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., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, 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: 8/31/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
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AUGUST 31, 2007
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ANNUAL REPORT AND SHAREHOLDER LETTER INTERNATIONAL
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
TEMPLETON
CHINA WORLD FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
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 offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
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, accurate and personal service that
has 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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[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Templeton China World Fund ................................................ 3
Performance Summary ....................................................... 8
Your Fund's Expenses ...................................................... 13
Financial Highlights and Statement of Investments ......................... 15
Financial Statements ...................................................... 24
Notes to Financial Statements ............................................. 27
Report of Independent Registered Public Accounting Firm ................... 35
Tax Designation ........................................................... 36
Meeting of Shareholders ................................................... 39
Board Members and Officers ................................................ 41
Shareholder Information ................................................... 46
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 REPRESENT 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, 2007.
PERFORMANCE OVERVIEW
For the 12 months under review, Templeton China World Fund - Class A delivered a
+61.87% cumulative total return. The Fund outperformed its benchmark, the Morgan
Stanley Capital International (MSCI) Golden Dragon Index, which posted a +53.46%
cumulative total return for the same period. 1
Also, for comparison, the Standard & Poor's/International Finance Corporation
(S&P/IFC) Investable China Index posted a +44.98% cumulative total return for
the 12 months ended August 31, 2007. 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 8. For example, for the 10-year period
ended August 31, 2007, the Fund's Class A shares delivered a +203.53% cumulative
total return, compared with the MSCI Golden Dragon Index's +69.02% cumulative
total return for the same period. 3 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.
1. Source: Standard & Poor's Micropal. The MSCI Golden Dragon Index is an
aggregate of the MSCI Hong Kong Index, the MSCI China Free Index and the MSCI
Taiwan@65% Index. The MSCI Taiwan Index has an inclusion weight at 65% of its
market capitalization in the MSCI index series.
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
the performance of equity securities in China.
3. Source: Standard & Poor's Micropal. As of 8/31/07, the Fund's Class A 10-year
average annual total return not including sales charges was +11.74%, compared
with the +5.39% 10-year average annual total return for the MSCI Golden Dragon
Index.
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.
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 19.
Annual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 8/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
China 64.8%
Taiwan 17.4%
Hong Kong 14.6%
U.K. 0.6%
Cambodia 0.4%
Singapore 0.4%
South Korea 0.3%
Short-Term Investments & Other Net Assets 1.5%
ECONOMIC AND MARKET OVERVIEW
During the 12 months under review, Chinese equities were among the strongest
performers globally, and investors remained optimistic about the country's
outlook as China's economy outpaced its peers. Robust economic growth, higher
corporate earnings, strong demand and rising commodity prices, and continued
integration with the global economy increased investors' interest in Chinese
equities. For the 12 months ended August 31, 2007, the MSCI China Index returned
+102.72% in U.S. dollar terms. 4 Equity markets in neighboring Hong Kong and
Taiwan did not fare quite as well as the MSCI Hong Kong Index and the MSCI
Taiwan Index returned +32.17% and +31.12% in U.S. dollar terms. 5
Early in the period, emerging markets maintained an upward trend. After some
minor profit-taking at the beginning of 2007, a 9% drop in China's domestic
Shanghai A and Shenzhen A share markets at the end of February and worries about
the possibly overheated Chinese economy triggered widespread selling across the
globe. 6 (The Fund cannot invest in Shanghai A and Shenzen A share markets.) The
correction, however, was short-lived, and investors returned to the markets in
March. With abundant market liquidity, stock prices resumed their previous
upward trend for most of the second half of the Fund's fiscal year. A brief
period of uncertainty occurred in August as a result of widespread concerns over
financial corporations' exposure to U.S. subprime mortgages. The possibility of
tightening liquidity around the world contributed to significant selling in
global stock and bond markets. Although emerging market companies generally had
little exposure to U.S. subprime loans, they were not immune to the global
sell-off.
A decision by the U.S. Federal Reserve Board (Fed) in August to cut the discount
rate -- the rate at which the Fed lends money to banks -- by 50 basis points,
from 6.25% to 5.75%, eventually calmed markets. This availability of funds to
American companies alleviated the immediate credit crunch and helped many global
markets to rebound. Largely as a result, liquidity improved and markets
appreciated almost as rapidly as they corrected.
4. Source: Standard & Poor's Micropal. The MSCI China Index is a free
float-adjusted, market capitalization-weighted index designed to measure equity
market performance in China.
5. Source: Standard & Poor's Micropal. The MSCI Hong Kong Index is a free
float-adjusted, market capitalization-weighted index designed to measure equity
market performance in Hong Kong. The MSCI Taiwan Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in Taiwan.
6. "Shanghai A" and "Shenzhen A" denote shares of companies listed in China's
Shanghai and Shenzhen markets that are reserved for domestic investors and
certain qualified foreign institutional investors.
4 | Annual Report
China took steps to cool its economy, which grew at its fastest pace in more
than a decade. Second quarter gross domestic product (GDP) grew an annualized
11.9% year-over-year after expanding at a revised 11.1% rate in 2006. 7 Thus far
in 2007, China's central bank has increased lending and deposit rates four
times. It also raised the banks' reserve requirement ratio to 12%. The country
remained a favored investment destination with foreign direct investment inflow
in the first seven months of 2007 growing 12.9% year-over-year to US$36.9
billion. 7
GDP growth in Taiwan accelerated to an annualized 5.1% year-over-year in 2007's
second quarter from an annualized 4.2% in the preceding quarter as robust
corporate investment and higher private consumption supported growth. 8 The Hong
Kong economy also recorded strong economic growth with its GDP growing an
annualized 6.3% in the first half of 2007 mainly due to increased domestic and
external demand. 9
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 a
company's price/earnings ratio, profit margins and liquidation value.
MANAGER'S DISCUSSION
During the year under review, the Fund benefited from its exposure to the energy
and telecommunication services sectors. 10 A rebound in oil prices during the
reporting period and growing demand for energy and commodities in China and
other emerging markets aided many of the Fund's energy sector holdings. Among
the Fund's most significant contributors to performance were Sinopec (China
Petroleum & Chemical), China's largest integrated energy company; China Shenhua
Energy, China's principal coal producer; and PetroChina, a dominant player in
China's upstream oil and gas sector.
TOP 10 EQUITY HOLDINGS
8/31/07
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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China Mobile Ltd. 10.7%
WIRELESS TELECOMMUNICATION SERVICES,
CHINA
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PetroChina Co. Ltd., H 7.1%
OIL, GAS & CONSUMABLE FUELS, CHINA
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China Construction Bank Corp.,
H, ord. & 144A 6.8%
COMMERCIAL BANKS, CHINA
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China Petroleum and Chemical Corp., H 5.5%
OIL, GAS & CONSUMABLE FUELS, CHINA
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CNOOC Ltd., ord. & 144A 4.6%
OIL, GAS & CONSUMABLE FUELS, CHINA
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China Shenhua Energy Co. Ltd., H 4.3%
OIL, GAS & CONSUMABLE FUELS, CHINA
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Dairy Farm International Holdings Ltd. 4.0%
FOOD & STAPLES RETAILING, HONG KONG
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Asustek Computer Inc. 3.3%
COMPUTERS & PERIPHERALS, TAIWAN
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Taiwan Semiconductor Manufacturing
Co. Ltd. 2.8%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
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Hopewell Holdings Ltd. 2.8%
TRANSPORTATION INFRASTRUCTURE,
HONG KONG
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7. Source: National Bureau of Statistics, China.
8. Source: Directorate General of Budget, Accounting and Statistics, Taiwan.
9. Source: Census and Statistics Department, Hong Kong.
10. The energy sector comprises oil, gas and consumable fuels in the SOI. The
telecommunication services sector comprises diversified communication services
and wireless telecommunication services in the SOI.
Annual Report | 5
Dominant telecommunication services provider China Mobile was also a major
contributor to performance as growing mobile phone usage, new technologies and
an improved competitive landscape supported the company's stock price
performance.
In contrast, the media and software services sectors detracted from
performance. 11 Fund positions in Next Media, one of Hong Kong's largest
Chinese-language print media companies, and Kongzhong, a leading mobile phone
Internet portal and content provider in China, hurt performance. Although
increased competition from free daily publications pressured Next Media's stock
price during the reporting period, we believed the company's growing penetration
into the Taiwan market helped its long-term prospects. Our outlook for Kongzhong
also was positive due to growing demand for wireless interactive entertainment,
media and community services.
During the review period, the Fund made several major purchases in Hong
Kong-listed Chinese H and Red Chip shares, which we believed were undervalued
and could benefit from China's plan to allow domestic investors to invest in
Hong Kong directly. 12 New positions included major commercial banks China
Construction Bank and Industrial and Commercial Bank of China (ICBC), which
benefited from restructuring reforms and strong demand for financial services.
In China, we initiated a position in major coal company Yanzhou Coal Mining,
which we believed could experience higher earnings due to rising commodity
prices and growing global energy demand. Other new Fund holdings were leading
Chinese automobile manufacturer Dongfeng Motor, which we found attractive as we
believed it could benefit from growing demand for consumer products and
services; and Taiwan's AU Optronics, a leading liquid crystal display panel
maker. During the fiscal year, we added to our holdings in Asustek, one of the
world's largest manufacturers of personal computer motherboards; and Taiwan
Semiconductor Manufacturing, a top global integrated circuit producer. The Fund
also initiated exposure to Cambodia with an investment in NagaCorp, which
manages and operates the only licensed casino in Cambodia's capital, Phnom Penh.
11. The software and services sector comprises IT services and software in the
SOI.
12. "China H" denotes shares of China-incorporated, Hong Kong-listed companies
with most businesses in China. "Red Chip" denotes shares of Hong Kong-listed
companies with significant exposure to China. China H and Red Chip shares are
traded on the Hong Kong Stock Exchange.
6 | Annual Report
During the period, the Fund reduced its exposure to Britain, China Shenzhen B
shares and South Korea as it trimmed its positions in HSBC Holdings, a large
banking and financial services organization and Shandong Chenming Paper
Holdings, a dominant paper producer in China. 13 The Fund also exited its
position in LG Corporation, the holding company for the Korean LG Group.
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
Executive Chairman
Templeton Asset Management Limited
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF AUGUST 31, 2007, 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.
