UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07876
----------
TEMPLETON CHINA WORLD FUND
------------------------------
(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
--------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-----------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
---------------
Date of fiscal year end: 8/31
-------
Date of reporting period: 2/28/09
---------
ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 28, 2009
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
SIGN UP FOR EDELIVERY
Log onto franklintempleton.com
and click "My Profile"
(GRAPHIC)
INTERNATIONAL
TEMPLETON
CHINA WORLD FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Templeton China World Fund ................................................ 3
Performance Summary ....................................................... 7
Your Fund's Expenses ...................................................... 10
Financial Highlights and Statement of Investments ......................... 12
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 24
Shareholder Information ................................................... 33
Shareholder Letter
Dear Shareholder:
During the six months ended February 28, 2009, global financial turmoil and a
high degree of uncertainty clouded prospects for the world economy. Although
economic growth slowed in China due to falling exports and manufacturing output,
the country remained one of the world's fastest-growing major economies. To
foster growth, the Chinese government launched an ambitious stimulus package
that boosted bank lending and investor sentiment in the country's domestic stock
markets toward period-end.
Although the recent environment is bound to provoke great concern, we believe it
is important to put short-term market developments in perspective. Keep in mind
that as daunting as current conditions may be, we have navigated through other
periods of high market volatility, such as global stock markets' severe declines
of 1987 and the Asian financial crisis of 1997. We remain committed to our
long-term perspective and our value investment philosophy. Therefore, we view
recent declines as potential opportunities to find bargains that we believe may
be well positioned to become eventual winners. Although conditions remain
challenging, our experience gives us reason to be optimistic about the potential
for future market stabilization and recovery.
Templeton China World Fund's semiannual report goes into greater detail about
prevailing conditions during the period under review. In addition, you will find
performance data, financial information and a discussion about investment
management decisions. Please remember that all securities markets fluctuate, as
do mutual fund share prices.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
find helpful financial planning tools. We hope you will take advantage of these
online services.
Historically, patient investors have achieved rewarding results by evaluating
their goals, diversifying their assets globally and maintaining a disciplined
investment program, all hallmarks of the Templeton investment philosophy
developed more than 50 years ago. As always, we encourage you to discuss your
goals with your financial advisor who can address concerns about volatility and
diversification, periodically review your overall portfolio and help you stay
focused on the long term. We firmly believe that most people benefit from
professional advice, and that advice is invaluable as investors navigate current
market conditions.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Mark Mobius
Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2009. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
2 | Not part of the semiannual report
Semiannual 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.
This semiannual report for Templeton China World Fund covers the period ended
February 28, 2009.
PERFORMANCE OVERVIEW
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
For the six months under review, Templeton China World Fund - Class A had a
- -36.02% cumulative total return. The Fund performed better than its benchmark,
the Morgan Stanley Capital International (MSCI) Golden Dragon Index, which had a
- -38.30% cumulative total return for the same period.(1)
Also for comparison, the Standard & Poor's/International Finance Corporation
(S&P/IFC) Investable China Index had a -22.32% cumulative total return for the
six months ended February 28, 2009.(2) In line with our long-term investment
strategy, we are pleased with our long-term results, which you will find in the
Performance Summary beginning on page 7. For example, for the 10-year period
ended February 28, 2009, the Fund's Class A shares delivered a +267.63%
cumulative total return, compared with the MSCI Golden Dragon Index's +37.00%
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: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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: (C) 2009 Morningstar. 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: (C) 2009 Morningstar. As of 2/28/09, the Fund's Class A 10-year
average annual total return not including sales charges was +13.90%,
compared with the +3.20% 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 16.
Semiannual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 2/28/09*
(BAR CHART)
China 62.2%
Hong Kong 22.4%
Taiwan 14.7%
Cambodia 0.4%
Singapore 0.2%
Germany 0.1%
* Short-term investments and other net assets = 0.0%
ECONOMIC AND MARKET OVERVIEW
The past six months have been one of the most volatile periods since the Fund's
inception. Extreme risk aversion led to evaporation of liquidity, tight credit
conditions, problems for companies with highly leveraged finance models, and
high volatility in global stock markets. Recognizing the severity of the credit
crunch, governments in the greater China region implemented fiscal stimuli and
loosened monetary policies to support their domestic economies and ease
liquidity conditions. In November, China unveiled an unprecedented US$586
billion stimulus package, which focused on infrastructure development and social
welfare. Taiwan and Hong Kong also announced fiscal measures aimed at supporting
their domestic economies. Our experience has led us to believe the recent fall
is part of a natural bull and bear market cycle. In emerging markets we have
found that, in the past, bull markets have lasted longer than bear markets and
bull markets have tended to more than recover the losses of the previous bear
markets. Please remember, historical performance is no guarantee of future
results. In this environment, stock markets in the greater China region, as
represented by the MSCI Golden Dragon Index, had a -38.30% total return in U.S.
dollar terms and performed better than their global counterparts.(1)
Although China's gross domestic product growth slowed in 2008 -- 9.0%
year-over-year in 2008 compared with 13.0% in 2007 -- the country remained one
of the fastest-growing major economies in the world and has a 8.0% growth target
for 2009.(4) In addition to launching the stimulus package, the Chinese central
bank slashed its borrowing and lending interest rates and reduced cash reserve
requirements to boost liquidity in the financial system and spur lending.
