UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07876
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TEMPLETON CHINA WORLD FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 8/31
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Date of reporting period: 8/31/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
AUGUST 31, 2009
ANNUAL REPORT AND SHAREHOLDER LETTER
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INTERNATIONAL
TEMPLETON CHINA WORLD FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - Mutual Series
Annual Report
Templeton China World Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton China World Fund seeks
long-term capital appreciation. Under normal market conditions, the Fund invests
at least 80% of its net assets in securities of "China companies," as defined in
the Fund's prospectus.
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.
This annual report for Templeton China World Fund covers the fiscal year ended
August 31, 2009.
PERFORMANCE OVERVIEW
For the 12 months under review, Templeton China World Fund - Class A had a
- -1.10% cumulative total return. The Fund performed better than its benchmark,
the Morgan Stanley Capital International (MSCI) Golden Dragon Index, which had a
- -3.32% cumulative total return for the same period.(1)
Also for comparison, the Standard & Poor's/International Finance Corporation
(S&P/IFC) Investable China Index posted a +0.85% cumulative total return for the
12 months ended August 31, 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 August 31, 2009, the Fund's Class A shares delivered a +316.18% cumulative
total return, compared with the MSCI Golden Dragon Index's +55.15% 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 an
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 8/31/09, the Fund's Class A 10-year
average annual total return not including sales charges was +15.33%,
compared with the +4.49% 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, and an index is not
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 18.
Annual Report | 2
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 8/31/09
(BAR CHART)
China 66.3%
Hong Kong 16.4%
Taiwan 13.7%
Cambodia 0.3%
U.S. 0.3%
Singapore 0.2%
Germany 0.1%
Short-Term Investments & Other Net Assets 2.7%
ECONOMIC AND MARKET OVERVIEW
China's 2009 second quarter gross domestic product growth accelerated to 8% from
6% in the first quarter, year-over-year.(4) This first quarterly acceleration in
China's economic growth in two years boosted the half-year growth rate to 7% for
the first half of 2009, compared with 9% for the first half of 2008.(4) Along
with the government's expansionary credit policy, investment in fixed assets and
infrastructure and consumer expenditures supported the growth. Comments from
Premier Wen Jiabao indicated the government would maintain its current economic
policy to ensure continued growth, while the Chinese central bank stressed its
monetary policy would remain moderately loose. Foreign exchange reserves totaled
US$2.1 trillion in June, making China the first country to exceed the US$2
trillion mark in reserves.(5)
The 2008 financial crisis drove significant corrections in global stock markets
as extreme risk aversion led investors to shy away from most forms of
investments including equities. Markets in the greater China region were no
exception, as the MSCI Golden Dragon Index declined nearly 50% in U.S. dollar
terms from the beginning of 2008 to reach a year-low in October 2008.(1) Markets
subsequently traded sideways for about four months as governments globally
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 local economies. Partly as a result of these
efforts, stocks in the greater China region, which recovered much of their 2008
decline, returned +56.69% in the last six months of the reporting period and
- -3.32% for the 12 months.(1)
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.
(4.) Source: National Bureau of Statistics, China.
(5.) Source: Ministry of Commerce, China.
3 | Annual Report
MANAGER'S DISCUSSION
For the 12 months under review, among the most significant detractors from the
Fund's absolute performance were Taiwan's Asustek Computer, the world's largest
motherboard and graphics card manufacturer for personal computers, PetroChina,
China's largest oil and gas company in terms of reserves, and Hong Kong's Citic
Pacific, a conglomerate with interests in property development, power
generation, aviation and distribution. Although we trimmed the Fund's positions
in Asustek Computer and PetroChina during the reporting period, we believed
these companies were well positioned to benefit for the longer term from the
greater China region's continued development. Our positive view on Asustek
Computer was also based on the company's strong market position, reputable
brand, promising growth prospects and solid balance sheet. Shares of PetroChina
declined significantly in the earlier part of the year due to an oil price
correction and demand concerns amid slowing global growth. Since then,
PetroChina's share price regained some ground along with commodity prices.
Although commodity prices came down from their 2008 peaks, we believe they could
trend upward in the long term and further benefit companies such as PetroChina.
On the other hand, Citic Pacific's share price suffered due to substantial
losses in undisclosed currency hedges, and we decided to divest the Fund's small
exposure to the company during the period.
On a positive note, some of the largest contributors to the Fund's absolute
performance during this review period were three Chinese holdings: Dongfeng
Motor, Shanghai Industrial Holdings and China Shenhua Energy. Dongfeng Motor,
the country's third-largest automaker, has partnerships with foreign automakers
Honda Motor, Nissan Motor and PSA Peugeot-Citroen. Lower raw material costs
earlier this year and government stimulus measures aimed at boosting car sales
supported Dongfeng Motor and the automobile market, which the government
encouraged to expand both organically and through acquisitions. Shanghai
Industrial Holdings is a conglomerate with operations in industrial, consumer
and pharmaceuticals sectors, and in our view, could gain from the government's
increased expenditure in infrastructure development. In addition, China Shenhua
Energy, the country's largest coal producer, was a beneficiary of relatively
high coal prices due to strong demand as well as limited industry supply growth.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar goes up compared with a
foreign currency, an investment traded in that foreign currency will go down in
value because it will be worth fewer U.S. dollars. This can have a negative
effect on Fund performance. Conversely, when the U.S. dollar weakens in relation
to a foreign currency, an investment traded in that foreign currency will
increase in value, which can contribute to Fund performance. For the 12 months
ended August 31, 2009, the U.S. dollar rose in value relative to most currencies
TOP 10 EQUITY HOLDINGS
8/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------ ----------
Dairy Farm International Holdings Ltd. 7.1%
FOOD & STAPLES RETAILING, HONG KONG
Sinopec (China Petroleum and Chemical Corp.), H 6.9%
OIL, GAS & CONSUMABLE FUELS, CHINA
CNOOC Ltd. 6.6%
OIL, GAS & CONSUMABLE FUELS, CHINA
PetroChina Co. Ltd., H 5.8%
OIL, GAS & CONSUMABLE FUELS, CHINA
China Mobile Ltd. 5.7%
WIRELESS TELECOMMUNICATION SERVICES, CHINA
Bank of China Ltd., H & 144A 4.4%
COMMERCIAL BANKS, CHINA
China Shenhua Energy Co. Ltd., H 4.1%
OIL, GAS & CONSUMABLE FUELS, CHINA
TSMC (Taiwan Semiconductor Manufacturing Co. Ltd.) 3.7%
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT, TAIWAN
China Construction Bank Corp., H 2.9%
COMMERCIAL BANKS, CHINA
Yanzhou Coal Mining Co. Ltd., H 2.8%
OIL, GAS & CONSUMABLE FUELS, CHINA
Annual Report | 4
but depreciated slightly against the Hong Kong dollar. As a result, the Fund's
performance was negatively affected by the portfolio's investment primarily in
securities with non-U.S. and non-Hong Kong currency exposure. In general, the
Fund does not actively hedge the foreign currency exposures of its investment
portfolio. During the investment process, however, we would assess the possible
impacts of currency movements to holding companies' operations and balance
sheets.
During the review period, we increased the Fund's investments in Hong
Kong-listed China H shares.(6) Major purchases included China Life Insurance, a
leading life insurance company, Angang Steel, one of the largest Chinese steel
companies, and China Coal Energy, a major thermal coal producer and exporter.