13. "Shenzhen B" denotes shares of China-incorporated, Shenzhen-listed companies
that are traded in Hong Kong dollars.
Annual Report | 7
Performance Summary as of 8/31/07
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
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: TCWAX) CHANGE 8/31/07 8/31/06
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Net Asset Value (NAV) +$15.53 $41.29 $25.76
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DISTRIBUTIONS (9/1/06-8/31/07)
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Dividend Income $0.2623
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CLASS B (SYMBOL: TCWBX) CHANGE 8/31/07 8/31/06
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Net Asset Value (NAV) +$15.42 $40.95 $25.53
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DISTRIBUTIONS (9/1/06-8/31/07)
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Dividend Income $0.0593
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CLASS C (SYMBOL: TCWCX) CHANGE 8/31/07 8/31/06
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Net Asset Value (NAV) +$15.31 $40.79 $25.48
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DISTRIBUTIONS (9/1/06-8/31/07)
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Dividend Income $0.1172
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ADVISOR CLASS (SYMBOL: TACWX) CHANGE 8/31/07 8/31/06
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Net Asset Value (NAV) +$15.62 $41.55 $25.93
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DISTRIBUTIONS (9/1/06-8/31/07)
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Dividend Income $0.3686
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8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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; ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +61.87% +321.55% +203.53%
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Average Annual Total Return 3 +52.56% +31.77% +11.08%
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Value of $10,000 Investment 4 $15,256 $ 39,731 $ 28,607
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Avg. Ann. Total Return (9/30/07) 5 +72.09% +36.40% +12.82%
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Total Annual Operating Expenses 6 2.06%
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CLASS B 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +60.79% +307.88% +186.08%
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Average Annual Total Return 3 +56.79% +32.34% +11.08%
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Value of $10,000 Investment 4 $15,679 $ 40,588 $ 28,608
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Avg. Ann. Total Return (9/30/07) 5 +77.48% +37.01% +12.81%
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Total Annual Operating Expenses 6 2.70%
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +60.79% +308.16% +182.52%
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Average Annual Total Return 3 +59.79% +32.49% +10.94%
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Value of $10,000 Investment 4 $15,979 $ 40,816 $ 28,252
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Avg. Ann. Total Return (9/30/07) 5 +80.42% +37.15% +12.68%
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Total Annual Operating Expenses 6 2.71%
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ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +62.38% +329.08% +215.61%
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Average Annual Total Return 3 +62.38% +33.82% +12.18%
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Value of $10,000 Investment 4 $16,238 $ 42,908 $ 31,561
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Avg. Ann. Total Return (9/30/07) 5 +83.27% +38.52% +13.93%
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Total Annual Operating Expenses 6 1.71%
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PERFORMANCE DATA REPRESENT 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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
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 or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 8/31/07
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1-Year +52.56%
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5-Year +31.77%
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10-Year +11.08%
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CLASS A (9/1/97-8/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Templeton China World Fund MSCI Golden Dragon Index 7
9/1/1997 $ 9,424 $ 10,000
$ 9,300 $ 10,011
$ 6,534 $ 7,344
$ 6,267 $ 7,271
$ 6,124 $ 7,379
$ 4,882 $ 6,533
$ 6,334 $ 7,872
$ 6,240 $ 7,623
$ 5,735 $ 6,846
$ 4,842 $ 6,007
$ 4,487 $ 5,652
$ 4,228 $ 5,328
$ 3,755 $ 4,752
$ 4,158 $ 5,429
$ 5,091 $ 6,850
$ 5,296 $ 6,973
$ 4,921 $ 6,653
$ 4,421 $ 6,264
$ 4,413 $ 6,390
$ 4,815 $ 7,163
$ 5,952 $ 8,478
$ 5,600 $ 7,899
$ 6,448 $ 9,037
$ 6,096 $ 8,449
8/31/1999 $ 6,007 $ 8,842
$ 5,643 $ 8,407
$ 5,588 $ 8,771
$ 6,176 $ 9,518
$ 6,872 $ 10,412
$ 6,724 $ 10,466
$ 6,959 $ 10,629
$ 7,281 $ 10,962
$ 6,483 $ 9,870
$ 6,267 $ 9,256
$ 6,657 $ 9,518
$ 6,885 $ 9,697
$ 7,068 $ 9,454
$ 6,585 $ 8,358
$ 5,951 $ 7,656
$ 5,849 $ 7,141
$ 6,089 $ 7,289
$ 6,408 $ 8,254
$ 6,688 $ 7,818
$ 6,382 $ 7,167
$ 6,643 $ 7,087
$ 7,181 $ 6,909
$ 7,058 $ 6,705
$ 6,306 $ 6,284
8/31/2001 $ 5,976 $ 5,901
$ 5,666 $ 4,964
$ 6,112 $ 5,247
$ 6,185 $ 5,918
$ 6,020 $ 6,510
$ 6,305 $ 6,478
$ 6,506 $ 6,247
$ 6,721 $ 6,695
$ 7,158 $ 6,846
$ 7,416 $ 6,628
$ 7,259 $ 6,198
$ 7,032 $ 5,892
$ 6,786 $ 5,636
$ 6,578 $ 5,062
$ 6,645 $ 5,346
$ 6,863 $ 5,579
$ 7,040 $ 5,228
$ 7,420 $ 5,517
$ 7,591 $ 5,208
$ 7,503 $ 5,021
$ 7,538 $ 4,967
$ 8,169 $ 5,466
$ 8,436 $ 5,717
$ 9,222 $ 6,249
8/31/2003 $ 9,709 $ 6,867
$ 9,729 $ 7,057
$ 10,579 $ 7,572
$ 10,585 $ 7,403
$ 11,813 $ 7,772
$ 12,127 $ 8,305
$ 12,883 $ 8,651
$ 12,194 $ 8,187
$ 11,150 $ 7,579
$ 11,538 $ 7,631
$ 11,625 $ 7,545
$ 11,478 $ 7,401
$ 12,020 $ 7,808
$ 12,415 $ 8,011
$ 12,322 $ 7,942
$ 13,214 $ 8,615
$ 13,356 $ 8,881
$ 13,052 $ 8,590
$ 13,870 $ 9,043
$ 13,592 $ 8,611
$ 13,680 $ 8,711
$ 13,937 $ 8,873
$ 14,140 $ 9,181
$ 14,877 $ 9,564
8/31/2005 $ 14,647 $ 9,284
$ 15,316 $ 9,541
$ 14,331 $ 8,830
$ 15,175 $ 9,398
$ 15,710 $ 9,794
$ 16,664 $ 10,422
$ 16,835 $ 10,486
$ 16,815 $ 10,625
$ 17,796 $ 11,410
$ 17,082 $ 10,729
$ 17,308 $ 10,726
$ 17,439 $ 10,673
$ 17,672 $ 11,014
$ 18,049 $ 11,350
$ 18,855 $ 11,683
$ 20,509 $ 12,759
$ 22,130 $ 13,662
$ 21,804 $ 13,381
$ 21,541 $ 13,286
$ 21,984 $ 13,405
$ 22,732 $ 13,656
$ 24,138 $ 14,290
$ 26,286 $ 15,483
$ 27,525 $ 16,566
8/31/2007 $ 28,607 $ 16,902
AVERAGE ANNUAL TOTAL RETURN
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CLASS B 8/31/07
- --------------------------------------------------------------------------------
1-Year +56.79%
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5-Year +32.34%
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10-Year +11.08%
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CLASS B (9/1/97-8/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Templeton China World Fund MSCI Golden Dragon Index 7
9/1/1997 $ 10,000 $ 10,000
$ 9,862 $ 10,011
$ 6,903 $ 7,344
$ 6,618 $ 7,271
$ 6,457 $ 7,379
$ 5,144 $ 6,533
$ 6,671 $ 7,872
$ 6,569 $ 7,623
$ 6,033 $ 6,846
$ 5,091 $ 6,007
$ 4,715 $ 5,652
$ 4,440 $ 5,328
$ 3,940 $ 4,752
$ 4,362 $ 5,429
$ 5,332 $ 6,850
$ 5,544 $ 6,973
$ 5,147 $ 6,653
$ 4,622 $ 6,264
$ 4,611 $ 6,390
$ 5,028 $ 7,163
$ 6,213 $ 8,478
$ 5,842 $ 7,899
$ 6,723 $ 9,037
$ 6,353 $ 8,449
8/31/1999 $ 6,256 $ 8,842
$ 5,874 $ 8,407
$ 5,812 $ 8,771
$ 6,420 $ 9,518
$ 7,135 $ 10,412
$ 6,978 $ 10,466
$ 7,218 $ 10,629
$ 7,548 $ 10,962
$ 6,717 $ 9,870
$ 6,489 $ 9,256
$ 6,891 $ 9,518
$ 7,122 $ 9,697
$ 7,308 $ 9,454
$ 6,804 $ 8,358
$ 6,145 $ 7,656
$ 6,035 $ 7,141
$ 6,280 $ 7,289
$ 6,604 $ 8,254
$ 6,889 $ 7,818
$ 6,571 $ 7,167
$ 6,836 $ 7,087
$ 7,386 $ 6,909
$ 7,256 $ 6,705
$ 6,479 $ 6,284
8/31/2001 $ 6,136 $ 5,901
$ 5,814 $ 4,964
$ 6,267 $ 5,247
$ 6,339 $ 5,918
$ 6,165 $ 6,510
$ 6,453 $ 6,478
$ 6,656 $ 6,247
$ 6,872 $ 6,695
$ 7,315 $ 6,846
$ 7,575 $ 6,628
$ 7,411 $ 6,198
$ 7,175 $ 5,892
$ 6,920 $ 5,636
