Kong Ltd........ Hong Kong 908,000 233,335
Citic Pacific Ltd........................................... Hong Kong 5,287,000 26,629,285
Hutchison Whampoa Ltd....................................... Hong Kong 460,000 7,210,772
Jardine Matheson Holdings Ltd............................... Hong Kong 1,647,845 5,767,458
Jardine Strategic Holdings Ltd.............................. Hong Kong 1,571,000 2,482,180
Sembcorp Industries Ltd. ................................... Singapore 75,034 70,085
United Industrial Corporation Ltd. ......................... Singapore 238,000 103,556
------------
62,817,094
------------
REAL ESTATE 5.7%
*China Overseas Land & Investment Ltd. ..................... Hong Kong 30,613,000 4,012,086
Hang Lung Development Co. Ltd. ............................. Hong Kong 4,191,000 3,257,896
Henderson China Holdings Limited............................ Hong Kong 3,972,000 2,092,460
Hong Kong Land Holdings Ltd. ............................... Hong Kong 2,145,200 2,724,404
New World Development Co. Ltd. ............................. Hong Kong 46,695 67,197
United Overseas Land Ltd. .................................. Singapore 189,000 132,674
------------
12,286,717
------------
TELECOMMUNICATIONS 26.9%
Asia Satellite Telecommunications Hldgs. Ltd. .............. Hong Kong 47,000 169,997
Cable & Wireless HKT Ltd. .................................. Hong Kong 851,177 2,838,059
*China Telecom HK Ltd. ..................................... China 5,620,000 51,630,518
Philippine Long Distance Telephone Co., ADR................. Philippines 148,890 3,238,357
------------
57,876,931
------------
UTILITIES ELECTRICAL & GAS .8%
Shandong Huaneng Power Development Co. Ltd., ADR............ China 493,220 1,726,270
------------
TOTAL COMMON STOCKS (COST $129,392,085)..................... 189,436,286
------------
</TABLE>
10
TEMPLETON CHINA WORLD FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (COST $1,685,767) .4%
*Siam Commercial Bank, 5.25%, cvt. pfd., 144A, fgn. ........ Thailand 1,705,000 $ 1,028,860
------------
<CAPTION>
PRINCIPAL
AMOUNT**
-----------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $10,642,931) 5.0%
U.S. Treasury Bills, 4.95% to 5.71% with maturities to
6/15/00................................................... United States $10,752,000 10,642,782
------------
TOTAL INVESTMENTS (COST $141,720,783) 93.6%................. 201,107,928
OTHER ASSETS, LESS LIABILITIES 6.4%......................... 13,720,317
------------
TOTAL NET ASSETS 100.0%..................................... $214,828,245
============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
See Notes to Financial Statements.
11
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $141,720,783).... $ 201,107,928
Cash....................................................... 7,921,139
Receivables:
Investment securities sold................................ 6,544,983
Dividends and interest.................................... 4,101
-------------
Total assets.......................................... 215,578,151
-------------
Liabilities:
Payables:
Investment securities purchased........................... 312,750
To affiliates............................................. 272,068
Accrued expenses........................................... 165,088
-------------
Total liabilities..................................... 749,906
-------------
Net assets, at value........................................ $ 214,828,245
=============
Net assets consist of:
Distributions in excess of net investment income........... $ (551,026)
Net unrealized appreciation................................ 59,383,669
Accumulated of net realized loss........................... (121,777,794)
Capital shares............................................. 277,773,396
-------------
Net assets, at value........................................ $ 214,828,245
=============
Net asset value per share ($214,828,245 / 19,319,572 shares
outstanding).............................................. $11.12
=============
</TABLE>
See Notes to Financial Statements.
12
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $6,118)
Dividends.................................................. $ 3,933,327
Interest................................................... 145,182
------------
Total investment income............................... $ 4,078,509
Expenses:
Management fees (Note 3)................................... 1,225,963
Administrative fees (Note 3)............................... 245,193
Transfer agent fees........................................ 48,574
Custodian fees............................................. 36,916
Reports to shareholders.................................... 19,578
Registration and filing fees............................... 12,468
Professional fees.......................................... 24,972
Directors' fees and expenses............................... 17,364
Other...................................................... 6,846
------------
Total expenses........................................ 1,637,874
------------
Net investment income........................... 2,440,635
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (12,210,862)
Foreign currency transactions............................. (2,030)
------------
Net realized loss..................................... (12,212,892)
Net unrealized appreciation (depreciation) on:
Investments............................................... 38,829,050
Translation of assets and liabilities denominated in
foreign currencies...................................... (4,657)
------------
Net unrealized appreciation........................... 38,824,393
------------
Net realized and unrealized gain............................ 26,611,501
------------
Net increase in net assets resulting from operations........ $ 29,052,136
============
</TABLE>
See Notes to Financial Statements.
13
TEMPLETON CHINA WORLD FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,440,635 $ 1,964,750
Net realized loss from investments and foreign currency
transactions............................................ (12,212,892) (57,613,989)
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... 38,824,393 128,292,243
---------------------------------------
Net increase in net assets resulting from operations.... 29,052,136 72,643,004
Distributions to shareholders from:
Net investment income..................................... (3,666,436) (4,057,110)
In excess of net investment income........................ (551,026) --
Net realized gains........................................ -- (289,794)
---------------------------------------
Net increase in net assets.............................. 24,834,674 68,296,100
Net assets:
Beginning of period........................................ 189,993,571 121,697,471
---------------------------------------
End of period.............................................. $214,828,245 $189,993,571
=======================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ (551,026) $ 1,225,801
=======================================
</TABLE>
See Notes to Financial Statements.
14
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (unaudited)
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.
15
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (unaudited) (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
At February 29, 2000, there were 100 million shares authorized ($0.01 par
value). During the period ended February 29, 2000 and August 31, 1999, there
were no capital share transactions; all reinvested distributions were satisfied
with previously issued shares purchased in the open market.
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.
At February 29, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $142,002,769 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 79,506,288
Unrealized depreciation..................................... (20,401,129)
------------
Net unrealized appreciation................................. $ 59,105,159
============
</TABLE>
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and losses realized
subsequent to October 31 on the sale of securities.
At August 31, 1999, the Fund had tax basis capital losses of $68,000,000 which
may be carried over to offset future capital gains. Such losses expire August
31, 2007.
16
TEMPLETON CHINA WORLD FUND, INC.
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES (CONT.)
At August 31, 1999, the Fund had deferred capital losses occurring subsequent to
October 31, 1998 of $41,000,000. For tax purposes, such losses will be reflected
in the year ending August 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 29, 2000 aggregated $59,021,719 and $72,886,017,
respectively.
17
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
OUTSTANDING VOTED OUTSTANDING
TERM EXPIRING 2003: FOR SHARES SHARES WITHHELD 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%
</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>
% OF % OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
13,470,239 69.72% 97.07% 195,211 1.01% 211,286 1.10% -- --
</TABLE>
3. The transaction of any other business that may properly come before the
meeting or any adjournments thereof:
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10,682,615 55.30% 76.98% 2,987,620 15.46% 206,501 1.07% -- --
</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.
18
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.
19
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.
20
SEMIANNUAL REPORT
TEMPLETON CHINA WORLD FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
1-800/416-5585
www.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 S00 04/00 [RECYCLE GRAPHIC] Printed on recycled paper