China's US$1.95 trillion foreign reserves, the highest in the world at the end
of 2008, provided the country with ample resources to support its domestic
economy.(5) Moreover, strong credit growth and improvement in the Purchasing
Managers Index in early 2009 signaled what we considered a possible bottoming in
the struggling manufacturing sector and provided investors reasons to be
optimistic about the country's economic development.(6)
(4.) Source: National Bureau of Statistics, China.
(5.) Source: Ministry of Commerce, China.
(6.) The Purchasing Managers Index measures the health of the manufacturing
sector by surveying purchasing managers for data about new orders,
production, employment, deliveries and inventory.
4 | Semiannual Report
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. We also consider a company's price/earnings
ratio, profit margins and liquidation value.
MANAGER'S DISCUSSION
For the six months under review, among the most significant detractors from the
Fund's absolute performance were energy holdings: Sinopec (China Petroleum and
Chemical Corp.), the country's largest integrated energy and chemical company,
PetroChina, the country's largest oil and gas company in terms of reserves, and
CNOOC, China's premier offshore oil and gas exploration and production company.
These stocks suffered significant price declines during the reporting period
because of commodity price corrections and concerns of lower demand in a slowing
global growth environment. Although we trimmed their positions to meet funding
requirements, we held a positive longer-term outlook on energy companies and on
the energy sector, which we believe could offer attractively valued investment
opportunities. Despite negative impact from lower commodity prices, many energy
companies were still profitable at recent price levels. Although significantly
down from their peaks, commodity prices, we believe, could trend upward over the
long term partly because of continued demand for oil and gas from emerging
markets and the commodities' relatively inelastic supply.
On the other hand, key contributors to the Fund's absolute performance during
this review period included Chinese holdings BYD, a major rechargeable battery
and electric car manufacturer, Chongqing Changan Automobile, a leading car
manufacturer, and China Huiyuan Juice Group, a leading fruit and vegetable juice
producer. We sold the Fund's BYD holding by period-end after MidAmerican Energy
Holdings, a subsidiary of Warren Buffet's Berkshire Hathaway, announced its
plans to invest in the company, which pushed BYD's stock price beyond what we
considered fair value. Chongqing Changan Automobile's plans to spend US$117
million to buy back its Shenzhen B shares drove up its stock price.(7) The
Coca-Cola Company's interest in acquiring China Huiyuan Juice Group led that
stock price to surge during the reporting period.
TOP 10 EQUITY HOLDINGS
2/28/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------ ----------
China Mobile Ltd. 10.1%
WIRELESS TELECOMMUNICATION SERVICES, CHINA
Dairy Farm International Holdings Ltd. 10.0%
FOOD & STAPLES RETAILING, HONG KONG
CNOOC Ltd. 7.7%
OIL, GAS & CONSUMABLE FUELS, CHINA
Sinopec (China Petroleum and Chemical Corp.), H 7.3%
OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 5.9%
OIL, GAS & CONSUMABLE FUELS, CHINA
TSMC (Taiwan Semiconductor
Manufacturing Co. Ltd.) 4.7%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
Cheung Kong Infrastructure Holdings Ltd. 4.5%
ELECTRIC UTILITIES, HONG KONG
China Shenhua Energy Co. Ltd., H 3.8%
OIL, GAS & CONSUMABLE FUELS, CHINA
China Construction Bank Corp., H 3.7%
COMMERCIAL BANKS, CHINA
Hopewell Holdings Ltd. 3.7%
REAL ESTATE MANAGEMENT & DEVELOPMENT,
HONG KONG
(7.) "Shenzhen B" denotes shares of China-incorporated, Shenzhen-listed
companies that are traded in Hong Kong dollars.
Semiannual Report | 5
We sold a number of holdings during this review period, as stocks reached sale
price targets and we raised funds for income and capital gains distributions in
2008. As a result of the sales, the Fund's investments in diversified banking
companies fell. We also in turn reduced the Fund's exposure to Taiwan, Hong Kong
and China via Hong Kong-listed China H and Red Chip shares.(8) Major sales
included shares of Chinese holdings PetroChina, commercial bank China
Construction Bank and wireless telecommunication services provider China Mobile.
During the reporting period, we increased the Fund's holdings in
consumer-related sectors that included life and health insurance, brewing, and
Internet software and services companies. Some key investments included Chinese
holdings China Life Insurance, a leading life insurance company, Yantai Changyu
Pioneer Wine, one of the country's largest wine manufacturers, and Shanda
Interactive Entertainment, an online game operator and publisher. We believe the
long-term outlook for consumerism remains attractive due to relatively higher
per-capita income growth and continued demand for consumer goods and services in
the greater China region.
Thank you for your continued participation in Templeton China World Fund. We
look forward to serving your future investment needs.
(PHOTO OF MARK MOBIUS)
/s/ Mark Mobius
Mark Mobius
Executive Chairman
Templeton Asset Management Ltd.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2009, 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.