$ 6,705 $ 5,062
$ 6,769 $ 5,346
$ 6,986 $ 5,579
$ 7,163 $ 5,228
$ 7,545 $ 5,517
$ 7,716 $ 5,208
$ 7,621 $ 5,021
$ 7,653 $ 4,967
$ 8,289 $ 5,466
$ 8,556 $ 5,717
$ 9,347 $ 6,249
8/31/2003 $ 9,832 $ 6,867
$ 9,852 $ 7,057
$ 10,706 $ 7,572
$ 10,706 $ 7,403
$ 11,933 $ 7,772
$ 12,251 $ 8,305
$ 13,010 $ 8,651
$ 12,305 $ 8,187
$ 11,240 $ 7,579
$ 11,627 $ 7,631
$ 11,701 $ 7,545
$ 11,553 $ 7,401
$ 12,088 $ 7,808
$ 12,480 $ 8,011
$ 12,383 $ 7,942
$ 13,270 $ 8,615
$ 13,400 $ 8,881
$ 13,086 $ 8,590
$ 13,912 $ 9,043
$ 13,618 $ 8,611
$ 13,700 $ 8,711
$ 13,952 $ 8,873
$ 14,143 $ 9,181
$ 14,880 $ 9,564
8/31/2005 $ 14,642 $ 9,284
$ 15,311 $ 9,541
$ 14,327 $ 8,830
$ 15,171 $ 9,398
$ 15,706 $ 9,794
$ 16,659 $ 10,422
$ 16,831 $ 10,486
$ 16,811 $ 10,625
$ 17,791 $ 11,410
$ 17,077 $ 10,729
$ 17,305 $ 10,726
$ 17,434 $ 10,673
$ 17,668 $ 11,014
$ 18,046 $ 11,350
$ 18,851 $ 11,683
$ 20,504 $ 12,759
$ 22,124 $ 13,662
$ 21,799 $ 13,381
$ 21,535 $ 13,286
$ 21,979 $ 13,405
$ 22,726 $ 13,656
$ 24,133 $ 14,290
$ 26,281 $ 15,483
$ 27,521 $ 16,566
8/31/2007 $ 28,608 $ 16,902
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (9/1/97-8/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Templeton China World Fund MSCI Golden Dragon Index 7
9/1/1997 $ 10,000 $ 10,000
$ 9,862 $ 10,011
$ 6,903 $ 7,344
$ 6,617 $ 7,271
$ 6,457 $ 7,379
$ 5,144 $ 6,533
$ 6,671 $ 7,872
$ 6,569 $ 7,623
$ 6,034 $ 6,846
$ 5,091 $ 6,007
$ 4,715 $ 5,652
$ 4,440 $ 5,328
$ 3,941 $ 4,752
$ 4,362 $ 5,429
$ 5,333 $ 6,850
$ 5,545 $ 6,973
$ 5,147 $ 6,653
$ 4,622 $ 6,264
$ 4,611 $ 6,390
$ 5,029 $ 7,163
$ 6,214 $ 8,478
$ 5,843 $ 7,899
$ 6,724 $ 9,037
$ 6,353 $ 8,449
8/31/1999 $ 6,257 $ 8,842
$ 5,875 $ 8,407
$ 5,813 $ 8,771
$ 6,421 $ 9,518
$ 7,137 $ 10,412
$ 6,980 $ 10,466
$ 7,219 $ 10,629
$ 7,549 $ 10,962
$ 6,718 $ 9,870
$ 6,490 $ 9,256
$ 6,891 $ 9,518
$ 7,123 $ 9,697
$ 7,309 $ 9,454
$ 6,805 $ 8,358
$ 6,146 $ 7,656
$ 6,036 $ 7,141
$ 6,281 $ 7,289
$ 6,605 $ 8,254
$ 6,891 $ 7,818
$ 6,573 $ 7,167
$ 6,838 $ 7,087
$ 7,387 $ 6,909
$ 7,257 $ 6,705
$ 6,480 $ 6,284
8/31/2001 $ 6,137 $ 5,901
$ 5,815 $ 4,964
$ 6,268 $ 5,247
$ 6,340 $ 5,918
$ 6,167 $ 6,510
$ 6,455 $ 6,478
$ 6,658 $ 6,247
$ 6,874 $ 6,695
$ 7,317 $ 6,846
$ 7,577 $ 6,628
$ 7,413 $ 6,198
$ 7,176 $ 5,892
$ 6,922 $ 5,636
$ 6,706 $ 5,062
$ 6,770 $ 5,346
$ 6,988 $ 5,579
$ 7,165 $ 5,228
$ 7,547 $ 5,517
$ 7,717 $ 5,208
$ 7,623 $ 5,021
$ 7,655 $ 4,967
$ 8,292 $ 5,466
$ 8,559 $ 5,717
$ 9,350 $ 6,249
8/31/2003 $ 9,836 $ 6,867
$ 9,849 $ 7,057
$ 10,711 $ 7,572
$ 10,711 $ 7,403
$ 11,945 $ 7,772
$ 12,256 $ 8,305
$ 13,016 $ 8,651
$ 12,311 $ 8,187
$ 11,253 $ 7,579
$ 11,633 $ 7,631
$ 11,707 $ 7,545
$ 11,558 $ 7,401
$ 12,100 $ 7,808
$ 12,487 $ 8,011
$ 12,389 $ 7,942
$ 13,290 $ 8,615
$ 13,419 $ 8,881
$ 13,105 $ 8,590
$ 13,924 $ 9,043
$ 13,630 $ 8,611
$ 13,712 $ 8,711
$ 13,965 $ 8,873
$ 14,162 $ 9,181
$ 14,899 $ 9,564
8/31/2005 $ 14,653 $ 9,284
$ 15,315 $ 9,541
$ 14,330 $ 8,830
$ 15,164 $ 9,398
$ 15,688 $ 9,794
$ 16,633 $ 10,422
$ 16,791 $ 10,486
$ 16,764 $ 10,625
$ 17,736 $ 11,410
$ 17,019 $ 10,729
$ 17,233 $ 10,726
$ 17,350 $ 10,673
$ 17,571 $ 11,014
$ 17,936 $ 11,350
$ 18,728 $ 11,683
$ 20,356 $ 12,759
$ 21,956 $ 13,662
$ 21,623 $ 13,381
$ 21,346 $ 13,286
$ 21,776 $ 13,405
$ 22,503 $ 13,656
$ 23,881 $ 14,290
$ 25,987 $ 15,483
$ 27,206 $ 16,566
8/31/2007 $ 28,252 $ 16,902
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 8/31/07
- --------------------------------------------------------------------------------
1-Year +59.79%
- --------------------------------------------------------------------------------
5-Year +32.49%
- --------------------------------------------------------------------------------
10-Year +10.94%
- --------------------------------------------------------------------------------
ADVISOR CLASS (9/1/97-8/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Templeton China World Fund MSCI Golden Dragon Index 7
9/1/1997 $ 10,000 $ 10,000
9/30/1997 $ 9,871 $ 10,011
10/31/1997 $ 6,950 $ 7,344
11/30/1997 $ 6,668 $ 7,271
12/31/1997 $ 6,521 $ 7,379
1/31/1998 $ 5,200 $ 6,533
2/28/1998 $ 6,748 $ 7,872
3/31/1998 $ 6,650 $ 7,623
4/30/1998 $ 6,114 $ 6,846
5/31/1998 $ 5,164 $ 6,007
6/30/1998 $ 4,787 $ 5,652
7/31/1998 $ 4,512 $ 5,328
8/31/1998 $ 4,008 $ 4,752
9/30/1998 $ 4,440 $ 5,429
10/31/1998 $ 5,439 $ 6,850
11/30/1998 $ 5,660 $ 6,973
12/31/1998 $ 5,262 $ 6,653
1/31/1999 $ 4,729 $ 6,264
2/28/1999 $ 4,722 $ 6,390
3/31/1999 $ 5,153 $ 7,163
4/30/1999 $ 6,372 $ 8,478
5/31/1999 $ 5,997 $ 7,899
6/30/1999 $ 6,906 $ 9,037
7/31/1999 $ 6,531 $ 8,449
8/31/1999 $ 6,438 $ 8,842
9/30/1999 $ 6,050 $ 8,407
10/31/1999 $ 5,994 $ 8,771
11/30/1999 $ 6,626 $ 9,518
12/31/1999 $ 7,377 $ 10,412
1/31/2000 $ 7,221 $ 10,466
2/29/2000 $ 7,475 $ 10,629
3/31/2000 $ 7,823 $ 10,962
4/30/2000 $ 6,967 $ 9,870
5/31/2000 $ 6,737 $ 9,256
6/30/2000 $ 7,159 $ 9,518
7/31/2000 $ 7,406 $ 9,697
8/31/2000 $ 7,606 $ 9,454
9/30/2000 $ 7,087 $ 8,358
10/31/2000 $ 6,408 $ 7,656
11/30/2000 $ 6,299 $ 7,141
12/31/2000 $ 6,561 $ 7,289
1/31/2001 $ 6,906 $ 8,254
2/28/2001 $ 7,210 $ 7,818
3/31/2001 $ 6,882 $ 7,167
4/30/2001 $ 7,166 $ 7,087
5/31/2001 $ 7,748 $ 6,909
6/30/2001 $ 7,617 $ 6,705
7/31/2001 $ 6,808 $ 6,284
8/31/2001 $ 6,454 $ 5,901
9/30/2001 $ 6,121 $ 4,964
10/31/2001 $ 6,605 $ 5,247
11/30/2001 $ 6,687 $ 5,918
12/31/2001 $ 6,510 $ 6,510
1/31/2002 $ 6,820 $ 6,478
2/28/2002 $ 7,040 $ 6,247
3/31/2002 $ 7,274 $ 6,695
4/30/2002 $ 7,749 $ 6,846
5/31/2002 $ 8,031 $ 6,628
6/30/2002 $ 7,863 $ 6,198
7/31/2002 $ 7,620 $ 5,892
8/31/2002 $ 7,355 $ 5,636
9/30/2002 $ 7,133 $ 5,062
10/31/2002 $ 7,208 $ 5,346
11/30/2002 $ 7,446 $ 5,579
12/31/2002 $ 7,641 $ 5,228
1/31/2003 $ 8,054 $ 5,517
2/28/2003 $ 8,243 $ 5,208
3/31/2003 $ 8,149 $ 5,021
4/30/2003 $ 8,190 $ 4,967
5/31/2003 $ 8,878 $ 5,466
6/30/2003 $ 9,171 $ 5,717
7/31/2003 $ 10,028 $ 6,249
8/31/2003 $ 10,566 $ 6,867
9/30/2003 $ 10,601 $ 7,057
10/31/2003 $ 11,526 $ 7,572
11/30/2003 $ 11,533 $ 7,403
12/31/2003 $ 12,869 $ 7,772
1/31/2004 $ 13,219 $ 8,305
2/29/2004 $ 14,048 $ 8,651
3/31/2004 $ 13,299 $ 8,187
4/30/2004 $ 12,163 $ 7,579
5/31/2004 $ 12,593 $ 7,631
6/30/2004 $ 12,687 $ 7,545
7/31/2004 $ 12,527 $ 7,401
8/31/2004 $ 13,124 $ 7,808
9/30/2004 $ 13,561 $ 8,011
10/31/2004 $ 13,465 $ 7,942
11/30/2004 $ 14,445 $ 8,615
12/31/2004 $ 14,600 $ 8,881
1/31/2005 $ 14,269 $ 8,590
2/28/2005 $ 15,175 $ 9,043
3/31/2005 $ 14,873 $ 8,611
4/30/2005 $ 14,976 $ 8,711
5/31/2005 $ 15,256 $ 8,873
6/30/2005 $ 15,485 $ 9,181
7/31/2005 $ 16,303 $ 9,564
8/31/2005 $ 16,052 $ 9,284
9/30/2005 $ 16,782 $ 9,541
10/31/2005 $ 15,718 $ 8,830
11/30/2005 $ 16,648 $ 9,398
12/31/2005 $ 17,240 $ 9,794
1/31/2006 $ 18,289 $ 10,422
2/28/2006 $ 18,477 $ 10,486
3/31/2006 $ 18,462 $ 10,625
4/30/2006 $ 19,549 $ 11,410
5/31/2006 $ 18,769 $ 10,729
6/30/2006 $ 19,024 $ 10,726
7/31/2006 $ 19,174 $ 10,673
8/31/2006 $ 19,436 $ 11,014
9/30/2006 $ 19,848 $ 11,350
10/31/2006 $ 20,747 $ 11,683
11/30/2006 $ 22,566 $ 12,759
12/31/2006 $ 24,367 $ 13,662
1/31/2007 $ 24,010 $ 13,381
2/28/2007 $ 23,729 $ 13,286
3/31/2007 $ 24,223 $ 13,405
4/30/2007 $ 25,051 $ 13,656
5/31/2007 $ 26,616 $ 14,290
6/30/2007 $ 28,986 $ 15,483
7/31/2007 $ 30,360 $ 16,566
8/31/2007 $ 31,561 $ 16,902
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 8/31/07
- --------------------------------------------------------------------------------
1-Year +62.38%
- --------------------------------------------------------------------------------
5-Year +33.82%
- --------------------------------------------------------------------------------
10-Year +12.18%
- --------------------------------------------------------------------------------
Annual Report | 11
Performance Summary (CONTINUED)
ENDNOTES
THE GOVERNMENT'S PARTICIPATION IN THE ECONOMY IS STILL HIGH AND, THEREFORE,
TEMPLETON CHINA WORLD FUND'S INVESTMENTS IN CHINA WILL BE SUBJECT TO LARGER
REGULATORY RISK LEVELS COMPARED TO MANY OTHER COUNTRIES. IN ADDITION, SPECIAL
RISKS ARE ASSOCIATED WITH INTERNATIONAL INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN
DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS. ALSO,
AS A NONDIVERSIFIED FUND 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 is
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.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report.