Moreover, within the commercial banks industry, we reduced the Fund's holding in
China Construction Bank and increased exposure to Bank of China due to what we
considered attractive valuations. We also increased the Fund's holdings in life
and health insurance, steel, and coal and consumable fuels companies.
Conversely, we reduced the Fund's exposure to wireless telecommunications
services, industrial conglomerates and electronic equipment manufacturing
companies. Key sales included all or part of China Mobile, the country's
dominant wireless telecommunication services provider, Taiwan's AU Optronics, a
leading thin film transistor liquid crystal display (TFT-LCD) panels
manufacturer, and Cheung Kong Infrastructure, Hong Kong's largest publicly
listed diversified infrastructure company. We also reduced the Fund's exposure
to Taiwan during the reporting period.
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 AUGUST 31, 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.
(6.) "China H" denotes shares of China-incorporated, Hong Kong-listed companies
with most businesses in China. China H shares are traded on the Hong Kong
Stock Exchange.
5 | Annual Report
Performance Summary as of 8/31/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: TCWAX) CHANGE 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$4.87 $29.91 $34.78
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.3029
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.3089
CLASS B (SYMBOL: TCWBX) CHANGE 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$4.70 $29.74 $34.44
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.0145
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.0205
CLASS C (SYMBOL: TCWCX) CHANGE 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$4.71 $29.58 $34.29
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.0247
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.0307
ADVISOR CLASS (SYMBOL: TACWX) CHANGE 8/31/09 8/31/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$4.97 $30.06 $35.03
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.4348
Short-Term Capital Gain $0.5143
Long-Term Capital Gain $2.4917
TOTAL $3.4408
Annual Report | 6
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 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- --------
Cumulative Total Return(2) -1.10% +107.99% +316.18%
Average Annual Total Return(3) -6.78% +14.41% +14.65%
Value of $10,000 Investment(4) $ 9,322 $ 19,603 $ 39,225
Avg. Ann. Total Return (9/30/09)(5) +16.27% +14.82% +15.94%
Total Annual Operating Expenses(6) 1.98%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- --------
Cumulative Total Return(2) -1.81% +101.21% +294.34%
Average Annual Total Return(3) -5.26% +14.78% +14.71%
Value of $10,000 Investment(4) $ 9,474 $ 19,921 $ 39,434
Avg. Ann. Total Return (9/30/09)(5) +18.49% +15.19% +16.01%
Total Annual Operating Expenses(6) 2.68%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- --------
Cumulative Total Return(2) -1.77% +101.34% +289.36%
Average Annual Total Return(3) -2.64% +15.02% +14.56%
Value of $10,000 Investment(4) $ 9,736 $ 20,134 $ 38,936
Avg. Ann. Total Return (9/30/09)(5) +21.50% +15.44% +15.86%
Total Annual Operating Expenses(6) 2.67%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- --------
Cumulative Total Return(2) -0.84% +111.46% +331.06%
Average Annual Total Return(3) -0.84% +16.16% +15.73%
Value of $10,000 Investment(4) $ 9,916 $ 21,146 $ 43,106
Avg. Ann. Total Return (9/30/09)(5) +23.73% +16.57% +17.04%
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.
7 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON CHINA WORLD MSCI GOLDEN
DATE FUND - CLASS A DRAGON INDEX
---- --------------------- ------------
9/1/1999 $ 9,426 $10,000
9/30/1999 $ 8,855 $ 9,508
10/31/1999 $ 8,769 $ 9,920
11/30/1999 $ 9,691 $10,765
12/31/1999 $10,783 $11,775
1/31/2000 $10,551 $11,799
2/29/2000 $10,919 $11,967
3/31/2000 $11,424 $12,366
4/30/2000 $10,172 $11,138
5/31/2000 $ 9,833 $10,475
6/30/2000 $10,446 $10,775
7/31/2000 $10,803 $10,964
8/31/2000 $11,091 $10,698
9/30/2000 $10,332 $ 9,452
10/31/2000 $ 9,338 $ 8,659
11/30/2000 $ 9,177 $ 8,083
12/31/2000 $ 9,555 $ 8,244
1/31/2001 $10,054 $ 9,335
2/28/2001 $10,494 $ 8,842
3/31/2001 $10,014 $ 8,105
4/30/2001 $10,424 $ 8,015
5/31/2001 $11,267 $ 7,814
6/30/2001 $11,074 $ 7,583
7/31/2001 $ 9,895 $ 7,107
8/31/2001 $ 9,377 $ 6,674
9/30/2001 $ 8,890 $ 5,614
10/31/2001 $ 9,590 $ 5,934
11/30/2001 $ 9,705 $ 6,693
12/31/2001 $ 9,446 $ 7,363
1/31/2002 $ 9,893 $ 7,326
2/28/2002 $10,209 $ 7,065
3/31/2002 $10,545 $ 7,571
4/30/2002 $11,231 $ 7,743
5/31/2002 $11,636 $ 7,496
6/30/2002 $11,390 $ 7,009
7/31/2002 $11,033 $ 6,664
8/31/2002 $10,648 $ 6,374
9/30/2002 $10,322 $ 5,725
10/31/2002 $10,427 $ 6,046
11/30/2002 $10,768 $ 6,310
12/31/2002 $11,047 $ 5,913
1/31/2003 $11,642 $ 6,239
2/28/2003 $11,911 $ 5,890
3/31/2003 $11,773 $ 5,678
4/30/2003 $11,828 $ 5,617
5/31/2003 $12,817 $ 6,182
6/30/2003 $13,237 $ 6,465
7/31/2003 $14,469 $ 7,067
8/31/2003 $15,234 $ 7,766
9/30/2003 $15,265 $ 7,981
10/31/2003 $16,598 $ 8,563
11/30/2003 $16,609 $ 8,373
12/31/2003 $18,535 $ 8,790
1/31/2004 $19,028 $ 9,393
2/29/2004 $20,214 $ 9,784
3/31/2004 $19,133 $ 9,259
4/30/2004 $17,496 $ 8,572
5/31/2004 $18,105 $ 8,630
6/30/2004 $18,241 $ 8,534
7/31/2004 $18,010 $ 8,370
8/31/2004 $18,860 $ 8,831
9/30/2004 $19,479 $ 9,060
10/31/2004 $19,334 $ 8,982
11/30/2004 $20,734 $ 9,743
12/31/2004 $20,956 $10,044
1/31/2005 $20,479 $ 9,715
2/28/2005 $21,762 $10,227
3/31/2005 $21,327 $ 9,739
4/30/2005 $21,465 $ 9,852
5/31/2005 $21,868 $10,035
6/30/2005 $22,187 $10,383
7/31/2005 $23,342 $10,816
8/31/2005 $22,982 $10,499
9/30/2005 $24,032 $10,790
10/31/2005 $22,487 $ 9,986
11/30/2005 $23,811 $10,629
12/31/2005 $24,650 $11,076
1/31/2006 $26,146 $11,787
2/28/2006 $26,415 $11,860
3/31/2006 $26,383 $12,016
4/30/2006 $27,922 $12,904
5/31/2006 $26,803 $12,134
6/30/2006 $27,158 $12,130
7/31/2006 $27,363 $12,071
8/31/2006 $27,729 $12,457
9/30/2006 $28,321 $12,836
10/31/2006 $29,585 $13,213
11/30/2006 $32,180 $14,430
12/31/2006 $34,723 $15,451
1/31/2007 $34,212 $15,133
2/28/2007 $33,799 $15,026
3/31/2007 $34,495 $15,161
4/30/2007 $35,669 $15,445
5/31/2007 $37,875 $16,162
6/30/2007 $41,244 $17,511
7/31/2007 $43,189 $18,735
8/31/2007 $44,885 $19,115
9/30/2007 $51,710 $21,821
10/31/2007 $58,633 $24,388
11/30/2007 $51,684 $21,838
12/31/2007 $50,029 $21,318
1/31/2008 $42,149 $17,947
2/29/2008 $45,889 $19,453