(8.) "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 | Semiannual Report
Performance Summary as of 2/28/09
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 does 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
CLASS A (SYMBOL: TCWAX) CHANGE 2/28/09 8/31/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$15.43 $19.35 $34.78
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.3029
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.3089
CLASS B (SYMBOL: TCWBX) CHANGE 2/28/09 8/31/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$15.14 $19.30 $34.44
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.0145
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.0205
CLASS C (SYMBOL: TCWCX) CHANGE 2/28/09 8/31/08
- ----------------------- ------- ------- -------
Net Asset Value (NAV) -$15.09 $19.20 $34.29
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.0247
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.0307
ADVISOR CLASS (SYMBOL: TACWX) CHANGE 2/28/09 8/31/08
- ----------------------------- ------- ------- -------
Net Asset Value (NAV) -$15.62 $19.41 $35.03
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.4348
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.4408
Semiannual Report | 7
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -36.02% -44.53% +25.93% +267.63%
Average Annual Total Return(3) -39.69% -47.72% +3.49% +13.23%
Value of $10,000 Investment(4) $ 6,031 $ 5,228 $11,869 $ 34,649
Avg. Ann. Total Return (3/31/09)(5) -35.63% +6.83% +13.42%
Total Annual Operating Expenses(6) 1.98%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -36.28% -44.94% +21.70% +248.42%
Average Annual Total Return(3) -38.52% -46.87% +3.66% +13.29%
Value of $10,000 Investment(4) $ 6,148 $ 5,313 $11,970 $ 34,842
Avg. Ann. Total Return (3/31/09)(5) -34.58% +7.08% +13.48%
Total Annual Operating Expenses(6) 2.68%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -36.26% -44.91% +21.88% +243.99%
Average Annual Total Return(3) -36.80% -45.40% +4.04% +13.15%
Value of $10,000 Investment(4) $ 6,320 $ 5,460 $12,188 $ 34,399
Avg. Ann. Total Return (3/31/09)(5) -32.77% +7.40% +13.34%
Total Annual Operating Expenses(6) 2.67%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------- ------- ---------
Cumulative Total Return(2) -35.97% -44.36% +28.02% +280.88%
Average Annual Total Return(3) -35.97% -44.36% +5.06% +14.31%
Value of $10,000 Investment(4) $ 6,403 $ 5,564 $12,802 $ 38,088
Avg. Ann. Total Return (3/31/09)(5) -31.52% +8.46% +14.50%
Total Annual Operating Expenses(6) 1.68%
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 (800) 342-5236.
8 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
THE GOVERNMENT'S PARTICIPATION IN THE ECONOMY IS STILL HIGH AND, THEREFORE, THE
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 EMERGING 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. IT IS DESIGNED FOR THE
AGGRESSIVE PORTION OF A WELL-DIVERSIFIED PORTFOLIO. 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. Six-month return has not been
annualized.
(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.
Semiannual Report | 9
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
10 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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
VALUE 9/1/08 VALUE 2/28/09 PERIOD* 9/1/08-2/28/09
----------------- ------------- ----------------------
CLASS A
Actual $1,000 $ 639.80 $ 8.42
Hypothetical (5% return before expenses) $1,000 $1,014.53 $10.34
CLASS B
Actual $1,000 $ 637.20 $11.29
Hypothetical (5% return before expenses) $1,000 $1,011.01 $13.86
CLASS C
Actual $1,000 $ 637.40 $11.29
Hypothetical (5% return before expenses) $1,000 $1,011.01 $13.86
ADVISOR CLASS
Actual $1,000 $ 640.30 $ 7.28
Hypothetical (5% return before expenses) $1,000 $1,015.92 $ 8.95
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 2.07%; B: 2.78%; C: 2.78%; and Advisor:
1.79%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Semiannual Report | 11
Templeton China World Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 -------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- -------- -------- -------- -------- -------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 34.78 $ 41.29 $ 25.76 $ 21.67 $ 17.97 $ 14.89
-------- -------- -------- -------- -------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.18 0.34 0.37 0.29 0.43 0.21
Net realized and unrealized gains (losses) .. (12.30) (4.47) 15.42 4.12 3.46 3.24
-------- -------- -------- -------- -------- -------
Total from investment operations ............... (12.12) (4.13) 15.79 4.41 3.89 3.45
-------- -------- -------- -------- -------- -------
Less distributions from:
Net investment income ....................... (0.30) (0.41) (0.26) (0.32) (0.19) (0.40)
Net realized gains .......................... (3.01) (1.97) -- -- -- --
-------- -------- -------- -------- -------- -------
Total distributions ............................ (3.31) (2.38) (0.26) (0.32) (0.19) (0.40)
-------- -------- -------- -------- -------- -------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) 0.03
-------- -------- -------- -------- -------- -------
Net asset value, end of period ................. $ 19.35 $ 34.78 $ 41.29 $ 25.76 $ 21.67 $ 17.97
======== ======== ======== ======== ======== =======
Total return(e) ................................ (36.02)% (11.63)% 61.87% 20.65% 21.85% 23.80%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) .................................... 2.07% 2.00% 2.04% 2.06% 2.08% 2.14%(h)
Net investment income .......................... 1.50% 0.86% 1.13% 1.10% 1.86% 1.09%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $206,565 $414,194 $519,266 $262,346 $111,193 $43,179
Portfolio turnover rate ........................ 1.87% 10.37% 22.05% 12.96% 9.66% 30.82%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Ratio of expenses to average net assets, excluding payments by affiliate,
was 2.30%.
The accompanying notes are an integral part of these financial statements.