7. Source: Standard & Poor's Micropal. The MSCI Golden Dragon Index is an
aggregate of the MSCI Hong Kong Index, the MSCI China Free Index and the MSCI
Taiwan@65% Index. The MSCI Taiwan Index has an inclusion weight at 65% of its
market capitalization in the MSCI index series.
12 | Annual Report
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 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.
Annual Report | 13
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 3/1/07 VALUE 8/31/07 PERIOD* 3/1/07-8/31/07
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,328.00 $12.03
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,014.87 $10.41
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,323.40 $15.81
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,011.59 $13.69
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,323.50 $15.70
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,011.70 $13.59
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,330.00 $ 9.98
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.64 $ 8.64
- --------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 2.05%; B: 2.70%; C: 2.68%; and Advisor: 1.70%),
multiplied by the average account value over the period, multiplied by 184/365
to reflect the one-half year period.
14 | Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS A 2007 2006 2005 2004 2003 g
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 25.76 $ 21.67 $ 17.97 $ 14.89 $14.30
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................ 0.37 0.29 0.43 0.21 0.12
Net realized and unrealized gains (losses) ..... 15.42 4.12 3.46 3.24 0.40
---------------------------------------------------------------
Total from investment operations .................. 15.79 4.41 3.89 3.45 0.52
---------------------------------------------------------------
Less distributions from net investment income ..... (0.26) (0.32) (0.19) (0.40) --
---------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d 0.03 0.07
---------------------------------------------------------------
Net asset value, end of year ...................... $ 41.29 $ 25.76 $ 21.67 $ 17.97 $14.89
===============================================================
Total return c .................................... 61.87% 20.65% 21.85% 23.80% 4.13%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 2.04% e 2.06% e 2.08% e 2.14% e,f 3.03% h
Net investment income ............................. 1.13% 1.10% 1.86% 1.09% 38.74% h
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $519,266 $262,346 $111,193 $43,179 $3,166
Portfolio turnover rate ........................... 22.05% 12.96% 9.66% 30.82% 19.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Ratio of expenses to average net assets, excluding payments by affiliate was
2.30%.
g For the period August 11, 2003 (effective date) to August 31, 2003.
h 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 15
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS B 2007 2006 2005 2004 2003 g
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 25.53 $ 21.47 $ 17.84 $14.88 $14.30
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................ 0.12 0.08 0.24 0.16 0.08
Net realized and unrealized gains (losses) ..... 15.36 4.15 3.51 3.16 0.43
---------------------------------------------------------------
Total from investment operations .................. 15.48 4.23 3.75 3.32 0.51
---------------------------------------------------------------
Less distributions from net investment income ..... (0.06) (0.17) (0.12) (0.39) --
---------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d 0.03 0.07
---------------------------------------------------------------
Net asset value, end of year ...................... $ 40.95 $ 25.53 $ 21.47 $17.84 $14.88
===============================================================
Total return c .................................... 60.79% 19.87% 21.12% 22.95% 4.06%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 2.69% e 2.70% e 2.73% e 2.79% e,f 3.68% h
Net investment income ............................. 0.48% 0.46% 1.21% 0.44% 38.09% h
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $20,066 $15,269 $12,264 $8,630 $ 362
Portfolio turnover rate ........................... 22.05% 12.96% 9.66% 30.82% 19.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Ratio of expenses to average net assets, excluding payments by affiliate was
2.95%.
g For the period August 11, 2003 (effective date) to August 31, 2003.
h 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.
16 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS C 2007 2006 2005 2004 2003 g
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 25.48 $ 21.49 $ 17.85 $ 14.88 $14.30
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................ 0.15 0.13 0.29 0.12 0.11
Net realized and unrealized gains (losses) ..... 15.28 4.10 3.46 3.21 0.40
---------------------------------------------------------------
Total from investment operations .................. 15.43 4.23 3.75 3.33 0.51
---------------------------------------------------------------
Less distributions from net investment income ..... (0.12) (0.24) (0.11) (0.39) --
---------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d 0.03 0.07
---------------------------------------------------------------
Net asset value, end of year ...................... $ 40.79 $ 25.48 $ 21.49 $ 17.85 $14.88
===============================================================
Total return c .................................... 60.79% 19.91% 21.10% 23.02% 4.06%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 2.68% e 2.71% e 2.68% e 2.75% e,f 3.68% h
Net investment income ............................. 0.49% 0.45% 1.26% 0.48% 38.09% h
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $199,551 $107,886 $45,738 $20,603 $ 652
Portfolio turnover rate ........................... 22.05% 12.96% 9.66% 30.82% 19.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Ratio of expenses to average net assets, excluding payments by affiliate was
2.91%.
g For the period August 11, 2003 (effective date) to August 31, 2003.
h 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 17
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
ADVISOR CLASS 2007 2006 2005 2004 2003 f
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 25.93 $ 21.78 $ 18.03 $ 14.90 $ 10.64
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................ 0.47 0.33 0.42 0.24 0.43
Net realized and unrealized gains (losses) ..... 15.52 4.18 3.56 3.27 4.08
-----------------------------------------------------------------
Total from investment operations .................. 15.99 4.51 3.98 3.51 4.51
-----------------------------------------------------------------
Less distributions from net investment income ..... (0.37) (0.36) (0.23) (0.41) (0.32)
-----------------------------------------------------------------
Redemption fees ................................... -- c -- c -- c 0.03 0.07
-----------------------------------------------------------------
Net asset value, end of year ...................... $ 41.55 $ 25.93 $ 21.78 $ 18.03 $ 14.90
=================================================================
Total return ...................................... 62.38% 21.08% 22.31% 24.21% 43.95%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.69% d 1.71% d 1.73% d 1.79% d,e 2.10% e
Net investment income ............................. 1.48% 1.45% 2.21% 1.44% 3.66%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $375,738 $245,331 $190,844 $161,599 $181,913
Portfolio turnover rate ........................... 22.05% 12.96% 9.66% 30.82% 19.99%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
e Ratios 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.
f 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.
