UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07876
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TEMPLETON CHINA WORLD FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 8/31
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Date of reporting period: 8/31/04
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ITEM 1. REPORTS TO STOCKHOLDERS
AUGUST 31, 2004
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ANNUAL REPORT AND SHAREHOLDER LETTER | INTERNATIONAL
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TEMPLETON
CHINA WORLD FUND
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WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for edelivery at franklintempleton.com. See
inside for details.
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[LOGO OMITTED]
FRANKLIN [R] TEMPLETON [R]
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income
investing and also brings expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
Contents
SHAREHOLDER LETTER ....................... 1
ANNUAL REPORT
Templeton China World Fund ............... 3
Performance Summary ...................... 7
Your Fund's Expenses ..................... 12
Financial Highlights and
Statement of Investments ................. 14
Financial Statements ..................... 21
Notes to Financial
Statements ............................... 24
Report of Independent
Registered Public
Accounting Firm .......................... 33
Tax Designation. ......................... 34
Board Members and
Officers ................................. 37
Shareholder Information. ................. 43
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Annual Report
Templeton China World Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton China World Fund seeks
long-term capital appreciation. Under normal market conditions, the Fund invests
at least 80% of its net assets in securities of "China companies," as defined in
the Fund's prospectus.
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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We are pleased to bring you Templeton China World Fund's annual report for the
fiscal year ended August 31, 2004.
PERFORMANCE OVERVIEW
For the 12 months under review, Templeton China World Fund - Class A delivered a
+23.80% cumulative total return. For comparison, the Fund's benchmark, the
Morgan Stanley Capital International (MSCI) China Index, posted a 21.91%
cumulative total return.1 The Standard & Poor's/International Finance
Corporation (S&P/IFC) Investable China Index posted a 20.05% cumulative total
return for the same period.2 In line with our long-term investment strategy, we
are pleased with our long-term results, which you will find in the Performance
Summary beginning on page 7. For example, for the 10-year period ended August
31, 2004, the Fund's Class A shares delivered a +70.91% cumulative total return,
compared with the MSCI China Index's -70.20% cumulative total return for the
same period.1 Please note that index performance information is provided for
reference and that we do not attempt to track the index, but rather undertake
investments on the basis of fundamental research.
ECONOMIC AND MARKET OVERVIEW
Although China's gross domestic product (GDP) grew more than 9% annualized over
the past several quarters, there has been some imbalance in the country's
growth. High investment in the steel, property, cement and aluminum industries
led to some economic overheating. As a result, China's government implemented
credit-tightening policies and imposed investment curbs targeted at those
sectors.
1. Source: Standard & Poor's Micropal. The MSCI China Index is market
capitalization weighted and measures total returns of equity securities
available to foreign (non-local) investors in China.
2. Source: Standard & Poor's Micropal. The S&P/IFC Investable China Index is a
free float-adjusted, market capitalization-weighted index designed to measure
performance of equity securities in China.
The indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
Past performance does not guarantee future results.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 18.
Annual Report | 3
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets as of 8/31/04
China 35.1%
Hong Kong 27.9%
Taiwan 27.4%
U.K. 4.1%
South Korea 0.9%
Short-Term Investments & Other Net Assets 4.6%
Signs of a gradual economic cooldown emerged, with industrial output slowing for
the fifth consecutive month in July, rising 15.5% compared with a year earlier,
down from a 16.2% increase in June and a 23.2% rise in February, before
increasing slightly to 15.9% in August. Property sector investment grew 38.5% in
June 2004 compared with a year earlier, slower than the 44.4% growth recorded in
the first five months of 2004. Alternatively, inflation rose, reaching a
seven-year high in July as China's inflation rate increased 5.3% and surpassed
the 5% rate threshold set by the central bank for possible interest-rate
increases.
Taiwanese president Chen Shui-bian survived an assassination attempt and won a
second term in office, narrowly defeating Lien Chan of the Kuomintang Party
(KMT) by just 0.2% of the votes. The failure of the referendum to institute a
new constitution led the president to scrap it, abating tensions with mainland
China. Economically, strong exports contributed to annualized second quarter
2004 GDP growth of 7.7%, compared with a 6.7% annualized increase in the first
quarter, the largest jump in four years. Hong Kong's return to inflation after
68 months of deflation, as well as falling unemployment and strong second
quarter 2004 economic growth, led the government to upgrade its 2004 GDP growth
forecast from 6.0% to 7.5%.3 Second-quarter GDP grew an annualized 12.1%, up
from 7.0% annualized growth in the preceding quarter.
Markets in the greater China region recorded strong performance in the first
half of the reporting period as government efforts to stimulate economic
activity after the severe acute respiratory syndrome (SARS) virus outbreak began
to show results. However, in 2004 concerns about a potential hard landing for
China's economy affected investor confidence and regional stock markets lost
some of their gains. In Taiwan, markets were further impacted, initially by
presidential election uncertainties in March, and thereafter by concerns about
prospects for technology stocks.
INVESTMENT STRATEGY
Our investment strategy employs a bottom-up, value-oriented, long-term approach.
We focus on the market price of a company's securities relative to our
evaluation of the company's long-term earnings, asset value and cash flow
potential. As we look for investments, we consider specific companies, rather
than sectors, while doing in-depth research to construct an action list from
which we make our buy decisions. Before we make a purchase, we look at the
company's potential for earnings and growth over a five-year horizon.
3. Source: WorldSources, Inc.
4 | Annual Report
TOP 10 EQUITY HOLDINGS
8/31/04
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Dairy Farm International Holdings Ltd. 10.7%
FOOD & STAPLES RETAILING, HONG KONG
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China Mobile (Hong Kong) Ltd. 6.6%
WIRELESS TELECOMMUNICATION SERVICES,
CHINA
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China Petroleum & Chemical Corp., H 6.6%
OIL & GAS, CHINA
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Cheung Kong Holdings Ltd. 5.0%
REAL ESTATE, HONG KONG
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HSBC Holdings PLC 4.1%
COMMERCIAL BANKS, U.K.
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China Resources Enterprise Ltd. 3.8%
DISTRIBUTORS, CHINA
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Acer Inc. 3.5%
COMPUTERS & PERIPHERALS, TAIWAN
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Cheung Kong Infrastructure Holdings Ltd. 3.5%
CONSTRUCTION MATERIALS, HONG KONG
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Datang International Power
Generation Co. Ltd. 3.2%
ELECTRIC UTILITIES, CHINA
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Mega Financial Holdings Co. Ltd. 3.1%
COMMERCIAL BANKS, TAIWAN
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MANAGER'S DISCUSSION
During the 12 months under review, the Fund's performance benefited from an
overweighted position, relative to the MSCI China Index, in Sinopec Beijing
Yanhua Petrochemical (sold by period-end), as well as from holding Dairy Farm
International, which is not part of the index. The Fund was also helped by
having underweighted positions in China Mobile, Lenovo Group and China Life
Insurance (bought and sold during the period). Conversely, the fact that the
Fund did not hold shares of Yanzhou Coal Mining hindered relative performance as
the stock outperformed the index during the period.
By industry, the Fund's positions in the banking and food and staples retailing
industries, which are not reflected in the index, as well as an underweighted
position in telecommunications and no holdings in the insurance sector, boosted
performance relative to the MSCI China Index. In the banking industry, Mega
Financial Holdings and Sinopac Holdings benefited the Fund's relative return. A
significant performer in food and staples retailing included the aforementioned
Dairy Farm International, which has core interests in supermarkets, drugstores,
convenience stores and restaurants. Alternatively, underweighted exposure to
energy and no materials sector holdings, due to our concerns about the
sustainability of high commodity prices, hindered relative performance. For
example, some stocks in the materials sector that we did not own but that
outperformed the index during the period included the aforementioned Yanzhou
Coal Mining, as well as Jiangxi Copper.
During the period, we trimmed the Fund's exposure to China H shares (Hong
Kong-listed Chinese companies) as we saw better value in several China Red Chip
(Hong Kong-listed companies with significant exposure to China) shares. We sold
much of our holdings in PetroChina and China Petroleum & Chemical. We also
eliminated positions in Sinopec Beijing Yanhua Petrochemical, Jiangsu Expressway
and Guangshen Railway. As a result of such sales, the Fund's exposure to China H
shares fell from 27.8% on August 31, 2003, to 12.4% at period-end, and holdings
in the industrials and oil and gas sectors also fell. We invested in such China
Red Chip shares as China Mobile, the world's largest mobile phone operator; and
China Resources Enterprise, a diversified group involved in trading, property
investment, transportation, warehousing, retailing and infrastructure
development.
Additionally, we made substantial investments in Taiwan as poor market sentiment
led the market to correct, triggering several of our buy-price targets. We
searched for companies we believed were well positioned to benefit from growing
global demand for Taiwanese products, evidenced by the island's strengthening
exports, as well as companies with the potential to gain from increasing
domestic demand. Key purchases included Acer, the leader in Europe's notebook
computer market; Mega Financial Holdings, one of Taiwan's largest financial
holding companies;
Annual Report | 5
and President Chain Store, the operator of 7-Eleven stores in Taiwan and one of
the world's largest convenience chain store organizations. We also initiated a
position in HSBC Holdings, a U.K.-based, global banking group with significant
businesses in emerging markets.