12 | Semiannual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 --------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- ------- ------- ------- ------- ------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 34.44 $ 40.95 $ 25.53 $ 21.47 $ 17.84 $14.88
------- ------- ------- ------- ------- ------
Income from investment operations(a):
Net investment income(b) .................... 0.10 0.06 0.12 0.08 0.24 0.16
Net realized and unrealized gains (losses) .. (12.22) (4.45) 15.36 4.15 3.51 3.16
------- ------- ------- ------- ------- ------
Total from investment operations ............... (12.12) (4.39) 15.48 4.23 3.75 3.32
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income ....................... (0.01) (0.15) (0.06) (0.17) (0.12) (0.39)
Net realized gains .......................... (3.01) (1.97) -- -- -- --
------- ------- ------- ------- ------- ------
Total distributions ............................ (3.02) (2.12) (0.06) (0.17) (0.12) (0.39)
------- ------- ------- ------- ------- ------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) 0.03
------- ------- ------- ------- ------- ------
Net asset value, end of period ................. $ 19.30 $ 34.44 $ 40.95 $ 25.53 $ 21.47 $17.84
======= ======= ======= ======= ======= ======
Total return(e) ................................ (36.28)% (12.22)% 60.79% 19.87% 21.12% 22.95%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) .................................... 2.78% 2.67% 2.69% 2.70% 2.73% 2.79%(h)
Net investment income .......................... 0.79% 0.19% 0.48% 0.46% 1.21% 0.44%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 7,077 $14,272 $20,066 $15,269 $12,264 $8,630
Portfolio turnover rate ........................ 1.87% 10.37% 22.05% 12.96% 9.66% 30.82%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Ratio of expenses to average net assets, excluding payments by affiliate,
was 2.95%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 13
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 ------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- -------- -------- -------- ------- -------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 34.29 $ 40.79 $ 25.48 $ 21.49 $ 17.85 $ 14.88
------- -------- -------- -------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.09 0.07 0.15 0.13 0.29 0.12
Net realized and unrealized gains (losses) .. (12.15) (4.42) 15.28 4.10 3.46 3.21
------- -------- -------- -------- ------- -------
Total from investment operations ............... (12.06) (4.35) 15.43 4.23 3.75 3.33
------- -------- -------- -------- ------- -------
Less distributions from:
Net investment income ....................... (0.02) (0.18) (0.12) (0.24) (0.11) (0.39)
Net realized gains .......................... (3.01) (1.97) -- -- -- --
------- -------- -------- -------- ------- -------
Total distributions ............................ (3.03) (2.15) (0.12) (0.24) (0.11) (0.39)
------- -------- -------- -------- ------- -------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) 0.03
------- -------- -------- -------- ------- -------
Net asset value, end of period ................. $ 19.20 $ 34.29 $ 40.79 $ 25.48 $ 21.49 $ 17.85
======= ======== ======== ======== ======= =======
Total return(e) ................................ (36.26)% (12.21)% 60.79% 19.91% 21.10% 23.02%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) .................................... 2.78% 2.66% 2.68% 2.71% 2.68% 2.75%(h)
Net investment income .......................... 0.79% 0.20% 0.49% 0.45% 1.26% 0.48%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $78,893 $153,068 $199,551 $107,886 $45,738 $20,603
Portfolio turnover rate ........................ 1.87% 10.37% 22.05% 12.96% 9.66% 30.82%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Ratio of expenses to average net assets, excluding payments by affiliate,
was 2.91%.
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 --------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2008 2007 2006 2005 2004
- ------------- ----------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 35.03 $ 41.55 $ 25.93 $ 21.78 $ 18.03 $ 14.90
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.20 0.50 0.47 0.33 0.42 0.24
Net realized and unrealized gains (losses) .. (12.38) (4.51) 15.52 4.18 3.56 3.27
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (12.18) (4.01) 15.99 4.51 3.98 3.51
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.43) (0.54) (0.37) (0.36) (0.23) (0.41)
Net realized gains .......................... (3.01) (1.97) -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ............................ (3.44) (2.51) (0.37) (0.36) (0.23) (0.41)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d) 0.03
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................. $ 19.41 $ 35.03 $ 41.55 $ 25.93 $ 21.78 $ 18.03
======== ======== ======== ======== ======== ========
Total return(e) ................................ (35.97)% (11.32)% 62.38% 21.08% 22.31% 24.21%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) .................................... 1.79% 1.67% 1.69% 1.71% 1.73% 1.79%(h)
Net investment income .......................... 1.78% 1.19% 1.48% 1.45% 2.21% 1.44%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $165,157 $288,072 $375,738 $245,331 $190,844 $161,599
Portfolio turnover rate ........................ 1.87% 10.37% 22.05% 12.96% 9.66% 30.82%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Ratio of expenses to average net assets, excluding payments by affiliate,
was 1.95%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Templeton China World Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 100.0%