18 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 98.5%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H ........................................................ China 1,238,000 $ 679,518
---------------
AUTO COMPONENTS 1.4%
Cheng Shin Rubber Industry Co. Ltd. ...................................... Taiwan 5,679,499 10,412,415
Norstar Founders Group Ltd. .............................................. Hong Kong 15,182,000 5,646,291
---------------
16,058,706
---------------
AUTOMOBILES 2.4%
a Brilliance China Automotive Holdings Ltd. ................................ China 7,580,000 1,808,083
China Motor Corp. ........................................................ Taiwan 4,468,948 3,961,113
Chongqing Changan Automobile Co. Ltd., B ................................. China 2,858,856 2,889,048
Dongfeng Motor Corp., H .................................................. China 26,316,000 17,009,310
Great Wall Motor Co. Ltd., H ............................................. China 705,000 860,721
Jiangling Motors Corp. Ltd., B ........................................... China 77,210 105,948
---------------
26,634,223
---------------
COMMERCIAL BANKS 12.8%
Bank of China Ltd., H .................................................... China 783,000 402,664
b Bank of China Ltd., H, 144A .............................................. China 41,306,000 21,241,920
China Construction Bank Corp., H ......................................... China 60,134,000 50,358,123
b China Construction Bank Corp., H, 144A ................................... China 30,832,000 25,819,697
Chinatrust Financial Holding Co. Ltd. .................................... Taiwan 14,035,842 10,548,148
HSBC Holdings PLC ........................................................ United Kingdom 378,682 6,784,336
Industrial and Commercial Bank of China, H ............................... China 12,691,000 8,267,912
b Industrial and Commercial Bank of China, H, 144A ......................... China 22,778,000 14,839,373
Mega Financial Holding Co. Ltd. .......................................... Taiwan 6,951,000 4,318,045
---------------
142,580,218
---------------
COMMUNICATIONS EQUIPMENT 0.7%
D-Link Corp. ............................................................. Taiwan 2,663,600 5,867,991
ZTE Corp., H ............................................................. China 420,000 2,057,543
---------------
7,925,534
---------------
COMPUTERS & PERIPHERALS 4.4%
Acer Inc. ................................................................ Taiwan 3,195,787 5,607,154
Asustek Computer Inc. .................................................... Taiwan 12,302,275 36,720,427
Compal Electronics Inc. .................................................. Taiwan 2,923,545 3,251,336
Lite-On IT Corp. ......................................................... Taiwan 4,721,160 3,877,074
---------------
49,455,991
---------------
CONSTRUCTION & ENGINEERING 0.2%
Baoye Group Co. Ltd., H .................................................. China 1,089,000 2,038,999
---------------
DISTRIBUTORS 1.9%
China Resources Enterprise Ltd. .......................................... Hong Kong 5,108,000 20,798,446
---------------
Annual Report | 19
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED TELECOMMUNICATION SERVICES 3.2%
China Netcom Group Corp. (Hong Kong) Ltd. ................................ China 2,146,000 $ 5,184,978
China Telecom Corp. Ltd., H .............................................. China 53,807,833 30,983,331
---------------
36,168,309
---------------
ELECTRIC UTILITIES 2.2%
Cheung Kong Infrastructure Holdings Ltd. ................................. Hong Kong 6,669,548 24,676,211
---------------
ELECTRICAL EQUIPMENT 1.9%
BYD Co. Ltd., H .......................................................... China 1,579,500 11,414,314
a Phoenixtec Power Co. Ltd. ................................................ Taiwan 8,533,055 8,235,691
Yorkey Optical International Cayman Ltd. ................................. China 3,807,000 1,166,855
---------------
20,816,860
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 3.8%
AU Optronics Corp. ....................................................... Taiwan 7,366,956 10,670,924
Delta Electronics Inc. ................................................... Taiwan 900,397 3,356,025
Synnex Technology International Corp. .................................... Taiwan 9,458,064 25,966,685
Yageo Corp. .............................................................. Taiwan 7,044,000 2,700,200
---------------
42,693,834
---------------
FOOD & STAPLES RETAILING 4.6%
Dairy Farm International Holdings Ltd. ................................... Hong Kong 10,219,776 44,149,432
President Chain Store Corp. .............................................. Taiwan 2,560,088 6,648,471
---------------
50,797,903
---------------
FOOD PRODUCTS 0.7%
People's Food Holdings Ltd. .............................................. China 3,292,000 2,893,686
Uni-President Enterprises Corp. .......................................... Taiwan 1,841,167 2,134,080
Xiwang Sugar Holdings Co. Ltd. ........................................... Hong Kong 5,454,000 2,692,850
---------------
7,720,616
---------------
HOTELS RESTAURANTS & LEISURE 0.4%
NagaCorp Ltd. ............................................................ Cambodia 16,609,000 4,962,902
---------------
HOUSEHOLD DURABLES 0.0% c
Samson Holding Ltd. ...................................................... Hong Kong 1,398,000 516,340
---------------
HOUSEHOLD PRODUCTS 0.0% c
a,b Vinda International Holdings Ltd., 144A .................................. China 748,000 550,617
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 3.9%
Datang International Power Generation Co. Ltd., H ........................ China 23,172,640 24,516,910
Guangdong Electric Power Development Co. Ltd., B ......................... China 12,006,120 11,855,767
Huadian Power International Corp. Ltd., H ................................ China 4,180,000 2,406,905
Huaneng Power International Inc., H ...................................... China 3,692,776 4,247,972
---------------
43,027,554
---------------
20 | Annual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INDUSTRIAL CONGLOMERATES 2.7%
Citic Pacific Ltd. ....................................................... Hong Kong 1,589,092 $ 8,691,692
Shanghai Industrial Holdings Ltd. ........................................ China 4,944,253 21,621,774
---------------
30,313,466
---------------
INSURANCE 0.6%
China Life Insurance Co. Ltd., H ......................................... China 1,476,000 7,126,686
---------------
IT SERVICES 0.1%
Travelsky Technology Ltd., H ............................................. China 870,000 699,557
---------------
MACHINERY 1.2%
China International Marine Containers (Group) Co. Ltd., B ................ China 6,002,080 13,085,399
---------------
MEDIA 0.1%
Next Media Ltd. .......................................................... Hong Kong 80,000 22,879
b Next Media Ltd., 144A .................................................... Hong Kong 3,510,000 1,003,802
---------------
1,026,681
---------------
METALS & MINING 1.4%
Aluminum Corp. of China Ltd., H .......................................... China 3,452,000 9,451,591
a,b Fosun International, 144A ................................................ China 567,000 885,659
Zhaojin Mining Industry Co. Ltd. ......................................... China 2,661,500 4,887,714
b Zhaojin Mining Industry Co. Ltd., H, 144A ................................ China 333,500 612,456
---------------
15,837,420
---------------
OFFICE ELECTRONICS 0.1%
Kinpo Electronics Inc. ................................................... Taiwan 3,165,570 1,208,672
---------------
OIL, GAS & CONSUMABLE FUELS 24.0%
a China Coal Energy Co., H ................................................. China 770,000 1,516,765
a,b China Coal Energy Co., H, 144A ........................................... China 1,161,000 2,286,966
China Petroleum and Chemical Corp., H .................................... China 56,549,395 61,642,913
China Shenhua Energy Co. Ltd., H ......................................... China 11,031,000 47,815,406
CNOOC Ltd. ............................................................... China 41,243,000 50,405,672
b CNOOC Ltd., 144A ......................................................... China 978,000 1,195,275
PetroChina Co. Ltd., H ................................................... China 53,977,903 78,914,557
Yanzhou Coal Mining Co. Ltd., H .......................................... China 13,312,000 23,422,523
---------------
267,200,077
---------------
PAPER & FOREST PRODUCTS 1.0%
Nine Dragons Paper Holdings Ltd. ......................................... China 2,962,000 8,850,692
Shandong Chenming Paper Holdings Ltd., B ................................. China 1,929,100 1,902,468
---------------
10,753,160
---------------
PHARMACEUTICALS 0.2%
Tong Ren Tang Technologies Co. Ltd., H ................................... China 1,056,000 2,451,200
---------------
REAL ESTATE 1.5%
Cheung Kong (Holdings) Ltd. .............................................. Hong Kong 1,170,690 17,220,335
---------------
Annual Report | 21
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
REAL ESTATE MANAGEMENT & DEVELOPMENT 0.7%
a,b Country Garden Holdings Co., 144A ........................................ China 1,960,000 $ 3,016,293
b Rickmers Maritime, 144A .................................................. Singapore 4,523,000 4,865,834
---------------
7,882,127
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.8%
MediaTek Inc. ............................................................ Taiwan 191,000 3,241,212
Novatek Microelectronics Corp. Ltd. ...................................... Taiwan 1,422,895 5,734,698
Realtek Semiconductor Corp. .............................................. Taiwan 967,338 4,734,094
Samsung Electronics Co. Ltd. ............................................. South Korea 5,510 3,470,727
a Semiconductor Manufacturing International Corp. .......................... China 41,952,000 4,895,875
Sunplus Technology Co. Ltd. .............................................. Taiwan 44,780 80,061
Taiwan Semiconductor Manufacturing Co. Ltd. .............................. Taiwan 16,437,442 31,231,140
---------------
53,387,807
---------------
SOFTWARE 0.1%
a Kongzhong Corp., ADR ..................................................... China 204,000 844,560
---------------
SPECIALTY RETAIL 0.2%
GOME Electrical Appliances Holdings Ltd. ................................. Hong Kong 654,000 1,031,618
I.T. Ltd. ................................................................ Hong Kong 7,486,000 1,507,252
---------------
2,538,870
---------------
TEXTILES, APPAREL & LUXURY GOODS 0.4%
Tack Fat Group International Ltd. ........................................ Hong Kong 8,352,000 1,338,865
Victory City International Holdings Ltd. ................................. Hong Kong 5,563,441 1,783,691
Weiqiao Textile Co. Ltd., H .............................................. China 425,500 944,022
---------------
4,066,578
---------------
TRANSPORTATION INFRASTRUCTURE 3.8%
Cosco Pacific Ltd. ....................................................... China 3,921,449 10,887,815
Hopewell Holdings Ltd. ................................................... Hong Kong 6,526,000 31,091,534
---------------
41,979,349
---------------
WIRELESS TELECOMMUNICATION SERVICES 11.0%
China Mobile Ltd. ........................................................ China 8,778,770 119,337,187
Taiwan Mobile Co. Ltd. ................................................... Taiwan 2,496,930 3,177,911
---------------
122,515,098
---------------
TOTAL COMMON STOCKS (COST $592,786,642) .................................. 1,098,239,823
---------------
22 | Annual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENT (COST $7,941,292) 0.7%
U.S. GOVERNMENT AND AGENCY SECURITY 0.7%
d FHLB, 9/04/07 ............................................................. United States $7,945,000 $ 7,941,290
---------------
TOTAL INVESTMENTS (COST $600,727,934) 99.2% ............................... 1,106,181,113
OTHER ASSETS, LESS LIABILITIES 0.8% ....................................... 8,439,315
---------------
NET ASSETS 100.0% ......................................................... $1,114,620,428
===============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
FHLB - Federal Home Loan Bank
a Non-income producing for the twelve months ended August 31, 2007.
b Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Fund's Board of Trustees. At August 31, 2007, the aggregate value of these
securities was $76,317,892, representing 6.85% of net assets.
c Rounds to less than 0.1% of net assets.