3/31/2008 $41,362 $18,277
4/30/2008 $47,052 $20,075
5/31/2008 $45,821 $19,409
6/30/2008 $41,156 $17,173
7/31/2008 $41,213 $16,946
8/31/2008 $39,663 $16,047
9/30/2008 $33,436 $12,968
10/31/2008 $25,841 $10,235
11/30/2008 $25,853 $10,062
12/31/2008 $27,673 $10,792
1/31/2009 $26,086 $10,065
2/28/2009 $25,456 $ 9,902
3/31/2009 $28,250 $11,111
4/30/2009 $32,211 $12,693
5/31/2009 $36,762 $14,836
6/30/2009 $37,417 $14,715
7/31/2009 $41,772 $16,464
8/31/2009 $39,225 $15,515
Total Returns 292.25% 55.15%
AVERAGE ANNUAL TOTAL RETURN
CLASS A 8/31/09
- ------- -------
1-Year -6.78%
5-Year +14.41%
10-Year +14.65%
CLASS B (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON CHINA WORLD MSCI GOLDEN
DATE FUND - CLASS B DRAGON INDEX
---- --------------------- ------------
9/1/1999 $10,000 $10,000
9/30/1999 $ 9,391 $ 9,508
10/31/1999 $ 9,291 $ 9,920
11/30/1999 $10,266 $10,765
12/31/1999 $11,410 $11,775
1/31/2000 $11,152 $11,799
2/29/2000 $11,539 $11,967
3/31/2000 $12,065 $12,366
4/30/2000 $10,735 $11,138
5/31/2000 $10,377 $10,475
6/30/2000 $11,013 $10,775
7/31/2000 $11,380 $10,964
8/31/2000 $11,678 $10,698
9/30/2000 $10,874 $ 9,452
10/31/2000 $ 9,821 $ 8,659
11/30/2000 $ 9,643 $ 8,083
12/31/2000 $10,043 $ 8,244
1/31/2001 $10,556 $ 9,335
2/28/2001 $11,018 $ 8,842
3/31/2001 $10,505 $ 8,105
4/30/2001 $10,928 $ 8,015
5/31/2001 $11,802 $ 7,814
6/30/2001 $11,601 $ 7,583
7/31/2001 $10,355 $ 7,107
8/31/2001 $ 9,812 $ 6,674
9/30/2001 $ 9,299 $ 5,614
10/31/2001 $10,022 $ 5,934
11/30/2001 $10,134 $ 6,693
12/31/2001 $ 9,855 $ 7,363
1/31/2002 $10,317 $ 7,326
2/28/2002 $10,645 $ 7,065
3/31/2002 $10,984 $ 7,571
4/30/2002 $11,692 $ 7,743
5/31/2002 $12,113 $ 7,496
6/30/2002 $11,846 $ 7,009
7/31/2002 $11,466 $ 6,664
8/31/2002 $11,066 $ 6,374
9/30/2002 $10,717 $ 5,725
10/31/2002 $10,821 $ 6,046
11/30/2002 $11,167 $ 6,310
12/31/2002 $11,449 $ 5,913
1/31/2003 $12,057 $ 6,239
2/28/2003 $12,339 $ 5,890
3/31/2003 $12,182 $ 5,678
4/30/2003 $12,235 $ 5,617
5/31/2003 $13,251 $ 6,182
6/30/2003 $13,680 $ 6,465
7/31/2003 $14,949 $ 7,067
8/31/2003 $15,720 $ 7,766
9/30/2003 $15,752 $ 7,981
10/31/2003 $17,118 $ 8,563
11/30/2003 $17,118 $ 8,373
12/31/2003 $19,079 $ 8,790
1/31/2004 $19,588 $ 9,393
2/29/2004 $20,802 $ 9,784
3/31/2004 $19,675 $ 9,259
4/30/2004 $17,974 $ 8,572
5/31/2004 $18,591 $ 8,630
6/30/2004 $18,711 $ 8,534
7/31/2004 $18,472 $ 8,370
8/31/2004 $19,328 $ 8,831
9/30/2004 $19,956 $ 9,060
10/31/2004 $19,801 $ 8,982
11/30/2004 $21,218 $ 9,743
12/31/2004 $21,425 $10,044
1/31/2005 $20,924 $ 9,715
2/28/2005 $22,243 $10,227
3/31/2005 $21,774 $ 9,739
4/30/2005 $21,905 $ 9,852
5/31/2005 $22,308 $10,035
6/30/2005 $22,614 $10,383
7/31/2005 $23,791 $10,816
8/31/2005 $23,410 $10,499
9/30/2005 $24,456 $10,790
10/31/2005 $22,873 $ 9,986
11/30/2005 $24,214 $10,629
12/31/2005 $25,050 $11,076
1/31/2006 $26,556 $11,787
2/28/2006 $26,819 $11,860
3/31/2006 $26,764 $12,016
4/30/2006 $28,314 $12,904
5/31/2006 $27,171 $12,134
6/30/2006 $27,523 $12,130
7/31/2006 $27,710 $12,071
8/31/2006 $28,061 $12,457
9/30/2006 $28,633 $12,836
10/31/2006 $29,908 $13,213
11/30/2006 $32,508 $14,430
12/31/2006 $35,063 $15,451
1/31/2007 $34,524 $15,133
2/28/2007 $34,094 $15,026
3/31/2007 $34,766 $15,161
4/30/2007 $35,934 $15,445
5/31/2007 $38,137 $16,162
6/30/2007 $41,497 $17,511
7/31/2007 $43,436 $18,735
8/31/2007 $45,121 $19,115
9/30/2007 $51,984 $21,821
10/31/2007 $58,945 $24,388
11/30/2007 $51,960 $21,838
12/31/2007 $50,297 $21,318
1/31/2008 $42,375 $17,947
2/29/2008 $46,134 $19,453
3/31/2008 $41,580 $18,277
4/30/2008 $47,302 $20,075
5/31/2008 $46,063 $19,409
6/30/2008 $41,373 $17,173
7/31/2008 $41,431 $16,946
8/31/2008 $39,874 $16,047
9/30/2008 $33,613 $12,968
10/31/2008 $25,980 $10,235
11/30/2008 $25,990 $10,062
12/31/2008 $27,820 $10,792
1/31/2009 $26,226 $10,065
2/28/2009 $25,594 $ 9,902
3/31/2009 $28,401 $11,111
4/30/2009 $32,383 $12,693
5/31/2009 $36,959 $14,836
6/30/2009 $37,617 $14,715
7/31/2009 $41,995 $16,464
8/31/2009 $39,434 $15,515
Total Returns 294.34% 55.15%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 8/31/09
- ------- -------
1-Year -5.26%
5-Year +14.78%
10-Year +14.71%
Annual Report | 8
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 8/31/09
- ------- -------
1-Year -2.64%
5-Year +15.02%
10-Year +14.56%
CLASS C (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON CHINA WORLD MSCI GOLDEN
DATE FUND - CLASS C DRAGON INDEX
---- --------------------- ------------
9/1/1999 $10,000 $10,000
9/30/1999 $ 9,389 $ 9,508
10/31/1999 $ 9,290 $ 9,920
11/30/1999 $10,262 $10,765
12/31/1999 $11,406 $11,775
1/31/2000 $11,155 $11,799
2/29/2000 $11,538 $11,967
3/31/2000 $12,065 $12,366
4/30/2000 $10,737 $11,138
5/31/2000 $10,373 $10,475
6/30/2000 $11,013 $10,775
7/31/2000 $11,384 $10,964
8/31/2000 $11,681 $10,698
9/30/2000 $10,875 $ 9,452
10/31/2000 $ 9,823 $ 8,659
11/30/2000 $ 9,647 $ 8,083
12/31/2000 $10,038 $ 8,244
1/31/2001 $10,557 $ 9,335
2/28/2001 $11,014 $ 8,842
3/31/2001 $10,504 $ 8,105
4/30/2001 $10,928 $ 8,015
5/31/2001 $11,806 $ 7,814
6/30/2001 $11,598 $ 7,583
7/31/2001 $10,356 $ 7,107
8/31/2001 $ 9,808 $ 6,674
9/30/2001 $ 9,294 $ 5,614
10/31/2001 $10,017 $ 5,934
11/30/2001 $10,133 $ 6,693
12/31/2001 $ 9,855 $ 7,363
1/31/2002 $10,316 $ 7,326
2/28/2002 $10,641 $ 7,065
3/31/2002 $10,986 $ 7,571
4/30/2002 $11,694 $ 7,743
5/31/2002 $12,109 $ 7,496
6/30/2002 $11,847 $ 7,009
7/31/2002 $11,469 $ 6,664
8/31/2002 $11,062 $ 6,374
9/30/2002 $10,718 $ 5,725
10/31/2002 $10,819 $ 6,046
11/30/2002 $11,168 $ 6,310
12/31/2002 $11,451 $ 5,913
1/31/2003 $12,061 $ 6,239
2/28/2003 $12,334 $ 5,890
3/31/2003 $12,184 $ 5,678
4/30/2003 $12,234 $ 5,617
5/31/2003 $13,251 $ 6,182
6/30/2003 $13,678 $ 6,465
7/31/2003 $14,943 $ 7,067
8/31/2003 $15,719 $ 7,766
9/30/2003 $15,741 $ 7,981
10/31/2003 $17,118 $ 8,563
11/30/2003 $17,118 $ 8,373
12/31/2003 $19,089 $ 8,790
1/31/2004 $19,588 $ 9,393
2/29/2004 $20,801 $ 9,784
3/31/2004 $19,674 $ 9,259
4/30/2004 $17,984 $ 8,572
5/31/2004 $18,591 $ 8,630
6/30/2004 $18,710 $ 8,534
7/31/2004 $18,472 $ 8,370
8/31/2004 $19,339 $ 8,831
9/30/2004 $19,956 $ 9,060
10/31/2004 $19,800 $ 8,982
11/30/2004 $21,239 $ 9,743
12/31/2004 $21,446 $10,044
1/31/2005 $20,945 $ 9,715
2/28/2005 $22,252 $10,227
3/31/2005 $21,784 $ 9,739
4/30/2005 $21,915 $ 9,852
5/31/2005 $22,318 $10,035
6/30/2005 $22,634 $10,383
7/31/2005 $23,811 $10,816
8/31/2005 $23,418 $10,499
9/30/2005 $24,475 $10,790
10/31/2005 $22,901 $ 9,986
11/30/2005 $24,235 $10,629
12/31/2005 $25,072 $11,076
1/31/2006 $26,582 $11,787