AIR FREIGHT & LOGISTICS 0.1%
Sinotrans Ltd., H ....................................... China 3,586,000 $ 536,387
------------
AUTO COMPONENTS 1.5%
Cheng Shin Rubber Industry Co. Ltd. ..................... Taiwan 7,773,423 6,486,182
(a) Norstar Founders Group Ltd. ............................. Hong Kong 15,182,000 --
(b) Zhejiang Glass Co. Ltd., H .............................. China 2,010,000 295,468
------------
6,781,650
------------
AUTOMOBILES 2.7%
(b) Chongqing Changan Automobile Co. Ltd., B ................ China 2,036,200 716,791
Dongfeng Motor Corp., H ................................. China 26,316,000 9,772,871
Great Wall Motor Co. Ltd., H ............................ China 2,496,500 772,596
Jiangling Motors Corp. Ltd., B .......................... China 1,536,545 1,000,568
------------
12,262,826
------------
BEVERAGES 0.1%
Yantai Changyu Pioneer Wine Co. Ltd., B ................. China 141,700 518,917
------------
COMMERCIAL BANKS 8.2%
Bank of China Ltd., H ................................... China 43,374,000 12,136,655
(c) Bank of China Ltd., H, 144A ............................. China 8,165,000 2,284,682
China Construction Bank Corp., H ........................ China 33,580,000 17,103,602
Industrial and Commercial Bank of China Ltd., H ......... China 14,945,000 6,128,199
------------
37,653,138
------------
COMMUNICATIONS EQUIPMENT 0.7%
ZTE Corp., H ............................................ China 991,443 3,291,962
------------
COMPUTERS & PERIPHERALS 3.1%
Acer Inc. ............................................... Taiwan 649,723 861,470
Asustek Computer Inc. ................................... Taiwan 10,770,786 10,295,265
Lite-On IT Corp. ........................................ Taiwan 6,305,116 2,864,733
------------
14,021,468
------------
DISTRIBUTORS 1.9%
China Resources Enterprise Ltd. ......................... Hong Kong 5,108,000 7,258,423
Dah Chong Hong Holdings Ltd. ............................ Hong Kong 10,035,563 1,371,695
(c) Dah Chong Hong Holdings Ltd., 144A ...................... Hong Kong 502,000 68,615
------------
8,698,733
------------
DIVERSIFIED TELECOMMUNICATION SERVICES 0.7%
China Telecom Corp. Ltd., H ............................. China 2,717,833 928,706
China Unicom (Hong Kong) Ltd. ........................... China 2,572,168 2,331,656
------------
3,260,362
------------
ELECTRIC UTILITIES 4.5%
Cheung Kong Infrastructure Holdings Ltd. ................ Hong Kong 5,358,532 20,417,996
------------
16 | Semiannual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ELECTRICAL EQUIPMENT 0.1%
Dongfang Electric Co. Ltd., H ........................... China 198,200 $ 362,912
------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 2.7%
Synnex Technology International Corp. ................... Taiwan 9,264,070 10,641,966
Wasion Group Holdings Ltd. .............................. Hong Kong 2,172,000 548,941
(c) Wasion Group Holdings Ltd., 144A ........................ Hong Kong 3,884,000 981,624
------------
12,172,531
------------
ENERGY EQUIPMENT & SERVICES 0.0%(d)
Anhui Tianda Oil Pipe Co. Ltd., H ....................... China 1,083,000 223,439
------------
FOOD & STAPLES RETAILING 11.2%
Beijing Jingkelong Supermarket Chain Group Co. Ltd., H .. China 1,570,000 457,528
Dairy Farm International Holdings Ltd. .................. Hong Kong 10,278,276 45,738,328
President Chain Store Corp. ............................. Taiwan 2,560,088 5,384,269
------------
51,580,125
------------
FOOD PRODUCTS 1.6%
China Foods Ltd. ........................................ China 8,970,000 3,122,957
China Huiyuan Juice Group Ltd. .......................... China 717,500 832,673
People's Food Holdings Ltd. ............................. China 3,602,000 1,488,766
Uni-President Enterprises Corp. ......................... Taiwan 1,154,925 861,367
Xiwang Sugar Holdings Co. Ltd. .......................... Hong Kong 8,826,000 1,138,082
------------
7,443,845
------------
HOTELS, RESTAURANTS & LEISURE 0.4%
NagaCorp Ltd. ........................................... Cambodia 16,609,000 1,627,672
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 4.2%
Datang International Power Generation Co. Ltd., H ....... China 22,334,640 9,446,319
Guangdong Electric Power Development Co. Ltd., B ........ China 12,171,859 4,394,655
Huadian Power International Corp. Ltd., H ............... China 1,582,000 346,789
Huaneng Power International Inc., H ..................... China 7,296,776 4,826,787
------------
19,014,550
------------
INDUSTRIAL CONGLOMERATES 2.7%
Hutchison Whampoa Ltd. .................................. Hong Kong 224,000 1,184,245
Shanghai Industrial Holdings Ltd. ....................... China 4,822,253 11,068,271
------------
12,252,516
------------
INSURANCE 1.5%
China Life Insurance Co. Ltd., H ........................ China 2,380,000 6,690,264
------------
IT SERVICES 0.2%
Travelsky Technology Ltd., H ............................ China 2,047,000 802,419
------------
LEISURE EQUIPMENT & PRODUCTS 0.2%
Yorkey Optical International Cayman Ltd. ................ China 7,845,000 890,195
------------
Semiannual Report | 17
Templeton China World Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
MACHINERY 1.5%
China International Marine Containers (Group)
Co. Ltd., B .......................................... China 5,972,080 $ 3,365,246
Lonking Holdings Ltd. ................................... China 2,633,000 1,276,581
Shin Zu Shing Co. Ltd. .................................. Taiwan 658,566 1,641,005
Zhongde Waste Technology AG ............................. Germany 34,492 475,758
------------
6,758,590
------------
MARINE 0.1%
Sinotrans Shipping Ltd. ................................. Hong Kong 1,795,000 398,110