d The security is traded on a discount basis with no stated coupon rate.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 23
Templeton China World Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2007
Assets:
Investments in securities:
Cost ................................................................................................ $ 600,727,934
===============
Value ............................................................................................... $1,106,181,113
Cash ................................................................................................... 55,607
Foreign currency, at value (cost $4,384,125) ........................................................... 4,383,733
Receivables:
Investment securities sold .......................................................................... 1,594,265
Capital shares sold ................................................................................. 4,162,731
Dividends ........................................................................................... 4,811,992
---------------
Total assets ..................................................................................... 1,121,189,441
---------------
Liabilities:
Payables:
Investment securities purchased ..................................................................... 1,961,973
Capital shares redeemed ............................................................................. 2,443,040
Affiliates .......................................................................................... 1,912,927
Accrued expenses and other liabilities ................................................................. 251,073
---------------
Total liabilities ................................................................................ 6,569,013
===============
Net assets, at value .......................................................................... $1,114,620,428
===============
Net assets consist of:
Paid-in capital ........................................................................................ $ 554,602,449
Undistributed net investment income .................................................................... 8,632,702
Net unrealized appreciation (depreciation) ............................................................. 505,447,669
Accumulated net realized gain (loss) ................................................................... 45,937,608
---------------
Net assets, at value .......................................................................... $1,114,620,428
===============
CLASS A:
Net assets, at value ................................................................................... $ 519,266,092
===============
Shares outstanding ..................................................................................... 12,575,801
===============
Net asset value per sharea ............................................................................. $ 41.29
===============
Maximum offering price per share (net asset value per share / 94.25%) .................................. $ 43.81
===============
CLASS B:
Net assets, at value ................................................................................... $ 20,065,732
===============
Shares outstanding ..................................................................................... 490,003
===============
Net asset value and maximum offering price per share a ................................................. $ 40.95
===============
CLASS C:
Net assets, at value ................................................................................... $ 199,550,734
===============
Shares outstanding ..................................................................................... 4,892,221
===============
Net asset value and maximum offering price per share a ................................................. $ 40.79
===============
ADVISOR CLASS:
Net assets, at value ................................................................................... $ 375,737,870
===============
Shares outstanding ..................................................................................... 9,043,778
===============
Net asset value and maximum offering price per share a ................................................. $ 41.55
===============
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
24 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended August 31, 2007
Investment income:
Dividends (net of foreign taxes of $1,369,177) ......................................................... $ 25,663,789
Interest (net of foreign taxes of $146) ................................................................ 1,791,480
---------------
Total investment income ......................................................................... 27,455,269
---------------
Expenses:
Management fees (Note 3a) .............................................................................. 10,802,953
Administrative fees (Note 3b) .......................................................................... 1,732,675
Distribution fees: (Note 3c)
Class A ............................................................................................. 1,368,735
Class B ............................................................................................. 177,547
Class C ............................................................................................. 1,531,542
Transfer agent fees (Note 3e) .......................................................................... 1,291,809
Custodian fees (Note 4) ................................................................................ 439,135
Reports to shareholders ................................................................................ 140,893
Registration and filing fees ........................................................................... 125,089
Professional fees ...................................................................................... 47,691
Trustees' fees and expenses ............................................................................ 60,569
Other .................................................................................................. 17,096
---------------
Total expenses ................................................................................... 17,735,734
Expense reductions (Note 4) ...................................................................... (6,625)
---------------
Net expenses .................................................................................. 17,729,109
---------------
Net investment income ...................................................................... 9,726,160
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ......................................................................................... 56,784,748
Foreign currency transactions ....................................................................... (117,465)
---------------
Net realized gain (loss) ......................................................................... 56,667,283
---------------
Net change in unrealized appreciation (depreciation) on:
Investments ......................................................................................... 350,219,028
Translation of assets and liabilities denominated in foreign currencies ............................. (21)
---------------
Net change in unrealized appreciation (depreciation) ............................................. 350,219,007
---------------
Net realized and unrealized gain (loss) ................................................................... 406,886,290
---------------
Net increase (decrease) in net assets resulting from operations ........................................... $ 416,612,450
===============
Annual Report |
The accompanying notes are an integral part of these financial statements. | 25
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------
YEAR ENDED AUGUST 31,
2007 2006
------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................................... $ 9,726,160 $ 5,720,891
Net realized gain (loss) from investments and foreign currency transactions ................. 56,667,283 23,578,156
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ................................. 350,219,007 57,215,114
------------------------------
Net increase (decrease) in net assets resulting from operations ....................... 416,612,450 86,514,161
Distributions to shareholders from:
Net investment income:
Class A .................................................................................. (2,804,164) (1,807,042)
Class B .................................................................................. (35,884) (97,993)
Class C .................................................................................. (513,958) (561,314)
Advisor Class ............................................................................ (3,495,617) (3,160,482)
------------------------------
Total distributions to shareholders ............................................................ (6,849,623) (5,626,831)
==============================
Capital share transactions: (Note 2)
Class A .................................................................................. 72,755,259 121,293,954
Class B .................................................................................. (3,545,964) 593,315
Class C .................................................................................. 19,220,921 50,823,588
Advisor Class ............................................................................ (14,417,335) 17,173,947
------------------------------
Total capital share transactions ............................................................... 74,012,881 189,884,804
------------------------------
Redemption fees ................................................................................ 12,710 20,792
------------------------------
Net increase (decrease) in net assets ................................................. 483,788,418 270,792,926
Net assets:
Beginning of year .............................................................................. 630,832,010 360,039,084
------------------------------
End of year .................................................................................... $1,114,620,428 $630,832,010
==============================
Undistributed net investment income included in net assets:
End of year .................................................................................... $ 8,632,702 $ 5,790,063
==============================
26 | The accompanying notes are an integral part of these financial statements.
| Annual Report
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 amended, (the 1940 Act) as a non-diversified, open-end
investment company. The Fund offers 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 charges, distribution fees, voting rights on
matters affecting a single class and its exchange privilege.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Fund's Board of Trustees.
Annual Report | 27
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
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 on the
Statement of Operations.
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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
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 at a future date. Realized and unrealized gains and losses on these
contracts 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, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
28 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recognized as soon as the Fund is notified
of the ex-dividend date. Distributions to shareholders are recorded on the
ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States. These differences may be permanent or temporary. Permanent
differences are reclassified among capital accounts to reflect their tax
character. These reclassifications have no impact on net assets or the results
of operations. Temporary differences are not reclassified, as they may reverse
in subsequent periods.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
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 expenses during the reporting period. Actual results could differ from those
estimates.
G. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as an addition to paid-in
capital.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities 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. Currently, the Fund expects the
risk of loss to be remote.
Annual Report | 29
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At August 31, 2007, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
-----------------------------------------------------------
YEAR ENDED AUGUST 31,
2007 2006
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
CLASS A SHARES:
Shares sold ...................................................... 6,605,473 $ 213,342,599 6,990,835 $ 168,972,851
Shares issued in reinvestment of distributions ................... 87,168 2,378,777 69,862 1,477,583
Shares redeemed .................................................. (4,299,672) (142,966,117) (2,008,744) (49,156,480)
-----------------------------------------------------------
Net increase (decrease) .......................................... 2,392,969 $ 72,755,259 5,051,953 $ 121,293,954
===========================================================
CLASS B SHARES:
Shares sold ...................................................... 84,995 $ 2,713,074 149,296 $ 3,566,089
Shares issued in reinvestment of distributions ................... 1,165 31,211 4,065 85,646
Shares redeemed .................................................. (194,230) (6,290,249) (126,627) (3,058,420)
-----------------------------------------------------------
Net increase (decrease) .......................................... (108,070) $ (3,545,964) 26,734 $ 593,315
===========================================================
CLASS C SHARES:
Shares sold ...................................................... 2,108,543 $ 66,851,170 2,715,102 $ 65,435,922
Shares issued in reinvestment of distributions ................... 14,909 397,615 21,093 443,585
Shares redeemed .................................................. (1,464,903) (48,027,864) (630,397) (15,055,919)
-----------------------------------------------------------
Net increase (decrease) .......................................... 658,549 $ 19,220,921 2,105,798 $ 50,823,588
===========================================================
ADVISOR CLASS SHARES:
Shares sold ...................................................... 966,016 $ 32,450,505 1,597,171 $ 38,646,324
Shares issued in reinvestment of distributions ................... 56,101 1,551,552 56,892 1,207,251
Shares redeemed .................................................. (1,440,225) (48,419,392) (955,594) (22,679,628)
-----------------------------------------------------------
Net increase (decrease) .......................................... (418,108) $ (14,417,335) 698,469 $ 17,173,947
===========================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- ---------------------------------------------------------------------------------------
SUBSIDIARY 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
30 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund 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% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.20% per year of the
average daily net assets of the Fund.
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's compensation distribution plans, the Fund pays
Distributors for costs incurred in connection with the servicing, sale and
distribution of the Fund's shares up to a certain percentage per year of its
average daily net assets of each class as follows:
Class A ........................................................ 0.35%
Class B ........................................................ 1.00%
Class C ........................................................ 1.00%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ............................. $659,966
Contingent deferred sales charges retained ................. $150,569
E. TRANSFER AGENT FEES
For the year ended August 31, 2007, the Fund paid transfer agent fees of
$1,291,809, of which $622,133 was retained by 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, 2007, the
custodian fees were reduced as noted in the Statement of Operations.
Annual Report | 31
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. During the year ended August 31, 2007, the Fund utilized
$9,687,834 of capital loss carryforwards.
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At August 31, 2007, the Fund deferred realized currency losses of
$83,567.
The tax character of distributions paid during the years ended August 31, 2007
and 2006, was as follows:
------------------------
2007 2006
------------------------
Distributions paid from - ordinary income .......... $6,849,623 $5,626,831
At August 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ........................................... $601,354,705
-------------
Unrealized appreciation ....................................... $514,546,240
Unrealized depreciation ....................................... (9,719,832)
-------------
Net unrealized appreciation (depreciation) .................... $504,826,408
=============
Undistributed ordinary income ................................. $ 20,042,511
Undistributed long term capital gains ......................... 35,238,136
-------------
Distributable earnings ........................................ $ 55,280,647
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions.
Net realized gains (losses) 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, 2007, aggregated $275,805,677 and $183,112,276,
respectively.