2/28/2006 $26,835 $11,860
3/31/2006 $26,791 $12,016
4/30/2006 $28,345 $12,904
5/31/2006 $27,199 $12,134
6/30/2006 $27,541 $12,130
7/31/2006 $27,728 $12,071
8/31/2006 $28,081 $12,457
9/30/2006 $28,665 $12,836
10/31/2006 $29,931 $13,213
11/30/2006 $32,532 $14,430
12/31/2006 $35,089 $15,451
1/31/2007 $34,558 $15,133
2/28/2007 $34,115 $15,026
3/31/2007 $34,801 $15,161
4/30/2007 $35,964 $15,445
5/31/2007 $38,166 $16,162
6/30/2007 $41,531 $17,511
7/31/2007 $43,480 $18,735
8/31/2007 $45,151 $19,115
9/30/2007 $52,003 $21,821
10/31/2007 $58,933 $24,388
11/30/2007 $51,918 $21,838
12/31/2007 $50,231 $21,318
1/31/2008 $42,287 $17,947
2/29/2008 $46,022 $19,453
3/31/2008 $41,454 $18,277
4/30/2008 $47,144 $20,075
5/31/2008 $45,872 $19,409
6/30/2008 $41,177 $17,173
7/31/2008 $41,212 $16,946
8/31/2008 $39,639 $16,047
9/30/2008 $33,395 $12,968
10/31/2008 $25,809 $10,235
11/30/2008 $25,798 $10,062
12/31/2008 $27,589 $10,792
1/31/2009 $25,997 $10,065
2/28/2009 $25,352 $ 9,902
3/31/2009 $28,116 $11,111
4/30/2009 $32,038 $12,693
5/31/2009 $36,553 $14,836
6/30/2009 $37,172 $14,715
7/31/2009 $41,476 $16,464
8/31/2009 $38,936 $15,515
Total Returns 289.36% 55.15%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 8/31/09
- ------------- -------
1-Year -0.84%
5-Year +16.16%
10-Year +15.73%
ADVISOR CLASS (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON CHINA WORLD MSCI GOLDEN
DATE FUND - ADVISOR CLASS DRAGON INDEX
---- --------------------- ------------
9/1/1999 $10,000 $10,000
9/30/1999 $ 9,398 $ 9,508
10/31/1999 $ 9,310 $ 9,920
11/30/1999 $10,292 $10,765
12/31/1999 $11,459 $11,775
1/31/2000 $11,216 $11,799
2/29/2000 $11,610 $11,967
3/31/2000 $12,151 $12,366
4/30/2000 $10,822 $11,138
5/31/2000 $10,465 $10,475
6/30/2000 $11,120 $10,775
7/31/2000 $11,503 $10,964
8/31/2000 $11,813 $10,698
9/30/2000 $11,008 $ 9,452
10/31/2000 $ 9,953 $ 8,659
11/30/2000 $ 9,785 $ 8,083
12/31/2000 $10,191 $ 8,244
1/31/2001 $10,726 $ 9,335
2/28/2001 $11,199 $ 8,842
3/31/2001 $10,690 $ 8,105
4/30/2001 $11,130 $ 8,015
5/31/2001 $12,034 $ 7,814
6/30/2001 $11,832 $ 7,583
7/31/2001 $10,575 $ 7,107
8/31/2001 $10,025 $ 6,674
9/30/2001 $ 9,507 $ 5,614
10/31/2001 $10,260 $ 5,934
11/30/2001 $10,386 $ 6,693
12/31/2001 $10,112 $ 7,363
1/31/2002 $10,594 $ 7,326
2/28/2002 $10,935 $ 7,065
3/31/2002 $11,298 $ 7,571
4/30/2002 $12,037 $ 7,743
5/31/2002 $12,474 $ 7,496
6/30/2002 $12,214 $ 7,009
7/31/2002 $11,835 $ 6,664
8/31/2002 $11,425 $ 6,374
9/30/2002 $11,079 $ 5,725
10/31/2002 $11,196 $ 6,046
11/30/2002 $11,565 $ 6,310
12/31/2002 $11,868 $ 5,913
1/31/2003 $12,511 $ 6,239
2/28/2003 $12,803 $ 5,890
3/31/2003 $12,658 $ 5,678
4/30/2003 $12,721 $ 5,617
5/31/2003 $13,789 $ 6,182
6/30/2003 $14,245 $ 6,465
7/31/2003 $15,575 $ 7,067
8/31/2003 $16,411 $ 7,766
9/30/2003 $16,466 $ 7,981
10/31/2003 $17,903 $ 8,563
11/30/2003 $17,914 $ 8,373
12/31/2003 $19,989 $ 8,790
1/31/2004 $20,532 $ 9,393
2/29/2004 $21,821 $ 9,784
3/31/2004 $20,656 $ 9,259
4/30/2004 $18,893 $ 8,572
5/31/2004 $19,560 $ 8,630
6/30/2004 $19,707 $ 8,534
7/31/2004 $19,458 $ 8,370
8/31/2004 $20,385 $ 8,831
9/30/2004 $21,063 $ 9,060
10/31/2004 $20,915 $ 8,982
11/30/2004 $22,438 $ 9,743
12/31/2004 $22,678 $10,044
1/31/2005 $22,163 $ 9,715
2/28/2005 $23,571 $10,227
3/31/2005 $23,102 $ 9,739
4/30/2005 $23,262 $ 9,852
5/31/2005 $23,697 $10,035
6/30/2005 $24,052 $10,383
7/31/2005 $25,322 $10,816
8/31/2005 $24,933 $10,499
9/30/2005 $26,066 $10,790
10/31/2005 $24,415 $ 9,986
11/30/2005 $25,858 $10,629
12/31/2005 $26,778 $11,076
1/31/2006 $28,408 $11,787
2/28/2006 $28,699 $11,860
3/31/2006 $28,676 $12,016
4/30/2006 $30,364 $12,904
5/31/2006 $29,153 $12,134
6/30/2006 $29,549 $12,130
7/31/2006 $29,782 $12,071
8/31/2006 $30,190 $12,457
9/30/2006 $30,830 $12,836
10/31/2006 $32,226 $13,213
11/30/2006 $35,051 $14,430
12/31/2006 $37,849 $15,451
1/31/2007 $37,294 $15,133
2/28/2007 $36,858 $15,026
3/31/2007 $37,625 $15,161
4/30/2007 $38,911 $15,445
5/31/2007 $41,341 $16,162
6/30/2007 $45,022 $17,511
7/31/2007 $47,158 $18,735
8/31/2007 $49,022 $19,115
9/30/2007 $56,502 $21,821
10/31/2007 $64,076 $24,388
11/30/2007 $56,498 $21,838
12/31/2007 $54,714 $21,318
1/31/2008 $46,102 $17,947
2/29/2008 $50,209 $19,453
3/31/2008 $45,270 $18,277
4/30/2008 $51,512 $20,075
5/31/2008 $50,172 $19,409
6/30/2008 $45,072 $17,173
7/31/2008 $45,146 $16,946
8/31/2008 $43,471 $16,047
9/30/2008 $36,646 $12,968
10/31/2008 $28,331 $10,235
11/30/2008 $28,344 $10,062
12/31/2008 $30,343 $10,792
1/31/2009 $28,623 $10,065
2/28/2009 $27,934 $ 9,902
3/31/2009 $31,003 $11,111
4/30/2009 $35,362 $12,693
5/31/2009 $40,367 $14,836
6/30/2009 $41,098 $14,715
7/31/2009 $45,888 $16,464
8/31/2009 $43,106 $15,515
Total Returns 331.06% 55.15%
9 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
THE GOVERNMENT'S PARTICIPATION IN THE ECONOMY IS STILL HIGH AND, THEREFORE,
TEMPLETON CHINA WORLD FUND'S INVESTMENTS IN CHINA WILL BE SUBJECT TO LARGER
REGULATORY RISK LEVELS COMPARED TO MANY OTHER COUNTRIES. IN ADDITION, SPECIAL
RISKS ARE ASSOCIATED WITH INTERNATIONAL INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN
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 A 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.
(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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(7.) Source: (C) 2009 Morningstar. 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.
Annual Report | 10
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.
11 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 3/1/09 VALUE 8/31/09 PERIOD* 3/1/09-8/31/09
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,541.00 $12.94
Hypothetical (5% return before expenses) $1,000 $1,015.02 $10.26
CLASS B
Actual $1,000 $1,536.20 $17.52
Hypothetical (5% return before expenses) $1,000 $1,011.39 $13.89
CLASS C
Actual $1,000 $1,535.80 $17.51
Hypothetical (5% return before expenses) $1,000 $1,011.39 $13.89
ADVISOR CLASS
Actual $1,000 $1,543.10 $11.15
Hypothetical (5% return before expenses) $1,000 $1,016.43 $ 8.84
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 2.02%; B: 2.74%; C: 2.74%; and Advisor:
1.74%), multiplied by the average account value over the period, multiplied
by 184/365 to reflect the one-half year period.
Annual Report | 12
Templeton China World Fund
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 34.78 $ 41.29 $ 25.76 $ 21.67 $ 17.97
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.48 0.34 0.37 0.29 0.43