Thank you for your continued participation in Templeton China World Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/Mark Mobius
Mark Mobius
Portfolio Manager
Templeton China World Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF AUGUST 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Annual Report
Performance Summary as of 8/31/04
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$3.08 $17.97 $14.89
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.3951
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CLASS B CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$2.96 $17.84 $14.88
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.3893
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CLASS C CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$2.97 $17.85 $14.88
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.3895
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ADVISOR CLASS CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$3.13 $18.03 $14.90
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.4065
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Annual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE 1
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +23.80% +100.10% +70.91%
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Average Annual Total Return 3 +16.68% +13.53% +4.88%
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Value of $10,000 Investment 4 $11,668 $18,859 $16,109
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Avg. Ann. Total Return (9/30/04) 5 +20.27% +15.70% +5.22%
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CLASS B 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +22.95% +93.28% +59.79%
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Average Annual Total Return 3 +18.95% +13.85% +4.80%
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Value of $10,000 Investment 4 $11,895 $19,128 $15,979
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Avg. Ann. Total Return (9/30/04) 5 +22.69% +16.06% +5.14%
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +23.02% +93.39% +57.70%
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Average Annual Total Return 3 +22.02% +14.10% +4.66%
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Value of $10,000 Investment 4 $12,202 $19,339 $15,770
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Avg. Ann. Total Return (9/30/04) 5 +25.78% +16.28% +4.99%
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ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +24.21% +103.85% +78.56%
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Average Annual Total Return 3 +24.21% +15.31% +5.97%
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Value of $10,000 Investment 4 $12,421 $20,385 $17,856
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Avg. Ann. Total Return (9/30/04) 5 +27.92% +17.52% +6.31%
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
8 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income and distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (9/1/94-8/31/04)
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USE IN PRINTED GRAPHIC AS FOLLOWS:]
Templeton China World Fund MSCI China Index 6
09/01/94 $9,425 $10,000
09/30/94 $9,427 $10,132
10/31/94 $9,310 $9,741
11/30/94 $8,210 $8,472
12/31/94 $7,843 $7,422
01/31/95 $7,191 $6,397
02/28/95 $7,766 $7,130
03/31/95 $7,866 $7,142
04/30/95 $7,470 $6,391
05/31/95 $8,065 $7,532
06/30/95 $8,067 $7,444
07/31/95 $8,434 $7,815
08/31/95 $8,292 $7,360
09/30/95 $8,378 $7,040
10/31/95 $8,295 $6,604
11/30/95 $8,248 $6,139
12/31/95 $8,418 $5,855
01/31/96 $9,366 $6,751
02/29/96 $9,270 $6,951
03/31/96 $8,997 $6,632
04/30/96 $9,210 $6,281
05/31/96 $9,290 $6,569
06/30/96 $9,405 $6,674
07/31/96 $9,301 $6,440
08/31/96 $9,409 $6,419
09/30/96 $9,664 $6,345
10/31/96 $10,097 $6,189
11/30/96 $11,352 $6,904
12/31/96 $11,775 $8,048
01/31/97 $11,658 $7,869
02/28/97 $11,748 $8,101
03/31/97 $11,347 $7,867
04/30/97 $11,802 $8,906
05/31/97 $12,344 $8,805
06/30/97 $12,140 $9,002
07/31/97 $12,827 $10,235
08/31/97 $12,631 $10,839
09/30/97 $12,464 $9,037
10/31/97 $8,758 $7,569
11/30/97 $8,399 $6,199
12/31/97 $8,209 $6,016
01/31/98 $6,543 $4,485
02/28/98 $8,488 $6,077
03/31/98 $8,364 $5,920
04/30/98 $7,686 $5,310
05/31/98 $6,489 $4,613
06/30/98 $6,014 $3,894
07/31/98 $5,667 $3,190
08/31/98 $5,032 $2,326
09/30/98 $5,573 $3,331
10/31/98 $6,822 $3,662
11/30/98 $7,097 $3,778
12/31/98 $6,594 $3,467
01/31/99 $5,925 $2,823
02/28/99 $5,914 $2,703
03/31/99 $6,453 $3,070
04/30/99 $7,976 $3,841
05/31/99 $7,504 $3,850
06/30/99 $8,640 $5,654
07/31/99 $8,168 $4,948
08/31/99 $8,049 $4,908
09/30/99 $7,562 $4,712
10/31/99 $7,488 $4,332
11/30/99 $8,276 $4,249
12/31/99 $9,208 $3,929
01/31/00 $9,010 $3,758
02/29/00 $9,325 $3,068
03/31/00 $9,755 $3,138
04/30/00 $8,686 $3,434
05/31/00 $8,397 $3,496
06/30/00 $8,920 $3,963
07/31/00 $9,225 $3,888
08/31/00 $9,472 $3,730
09/30/00 $8,823 $3,276
10/31/00 $7,974 $3,123
11/30/00 $7,837 $2,707
12/31/00 $8,160 $2,729
01/31/01 $8,586 $3,125
02/28/01 $8,962 $2,840
03/31/01 $8,552 $2,379
04/30/01 $8,902 $2,621
05/31/01 $9,622 $2,692
06/30/01 $9,458 $2,781
07/31/01 $8,450 $2,404
08/31/01 $8,008 $1,884
09/30/01 $7,593 $1,820
10/31/01 $8,190 $1,866
11/30/01 $8,289 $2,048
12/31/01 $8,067 $2,055
01/31/02 $8,449 $1,862
02/28/02 $8,719 $1,877
03/31/02 $9,006 $1,983
04/30/02 $9,591 $2,070
05/31/02 $9,937 $2,102
06/30/02 $9,727 $2,031
07/31/02 $9,423 $1,942
08/31/02 $9,093 $1,904
09/30/02 $8,815 $1,753
10/31/02 $8,904 $1,763
11/30/02 $9,196 $1,836
12/31/02 $9,434 $1,766
01/31/03 $9,942 $1,851
02/28/03 $10,172 $1,805
03/31/03 $10,054 $1,735
04/30/03 $10,101 $1,738
05/31/03 $10,947 $1,960
06/30/03 $11,306 $2,085
07/31/03 $12,358 $2,292
08/31/03 $13,011 $2,444
09/30/03 $13,037 $2,463
10/31/03 $14,176 $2,838
11/30/03 $14,185 $2,866
12/31/03 $15,830 $3,313
01/31/04 $16,251 $3,292
02/29/04 $17,264 $3,497
03/31/04 $16,340 $3,202
04/30/04 $14,941 $2,784
05/31/04 $15,461 $2,975
06/30/04 $15,577 $2,957
07/31/04 $15,380 $2,968
08/31/04 $16,109 $2,980
CLASS B (9/1/94-8/31/04)
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USE IN PRINTED GRAPHIC AS FOLLOWS:]
Templeton China World Fund MSCI China Index 6
09/01/94 $10,000 $10,000
09/30/94 $9,996 $10,132
10/31/94 $9,823 $9,741
11/30/94 $8,658 $8,472
12/31/94 $8,262 $7,422
01/31/95 $7,570 $6,397
02/28/95 $8,172 $7,130
03/31/95 $8,272 $7,142
04/30/95 $7,851 $6,391
05/31/95 $8,472 $7,532
06/30/95 $8,470 $7,444
07/31/95 $8,850 $7,815
08/31/95 $8,696 $7,360
09/30/95 $8,781 $7,040
10/31/95 $8,679 $6,604
11/30/95 $8,626 $6,139
12/31/95 $8,796 $5,855
01/31/96 $9,781 $6,751
02/29/96 $9,675 $6,951
03/31/96 $9,386 $6,632
04/30/96 $9,604 $6,281
05/31/96 $9,681 $6,569
06/30/96 $9,797 $6,674
07/31/96 $9,683 $6,440
08/31/96 $9,790 $6,419
09/30/96 $10,051 $6,345
10/31/96 $10,478 $6,189
11/30/96 $11,775 $6,904
12/31/96 $12,203 $8,048
01/31/97 $12,076 $7,869
02/28/97 $12,163 $8,101
03/31/97 $11,741 $7,867
04/30/97 $12,204 $8,906
05/31/97 $12,759 $8,805
06/30/97 $12,540 $9,002
07/31/97 $13,243 $10,235
08/31/97 $13,033 $10,839
09/30/97 $12,854 $9,037
10/31/97 $8,997 $7,569
11/30/97 $8,625 $6,199
12/31/97 $8,416 $6,016
01/31/98 $6,704 $4,485
02/28/98 $8,694 $6,077
03/31/98 $8,561 $5,920
04/30/98 $7,863 $5,310
05/31/98 $6,635 $4,613
06/30/98 $6,145 $3,894
07/31/98 $5,787 $3,190
08/31/98 $5,136 $2,326
09/30/98 $5,685 $3,331
10/31/98 $6,949 $3,662
11/30/98 $7,226 $3,778
12/31/98 $6,708 $3,467
01/31/99 $6,024 $2,823
02/28/99 $6,009 $2,703
03/31/99 $6,553 $3,070
04/30/99 $8,097 $3,841
05/31/99 $7,614 $3,850
06/30/99 $8,763 $5,654
07/31/99 $8,280 $4,948
08/31/99 $8,154 $4,908
09/30/99 $7,656 $4,712
10/31/99 $7,574 $4,332
11/30/99 $8,367 $4,249
12/31/99 $9,300 $3,929
01/31/00 $9,095 $3,758
02/29/00 $9,408 $3,068
03/31/00 $9,838 $3,138
04/30/00 $8,755 $3,434
05/31/00 $8,458 $3,496
06/30/00 $8,981 $3,963
07/31/00 $9,282 $3,888
08/31/00 $9,525 $3,730
09/30/00 $8,867 $3,276
10/31/00 $8,009 $3,123
11/30/00 $7,866 $2,707
12/31/00 $8,184 $2,729
01/31/01 $8,607 $3,125
02/28/01 $8,979 $2,840
03/31/01 $8,564 $2,379
04/30/01 $8,910 $2,621
05/31/01 $9,626 $2,692
06/30/01 $9,457 $2,781
07/31/01 $8,444 $2,404
08/31/01 $7,997 $1,884
09/30/01 $7,578 $1,820
10/31/01 $8,168 $1,866
11/30/01 $8,261 $2,048
12/31/01 $8,035 $2,055
01/31/02 $8,410 $1,862
02/28/02 $8,675 $1,877
03/31/02 $8,956 $1,983
04/30/02 $9,534 $2,070
05/31/02 $9,873 $2,102
06/30/02 $9,659 $2,031
07/31/02 $9,351 $1,942
08/31/02 $9,019 $1,904
09/30/02 $8,743 $1,753
10/31/02 $8,832 $1,763
11/30/02 $9,121 $1,836
12/31/02 $9,357 $1,766
01/31/03 $9,862 $1,851
02/28/03 $10,090 $1,805
03/31/03 $9,973 $1,735
04/30/03 $10,019 $1,738
05/31/03 $10,858 $1,960
06/30/03 $11,214 $2,085
07/31/03 $12,258 $2,292
08/31/03 $12,905 $2,444
09/30/03 $12,931 $2,463
10/31/03 $14,061 $2,838
11/30/03 $14,070 $2,866
12/31/03 $15,702 $3,313