------------
MEDIA 0.1%
Next Media Ltd. ......................................... Hong Kong 3,778,000 418,958
------------
OFFICE ELECTRONICS 0.1%
Kinpo Electronics Inc. .................................. Taiwan 2,939,201 515,693
------------
OIL, GAS & CONSUMABLE FUELS 26.7%
China Petroleum and Chemical Corp., H ................... China 63,995,395 33,420,546
China Shenhua Energy Co. Ltd., H ........................ China 8,801,000 17,476,825
CNOOC Ltd. .............................................. China 40,565,000 35,568,880
PetroChina Co. Ltd., H .................................. China 37,957,903 27,066,814
Yanzhou Coal Mining Co. Ltd., H ......................... China 15,486,000 8,945,963
------------
122,479,028
------------
PHARMACEUTICALS 0.3%
Tong Ren Tang Technologies Co. Ltd., H .................. China 1,349,000 1,203,727
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT 5.3%
Cheung Kong (Holdings) Ltd. ............................. Hong Kong 667,690 5,497,251
Hopewell Holdings Ltd. .................................. Hong Kong 5,935,500 16,837,972
Soho China Ltd. ......................................... China 6,184,000 1,929,722
(c) Soho China Ltd., 144A ................................... China 712,000 222,180
------------
24,487,125
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 5.6%
MediaTek Inc. ........................................... Taiwan 366,330 3,182,292
Novatek Microelectronics Corp. Ltd. ..................... Taiwan 711,843 872,641
Taiwan Semiconductor Manufacturing Co. Ltd. ............. Taiwan 16,761,526 21,529,664
------------
25,584,597
------------
SOFTWARE 0.1%
(b) Shanda Interactive Entertainment Ltd., ADR .............. China 18,300 600,606
------------
SPECIALTY RETAIL 0.1%
(a) GOME Electrical Appliances Holdings Ltd. ................ Hong Kong 2,616,000 377,803
------------
TEXTILES, APPAREL & LUXURY GOODS 0.2%
Victory City International Holdings Ltd. ................ Hong Kong 8,586,022 431,784
Weiqiao Textile Co. Ltd., H ............................. China 2,146,500 567,407
------------
999,191
------------
18 | Semiannual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
COUNTRY SHARES/UNITS VALUE
------------- ------------ ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
TRANSPORTATION INFRASTRUCTURE 1.1%
Cosco Pacific Ltd. ...................................... China 5,759,449 $ 4,233,169
(c) Rickmers Maritime, 144A (Trust Units) ................... Singapore 4,523,000 1,007,740
------------
5,240,909
------------
WIRELESS TELECOMMUNICATION SERVICES 10.5%
China Mobile Ltd. ....................................... China 5,267,770 46,189,740
Taiwan Mobile Co. Ltd. .................................. Taiwan 1,433,687 1,868,156
------------
48,057,896
------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $442,234,760) .................................. 457,626,140
------------
SHORT TERM INVESTMENTS (COST $328,692) 0.1%
MONEY MARKET FUNDS 0.1%
(e) Franklin Institutional Fiduciary Trust Money Market
Portfolio, 0.25% ..................................... United States 328,692 328,692
------------
TOTAL INVESTMENTS (COST $442,563,452) 100.1% ............ 457,954,832
OTHER ASSETS, LESS LIABILITIES (0.1)% ................... (263,474)
------------
NET ASSETS 100.0% ....................................... $457,691,358
============
See Abbreviations on page 32.
(a) Security has been deemed illiquid because it may not be able to be sold
within seven days. At February 28, 2009, the aggregate value of these
securities was $377,803, representing 0.08% of net assets.
(b) Non-income producing for the twelve months ended February 28, 2009.
(c) 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 February 28, 2009,
the aggregate value of these securities was $4,564,841, representing 1.00%
of net assets.
(d) Rounds to less than 0.1% of net assets.
(e) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 19
Templeton China World Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2009 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................. $442,234,760
Cost - Sweep Money Fund (Note 7) ......................... 328,692
------------
Total cost of investments ................................ $442,563,452
============
Value - Unaffiliated issuers ............................. $457,626,140
Value - Sweep Money Fund (Note 7) ........................ 328,692
------------
Total value of investments ............................... 457,954,832
Receivables:
Investment securities sold ............................... 2,065,179
Capital shares sold ...................................... 452,541
Dividends ................................................ 100,738
------------
Total assets .......................................... 460,573,290
------------
Liabilities:
Payables:
Capital shares redeemed .................................. 1,907,309
Affiliates ............................................... 743,718
Accrued expenses and other liabilities ...................... 230,905
------------
Total liabilities .................................. 2,881,932
------------
Net assets, at value ............................ $457,691,358
============
Net assets consist of:
Paid-in capital ............................................. $453,730,602
Undistributed net investment income ......................... 3,999,495
Net unrealized appreciation (depreciation) .................. 15,381,387
Accumulated net realized gain (loss) ........................ (15,420,126)
------------
Net assets, at value ............................ $457,691,358
============
The accompanying notes are an integral part of these financial statements.