32 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CONCENTRATION OF RISK
Investing in securities of "China companies" may include certain risks and
considerations not typically associated with investing in U.S. securities. In
general, China companies are those that are organized under the laws of, or with
a principal office or principal trading market in, the People's Republic of
China, Hong Kong, or Taiwan. Such risks include fluctuating currency values and
changing local and regional economic, political and social conditions, which may
result in greater market volatility. In addition, these securities may not be as
liquid as U.S. securities. At August 31, 2007, the Fund had 64.8%, 14.5%, and
17.4% of its net assets invested in China, Hong Kong, and Taiwan, respectively.
8. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Fund did not participate in that
settlement.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Following the public comment
period, and once the SEC approves the final plan of distribution, disbursements
of settlement monies will be made promptly to individuals who were shareholders
of the designated funds during the relevant period, in accordance with the terms
and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
Annual Report | 33
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REGULATORY AND LITIGATION MATTERS (CONTINUED)
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company 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.
9. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period beginning after
December 15, 2006. The Fund believes the adoption of FIN 48 will have no
material impact on its financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
34 | 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 Templeton China World Fund (the
"Fund") at August 31, 2007, 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 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, 2007 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 18, 2007
Annual Report | 35
Templeton China World Fund
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $35,238,136 as a long
term capital gain dividend for the fiscal year ended August 31, 2007.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $11,409,809 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended August 31, 2007.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $5,039,681 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August
31, 2007. In January 2008, shareholders will receive Form 1099-DIV which will
include their share of qualified dividends distributed during the calendar year
2007. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $969,035 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended August 31, 2007.
At August 31, 2007, more than 50% of the Templeton China World Fund 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 table below, the Fund 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 18, 2007, 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 provides a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund, to Class A, Class B, Class C, and Advisor Class shareholders of
record.
RECORD DATE: 10/18/2007
- --------------------------------------------------------------------------------
CLASS A
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Bermuda ..................... $0.0000 $0.0036 $0.0000
Cambodia .................... 0.0000 0.0016 0.0000
Cayman Islands .............. 0.0000 0.0040 0.0000
China ....................... 0.0000 0.2176 0.1015
Hong Kong ................... 0.0000 0.1570 0.0000
Singapore ................... 0.0000 0.0013 0.0000
South Korea ................. 0.0006 0.0020 0.0020
Taiwan ...................... 0.0493 0.1416 0.0000
United Kingdom .............. 0.0000 0.0267 0.0000
------------------------------------------------
TOTAL ....................... $0.0499 $0.5554 $0.1035
================================================
36 | Annual Report
Templeton China World Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CLASS B
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Bermuda ..................... $0.0000 $0.0025 $0.0000
Cambodia .................... 0.0000 0.0011 0.0000
Cayman Islands .............. 0.0000 0.0028 0.0000
China ....................... 0.0000 0.1518 0.0708
Hong Kong ................... 0.0000 0.1095 0.0000
Singapore ................... 0.0000 0.0009 0.0000
South Korea ................. 0.0006 0.0014 0.0014
Taiwan ...................... 0.0493 0.0988 0.0000
United Kingdom .............. 0.0000 0.0186 0.0000
------------------------------------------------
TOTAL ....................... $0.0499 $0.3874 $0.0722
================================================
- --------------------------------------------------------------------------------
CLASS C
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Bermuda ..................... $0.0000 $0.0027 $0.0000
Cambodia .................... 0.0000 0.0012 0.0000
Cayman Islands .............. 0.0000 0.0030 0.0000
China ....................... 0.0000 0.1648 0.0769
Hong Kong ................... 0.0000 0.1189 0.0000
Singapore ................... 0.0000 0.0010 0.0000
South Korea ................. 0.0006 0.0015 0.0015
Taiwan ...................... 0.0493 0.1072 0.0000
United Kingdom .............. 0.0000 0.0202 0.0000
------------------------------------------------
TOTAL ....................... $0.0499 $0.4205 $0.0784
================================================
- --------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
Bermuda ..................... $0.0000 $0.0040 $0.0000
Cambodia .................... 0.0000 0.0018 0.0000
Cayman Islands .............. 0.0000 0.0045 0.0000
China ....................... 0.0000 0.2455 0.1145
Hong Kong ................... 0.0000 0.1771 0.0000
Singapore ................... 0.0000 0.0015 0.0000
South Korea ................. 0.0006 0.0023 0.0023
Taiwan ...................... 0.0493 0.1598 0.0000
United Kingdom .............. 0.0000 0.0301 0.0000
------------------------------------------------
TOTAL $0.0499 $0.6266 $0.1168
================================================
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or, as a tax
deduction.
Annual Report | 37
Templeton China World Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
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 that have not been adjusted for the
rate differential applicable to such dividend income. 1
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 were derived from qualified
foreign securities held by the Fund. 1
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2007. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2007 individual income
tax returns.
1 Qualified dividends are taxed at a maximum rate of 15% (5% for those in the
10% and 15% income tax bracket). In determining the amount of foreign tax credit
that may be applied against the U.S. tax liability of individuals receiving
foreign source qualified dividends, adjustments may be required to the foreign
tax credit limitation calculation to reflect the rate differential applicable to
such dividend income. The rules however permit certain individuals to elect not
to apply the rate differential adjustments for capital gains and/or dividends
for any taxable year. Please consult your tax advisor and the instructions to
Form 1116 for more information.
38 | Annual Report
Templeton China World Fund
SPECIAL MEETING OF SHAREHOLDERS - MARCH 21, 2007 AND RECONVENED ON APRIL 11,
2007 (UNAUDITED)
A Special Meeting of the Shareholders of the Templeton China World Fund (the
"Trust") was held at the offices of Franklin Templeton Investments, One Franklin
Parkway, San Mateo, California on March 21, 2007, and reconvened on April 11,
2007. The purpose of the meeting was to elect Trustees of the Trust and to
approve amendments to certain of the Trust's fundamental investment restrictions
(including three (3) Sub-Proposals).
At the meeting, the following persons were elected by the shareholders to serve
as Independent Trustees of the Trust: Harris J. Ashton, Frank J. Crothers, Edith
E. Holiday, David W. Niemiec, Frank A. Olson, Larry D. Thompson, Constantine D.
Tseretopoulos and Robert E. Wade. Charles B. Johnson and Gregory E. Johnson were
elected by the shareholders to serve as Interested Trustees. Shareholders also
approved amendments to certain of the Trust's fundamental investment
restrictions (including three (3) Sub-Proposals). No other business was
transacted at the meeting.
The results of the voting at the meeting are as follows:
Proposal 1. The Election of Trustees:
- -----------------------------------------------------------------------------------------------------------------------
% OF % OF
SHARES SHARES
% OF PRESENT % OF PRESENT
OUTSTANDING AND OUTSTANDING AND
NAME FOR SHARES VOTING WITHHELD SHARES VOTING
- -----------------------------------------------------------------------------------------------------------------------
Harris J. Ashton ..................... 14,882,583.526 55.123% 97.686% 352,577.774 1.306% 2.314%
Frank J. Crothers .................... 14,906,821.095 55.213% 97.845% 328,340.205 1.216% 2.155%
Edith E. Holiday ..................... 14,871,810.585 55.083% 97.615% 363,350.715 1.346% 2.385%
David W. Niemiec ..................... 14,906,689.194 55.212% 97.844% 328,472.106 1.217% 2.156%
Frank A. Olson ....................... 14,888,755.323 55.146% 97.726% 346,405.977 1.283% 2.274%
Larry D. Thompson .................... 14,893,725.838 55.164% 97.759% 341,435.462 1.265% 2.241%
Constantine D. Tseretopoulos ......... 14,877,274.805 55.103% 97.651% 357,886.495 1.326% 2.349%
Robert E. Wade ....................... 14,897,573.804 55.178% 97.784% 337,587.496 1.251% 2.216%
Charles B. Johnson ................... 14,885,823.955 55.135% 97.707% 349,337.345 1.294% 2.293%
Gregory E. Johnson ................... 14,897,848.534 55.179% 97.786% 337,312.766 1.250% 2.214%
Proposal 2. To approve of amendments to certain of the Trust's fundamental
investment restrictions (includes three (3) Sub-Proposals):
(a) To amend the Trust's fundamental investment restriction regarding lending:
- --------------------------------------------------------------------------------
% OF % OF SHARES
OUTSTANDING PRESENT AND
SHARES VOTED SHARES VOTING
- --------------------------------------------------------------------------------
For .............................. 10,375,808.948 38.430% 68.104%
Against .......................... 519,105.741 1.923% 3.408%
Abstain .......................... 350,695.611 1.299% 2.301%
Broker Non-Votes ................. 3,989,551.000 14.777% 26.186%
- --------------------------------------------------------------------------------
TOTAL ............................ 15,235,161.300 56.429% 100.000%
- --------------------------------------------------------------------------------
Annual Report | 39
Templeton China World Fund
SPECIAL MEETING OF SHAREHOLDERS - MARCH 21, 2007 AND RECONVENED ON APRIL 11,
2007 (UNAUDITED) (CONTINUED)
(b) To amend the Trust's fundamental investment restriction regarding
investments in real estate:
- --------------------------------------------------------------------------------
% OF % OF SHARES
OUTSTANDING PRESENT AND
SHARES VOTED SHARES VOTING
- --------------------------------------------------------------------------------
For .............................. 10,489,208.369 38.850% 68.849%
Against .......................... 422,763.628 1.566% 2.775%
Abstain .......................... 333,638.303 1.236% 2.190%
Broker Non-Votes ................. 3,989,551.000 14.777% 26.186%
- --------------------------------------------------------------------------------
TOTAL ............................ 15,235,161.300 56.429% 100.000%
- --------------------------------------------------------------------------------
(c) To amend the Trust's fundamental investment restriction regarding
investments in commodities:
- --------------------------------------------------------------------------------
% OF % OF SHARES
OUTSTANDING PRESENT AND
SHARES VOTED SHARES VOTING
- --------------------------------------------------------------------------------
For .............................. 10,337,374.921 38.288% 67.852%
Against .......................... 551,310.312 2.042% 3.619%
Abstain .......................... 356,925.067 1.322% 2.342%
Broker Non-Votes ................. 3,989,551.000 14.777% 26.186%
- --------------------------------------------------------------------------------
TOTAL ............................ 15,235,161.300 56.429% 100.000%
- --------------------------------------------------------------------------------
40 | Annual Report
Templeton China World Fund
BOARD MEMBERS AND OFFICERS
The name, year of birth 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. Generally, each
board member serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1993 139 Bar-S Foods (meat packing company).