01/31/04 $16,120 $3,292
02/29/04 $17,124 $3,497
03/31/04 $16,208 $3,202
04/30/04 $14,820 $2,784
05/31/04 $15,336 $2,975
06/30/04 $15,451 $2,957
07/31/04 $15,255 $2,968
08/31/04 $15,979 $2,980
Annual Report | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 8/31/04
- --------------------------------------
1-Year +22.02%
- --------------------------------------
5-Year +14.10%
- --------------------------------------
10-Year +4.66%
- --------------------------------------
CLASS C (9/1/94-8/31/04)
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USE IN PRINTED GRAPHIC AS FOLLOWS:]
Templeton China World Fund MSCI China Index 6
09/01/94 $10,000 $10,000
09/30/94 $9,996 $10,132
10/31/94 $9,823 $9,741
11/30/94 $8,658 $8,472
12/31/94 $8,262 $7,422
01/31/95 $7,570 $6,397
02/28/95 $8,172 $7,130
03/31/95 $8,272 $7,142
04/30/95 $7,851 $6,391
05/31/95 $8,472 $7,532
06/30/95 $8,470 $7,444
07/31/95 $8,850 $7,815
08/31/95 $8,696 $7,360
09/30/95 $8,781 $7,040
10/31/95 $8,679 $6,604
11/30/95 $8,626 $6,139
12/31/95 $8,796 $5,855
01/31/96 $9,781 $6,751
02/29/96 $9,675 $6,951
03/31/96 $9,386 $6,632
04/30/96 $9,604 $6,281
05/31/96 $9,681 $6,569
06/30/96 $9,797 $6,674
07/31/96 $9,683 $6,440
08/31/96 $9,790 $6,419
09/30/96 $10,051 $6,345
10/31/96 $10,478 $6,189
11/30/96 $11,775 $6,904
12/31/96 $12,203 $8,048
01/31/97 $12,076 $7,869
02/28/97 $12,163 $8,101
03/31/97 $11,741 $7,867
04/30/97 $12,204 $8,906
05/31/97 $12,759 $8,805
06/30/97 $12,540 $9,002
07/31/97 $13,243 $10,235
08/31/97 $13,033 $10,839
09/30/97 $12,854 $9,037
10/31/97 $8,997 $7,569
11/30/97 $8,625 $6,199
12/31/97 $8,416 $6,016
01/31/98 $6,704 $4,485
02/28/98 $8,694 $6,077
03/31/98 $8,561 $5,920
04/30/98 $7,863 $5,310
05/31/98 $6,635 $4,613
06/30/98 $6,145 $3,894
07/31/98 $5,787 $3,190
08/31/98 $5,136 $2,326
09/30/98 $5,685 $3,331
10/31/98 $6,949 $3,662
11/30/98 $7,226 $3,778
12/31/98 $6,708 $3,467
01/31/99 $6,024 $2,823
02/28/99 $6,009 $2,703
03/31/99 $6,553 $3,070
04/30/99 $8,097 $3,841
05/31/99 $7,614 $3,850
06/30/99 $8,763 $5,654
07/31/99 $8,280 $4,948
08/31/99 $8,154 $4,908
09/30/99 $7,656 $4,712
10/31/99 $7,574 $4,332
11/30/99 $8,367 $4,249
12/31/99 $9,300 $3,929
01/31/00 $9,095 $3,758
02/29/00 $9,408 $3,068
03/31/00 $9,838 $3,138
04/30/00 $8,755 $3,434
05/31/00 $8,458 $3,496
06/30/00 $8,981 $3,963
07/31/00 $9,282 $3,888
08/31/00 $9,525 $3,730
09/30/00 $8,867 $3,276
10/31/00 $8,009 $3,123
11/30/00 $7,866 $2,707
12/31/00 $8,184 $2,729
01/31/01 $8,607 $3,125
02/28/01 $8,979 $2,840
03/31/01 $8,564 $2,379
04/30/01 $8,910 $2,621
05/31/01 $9,626 $2,692
06/30/01 $9,457 $2,781
07/31/01 $8,444 $2,404
08/31/01 $7,997 $1,884
09/30/01 $7,578 $1,820
10/31/01 $8,168 $1,866
11/30/01 $8,261 $2,048
12/31/01 $8,035 $2,055
01/31/02 $8,410 $1,862
02/28/02 $8,675 $1,877
04/30/02 $9,534 $2,070
05/31/02 $9,873 $2,102
06/30/02 $9,659 $2,031
07/31/02 $9,351 $1,942
08/31/02 $9,019 $1,904
09/30/02 $8,739 $1,753
10/31/02 $8,822 $1,763
11/30/02 $9,106 $1,836
12/31/02 $9,336 $1,766
01/31/03 $9,834 $1,851
02/28/03 $10,056 $1,805
03/31/03 $9,933 $1,735
04/30/03 $9,974 $1,738
05/31/03 $10,803 $1,960
06/30/03 $11,151 $2,085
07/31/03 $12,182 $2,292
08/31/03 $12,814 $2,444
09/30/03 $12,831 $2,463
10/31/03 $13,954 $2,838
11/30/03 $13,954 $2,866
12/31/03 $15,561 $3,313
01/31/04 $15,967 $3,292
02/29/04 $16,956 $3,497
03/31/04 $16,037 $3,202
04/30/04 $14,659 $2,784
05/31/04 $15,153 $2,975
06/30/04 $15,250 $2,957
07/31/04 $15,057 $2,968
08/31/04 $15,770 $2,980
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 8/31/04
- --------------------------------------
1-Year +24.21%
- --------------------------------------
5-Year +15.31%
- --------------------------------------
10-Year +5.97%
- --------------------------------------
ADVISOR CLASS (9/1/94-8/31/04)
[GRAPHIC OMITTED]
[EDGAR REPRESENTATION OF DATA POINTS USE IN PRINTED GRAPHIC AS FOLLOWS:]
Templeton China World Fund MSCI China Index 6
9/1/94 $10,000 $10,000
9/30/94 $10,004 $10,132
10/31/94 $9,908 $9,741
11/30/94 $8,741 $8,472
12/31/94 $8,354 $7,422
1/31/95 $7,662 $6,397
2/28/95 $8,277 $7,130
3/31/95 $8,386 $7,142
4/30/95 $7,965 $6,391
5/31/95 $8,602 $7,532
6/30/95 $8,607 $7,444
7/31/95 $9,001 $7,815
8/31/95 $8,853 $7,360
10/31/95 $8,866 $6,604
11/30/95 $8,819 $6,139
12/31/95 $9,004 $5,855
1/31/96 $10,021 $6,751
2/29/96 $9,921 $6,951
3/31/96 $9,632 $6,632
4/30/96 $9,863 $6,281
5/31/96 $9,951 $6,569
6/30/96 $10,077 $6,674
7/31/96 $9,969 $6,440
8/31/96 $10,088 $6,419
9/30/96 $10,365 $6,345
10/31/96 $10,841 $6,189
11/30/96 $12,192 $6,904
12/31/96 $12,652 $8,048
1/31/97 $12,530 $7,869
2/28/97 $12,631 $8,101
3/31/97 $12,202 $7,867
4/30/97 $12,695 $8,906
5/31/97 $13,282 $8,805
6/30/97 $13,067 $9,002
7/31/97 $13,810 $10,235
8/31/97 $13,603 $10,839
9/30/97 $13,428 $9,037
10/31/97 $9,454 $7,569
11/30/97 $9,071 $6,199
12/31/97 $8,871 $6,016
1/31/98 $7,074 $4,485
2/28/98 $9,179 $6,077
3/31/98 $9,047 $5,920
4/30/98 $8,317 $5,310
5/31/98 $7,024 $4,613
6/30/98 $6,511 $3,894
7/31/98 $6,138 $3,190
8/31/98 $5,452 $2,326
9/30/98 $6,039 $3,331
10/31/98 $7,399 $3,662
11/30/98 $7,699 $3,778
12/31/98 $7,157 $3,467
1/31/99 $6,433 $2,823
2/28/99 $6,423 $2,703
3/31/99 $7,010 $3,070
4/30/99 $8,667 $3,841
5/31/99 $8,156 $3,850
6/30/99 $9,393 $5,654
7/31/99 $8,883 $4,948
8/31/99 $8,756 $4,908
9/30/99 $8,229 $4,712
10/31/99 $8,153 $4,332
11/30/99 $9,013 $4,249
12/31/99 $10,035 $3,929
1/31/00 $9,822 $3,758
2/29/00 $10,168 $3,068
3/31/00 $10,641 $3,138
4/30/00 $9,478 $3,434
5/31/00 $9,165 $3,496
6/30/00 $9,739 $3,963
7/31/00 $10,075 $3,888
8/31/00 $10,347 $3,730
9/30/00 $9,641 $3,276
10/31/00 $8,716 $3,123
11/30/00 $8,569 $2,707
12/31/00 $8,925 $2,729
1/31/01 $9,394 $3,125
2/28/01 $9,807 $2,840
3/31/01 $9,362 $2,379
4/30/01 $9,748 $2,621
5/31/01 $10,539 $2,692
6/30/01 $10,361 $2,781
7/31/01 $9,261 $2,404
8/31/01 $8,779 $1,884
9/30/01 $8,325 $1,820
10/31/01 $8,985 $1,866
11/30/01 $9,095 $2,048
12/31/01 $8,855 $2,055
1/31/02 $9,277 $1,862
2/28/02 $9,575 $1,877
3/31/02 $9,893 $1,983
4/30/02 $10,540 $2,070
5/31/02 $10,923 $2,102
6/30/02 $10,695 $2,031
7/31/02 $10,363 $1,942
8/31/02 $10,004 $1,904
9/30/02 $9,700 $1,753
10/31/02 $9,802 $1,763
11/30/02 $10,126 $1,836
12/31/02 $10,391 $1,766
1/31/03 $10,953 $1,851
3/31/03 $11,083 $1,735
4/30/03 $11,138 $1,738
5/31/03 $12,074 $1,960
6/30/03 $12,474 $2,085
7/31/03 $13,639 $2,292
8/31/03 $14,371 $2,444
9/30/03 $14,420 $2,463
10/31/03 $15,677 $2,838
11/30/03 $15,687 $2,866
12/31/03 $17,505 $3,313
1/31/04 $17,979 $3,292
2/29/04 $19,108 $3,497
3/31/04 $18,088 $3,202
4/30/04 $16,543 $2,784
5/31/04 $17,127 $2,975
6/30/04 $17,256 $2,957
7/31/04 $17,038 $2,968
8/31/04 $17,856 $2,980
10 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS 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 GREATER RISK OF LOSS WITH RESPECT TO ITS
PORTFOLIO SECURITIES. THE FUND MAY ALSO EXPERIENCE GREATER VOLATILITY THAN A
FUND THAT IS MORE BROADLY DIVERSIFIED GEOGRAPHICALLY. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Effective after the close of business on 8/8/03, Templeton China World Fund,
Inc. (Closed-End Fund), was converted into an open-end fund in a transaction
whereby the Closed-End Fund transferred all of its assets, subject to its
liabilities, to the Fund in exchange for Advisor Class shares. Total return
information is based upon the Closed-End Fund's performance (as calculated using
net asset values, not market values), which has been restated to reflect all
charges, fees and expenses currently applicable to the Fund and each class. The
Closed-End Fund was offered without a sales charge and Rule 12b-1 fees. On
8/11/03, the Fund began offering Class A, B and C shares. For periods prior to
8/11/03, performance quotations are based upon the Closed-End Fund's performance
restated to take into account all charges, fees and expenses applicable to the
Fund and each class, including that class's current, applicable, maximum sales
charge and Rule 12b-1 fees. Beginning on 8/11/03, actual class performance will
be used reflecting all charges, fees and expenses applicable to the Fund and
each class.
2. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge.
5. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
6. Source: Standard & Poor's Micropal. The MSCI China Index is market
capitalization weighted and measures total returns of equity securities
available to foreign (non-local) investors in China.
Annual Report | 11
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 2/29/04 VALUE 8/31/04 PERIOD* 2/29/04-8/31/04
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $933.00 $10.59
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,014.18 $11.04
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $929.20 $13.72
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,010.91 $14.30
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $929.70 $13.44
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,011.21 $14.00