Net realized and unrealized gains (losses) .. (2.04) (4.47) 15.42 4.12 3.46
-------- -------- -------- -------- --------
Total from investment operations ............... (1.56) (4.13) 15.79 4.41 3.89
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.30) (0.41) (0.26) (0.32) (0.19)
Net realized gains .......................... (3.01) (1.97) -- -- --
-------- -------- -------- -------- --------
Total distributions ............................ (3.31) (2.38) (0.26) (0.32) (0.19)
-------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 29.91 $ 34.78 $ 41.29 $ 25.76 $ 21.67
======== ======== ======== ======== ========
Total return(e) ................................ (1.10)% (11.63)% 61.87% 20.65% 21.85%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 2.04% 2.00% 2.04% 2.06% 2.08%
Net investment income .......................... 1.92% 0.86% 1.13% 1.10% 1.86%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $404,877 $414,194 $519,266 $262,346 $111,193
Portfolio turnover rate ........................ 22.36% 10.37% 22.05% 12.96% 9.66%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
13 | Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 34.44 $ 40.95 $ 25.53 $ 21.47 $ 17.84
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.31 0.06 0.12 0.08 0.24
Net realized and unrealized gains (losses) .. (1.99) (4.45) 15.36 4.15 3.51
------- ------- ------- ------- -------
Total from investment operations ............... (1.68) (4.39) 15.48 4.23 3.75
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.01) (0.15) (0.06) (0.17) (0.12)
Net realized gains .......................... (3.01) (1.97) -- -- --
------- ------- ------- ------- -------
Total distributions ............................ (3.02) (2.12) (0.06) (0.17) (0.12)
------- ------- ------- ------- -------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 29.74 $ 34.44 $ 40.95 $ 25.53 $ 21.47
======= ======= ======= ======= =======
Total return(e) ................................ (1.81)% (12.22)% 60.79% 19.87% 21.12%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 2.75% 2.67% 2.69% 2.70% 2.73%
Net investment income .......................... 1.21% 0.19% 0.48% 0.46% 1.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $10,760 $14,272 $20,066 $15,269 $12,264
Portfolio turnover rate ........................ 22.36% 10.37% 22.05% 12.96% 9.66%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 14
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
----------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 34.29 $ 40.79 $ 25.48 $ 21.49 $ 17.85
-------- -------- -------- -------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.30 0.07 0.15 0.13 0.29
Net realized and unrealized gains (losses) .. (1.98) (4.42) 15.28 4.10 3.46
-------- -------- -------- -------- -------
Total from investment operations ............... (1.68) (4.35) 15.43 4.23 3.75
-------- -------- -------- -------- -------
Less distributions from:
Net investment income ....................... (0.02) (0.18) (0.12) (0.24) (0.11)
Net realized gains .......................... (3.01) (1.97) -- -- --
-------- -------- -------- -------- -------
Total distributions ............................ (3.03) (2.15) (0.12) (0.24) (0.11)
-------- -------- -------- -------- -------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------
Net asset value, end of year ................... $ 29.58 $ 34.29 $ 40.79 $ 25.48 $ 21.49
======== ======== ======== ======== =======
Total return(e) ................................ (1.77)% (12.21)% 60.79% 19.91% 21.10%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 2.75% 2.66% 2.68% 2.71% 2.68%
Net investment income .......................... 1.21% 0.20% 0.49% 0.45% 1.26%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $135,688 $153,068 $199,551 $107,886 $45,738
Portfolio turnover rate ........................ 22.36% 10.37% 22.05% 12.96% 9.66%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
15 | Annual Report
Templeton China World Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 35.03 $ 41.55 $ 25.93 $ 21.78 $ 18.03
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.55 0.50 0.47 0.33 0.42
Net realized and unrealized gains (losses) .. (2.08) (4.51) 15.52 4.18 3.56
-------- -------- -------- -------- --------
Total from investment operations ............... (1.53) (4.01) 15.99 4.51 3.98
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.43) (0.54) (0.37) (0.36) (0.23)
Net realized gains .......................... (3.01) (1.97) -- -- --
-------- -------- -------- -------- --------
Total distributions ............................ (3.44) (2.51) (0.37) (0.36) (0.23)
-------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 30.06 $ 35.03 $ 41.55 $ 25.93 $ 21.78
======== ======== ======== ======== ========
Total return ................................... (0.84)% (11.32)% 62.38% 21.08% 22.31%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) .................................... 1.76% 1.67% 1.69% 1.71% 1.73%
Net investment income .......................... 2.20% 1.19% 1.48% 1.45% 2.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $268,107 $288,072 $375,738 $245,331 $190,844
Portfolio turnover rate ........................ 22.36% 10.37% 22.05% 12.96% 9.66%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 16
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009
SHARES/
COUNTRY UNITS VALUE
------------- ---------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 97.3%
AIR FREIGHT & LOGISTICS 0.2%
Sinotrans Ltd., H ............................................ China 8,192,000 $ 1,934,244
------------
AUTO COMPONENTS 1.9%
Cheng Shin Rubber Industry Co. Ltd. .......................... Taiwan 8,095,065 15,447,283
------------
AUTOMOBILES 3.0%
(a) Chongqing Changan Automobile Co. Ltd., B ..................... China 6,333,624 3,366,819
Denway Motors Ltd. ........................................... China 3,036,000 1,351,422
Dongfeng Motor Corp., H ...................................... China 14,847,478 15,363,754
Great Wall Motor Co. Ltd., H ................................. China 2,383,038 2,053,893
Jiangling Motors Corp. Ltd., B ............................... China 2,632,845 2,856,877
------------
24,992,765
------------
BEVERAGES 0.3%
Yantai Changyu Pioneer Wine Co. Ltd., B ...................... China 358,600 2,130,641
------------
COMMERCIAL BANKS 10.2%
Bank of China Ltd., H ........................................ China 65,172,000 31,700,979