500 East Broward Blvd.
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 (1944) Trustee Since 1999 19 Fortis, Inc. (utility holding
500 East Broward Blvd. company), Nuinsco Resources Limited
Suite 2100 (mineral exploration), Fidelity
Fort Lauderdale, FL 33394-3091 Merchant Bank & Trust (Cayman)
Limited (financial services), C.A.
Bancorp Inc. (financial services),
Victory Nickel Inc. (mineral
exploration), ABACO Markets Limited
(retail distributors) and Belize
Electricity Limited (electric
utility).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holdings Ltd.; Director and Vice Chairman, Caribbean Utilities Company, Ltd.; Director, Provo Power
Company Ltd.; Director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment & Power
Ltd. (1977-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1996 139 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas), H.J.
Suite 2100 Heinz Company (processed foods and
Fort Lauderdale, FL 33394-3091 allied products), RTI International
Metals, Inc. (manufacture and
distribution of titanium),
Canadian National Railway (rail-
road) and White Mountains Insurance
Group, Ltd. (holding company).
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 | 41
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID W. NIEMIEC (1949) Trustee Since 2005 19 Emeritus Corporation (assisted
500 East Broward Blvd. living) and OSI Pharmaceuticals,
Suite 2100 Inc. (pharmaceutical products).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); Director, various private companies; and FORMERLY, Managing Director, Saratoga
Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc.
(investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since 2003 139 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas) and
Suite 2100 Sentient Jet (private jet service).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977- 1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Trustee Since 2005 139 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. TSERETOPOULOS Trustee Since 1999 19 None
(1954)
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).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. WADE (1946) Trustee Since 2006 33 El Oro and Exploration Co., p.l.c.
500 East Broward Blvd. (investments) and ARC Wireless
Suite 2100 Solutions, Inc. (wireless
Fort Lauderdale, FL 33394-3091 components and network products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Practicing attorney.
- ------------------------------------------------------------------------------------------------------------------------------------
42 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee, Trustee and 139 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.; Director, Templeton Worldwide, 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 42
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since April 2007 91 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (1964) Vice President Since 2001 Not Applicable Not Applicable
PO Box N-7759
Lyford Cay, Nassau, Bahamas
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, President and Director, Templeton Global Advisors Limited; and officer of 14 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 43
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
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.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory 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 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (1940) Vice President Since 1994 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Senior Vice President, Franklin Templeton Services, LLC; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments; and FORMERLY,
Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
MARK MOBIUS (1936) President and President since Not Applicable Not Applicable
17th Floor, The Chater House Chief 1993 and Chief
8 Connaught Road Executive Executive
Central Hong Kong Officer - Officer -
Investment Investment
Management Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management Ltd.; 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).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Secretary Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Assistant Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International
of the South; and officer of 14 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 16 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
44 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* 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 manager or affiliated
investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund under
the federal securities laws due to his position as officer and director and
major shareholder of Franklin Resources, Inc. (Resources), which is the parent
company of the Fund's investment manager and distributor. Gregory E. 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 of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
Note 3: Prior to August 31, 2007, Nicholas F. Brady ceased to be trustee of the
Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. 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 FRANK A. OLSON AND DAVID W. NIEMIEC AS AN
AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS. OLSON AND
NIEMIEC QUALIFY AS SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND
AND EXPERIENCE. MR. OLSON HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE
SINCE 2003. HE CURRENTLY SERVES AS CHAIRMAN EMERITUS OF THE HERTZ CORPORATION
AND WAS FORMERLY ITS CHAIRMAN OF THE BOARD FROM 1980 TO 2000 AND ITS CHIEF
EXECUTIVE OFFICER FROM 1977 TO 1999. MR. OLSON IS ALSO A DIRECTOR AND AUDIT
COMMITTEE MEMBER OF HESS CORPORATION, A FORMER DIRECTOR AND AUDIT COMMITTEE
MEMBER OF WHITE MOUNTAINS INSURANCE GROUP, LTD. AND FORMER CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER OF UAL CORPORATION. MR. NIEMIEC HAS SERVED AS A
MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005, CURRENTLY SERVES AS AN ADVISOR TO
SARATOGA PARTNERS AND WAS FORMERLY ITS MANAGING DIRECTOR FROM 1998 TO 2001. MR.
NIEMIEC IS A DIRECTOR OF EMERITUS CORPORATION AND OSI PHARMACEUTICALS, INC. AND
VARIOUS PRIVATE COMPANIES, AND WAS FORMERLY MANAGING DIRECTOR OF SBC WARBURG
DILLON READ FROM 1997 TO 1998, AND WAS VICE CHAIRMAN FROM 1991 TO 1997 AND CHIEF
FINANCIAL OFFICER FROM 1982 TO 1997 OF DILLON, READ & CO. INC. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. OLSON
AND MR. NIEMIEC 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.
OLSON AND NIEMIEC ARE INDEPENDENT TRUSTEES AS THAT TERM IS DEFINED UNDER THE
APPLICABLE U.S. 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.
Annual Report | 45
Templeton China World Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held May 22, 2007, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for the Fund prepared by Lipper, Inc. (Lipper), an independent
organization, as well as a Fund profitability analysis report prepared by
management. The Lipper report compared the Fund's investment performance and
expenses with those of other mutual funds deemed comparable to the Fund as
selected by Lipper. The Fund profitability analysis report discussed the
profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Fund by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged the Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
46 | Annual Report
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
shareholders from being part of the Franklin Templeton family of funds,
including the right to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Among other factors taken into account by the Board
were the Manager's best execution trading policies, including a favorable report
by an independent portfolio trading analytical firm. Consideration was also
given to the experience of the Fund's portfolio management team, the number of
accounts managed and general method of compensation. In this latter respect, the
Board noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, the high
industry ranking given to the Franklin Templeton website, and the firsthand
experience of individual Board members who deal with the shareholder services
department in their capacities as shareholders in one or more of the various
Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Fund had converted from a closed-end fund to an open-end fund in
May 2003, and the Lipper report for this agreement renewal showed the
performance of the Fund's Class A shares for the three-year period ended
February 28, 2007, in comparison with a performance universe consisting of the
Fund and all retail and institutional China region funds as selected by Lipper.
Such report showed the Fund's total return for the one-year period to be in the
lowest quintile and on an annualized basis to be in the second-lowest quintile
of such performance universe for the previous three-year period. The Board was
satisfied with such performance taking into consideration the Fund's disciplined
value approach to investing and noting the Fund's high level of absolute returns
as shown in the Lipper report, which were 27.95% and 18.69%, respectively, for
the one- and three-year periods.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of 10 other funds selected by Lipper as its appropriate Lipper expense
group. Prior to making such comparison, the Board relied upon a survey showing
that the scope of management advisory services covered under the Fund's
investment management agreement was similar to those provided by fund managers
to
Annual Report | 47
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
other mutual fund groups. In reviewing comparative costs, emphasis was given to
the Fund's contractual investment management fee in comparison with the
contractual investment management fee that would have been charged by other
funds within its Lipper expense group assuming they were similar in size to the
Fund, as well as the actual total expenses of the Fund in comparison with those
of its Lipper expense group. The Lipper contractual investment management fee
analysis includes administrative charges as being part of a management fee, and
actual total expenses, for comparative consistency, are shown by Lipper for fund
Class A shares. The expense comparisons showed the Fund's contractual investment
management fee rate to be the highest in such Lipper expense group, and its
actual expenses to be the second highest in such expense group. The Board noted
that the Fund's actual expenses were within 17 basis points of the expense group
median and found such comparative fee and expenses to be acceptable in view of
factors relating to the Fund's operations, such as the background and experience
of its portfolio managers and research staff, and their physical presence and
coverage in the geographical area in which the Fund invests.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund. Specific attention was given to the methodology followed in allocating
costs to the Fund, it being recognized that allocation methodologies are
inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Fund made in prior years
and that the Fund's independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Fund's Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, including its interest in a joint
venture entity that financed up-front commissions paid to brokers/dealers who
sold fund Class B shares prior to February 2005 when the offering of such shares
was discontinued, as well as potential benefits resulting from allocation of
fund brokerage and the use of "soft"
48 | Annual Report
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
commission dollars to pay for research. Based upon its consideration of all
these factors, the Board determined that the level of profits realized by the
Manager and its affiliates from providing services to the Fund was not excessive
in view of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager and its affiliates as the Fund grows larger and the
extent to which this is reflected in the level of management fees charged. While
recognizing that any precise determination is inherently subjective, the Board
noted that based upon the Fund profitability analysis, it appears that as some
funds get larger, at some point economies of scale do result in the Manager
realizing a larger profit margin on management services provided such a fund.
The Fund is charged a fee for administrative services at the rate of 0.20% of
its net assets, as well as a separate fee for management advisory services at
the rate of 1.25% of its net assets, with additional breakpoints added on net
assets exceeding $1 billion. In view of the Fund's brief operating history and
growth of assets as an open-end fund, the Board believed it unclear as to
whether economies of scale are realized by the Manager and its affiliates in the
operation of this Fund at its asset size, which was approximately $858 million
on December 31, 2006.
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 1-954/527-7678 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 U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. 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 | 49
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Literature Request
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 FUNDS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
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 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy remained the
same.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. The fund invests primarily in insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
05/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o 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 A2007 10/07
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 12(a)(1), 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 David W. Niemiec 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 $30,295 for the fiscal year ended August 31, 2007 and $33,578 for the
fiscal year ended August 31, 2006.
(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.
There were no 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 their financial
statements.
(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.
The aggregate 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 were $46,000 for the fiscal year ended
August 31, 2007 and $3,961 for the fiscal year ended August 31, 2006. The
services for which these fees were paid included tax compliance and advice.
(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 $0 for the fiscal year ended August 31, 2007
and $286 for the fiscal year ended August 31, 2006. 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 $0 for the fiscal year ended August 31,
2007 and $175,575 for the fiscal year ended August 31, 2006. 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 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 $46,286 for the fiscal year ended August 31, 2007 and $179,822
for the fiscal year ended August 31, 2006.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO 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 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) 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) 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
--------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: October 26, 2007
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.
BBy /s/JIMMY D. GAMBILL
--------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: October 26, 2007
By /s/GALEN G. VETTER
--------------------
Galen G. Vetter
Chief Financial Officer
Date: October 26, 2007