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $934.20 $8.90
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,015.94 $9.27
- ------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio for each class (A: 2.18%; B:
2.83%; C: 2.77%; and Advisor: 1.83%), multiplied by the average account value
over the period, multiplied by 184/366 to reflect the one-half year period.
Annual Report | 13
Templeton China World Fund
FINANCIAL HIGHLIGHTS
----------------------
YEAR ENDED AUGUST 31,
CLASS A 2004 2003 D
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................................... $14.89 $14.30
----------------------
Income from investment operations:
Net investment income a ................................................. .21 .12
Net realized and unrealized gains ....................................... 3.24 .40
----------------------
Total from investment operations ......................................... 3.45 .52
----------------------
Less distributions from net investment income ............................ (.40) --
Total distributions ...................................................... (.40) --
----------------------
Redemption fees .......................................................... .03 .07
----------------------
Net asset value, end of year ............................................. $17.97 $14.89
----------------------
Total return b ........................................................... 23.80% 4.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $43,179 $3,166
Ratios to average net assets:
Expenses ................................................................ 2.14%c 3.03%e,f
Net investment income ................................................... 1.09% 38.74%e,f
Portfolio turnover rate .................................................. 30.82% 19.99%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
c Ratio of expenses to average net assets, excluding payments by affiliate were
2.30% (Note 7).
d For the period August 11, 2003 (effective date) to August 31, 2003.
e Annualized.
f Represents annualized ratios for a 21 day period and therefore are not
representative of the Fund's income and expense for the entire fiscal year.
</FN>
14 | See notes to financial statements. | Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------
YEAR ENDED AUGUST 31
CLASS B 2004 2003 D
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................................... $14.88 $14.30
----------------------
Income from investment operations:
Net investment income a ................................................. .16 .08
Net realized and unrealized gains ....................................... 3.16 .43
----------------------
Total from investment operations ......................................... 3.32 .51
----------------------
Less distributions from:
Net investment income ................................................... (.39) --
----------------------
Total distributions ...................................................... (.39) --
----------------------
Redemption fees .......................................................... .03 .07
----------------------
Net asset value, end of year ............................................. $17.84 $14.88
----------------------
Total return b ........................................................... 22.95% 4.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $8,630 $362
Ratios to average net assets:
Expenses ................................................................ 2.79%c 3.68%e,f
Net investment income ................................................... .44% 38.09%e,f
Portfolio turnover rate .................................................. 30.82% 19.99%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
c Ratio of expenses to average net assets, excluding payments by affiliate were
2.95% (Note 7).
d For the period August 11, 2003 (effective date) to August 31, 2003.
e Annualized.
f Ratio represents annualized ratios for a 21 day period and therefore are not
representative of the Fund's income and expense for the entire fiscal year.
</FN>
Annual Report | See notes to financial statements. | 15
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------
YEAR ENDED AUGUST 31,
CLASS C 2004 2003 D
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................... $14.88 $14.30
----------------------
Income from investment operations:
Net investment income a ..................................................... .12 .11
Net realized and unrealized gains ........................................... 3.21 .40
----------------------
Total from investment operations ............................................. 3.33 .51
----------------------
Less distributions from:
Net investment income ....................................................... (.39) --
----------------------
Total distributions .......................................................... (.39) --
----------------------
Redemption fees .............................................................. .03 .07
----------------------
Net asset value, end of year ................................................. $17.85 $14.88
----------------------
Total return b ............................................................... 23.02% 4.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................................. $20,603 $652
Ratios to average net assets:
Expenses .................................................................... 2.75%c 3.68%e,f
Net investment income ....................................................... .48% 38.09%e,f
Portfolio turnover rate ...................................................... 30.82% 19.99%
<FN>
a Based on average daily shares outstanding.
b Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
c Ratio of expenses to average net assets, excluding payments by affiliate were
2.91% (Note 7).
d For the period August 11, 2003 (effective date) to August 31, 2003.
e Annualized.
f Represents annualized ratios for a 21 day period and therefore are not
representative of the Fund's income and expense for the entire fiscal year.
</FN>
16 | See notes to financial statements. | Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------
YEAR ENDED AUGUST 31,
ADVISOR CLASS 2004 2003 D 2002 2001 2000
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $14.90 $10.64 $9.52 $11.33 $9.83
---------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .24 .43 .21 .18 .23
Net realized and unrealized gains (losses) ....................... 3.27 4.08 .98 (1.98) 1.42
---------------------------------------------------------
Total from investment operations .................................. 3.51 4.51 1.19 (1.80) 1.65
---------------------------------------------------------
Capital share repurchases ......................................... -- -- .11 .09 .07
---------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.41) (.32) (.18) (.10) (.22)
---------------------------------------------------------
Total distributions ............................................... (.41) (.32) (.18) (.10) (.22)
---------------------------------------------------------
Redemption fees ................................................... .03 .07 -- -- --
---------------------------------------------------------
Net asset value, end of year ...................................... $18.03 $14.90 $10.64 $9.52 $11.33
---------------------------------------------------------
Market value, end of year b ....................................... -- -- $9.10 $7.73 $8.00
---------------------------------------------------------
Total return (based on market value per share) .................... -- -- 20.27% (2.14)% 7.86%
Total return (based on net asset value per share) ................. 24.21% 43.95% -- -- --
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $161,599 $181,913 $173,204 $172,209 $213,953
Ratios to average net assets:
Expenses ......................................................... 1.79%c 2.10%c 1.66% 1.66% 1.68%
Net investment income ............................................ 1.44% 3.66% 2.01% 1.70% 2.21%
Portfolio turnover rate ........................................... 30.82% 19.99% 44.62% 83.85% 142.49%
<FN>
a Based on average daily shares outstanding.
b Based on the last sale of the New York Stock Exchange.
c Ratio of expenses to average net assets, excluding payments by affiliate for
the years ended August 31, 2003 and 2004, were 2.63% and 1.95%, respectively
(Note 7).
d On August 8, 2003, the Fund converted from a closed-end fund to an open-end
fund whereby the shares of the closed-end fund were exchanged for Advisor
Class shares. Based on historical information, the information included is for
operation of the Fund as a closed-end fund, and does not reflect expenses
applicable to an open-end fund.