(b) Bank of China Ltd., H, 144A .................................. China 8,165,000 3,971,621
BOC Hong Kong (Holdings) Ltd. ................................ China 2,774,000 5,561,959
China Construction Bank Corp., H ............................. China 31,198,000 23,547,939
China Merchants Bank Co. Ltd., H ............................. China 448,000 975,710
Industrial and Commercial Bank of China Ltd., H .............. China 25,705,000 17,544,603
------------
83,302,811
------------
COMMUNICATIONS EQUIPMENT 0.9%
AAC Acoustic Technologies Holdings Inc. ...................... China 1,078,000 892,944
D-Link Corp. ................................................. Taiwan 3,259,260 2,505,599
ZTE Corp., H ................................................. China 772,675 3,598,938
------------
6,997,481
------------
COMPUTERS & PERIPHERALS 2.9%
Asustek Computer Inc. ........................................ Taiwan 9,824,395 15,642,610
Lite-On IT Corp. ............................................. Taiwan 8,032,076 6,138,156
Lite-On Technology Corp. ..................................... Taiwan 947,715 1,062,616
Simplo Technology Co. Ltd. ................................... Taiwan 285,000 1,286,007
------------
24,129,389
------------
CONSTRUCTION MATERIALS 0.5%
Asia Cement China Holdings Corp. ............................. China 3,755,000 2,228,630
Huaxin Cement Co. Ltd., B .................................... China 882,458 1,786,095
------------
4,014,725
------------
DISTRIBUTORS 2.3%
China Resources Enterprise Ltd. .............................. Hong Kong 5,108,000 11,981,606
Dah Chong Hong Holdings Ltd. ................................. Hong Kong 13,148,563 5,666,241
(b) Dah Chong Hong Holdings Ltd., 144A ........................... Hong Kong 502,000 216,332
Sichuan Xinhua Winshare Chainstore Co. Ltd. .................. China 2,521,000 900,996
------------
18,765,175
------------
17 | Annual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
SHARES/
COUNTRY UNITS VALUE
------------- ---------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
DIVERSIFIED TELECOMMUNICATION SERVICES 0.6%
China Telecom Corp. Ltd., H .................................. China 2,195,833 $ 1,124,761
China Unicom (Hong Kong) Ltd. ................................ China 2,572,168 3,617,396
------------
4,742,157
------------
ELECTRIC UTILITIES 2.3%
Cheung Kong Infrastructure Holdings Ltd. ..................... Hong Kong 5,263,548 19,151,288
------------
ELECTRICAL EQUIPMENT 0.3%
Dongfang Electric Co. Ltd., H ................................ China 452,200 2,205,427
------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 2.9%
(c) China Security & Surveillance Technology Inc. ................ United States 442,100 2,873,650
Hon Hai Precision Industry Co. Ltd. .......................... Taiwan 841,000 2,836,554
Synnex Technology International Corp. ........................ Taiwan 10,190,477 17,804,692
Wasion Group Holdings Ltd. ................................... Hong Kong 494,000 447,440
------------
23,962,336
------------
ENERGY EQUIPMENT & SERVICES 0.0%(d)
Anhui Tianda Oil Pipe Co. Ltd., H ............................ China 1,083,000 374,484
------------
FOOD & STAPLES RETAILING 8.2%
Beijing Jingkelong Co. Ltd., H ............................... China 2,912,571 1,807,557
Dairy Farm International Holdings Ltd. ....................... Hong Kong 10,278,276 58,586,173
President Chain Store Corp. .................................. Taiwan 2,908,259 6,698,451
------------
67,092,181
------------
FOOD PRODUCTS 2.0%
China Foods Ltd. ............................................. China 9,352,000 5,683,236
China Yurun Food Group Ltd. .................................. China 2,776,000 4,792,320
People's Food Holdings Ltd. .................................. China 3,602,000 1,812,186
Uni-President Enterprises Corp. .............................. Taiwan 1,205,741 1,249,340
(c) Xiwang Sugar Holdings Co. Ltd. ............................... Hong Kong 12,114,439 3,094,844
------------
16,631,926
------------
HOTELS, RESTAURANTS & LEISURE 0.3%
NagaCorp Ltd. ................................................ Cambodia 17,878,548 2,468,234
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 3.4%
Datang International Power Generation Co. Ltd., H ............ China 28,322,640 15,055,710
Guangdong Electric Power Development Co. Ltd., B ............. China 13,140,759 6,324,112
Huaneng Power International Inc., H .......................... China 9,040,776 6,333,967
------------
27,713,789
------------
INDUSTRIAL CONGLOMERATES 2.8%
Hutchison Whampoa Ltd. ....................................... Hong Kong 224,000 1,575,124
Shanghai Industrial Holdings Ltd. ............................ China 4,532,253 21,694,934
------------
23,270,058
------------
Annual Report | 18
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
SHARES/
COUNTRY UNITS VALUE
------------- ---------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
INSURANCE 2.4%
China Life Insurance Co. Ltd., H ............................. China 4,587,000 $ 19,352,932
------------
INTERNET SOFTWARE & SERVICES 0.6%
(c) Sohu.com Inc. ................................................ China 86,975 5,314,173
------------
IT SERVICES 0.3%
Travelsky Technology Ltd., H ................................. China 3,281,294 2,150,697
------------
LEISURE EQUIPMENT & PRODUCTS 0.2%
Yorkey Optical International Cayman Ltd. ..................... China 7,933,000 1,821,913
------------
MACHINERY 1.6%
China International Marine Containers (Group) Co. Ltd., B .... China 3,057,680 2,958,854
Lonking Holdings Ltd. ........................................ China 8,951,000 5,335,607
Shin Zu Shing Co. Ltd. ....................................... Taiwan 720,616 3,930,434
Zhongde Waste Technology AG .................................. Germany 36,266 625,538
------------
12,850,433
------------
MARINE 1.0%
China Shipping Development Co. Ltd., H ....................... China 4,092,000 5,126,549
Sinotrans Shipping Ltd. ...................................... Hong Kong 6,554,000 2,866,662
------------
7,993,211
------------
MEDIA 0.1%
(c) Next Media Ltd. .............................................. Hong Kong 3,778,000 487,452
------------
METALS & MINING 2.2%
Angang Steel Co. Ltd., H ..................................... China 7,848,000 14,884,923
China Molybdenum Co. Ltd., H ................................. China 1,106,000 826,236
China Steel Corp. ............................................ Taiwan 519,414 471,908