20 | Semiannual Report
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2009 (unaudited)
CLASS A:
Net assets, at value ......................................... $206,565,026
------------
Shares outstanding ........................................... 10,676,374
------------
Net asset value per share(a) ................................. $ 19.35
------------
Maximum offering price per share (net asset value per share /
94.25%) ................................................... $ 20.53
------------
CLASS B:
Net assets, at value ......................................... $ 7,076,883
------------
Shares outstanding ........................................... 366,646
------------
Net asset value and maximum offering price per share(a) ...... $ 19.30
------------
CLASS C:
Net assets, at value ......................................... $ 78,892,827
------------
Shares outstanding ........................................... 4,109,514
------------
Net asset value and maximum offering price per share(a) ...... $ 19.20
------------
ADVISOR CLASS:
Net assets, at value ......................................... $165,156,622
------------
Shares outstanding ........................................... 8,506,732
------------
Net asset value and maximum offering price per share ......... $ 19.41
------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 21
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2009 (unaudited)
Investment income:
Dividends: (net of foreign taxes of $334,754)
Unaffiliated issuers .................................... $ 9,717,459
Sweep Money Fund (Note 7) ............................... 19,360
-------------
Total investment income ........................... 9,736,819
-------------
Expenses:
Management fees (Note 3a) ............................... 3,453,976
Administrative fees (Note 3b) ........................... 546,710
Distribution fees: (Note 3c)
Class A .............................................. 348,569
Class B .............................................. 42,899
Class C .............................................. 466,654
Transfer agent fees (Note 3e) .............................. 564,561
Custodian fees (Note 4) .................................... 132,359
Reports to shareholders .................................... 54,579
Registration and filing fees ............................... 54,515
Professional fees .......................................... 18,265
Trustees' fees and expenses ................................ 38,899
Other ...................................................... 14,747
-------------
Total expenses .................................... 5,736,733
Expense reductions (Note 4) ....................... (790)
-------------
Net expenses ................................... 5,735,943
-------------
Net investment income ....................... 4,000,876
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................. (26,299,003)
Foreign currency transactions ........................... (58,201)
-------------
Net realized gain (loss) .......................... (26,357,204)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................. (278,613,207)
Translation of other assets and liabilities denominated
in foreign currencies ................................ 31,548
-------------
Net change in unrealized appreciation
(depreciation) ................................. (278,581,659)
-------------
Net realized and unrealized gain (loss) ....................... (304,938,863)
-------------
Net increase (decrease) in net assets resulting from
operations ................................................. $(300,937,987)
=============
The accompanying notes are an integral part of these financial statements.
22 | Semiannual Report
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 2009 YEAR ENDED
(UNAUDITED) AUGUST 31, 2008
----------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 4,000,876 $ 9,123,812
Net realized gain (loss) from investments and foreign currency
transactions ................................................................... (26,357,204) 84,965,526
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies .. (278,581,659) (211,484,623)
------------- --------------
Net increase (decrease) in net assets resulting from operations ................ (300,937,987) (117,395,285)
------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................................ (2,936,050) (5,528,150)
Class B ........................................................................ (5,084) (77,438)
Class C ........................................................................ (93,009) (901,600)
Advisor Class .................................................................. (3,405,294) (4,761,563)
Net realized gains:
Class A ........................................................................ (29,140,638) (26,369,910)
Class B ........................................................................ (1,053,940) (1,003,393)
Class C ........................................................................ (11,319,238) (10,117,868)
Advisor Class .................................................................. (23,542,784) (17,467,990)
------------- --------------
Total distributions to shareholders ............................................... (71,496,037) (66,227,912)
------------- --------------
Capital share transactions: (Note 2)
Class A ........................................................................ (34,490,019) (12,556,689)
Class B ........................................................................ (1,264,369) (2,584,318)
Class C ........................................................................ (9,825,132) (11,409,956)
Advisor Class .................................................................. 6,098,927 (34,873,776)
------------- --------------
Total capital share transactions .................................................. (39,480,593) (61,424,739)
------------- --------------
Redemption fees ................................................................... -- 33,483
------------- --------------
Net increase (decrease) in net assets ....................................... (411,914,617) (245,014,453)
Net assets:
Beginning of period ............................................................... 869,605,975 1,114,620,428
------------- --------------
End of period ..................................................................... $ 457,691,358 $ 869,605,975
============= ==============
Undistributed net investment income included in net assets:
End of period ..................................................................... $ 3,999,495 $ 6,438,056
============= ==============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 23
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton China World Fund (Fund) is registered under the Investment Company Act
of 1940, as amended, (1940 Act) as an 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. Investments in open-end mutual funds are valued at the closing net asset
value.
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 Trust's Board of Trustees.
24 | Semiannual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 Trust'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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend 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.
Semiannual Report | 25
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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.
Estimated expenses are accrued daily. 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 of
America. 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, not
including 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 was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
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.