</FN>
Annual Report | See notes to financial statements. | 17
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004
- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 95.4%
AUTO COMPONENTS 3.0%
Cheng Shin Rubber Industry Co. Ltd. ............................... Taiwan 5,061,328 $ 6,542,257
Weifu High-Technology Co. Ltd., B ................................. China 598,916 464,547
-------------
7,006,804
-------------
CAPITAL MARKETS 1.0%
Yuanta Core Pacific Securities Co. ................................ Taiwan 3,464,211 2,299,976
-------------
COMMERCIAL BANKS 9.9%
Chinatrust Financial Holding Co. Ltd. ............................. Taiwan 3,674,655 3,875,444
HSBC Holdings PLC ................................................. United Kingdom 616,984 9,571,223
Mega Financial Holdings Co. Ltd. .................................. Taiwan 11,941,000 7,226,340
Sinopac Holdings .................................................. Taiwan 5,239,258 2,631,942
-------------
23,304,949
-------------
COMMUNICATIONS EQUIPMENT 1.4%
D-Link Corp. ...................................................... Taiwan 2,863,565 3,247,168
-------------
COMPUTERS & PERIPHERALS 7.4%
Acer Inc. ......................................................... Taiwan 6,208,455 8,262,133
Asustek Computer Inc. ............................................. Taiwan 1,102,062 2,460,538
Lenovo Group Ltd., H .............................................. China 4,226,789 1,327,654
Lite-on Technology Corp. .......................................... Taiwan 5,653,300 5,281,285
-------------
17,331,610
-------------
CONSTRUCTION MATERIALS 4.2%
Anhui Conch Cement Co. Ltd. ....................................... China 1,402,000 1,680,613
Cheung Kong Infrastructure Holdings Ltd. .......................... Hong Kong 3,320,548 8,237,566
-------------
9,918,179
-------------
DISTRIBUTORS 4.3%
China Resources Enterprise Ltd. ................................... China 6,700,000 8,890,441
Test-Rite International Co. Ltd. .................................. Taiwan 2,182,620 1,179,795
-------------
10,070,236
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES 1.6%
China Telecom Corp. Ltd., H ....................................... China 11,773,833 3,773,689
-------------
ELECTRIC UTILITIES 4.7%
Datang International Power Generation Co. Ltd. .................... China 9,620,320 7,523,632
Guangdong Electric Power Development Co. Ltd., B .................. China 2,872,763 1,653,691
Huadian Power International Corp. Ltd., H ......................... China 2,870,000 837,089
Huaneng Power International Inc., H ............................... China 1,218,776 906,275
-------------
10,920,687
-------------
ELECTRICAL EQUIPMENT .2%
Phoenixtec Power Co. Ltd. ......................................... Taiwan 454,055 473,530
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 2.2%
Delta Electronics Inc. ............................................ Taiwan 4,076,520 5,221,395
-------------
FOOD & STAPLES RETAILING 12.5%
Dairy Farm International Holdings Ltd. ............................ Hong Kong 10,219,776 24,936,253
President Chain Store Corp. ....................................... Taiwan 2,844,088 4,219,344
-------------
29,155,597
-------------
18 | Annual Report
Templeton China World Fund
Statement of Investments, August 31, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FOOD PRODUCTS 1.0%
Tingyi (Cayman Islands) Holding Corp. ............................. China 1,082,827 $ 226,285
UNI-President Enterprises Corp. ................................... Taiwan 4,347,950 2,018,144
-------------
2,244,429
-------------
HOTELS RESTAURANTS & LEISURE 2.2%
Hong Kong & Shanghai Hotels Ltd. .................................. Hong Kong 7,892,757 5,110,087
-------------
HOUSEHOLD DURABLES 1.6%
TCL International Holdings Inc. ................................... China 5,052,000 1,813,550
Tsann Kuen Enterprise Co. Ltd. .................................... Taiwan 1,731,590 1,994,075
-------------
3,807,625
-------------
INDUSTRIAL CONGLOMERATES 2.4%
Citic Pacific Ltd. ................................................ China 860,092 2,194,351
Shanghai Industrial Holdings Ltd. ................................. China 1,810,253 3,330,423
-------------
5,524,774
-------------
MACHINERY 2.2%
China International Marine Containers Co. Ltd., B ................. China 3,123,515 4,376,953
Yung Tay Engineering Co. Ltd. ..................................... Taiwan 1,410,000 753,878
-------------
5,130,831
-------------
METALS & MINING .1%
Aluminum Corp. of China Ltd., H ................................... China 372,000 182,424
-------------
OFFICE ELECTRONICS .5%
Kinpo Electronics Inc. ............................................ Taiwan 2,897,760 1,204,562
-------------
OIL & GAS 9.1%
China Petroleum & Chemical Corp., H ............................... China 39,507,395 15,448,504
PetroChina Co. Ltd., H ............................................ China 11,621,903 5,848,238
-------------
21,296,742
-------------
REAL ESTATE 9.1%
Cheung Kong Holdings Ltd. ......................................... Hong Kong 1,360,690 11,731,665
Henderson China Holdings Ltd. ..................................... Hong Kong 5,581,684 2,772,970
Henderson Investment Ltd. ......................................... Hong Kong 2,888,756 3,740,593
Hong Kong Land Holdings Ltd. ...................................... Hong Kong 1,645,000 3,109,050
-------------
21,354,278
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.1%
Princeton Technology Corp. ........................................ Taiwan 205,000 199,941
Samsung Electronics Co. Ltd. ...................................... South Korea 5,510 2,157,408
Siliconware Precision Industries Co. Ltd. ......................... Taiwan 95,000 69,771
Sunplus Technology Co. Ltd. ....................................... Taiwan 1,683,660 2,433,492
-------------
4,860,612
-------------
SPECIALTY RETAIL .2%
Tack Fat Group International Ltd. ................................. Hong Kong 6,352,000 496,762
-------------
TRANSPORTATION INFRASTRUCTURE 4.9%
China Merchants Holdings (International) Co. Ltd. ................. China 3,631,216 5,516,691
Cosco Pacific Ltd. ................................................ Hong Kong 3,489,449 5,234,207
Zhejiang Expressway Co. Ltd., H ................................... China 972,398 660,736
-------------
11,411,634
-------------
Annual Report | 19
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
WIRELESS TELECOMMUNICATION SERVICES 7.6%
China Mobile (Hong Kong) Ltd. ..................................... China 5,322,770 $ 15,524,845
Taiwan Cellular Corp. ............................................. Taiwan 2,496,930 2,347,290
-------------
17,872,135
-------------
TOTAL COMMON STOCKS (COST $164,707,891) ........................... 223,220,715
-------------
----------------
PRINCIPAL AMOUNT
----------------
SHORT TERM INVESTMENTS (COST $9,464,635) 4.0%
U.S. Treasury Bills, 1.163% to 1.506%, 9/16/04-11/26/04 ........... United States $ 9,489,000 9,463,805
-------------
TOTAL INVESTMENTS (COST $174,172,526) 99.4% ....................... 232,684,520
OTHER ASSETS, LESS LIABILITIES .6% ................................ 1,327,564
-------------
NET ASSETS 100.0% ................................................. $234,012,084
-------------
20 | See notes to financial statements. | Annual Report
Templeton China World Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2004
Assets:
Investments in securities:
Cost ................................................................................ $174,172,526
-------------
Value ............................................................................... 232,684,520
Cash ................................................................................. 3,046
Receivables:
Investment securities sold .......................................................... 123,687
Capital shares sold ................................................................. 685,415
Dividends ........................................................................... 1,792,123
-------------
Total assets .................................................................... 235,288,791
-------------
Liabilities:
Payables:
Investment securities purchased ..................................................... 319,116
Capital shares redeemed ............................................................. 444,508
Affiliates .......................................................................... 353,095
Funds advanced by custodian .......................................................... 5,796
Other liabilities .................................................................... 154,192
-------------
Total liabilities ............................................................... 1,276,707
-------------
Net assets, at value .......................................................... $234,012,084
-------------
Net assets consist of:
Undistributed net investment income .................................................. $ 2,645,635
Net unrealized appreciation (depreciation) ........................................... 58,509,977
Accumulated net realized gain (loss) ................................................. (43,494,425)
Capital shares ....................................................................... 216,350,897
-------------
Net assets, at value .......................................................... $234,012,084
-------------
CLASS A:
Net assets, at value ................................................................. $ 43,179,122
-------------
Shares outstanding ................................................................... 2,403,165
-------------
Net asset value per share a .......................................................... $17.97
-------------
Maximum offering price per share (net asset value per share / 94.25%) ................ $19.07
-------------
CLASS B:
Net assets, at value ................................................................. $ 8,630,156
-------------
Shares outstanding ................................................................... 483,739
-------------
Net asset value and maximum offering price per share a ............................... $17.84
-------------
CLASS C:
Net assets, at value ................................................................. $ 20,603,323
-------------
Shares outstanding ................................................................... 1,154,426
-------------
Net asset value and maximum offering price per share a ............................... $17.85
-------------
ADVISOR CLASS:
Net assets, at value $161,599,483
-------------
Shares outstanding 8,962,595
-------------
Net asset value and maximum offering price per share b $18.03
-------------
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge and redemption fees retained by the Fund.
b Redemption price is equal to net asset value less any applicable redemption
fees retained by the Fund.