Jiangxi Copper Co. Ltd., H ................................... China 812,000 1,695,137
------------
17,878,204
------------
OFFICE ELECTRONICS 0.1%
(c) Kinpo Electronics Inc. ....................................... Taiwan 2,372,201 611,972
------------
OIL, GAS & CONSUMABLE FUELS 27.0%
China Coal Energy Co., H ..................................... China 5,807,000 7,350,064
China Petroleum and Chemical Corp., H ........................ China 67,285,395 56,168,828
China Shenhua Energy Co. Ltd., H ............................. China 8,344,500 33,645,007
CNOOC Ltd. ................................................... China 41,286,000 54,227,660
PetroChina Co. Ltd., H ....................................... China 42,819,903 47,292,222
Yanzhou Coal Mining Co. Ltd., H .............................. China 15,964,000 22,698,314
------------
221,382,095
------------
PHARMACEUTICALS 0.3%
Tong Ren Tang Technologies Co. Ltd., H ....................... China 1,602,000 2,190,981
------------
19 | Annual Report
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
SHARES/
COUNTRY UNITS VALUE
------------- ---------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
REAL ESTATE MANAGEMENT & DEVELOPMENT 3.7%
Agile Property Holdings Ltd. ................................. China 508,000 $ 577,444
Cheung Kong (Holdings) Ltd. .................................. Hong Kong 651,690 7,731,488
Hopewell Holdings Ltd. ....................................... Hong Kong 5,935,500 17,958,516
Soho China Ltd. .............................................. China 7,189,500 3,821,784
(b) Soho China Ltd., 144A ........................................ China 712,000 378,484
------------
30,467,716
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.3%
MediaTek Inc. ................................................ Taiwan 367,062 5,331,378
Taiwan Semiconductor Manufacturing Co. Ltd. .................. Taiwan 16,845,330 30,302,143
------------
35,633,521
------------
SOFTWARE 0.4%
(c) Shanda Interactive Entertainment Ltd., ADR ................... China 64,900 3,177,504
------------
SPECIALTY RETAIL 0.4%
(c) GOME Electrical Appliances Holdings Ltd. ..................... Hong Kong 8,726,880 2,319,511
(c) I.T Ltd. ..................................................... Hong Kong 8,295,264 824,122
------------
3,143,633
------------
TEXTILES, APPAREL & LUXURY GOODS 0.3%
(c) Victory City International Holdings Ltd. ..................... Hong Kong 8,586,022 1,296,129
Weiqiao Textile Co. Ltd., H .................................. China 2,130,500 1,492,628
------------
2,788,757
------------
TRANSPORTATION INFRASTRUCTURE 1.6%
Cosco Pacific Ltd. ........................................... China 6,254,610 9,409,554
Hopewell Highway Infrastructure Ltd. ......................... Hong Kong 593,550 359,170
Rickmers Maritime (Trust Units) .............................. Singapore 4,523,000 1,302,554
(c) Sichuan Expressway Co. Ltd., H ............................... China 4,520,000 1,837,043
------------
12,908,321
------------
WIRELESS TELECOMMUNICATION SERVICES 5.8%
China Mobile Ltd. ............................................ China 4,806,270 46,757,339
Taiwan Mobile Co. Ltd. ....................................... Taiwan 679,687 1,067,755
------------
47,825,094
------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $535,299,535) ....................................... 797,305,003
------------
SHORT TERM INVESTMENTS (COST $22,985,357) 2.8%
MONEY MARKET FUNDS 2.8%
(e) Institutional Fiduciary Trust Money Market Portfolio, 0.00% .. United States 22,985,357 22,985,357
------------
TOTAL INVESTMENTS (COST $558,284,892) 100.1% ................. 820,290,360
OTHER ASSETS, LESS LIABILITIES (0.1)% ........................ (857,549)
------------
NET ASSETS 100.0% ............................................ $819,432,811
============
Annual Report | 20
Templeton China World Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
See Abbreviations on page 35.
(a) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(c).
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At August 31, 2009,
the aggregate value of these securities was $4,566,437, representing 0.56%
of net assets.
(c) Non-income producing.
(d) Rounds to less than 0.1% of net assets.
(e) See Note 7 regarding investments in the 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.
21 | Annual Report
Templeton China World Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2009
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................. $ 535,299,535
Cost - Sweep Money Fund (Note 7) ........................ 22,985,357
-------------
Total cost of investments ............................... $ 558,284,892
=============
Value - Unaffiliated issuers ............................ $ 797,305,003
Value - Sweep Money Fund (Note 7) ....................... 22,985,357
-------------
Total value of investments .............................. 820,290,360
Cash ....................................................... 71,066
Foreign currency, at value (cost $250,681) ................. 251,655
Receivables:
Investment securities sold .............................. 117,067
Capital shares sold ..................................... 2,993,736
Dividends ............................................... 1,995,900
Other assets ............................................... 498
-------------
Total assets ......................................... 825,720,282
-------------
Liabilities:
Payables:
Investment securities purchased ......................... 1,867,013
Capital shares redeemed ................................. 2,652,291
Affiliates .............................................. 1,368,919
Accrued expenses and other liabilities ..................... 399,248
-------------
Total liabilities .................................... 6,287,471
-------------
Net assets, at value .............................. $ 819,432,811
=============
Net assets consist of:
Paid-in capital ............................................ $ 571,267,970
Undistributed net investment income ........................ 11,401,849
Net unrealized appreciation (depreciation) ................. 262,006,115
Accumulated net realized gain (loss) ....................... (25,243,123)
-------------
Net assets, at value .............................. $ 819,432,811
=============
The accompanying notes are an integral part of these financial statements.