26 | Semiannual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2009, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2009 AUGUST 31, 2008
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
CLASS A SHARES:
Shares sold .................... 943,215 $ 21,671,172 4,757,830 $ 204,519,943
Shares issued in reinvestment of
distributions ............... 1,317,554 29,050,177 581,014 28,291,012
Shares redeemed ................ (3,491,861) (85,211,368) (6,007,179) (245,367,644)
---------- ------------ ---------- -------------
Net increase (decrease) ........ (1,231,092) $(34,490,019) (668,335) $ (12,556,689)
========== ============ ========== =============
CLASS B SHARES:
Shares sold .................... 10,653 $ 236,409 71,705 $ 3,178,486
Shares issued in reinvestment of
distributions ............... 43,243 952,643 19,606 953,654
Shares redeemed ................ (101,648) (2,453,421) (166,916) (6,716,458)
---------- ------------ ---------- -------------
Net increase (decrease) ........ (47,752) $ (1,264,369) (75,605) $ (2,584,318)
========== ============ ========== =============
CLASS C SHARES:
Shares sold .................... 387,359 $ 8,850,660 1,245,382 $ 53,856,505
Shares issued in reinvestment of
distributions ............... 415,262 9,098,382 181,329 8,773,549
Shares redeemed ................ (1,157,445) (27,774,174) (1,854,594) (74,040,010)
---------- ------------ ---------- -------------
Net increase (decrease) ........ (354,824) $ (9,825,132) (427,883) $ (11,409,956)
========== ============ ========== =============
ADVISOR CLASS SHARES:
Shares sold .................... 846,103 $ 21,050,532 748,176 $ 30,586,063
Shares issued in reinvestment of
distributions ............... 700,945 15,504,912 233,133 11,397,752
Shares redeemed ................ (1,263,590) (30,456,517) (1,801,813) (76,857,591)
---------- ------------ ---------- -------------
Net increase (decrease) ........ 283,458 $ 6,098,927 (820,504) $ (34,873,776)
========== ============ ========== =============
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
Semiannual Report | 27
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 Trust'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.
On December 1, 2008, the Fund's Board of Trustees approved a modification to the
Class A distribution plan, for those funds that had a Class A compensation plan,
changing the form of the plan from a compensation to a reimbursement
distribution plan. Under the distribution plan, the Fund reimburses Distributors
for costs incurred in connection with the servicing, sale and distribution of
the Fund's shares up to the maximum annual plan rate. This change was effective
February 1, 2009. Under the Class A reimbursement distribution plan, costs
exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods. Prior to February 1, 2009, under the Fund's Class A
compensation distribution plan, the Fund paid 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.
In addition, under the Fund's Class B and C 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 the maximum annual plan rate for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ........... 0.35%
Class B ........... 1.00%
Class C ........... 1.00%
The Board of Trustees has set the current rate at 0.30% per year for Class A
shares until further notice and approval by the Board.
28 | Semiannual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 period:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $38,817
Contingent deferred sales charges retained ................... $34,219
E. TRANSFER AGENT FEES
For the period ended February 28, 2009, the Fund paid transfer agent fees of
$564,561, of which $360,194 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 period ended February 28, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
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, 2008, the Fund deferred realized currency losses of
$92,472.
At February 28, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments .......................... $ 445,853,567
-------------
Unrealized appreciation ...................... $ 123,803,159
Unrealized depreciation ...................... (111,701,894)
-------------
Net unrealized appreciation (depreciation) ... $ 12,101,265
=============
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.
Semiannual Report | 29
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 28, 2009, aggregated $10,741,099 and $110,051,044,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin
Advisers, Inc. (an affiliate of the investment manager). Management fees paid by
the Fund are reduced on assets invested in the Sweep Money Fund, in an amount
not to exceed the management and administrative fees paid by the Sweep Money
Fund.
8. 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 February 28, 2009, the Fund had 62.2%, 22.4%, and
14.7% of its net assets invested in China, Hong Kong, and Taiwan, respectively.
9. CREDIT FACILITY
Effective January 23, 2009, the Fund, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to
interest charged on any borrowings made by the Fund and other costs incurred by
the Fund, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Fund incurred commitment fees of $127 of its
pro rata portion of the Global Credit Facility, which is reflected in Other
expenses on the Statement of Operations. During the period ended February 28,
2009, the Fund did not utilize the Global Credit Facility.
30 | Semiannual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. FAIR VALUATION MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on September 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of February 28, 2009, in
valuing the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ------- -------- ------------
ASSETS:
Investments in Securities ................. $457,577,029 $ -- $377,803 $457,954,832
At February 28, 2009, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining fair value, is as
follows:
INVESTMENTS
IN SECURITIES
-------------
Beginning Balance - September 1, 2008 ...................... $ --
Net realized gain (loss) ................................ --
Net change in unrealized appreciation (depreciation)..... (1,429,097)
Net purchases (sales) ............................... --
Transfers in and/or out of Level 3 ...................... 1,806,900
------------
Ending Balance ............................................. $ 377,803
============
Net change in unrealized appreciation (depreciation)
attributable to assets still held at end of period ...... $(1,429,097)
============
Semiannual Report | 31
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Fund believes applying the various provisions of
SFAS 161 will not have a material impact on its financial statements.
ABBREVIATIONS
SELECTED PORTFOLIO
ADR - American Depository Receipt
32 | Semiannual Report
Templeton China World Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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 (800)
SEC-0330.
Semiannual Report | 33
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
LITERATURE REQUEST.
TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(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
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment 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(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
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
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income 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
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
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 (5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond 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-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California (8)
Colorado
Connecticut
Florida
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 closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) 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.
(3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(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 four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
Not part of the semiannual report
12/08
(FRANKLIN TEMPLETON INVESTMENTS (R) LOGO)
One Franklin Parkway San
Mateo, CA 94403-1906
SIGN UP FOR EDELIVERY
Log onto franklintempleton.com and click "My Profile"
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON CHINA WORLD FUND
INVESTMENT MANAGER
Templeton Asset Management Ltd.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors,
Inc. (800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 S2009 04/09
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 expert is David W. Niemiec and he is
"independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting 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/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
By /s/MARK H. OTANI
-------------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: April 27, 2009