</FN>
Annual Report | See notes to financial statements. | 21
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended August 31, 2004
Investment income:
(net of foreign taxes of $598,741)
Dividends .................................................................................. $ 7,423,501
Interest ................................................................................... 113,995
------------
Total investment income ............................................................... 7,537,496
------------
Expenses:
Management fees (Note 3) ................................................................... 2,909,497
Administrative fees (Note 3) ............................................................... 466,196
Distribution fees (Note 3)
Class A ................................................................................... 115,097
Class B ................................................................................... 56,805
Class C ................................................................................... 144,837
Transfer agent fees (Note 3) ............................................................... 358,300
Custodian fees (Note 4) .................................................................... 183,132
Reports to shareholders .................................................................... 50,100
Registration and filing fees ............................................................... 67,700
Professional fees .......................................................................... 466,498
Trustees' fees and expenses ................................................................ 33,900
Other ...................................................................................... 7,400
------------
Total expenses ........................................................................ 4,859,462
------------
Expenses waived/paid by affiliate (Note 7) ............................................ (371,395)
Expense reductions (Note 4) ........................................................... (149)
------------
Net expenses ........................................................................ 4,487,918
------------
Net investment income ............................................................. 3,049,578
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................................... 29,378,019
Foreign currency transactions ............................................................. (62,907)
------------
Net realized gain (loss) .............................................................. 29,315,112
Net unrealized appreciation (depreciation) on:
Investments ............................................................................... 13,652,800
Translation of assets and liabilities denominated in foreign currencies ................... 7,002
Net unrealized appreciation (depreciation) ............................................ 13,659,802
------------
Net realized and unrealized gain (loss) ..................................................... 42,974,914
------------
Net increase (decrease) in net assets resulting from operations ............................. $46,024,492
------------
22 | See notes to financial statements. | Annual Report
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 2004 and 2003
-------------------------------
2004 2003
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 3,049,578 $ 6,998,317
Net realized gain (loss) from investments and foreign currency transactions ........... 29,315,112 30,314,699
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ............................. 13,659,802 35,711,079
-------------------------------
Net increase (decrease) in net assets resulting from operations ................... 46,024,492 73,024,095
Distributions to shareholders from:
Net investment income:
Class A ............................................................................... (403,504) --
Class B ............................................................................... (41,117) --
Class C ............................................................................... (120,259) --
Advisor Class ......................................................................... (4,688,513) (5,151,044)
-------------------------------
Total distributions to shareholders ..................................................... (5,253,393) (5,151,044)
Capital share transactions (Note 2)
Class A ............................................................................... 35,872,551 3,130,255
Class B ............................................................................... 7,860,438 359,152
Class C ............................................................................... 18,750,834 645,381
Advisor Class ......................................................................... (55,778,270) (60,331,901)
-------------------------------
Total capital share transactions ........................................................ 6,705,553 (56,197,113)
Redemption fees (Note 1g) ............................................................... 443,024 1,212,126
Net increase (decrease) in net assets ............................................. 47,919,676 12,888,064
Net assets:
Beginning of year ...................................................................... 186,092,408 173,204,344
-------------------------------
End of year ............................................................................ $234,012,084 $186,092,408
-------------------------------
Undistributed net investment income included in net assets:
End of year ............................................................................ $ 2,645,635 $ 4,855,838
-------------------------------
Annual Report | See notes to financial statements. | 23
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton China World Fund (the Fund) is registered under the Investment Company
Act of 1940 as an open-end, non-diversified investment company. The Fund seeks
to achieve long-term capital appreciation. Under normal market conditions, the
Fund invests at least 80% of its net assets in securities of "China companies"
as defined in the Fund's prospectus. The following summarizes the Fund's
significant accounting policies.
On June 12, 2003, Fund shareholders approved an Agreement and Plan of
Reorganization, which provided for the conversion of the Fund from a closed-end
fund organized as a Maryland Corporation (the Closed-End Fund) into an open-end
fund organized as a Delaware Statutory Trust. The conversion, which was a
tax-free reorganization, was effective after the close of business on August 8,
2003. Trading of the Closed-End Fund's shares on the New York Stock Exchange,
Inc. was suspended after the close of business on August 8, 2003. The Closed-End
Fund's shareholders received Advisor Class shares of the Fund equivalent in
number to, and with the same net asset value as, the Closed-End Fund's shares
held on August 8, 2003. For six months following the conversion, former
Closed-End Fund's shareholders who redeemed Advisor Class shares received in the
conversion were subject to a 2% redemption fee.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing 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 by independent pricing services or recognized dealers in
such securities. Foreign securities are valued at the close of trading of the
foreign exchange or the NYSE, whichever is earlier. If events occur that
materially affect the values of securities after the prices or foreign exchange
rates are determined, but prior to 4:00 p.m. Eastern time or the close of
trading on the NYSE, whichever is earlier, or if market quotations are deemed
not readily available or reliable, the securities will be valued at fair value.
All security valuation procedures are approved by the Board of Trustees.
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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date.
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.
24 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses are included
in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
D. 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 substantially all of its taxable income. Fund distributions to
shareholders are determined on a tax basis and may differ from net investment
income and realized gains for financial reporting purposes.
E. 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. Interest income and estimated expenses are accrued daily. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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.
G. REDEMPTION FEES
Redemptions and exchanges of Fund shares held five trading days or less (30 days
or less prior to June 1, 2004 and 90 days or less prior to January 1, 2004) may
be subject to the Fund's redemption fee, which is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as additional paid in
capital as noted on the Statement of Changes.
Annual Report | 25
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Fund. Additionally, in the normal course of business, the Fund
enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
On August 8, 2003, shareholders of the Closed-End Fund received Advisor Class
shares in exchange for their shares. Effective August 11, 2003, the Fund began
offering four classes of shares: Class A, Class B, Class C and Advisor Class.
Each class of shares differs by its initial sales load, contingent deferred
sales charge, distribution fees, voting rights on matters affecting a single
class and its exchange privilege.
At August 31, 2004, there were an unlimited number of shares of beneficial
interest authorized (without par value). Transactions in the Fund's shares were
as follows:
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
2004 2003 A
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
CLASS A SHARES:
Shares sold ..................... 3,412,286 $ 57,588,116 212,731 $3,132,255
Shares issued in reinvestment
of distributions .............. 19,982 305,934 -- --
Shares redeemed ................. (1,241,700) (22,021,499) (134) (2,000)
------------------------------------------------------------------
Net increase (decrease) ......... 2,190,568 $ 35,872,551 212,597 $3,130,255
------------------------------------------------------------------
CLASS B SHARES:
Shares sold ..................... 526,231 $ 9,032,972 24,321 $ 359,152
Shares issued in reinvestment
of distributions .............. 2,409 36,734 -- --
Shares redeemed ................. (69,222) (1,209,268) -- --
------------------------------------------------------------------
Net increase (decrease) ......... 459,418 $ 7,860,438 24,321 $ 359,152
------------------------------------------------------------------
CLASS C SHARES:
Shares sold ..................... 1,562,207 $ 26,837,355 43,790 $ 645,381
Shares issued in reinvestment
of distributions .............. 5,807 88,548 -- --
Shares redeemed ................. (457,378) (8,175,069) -- --
------------------------------------------------------------------
Net increase (decrease) .......... 1,110,636 $ 18,750,834 43,790 $ 645,381
------------------------------------------------------------------
26 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
2004 2003 A
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
ADVISOR CLASS SHARES:
Shares sold ..................... 855,577 $ 14,264,876 17,122 $ 251,753
Shares issued in reinvestment
of distributions .............. 109,770 1,685,293 -- --
Shares redeemed ................. (4,210,853) (71,728,439) (4,089,186)b (60,583,654)b
------------------------------------------------------------------
Net increase (decrease) ......... (3,245,506) $(55,778,270) (4,072,064) $(60,331,901)
------------------------------------------------------------------
<FN>
a Effective date of Classes A, B, C, and Advisor was August 11, 2003.
b Includes redemption in kind of $56,623,159 on which the Fund realized a gain of
$13,559,016 (see note 7).
</FN>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of the following
entities:
- ---------------------------------------------------------------------------------------
ENTITY AFFILIATION
- ---------------------------------------------------------------------------------------
Templeton Asset Management, Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton/Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the Fund's average
weekly net assets as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% Over $20 billion
Prior to June 1, 2004, the Fund paid an investment management fee to TAML of
1.25% per year of the average weekly net assets of the Fund.
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.20% per year based on
the Fund's average daily net assets.
Annual Report | 27
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
C. DISTRIBUTION FEES
The Fund reimburses Distributors up to 0.35%, 1.00% and 1.00% per year of the
average daily net assets of Class A, Class B and Class C shares, respectively,
for costs incurred in marketing the Fund's shares under a Rule 12b-1 plan.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sale of the Fund's shares for the year:
Sales charges received .................................. $156,746
Contingent deferred sales charges retained .............. $394,524
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $358,300, of which $191,199 was paid to
Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended August 31, 2004, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At August 31, 2004, 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:
2007 .................................................... $22,831,689
2008 .................................................... 45,311
2009 .................................................... 1,256,834
2010 .................................................... 17,884,154
------------
$42,017,988
------------
At August 31, 2004, the Fund had deferred foreign currency losses occurring
subsequent to October 31, 2003 of $56,402. For tax purposes such losses will be
reflected in the year ending August 31, 2005.
28 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
At August 31, 2004, the cost of investments, net unrealized appreciation
(depreciation), and undistributed ordinary income for income tax purposes were
as follows:
Cost of investments ..................................... $175,592,561
------------
Unrealized appreciation ................................. $ 61,151,612
Unrealized depreciation ................................. (4,059,653)
------------
Net unrealized appreciation (depreciation) .............. $ 57,091,959
------------
Distributable earnings-undistributed ordinary income .... $ 2,645,635
------------
The tax character of distributions paid during the years ended August 31, 2004
and 2003, was as follows:
-----------------------------
2004 2003
-----------------------------
Distributions paid from:
Ordinary income ......................... $5,253,393 $5,151,044
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of wash sales and foreign currency transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended August 31, 2004 aggregated $112,523,060 and $66,755,449,
respectively.
7. FEES, COSTS AND EXPENSES RELATING TO PAST LITIGATION
On March 20, 2003, Templeton China World Fund, Inc., the Fund's predecessor
Maryland Corporation (the "Closed-End Fund"), Templeton Dragon Fund, Inc.
("Dragon Fund"), a closed-end management investment company in Franklin
Templeton Investments, TAML, the investment adviser to the Closed-End Fund and
Dragon Fund, and Harvard College, Harvard Management Company, Inc. ("Harvard
Management"), which is an investment advisor to Harvard College, and Steve
Alperin, an officer of Harvard Management (referred to collectively as
"Harvard"), announced a settlement of previously filed litigation claims against
each other. The settlement resulted in, among other things, the dismissal of
their litigation claims against each other.
Annual Report | 29
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FEES, COSTS AND EXPENSES RELATING TO PAST LITIGATION (CONTINUED)
Under the terms of the Settlement Agreement, TAML agreed to reimburse the
Closed-End Fund for the legal fees and expenses incurred by the Closed-End Fund
and its directors with respect to the Settlement Agreement and the litigation.
TAML also paid legal fees and expenses incurred by the Closed-End Fund through
March 20, 2003, with respect to the Closed-End Fund's proxy contest relating to
its 2003 Annual Shareholders' Meeting (the "Meeting"). The Closed-End Fund paid
all other legal costs related to the proxy proposals considered at the Meeting,
including the conversion of the Closed-End Fund to an open-end fund described
above.
8. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On September 20, 2004, Franklin Resources, Inc. (Franklin Resources, Inc. and
its subsidiaries are referred to collectively as the "Company") announced that
an agreement has been reached by two of its subsidiaries, Franklin Advisers,
Inc. ("Franklin Advisers") and Franklin Templeton Alternative Strategies, Inc.
("FTAS"), with the Securities Division of the Office of the Secretary of the
Commonwealth of Massachusetts (the "State of Massachusetts") related to an
administrative complaint filed on February 4, 2004. The administrative complaint
addressed one instance of market timing that was also a subject of the August 2,
2004 settlement that Franklin Advisers reached with the SEC, as described below.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers and FTAS have consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts. The consent order has multiple sections, including
"Statements of Fact" and "Violations of Massachusetts Securities Laws." The
Company admitted the "Statements of Fact." The Company did not admit or deny the
"Violations of the Massachusetts Securities Laws." While Franklin Advisers and
FTAS did not admit or deny engaging in any wrongdoing, the Company believes that
it is in its best interest and the interests of its funds' shareholders to
settle this issue now and move forward.
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT
On August 2, 2004, the Company announced that an agreement has been reached by
Franklin Advisers with the SEC that resolves the issues resulting from the SEC's
investigation of market timing activity and the SEC issued an "Order instituting
administrative and cease-and-desist proceedings pursuant to sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and sections 9(b) and 9(f) of the
Investment Company Act of 1940, making findings and imposing remedial sanctions
and a cease-and-desist order" (the "Order"). The SEC's Order concerns the
activities of a limited number of third parties that ended in 2000 and those
that are the subject of the Massachusetts administrative complaint described
above.
30 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REGULATORY MATTERS (CONTINUED)
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT (CONTINUED)
Under the terms of the SEC's Order, pursuant to which Franklin Advisers neither
admits nor denies any wrongdoing, Franklin Advisers has agreed to pay $50
million, of which $20 million is a civil penalty, to be distributed to
shareholders of certain funds in accordance with a plan to be developed by an
Independent Distribution Consultant. At this time, it is unclear which funds
will receive distributions or which shareholders of any particular fund will
receive distributions. The SEC Order also requires Franklin Advisers to, among
other things, enhance and periodically review compliance policies and
procedures.
OTHER GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the SEC, the U.S. Attorney for the Northern
District of California, the New York Attorney General, the California Attorney
General, the U.S. Attorney for the District of Massachusetts, the Florida
Department of Financial Services and the Commissioner of Securities, the West
Virginia Attorney General, the Vermont Department of Banking, Insurance,
Securities, and Health Care Administration and the National Association of
Securities Dealers, relating to certain practices in the mutual fund industry,
including late trading, market timing and payments to securities dealers who
sell fund shares, the Company and its subsidiaries, as well as certain current
or former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees have been providing documents and information in response
to these requests and subpoenas. In addition, the Company has responded to
requests for similar kinds of information from regulatory authorities in some of
the foreign countries where the Company conducts its global asset management
business.
The staff of the SEC has also informed the Company that it is considering
recommending a civil action or proceeding against Franklin Advisers and Franklin
Templeton Distributors, Inc. ("FTDI") concerning payments to securities dealers
who sell fund shares (commonly referred to as "revenue sharing"). The staff of
the California Attorney General's Office ("CAGO") also has advised the Company
that the California Attorney General is authorized to bring a civil action
against the Company and FTDI arising from the same events. Even though the
Company currently believes that the charges the SEC staff and CAGO staff are
contemplating are unwarranted, it also believes that it is in the best interest
of the Company's and funds' shareholders to resolve these issues voluntarily, to
the extent the Company can reasonably do so. The Company continues to have
discussions towards resolving these governmental investigations.
Annual Report | 31
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Fund, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York
and Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Specifically, the lawsuits claim
breach of duty with respect to alleged arrangements to permit market timing
and/or late trading activity, or breach of duty with respect to the valuation of
the portfolio securities of certain funds managed by Company subsidiaries,
resulting in alleged market timing activity. The majority of these lawsuits
duplicate, in whole or in part, the allegations asserted in the Massachusetts
administrative complaint described above. The lawsuits are styled as class
actions or derivative actions on behalf of either the named funds or the
Company.
Various subsidiaries of the Company have also been named in multiple lawsuits
filed in state courts in Illinois alleging breach of duty with respect to
valuation of the portfolio securities of certain funds managed by such
subsidiaries.
In addition, the Company and certain of its subsidiaries, as well as certain
current and former officers, employees, and directors have been named in
multiple lawsuits alleging violations of various securities laws and pendent
state law claims relating to the disclosure of directed brokerage payments
and/or payment of allegedly excessive advisory, commission, and distribution
fees. These lawsuits are styled as class actions and derivative actions brought
on behalf of certain funds.
The Company's management strongly believes that the claims made in each of these
lawsuits are without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
governmental investigations or class actions or other lawsuits. If the Company
finds that it bears responsibility for any unlawful or inappropriate conduct
that caused losses to the Fund, it is committed to making the Fund or its
shareholders whole, as appropriate.
32 | Annual Report
Templeton China World Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON CHINA WORLD FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement 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 (the
"Fund") at August 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States of
America. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 13, 2004
Annual Report | 33
Templeton China World Fund
TAX DESIGNATION (UNAUDITED)
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund hereby
designates up to a maximum of $1,395,625 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
August 31, 2004. In January 2005, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2004. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
At August 31, 2004, 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. As shown in the tables
below, the Fund hereby designates to shareholders the foreign source income and
foreign taxes paid, pursuant to Section 853 of the Code. This designation will
allow shareholders of record on October 21, 2004, to treat their proportionate
share of foreign taxes paid by the Fund as having been paid directly by them.
The shareholder shall consider these amounts as foreign taxes paid in the tax
year in which they receive the Fund distribution.
The following tables provide a detailed analysis, by country, of foreign tax
paid, foreign source income, foreign qualified dividends, and adjusted foreign
source income as designated by the Fund to shareholders of record. As a service
to individual shareholders filing Form 1116, "Adjusted Foreign Source Income per
Share" in column 4 below reports foreign source income with the required
adjustments to foreign source qualified dividends. This information is provided
to simplify your reporting of foreign source income for line 1 of Form 1116.
- --------------------------------------------------------------------------------
CLASS A
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
CHINA ............ 0.0000 0.0617 0.0443 0.0364
Hong Kong ........ 0.0000 0.1071 0.0000 0.1071
Taiwan ........... 0.0459 0.0858 0.0000 0.0858
-----------------------------------------------------------
TOTAL ............ $0.0459 $0.2546 $0.0443 $0.2293
-----------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS B
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
China ........... 0.0000 0.0452 0.0325 0.0266
Hong Kong ....... 0.0000 0.0786 0.0000 0.0786
Taiwan .......... 0.0459 0.0628 0.0000 0.0628
-----------------------------------------------------------
TOTAL ........... $0.0459 $0.1866 $0.0325 $0.1680
-----------------------------------------------------------
34 | Annual Report
Templeton China World Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CLASS C
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
China ........... 0.0000 0.0432 0.0310 0.0255
Hong Kong ....... 0.0000 0.0752 0.0000 0.0752
Taiwan .......... 0.0459 0.0601 0.0000 0.0601
-----------------------------------------------------------
TOTAL ........... $0.0459 $0.1785 $0.0310 $0.1608
-----------------------------------------------------------
- --------------------------------------------------------------------------------
ADVISOR CLASS
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
China .......... 0.0000 0.0725 0.0521 0.0427
Hong Kong ...... 0.0000 0.1261 0.0000 0.1261
Taiwan ......... 0.0459 0.1009 0.0000 0.1009
-----------------------------------------------------------
TOTAL .......... $0.0459 $0.2995 $0.0521 $0.2697
-----------------------------------------------------------
Foreign Tax Paid per Share (Column 1) is the amount per share available to you,
as a tax credit or deduction (assuming you held your shares in the Fund for a
minimum of 16 days during the 30-day period beginning 15 days before the
ex-dividend date of the Fund's distribution to which the foreign taxes relate).
Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends without adjustment for the lower U.S.
tax rates. Generally, this is the foreign source income to be reported by
certain trusts and corporate shareholders.
Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that was derived from qualified
foreign securities held by the Fund. If you are an individual shareholder who
does not meet the qualified dividend holding period requirements, you may find
this information helpful to calculate the foreign source income adjustment
needed to complete line 1 of Form 1116.
Adjusted Foreign Source Income per Share (Column 4) is the adjusted amount per
share of foreign source income the Fund paid to you. These amounts reflect the
Foreign Source Income reported in column 2 adjusted for the tax rate
differential on foreign source qualified dividends that may be required for
certain individual shareholders pursuant to Internal Revenue Code 904(b)(2)(B).
If you are an individual shareholder who meets the qualified dividend holding
period requirements, generally, these Adjusted Foreign Source Income amounts may
be reported directly on line 1 of Form 1116 without additional adjustment.
Annual Report | 35
Templeton China World Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
In January 2005, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2004. The Foreign Source Income reported on Form 1099-DIV has been
reduced to take into account the tax rate differential on foreign source
qualified dividend income pursuant to Internal Revenue Code 904(b)(2)(B).
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their 2004 individual income tax returns.
36 | Annual Report
Board Members and Officers
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Fund, principal occupations during the
past five years and number of U.S. registered portfolios overseen in the
Franklin Templeton Investments fund complex are shown below. Each board member
will serve until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1993 140 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (60) Trustee Since 1999 21 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holdings Ltd. (Vice Chairman 1996-2003); Vice Chairman, Caribbean Utilities Co. Ltd.; Director and
President, Provo Power Company Ltd.; Director, Caribbean Electric Utility Services Corporation (Chairman until 2002); director of
various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power Ltd. (1977-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (72) Trustee Since 1993 141 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1996 96 Director, Amerada Hess Corporation
500 East Broward Blvd. (exploration and refining of oil and
Suite 2100 gas); H.J. Heinz Company (processed
Fort Lauderdale, FL 33394-3091 foods and allied products); RTI
International Metals, Inc. (manufac-
ture and distribution of titanium); and
Canadian National Railway (railroad).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary
of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 37
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1993 140 Director, White Mountains Insurance
500 East Broward Blvd. Group, Ltd. (holding company);
Suite 2100 Martek Biosciences Corporation;
Fort Lauderdale, FL 33394-3091 MedImmune, Inc. (biotechnology);
and Overstock.com (Internet servi-
ces); and FORMERLY, Director, MCI
Communication Corporation (subse-
quently known as MCI WorldCom,
Inc. and WorldCom, Inc.) (communi-
cations services) (1988-2002) and
Spacehab, Inc. (aerospace services)
(1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National
Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
FRED R. MILLSAPS (75) Trustee Since 1993 28 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various business and nonprofit organizations; manager of personal investments (1978-present); and FORMERLY, Chairman
and Chief Executive Officer, Landmark Banking Corporation (1969-1978); Financial Vice President, Florida Power and Light
(1965-1969); and Vice President, Federal Reserve Bank of Atlanta (1958-1965).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (72) Trustee Since 2003 21 Director, Becton, Dickinson and Co.
500 East Broward Blvd. (medical technology); White
Suite 2100 Mountains Insurance Group Ltd.
Fort Lauderdale, FL 33394-3091 (holding company); and Amerada
Hess Corporation (exploration and
refining of oil and gas).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, The Hertz Corporation (car rental) (since 1980) (Chief Executive Officer 1977-1999); and FORMERLY,
Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. TSERETOPOULOS Trustee Since 1999 21 None
(50)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
- ------------------------------------------------------------------------------------------------------------------------------------
38 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**NICHOLAS F. BRADY (74) Trustee Since 1993 21 Director, Amerada Hess Corporation
Suite 2100 (exploration and refining of oil and
500 East Broward Blvd. investment business); and FORMERLY,
Fort Lauderdale, FL 33394-3091 Director, H.J. Heinz Company
(processed foods and allied products)
(1987-1988; 1993-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Darby Overseas Investments, Ltd., Darby Emerging Markets Investments LDC and Darby Technology Ventures Group, LLC
(investment firms) (1994-present); Director, Templeton Capital Advisors Ltd. and Franklin Templeton Investment Fund; and FORMERLY,
Chairman, Templeton Emerging Markets Investment Trust PLC (until 2003), Secretary of the United States Department of the Treasury
(1988-1993); Chairman of the Board, Dillon, Read & Co., Inc. (investment banking) (until 1988); and U.S. Senator, New Jersey (April
1982-December 1982).
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee, Trustee and 140 None
One Franklin Parkway Chairman of Chairman of the
San Mateo, CA 94403-1906 the Board and Board since 1995
Vice President and Vice President
since 1993
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (59) Vice President Since 1996 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and
of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable None
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin Resources, Inc.;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 39
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (40) Vice President Since 2001 Not Applicable None
PO Box N-7759
Lyford Cay, Nassau, Bahamas
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; officer of 15 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Investment Officer, First Pennsylvania Investment Research (until 1989).
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1989 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin
Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.;
Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief
Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (57) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.;
officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and
Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
40 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Vice President Not Applicable None
One Franklin Parkway and Secretary since 2000
San Mateo, CA 94403-1906 and Secretary
since 1996
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (64) Vice President Since 1996 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; and officer and/or director or Director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (64) Vice President Since 1994 Not Applicable None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin Templeton Distributors, Inc.; Senior Vice President,
Franklin Templeton Services, LLC; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 35 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer Since March Not Applicable None
One Franklin Parkway 2004
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 15 of the investment companies in Franklin Templeton Investments; Consultant, MyVest Corporation (software development
company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc.
(2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments (1985-2000); and Senior
Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (67) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch
600 Fifth Avenue - AML Chemicals, Inc. and Lingnan
Rockefeller Center Compliance Foundation
New York, NY 10020-2302
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; and officer and/or director, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 41
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
MARK MOBIUS (68) President and President since Not Applicable None
17th Floor, The Chater House Chief Executive 1993 and Chief
8 Connaught Road Central Officer - Executive
Hong Kong Investment Officer -
Management Investment
Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; Executive Vice
President and Director, Templeton Global Advisors Limited; and officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin Templeton Investments; and FORMERLY,
President, International Investment Trust Company Limited (investment manager of Taiwan R.O.C. Fund) (1986-1987); and Director,
Vickers da Costa, Hong Kong (1983-1986).
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case may be, of some of
the subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and
Director, Templeton Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (52) Chief Financial Since May 2004 Not Applicable None
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton Services,
LLC; and FORMERLY, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen, LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment adviser or affiliated
investment advisers.
** Charles B. Johnson is considered to be an interested person of the Fund under
the federal securities laws due to his position as an officer and director and
major shareholder of Franklin Resources, Inc. (Resources), which is the parent
company of the Fund's adviser and distributor. Harmon E. Burns is considered to
be an interested person of the Fund under the federal securities laws due to his
position as officer and director of Resources. Nicholas F. Brady is considered
to be an interested person of the Fund under the federal securities laws due to
his ownership interest in a subsidiary of Resources, as well as his director
positions with such company and certain other related companies.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF FRED R. MILLSAPS AND FRANK A. OLSON AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS. MILLSAPS AND OLSON QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MR. MILLSAPS, WHO IS CURRENTLY A DIRECTOR OF VARIOUS BUSINESS AND NONPROFIT
ORGANIZATIONS, HAS SERVED AS A MEMBER AND CHAIRMAN OF THE FUND AUDIT COMMITTEE
SINCE INCEPTION AND WAS FORMERLY CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
LANDMARK BANKING CORPORATION AND FINANCIAL VICE PRESIDENT OF FLORIDA POWER AND
LIGHT. MR. OLSON, WHO CURRENTLY SERVES AS CHAIRMAN OF THE BOARD OF THE HERTZ
CORPORATION AND WAS ITS CHIEF EXECUTIVE OFFICER FROM 1977 TO 1999, IS A DIRECTOR
AND AUDIT COMMITTEE MEMBER OF AMERADA HESS CORPORATION AND WHITE MOUNTAINS
INSURANCE GROUP, LTD. AND A FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
UNITED AIRLINES. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF
TRUSTEES BELIEVES THAT MR. MILLSAPS AND MR. OLSON HAVE EACH ACQUIRED AN
UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL
STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE
ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING
FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF
ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MESSRS. MILLSAPS AND OLSON ARE
INDEPENDENT TRUSTEES AS THAT TERM IS DEFINED UNDER THE APPLICABLE STOCK EXCHANGE
RULES AND SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
42 | Annual Report
Templeton China World Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 43
This page intentionally left blank.
Literature Request
TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R)
(1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 1
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet
Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
Franklin Templeton Perspectives
Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 5, 7
Franklin Money Fund 5, 6
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 8
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 5, 6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 11
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders and select retirement plans.
3. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. Although the fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
7. Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and strategy
remained the same.
8. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/04 Not part of the annual report
[LOGO OMITTED]
FRANKLIN [R] TEMPLETON [R] One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON CHINA WORLD FUND
INVESTMENT MANAGER
Templeton Asset Management Ltd.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. 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. The prospectus
contains this and other information; please read it carefully before investing.
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
identified by the presence of a regular beeping tone.
188 A2004 10/04
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(a), the registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial experts are Fred R. Millsaps and Frank A.
Olson, they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $9,181 for the fiscal year ended August 31, 2004 and $19,386 for the fiscal
year ended August 31, 2003.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of the their financial
statements were $45,000 for the fiscal year ended August 31, 2004 and $3,614 for
the fiscal year ended August 31, 2003. The services for which these fees were
paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $95 for the fiscal year ended August 31, 2004
and $0 for the fiscal year ended August 31, 2003. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $99,990 for the fiscal year ended August
31, 2004 and $876 for the fiscal year ended August 31, 2003. The services for
which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $145,085 for the fiscal year ended August 31, 2004 and $4,490
for the fiscal year ended August 31, 2003.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASES.
N/A
ITEM 9. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 10. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 11. EXHIBITS
(a) Code of Ethics
(b)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON CHINA WORLD FUND
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date October 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date October 29, 2004
By /s/GALEN G. VETTER
Chief Financial Officer
Date October 29, 2004