Annual Report | 22
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
August 31, 2009
CLASS A:
Net assets, at value ......................................... $404,877,484
============
Shares outstanding ........................................... 13,535,585
============
Net asset value per share(a) ................................. $ 29.91
============
Maximum offering price per share (net asset value per
share / 94.25%) ........................................... $ 31.73
============
CLASS B:
Net assets, at value ......................................... $ 10,760,282
============
Shares outstanding ........................................... 361,866
============
Net asset value and maximum offering price per share(a).. .... $ 29.74
============
CLASS C:
Net assets, at value ......................................... $135,688,188
============
Shares outstanding ........................................... 4,587,620
============
Net asset value and maximum offering price per share(a).. .... $ 29.58
============
ADVISOR CLASS:
Net assets, at value ......................................... $268,106,857
============
Shares outstanding ........................................... 8,918,396
============
Net asset value and maximum offering price per share ......... $ 30.06
============
(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.
23 | Annual Report
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended August 31, 2009
Investment income:
Dividends: (net of foreign taxes of $1,870,315)
Unaffiliated issuers ........................................................... $ 24,259,615
Sweep Money Fund (Note 7) ...................................................... 20,408
------------
Total investment income ..................................................... 24,280,023
------------
Expenses:
Management fees (Note 3a) ......................................................... 7,621,024
Administrative fees (Note 3b) ..................................................... 1,224,168
Distribution fees: (Note 3c)
Class A ........................................................................ 800,409
Class B ........................................................................ 91,153
Class C ........................................................................ 1,037,613
Transfer agent fees (Note 3e and 3f) .............................................. 1,264,439
Custodian fees (Note 4) ........................................................... 336,744
Reports to shareholders ........................................................... 130,851
Registration and filing fees ...................................................... 80,994
Professional fees ................................................................. 55,539
Trustees' fees and expenses ....................................................... 46,763
Other ............................................................................. 40,982
------------
Total expenses .............................................................. 12,730,679
Expense reductions (Note 4) ................................................. (790)
------------
Net expenses ............................................................. 12,729,889
------------
Net investment income ................................................. 11,550,134
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................................................... (24,619,759)
Foreign currency transactions .................................................. (55,228)
------------
Net realized gain (loss) .............................................. (24,674,987)
------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................... (31,999,120)
Translation of other assets and liabilities denominated in foreign currencies .. 42,189
------------
Net change in unrealized appreciation (depreciation) .................. (31,956,931)
------------
Net realized and unrealized gain (loss) .............................................. (56,631,918)
------------
Net increase (decrease) in net assets resulting from operations ...................... $(45,081,784)
============
The accompanying notes are an integral part of these financial statements.
Annual Report | 24
Templeton China World Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
-----------------------------
2009 2008
------------ --------------
Increase (decrease) in net assets:
Operations:
Net investment income ..................................................... $ 11,550,134 $ 9,123,812
Net realized gain (loss) from investments and foreign currency
transactions ........................................................... (24,674,987) 84,965,526
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies ............................................................. (31,956,931) (211,484,623)
------------ --------------
Net increase (decrease) in net assets resulting from operations ........ (45,081,784) (117,395,285)
------------ --------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................ (2,936,084) (5,528,150)
Class B ................................................................ (5,084) (77,438)
Class C ................................................................ (93,010) (901,600)
Advisor Class .......................................................... (3,405,294) (4,761,563)
Net realized gains:
Class A ................................................................ (29,140,968) (26,369,910)
Class B ................................................................ (1,053,940) (1,003,393)
Class C ................................................................ (11,319,329) (10,117,868)
Advisor Class .......................................................... (23,542,784) (17,467,990)
------------ --------------
Total distributions to shareholders ....................................... (71,496,493) (66,227,912)
------------ --------------
Capital share transactions: (Note 2)
Class A ................................................................ 45,005,387 (12,556,689)
Class B ................................................................ (1,321,500) (2,584,318)
Class C ................................................................ 3,890,335 (11,409,956)
Advisor Class .......................................................... 18,830,891 (34,873,776)
------------ --------------
Total capital share transactions .......................................... 66,405,113 (61,424,739)
------------ --------------
Redemption fees ........................................................... -- 33,483
------------ --------------
Net increase (decrease) in net assets ............................... (50,173,164) (245,014,453)
Net assets:
Beginning of year ............................................................ 869,605,975 1,114,620,428
------------ --------------
End of year .................................................................. $819,432,811 $ 869,605,975
============ ==============
Undistributed net investment income included in net assets:
End of year .................................................................. $ 11,401,849 $ 6,438,056
============ ==============
The accompanying notes are an integral part of these financial statements.
25 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS
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
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds are valued at the closing net asset value.
Foreign equity 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 equity 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 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 based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, matrix pricing, discounts from market prices of similar securities,
or discounts applied due to the nature and duration of restrictions on the
disposition of the securities. Due to the inherent uncertainty of valuations of
such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the Fund. The investment manager monitors price movements following the
close of trading in foreign stock markets through a series of country specific
market proxies (such as baskets of American Depository Receipts, futures
contracts and exchange traded funds). These price movements are measured against
established trigger thresholds for each specific market proxy to assist in
determining if an event has occurred. If such an event occurs, the securities
may be valued using fair value procedures, which may include the use of
independent pricing services. All security valuation procedures are approved by
the Fund's Board of Trustees.
Annual Report | 26
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. SECURITIES PURCHASED ON A DELAYED DELIVERY BASIS
The Fund may purchase securities on a delayed delivery basis, with payment and
delivery scheduled for a future date. These transactions are subject to market
fluctuations and are subject to the risk that the value at delivery may be more
or less than the trade date purchase price. Although the Fund will generally
purchase these securities with the intention of holding the securities, it may
sell the securities before the settlement date. Sufficient assets have been
segregated for these securities.
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 August 31, 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 and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
27 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
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.
Annual Report | 28
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At August 31, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED AUGUST 31,
-------------------------------------------------------
2009 2008
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
CLASS A SHARES:
Shares sold ..................................... 5,783,359 $ 155,180,115 4,757,830 $ 204,519,943
Shares issued in reinvestment of distributions .. 1,317,570 29,050,541 581,014 28,291,012
Shares redeemed ................................. (5,472,810) (139,225,269) (6,007,179) (245,367,644)
---------- ------------- ---------- -------------
Net increase (decrease) ......................... 1,628,119 $ 45,005,387 (668,335) $ (12,556,689)
========== ============= ========== =============
CLASS B SHARES:
Shares sold ..................................... 56,340 $ 1,490,928 71,705 $ 3,178,486
Shares issued in reinvestment of distributions .. 43,243 952,643 19,606 953,654
Shares redeemed ................................. (152,115) (3,765,071) (166,916) (6,716,458)
---------- ------------- ---------- -------------
Net increase (decrease) ......................... (52,532) $ (1,321,500) (75,605) $ (2,584,318)
========== ============= ========== =============
CLASS C SHARES:
Shares sold ..................................... 1,470,165 $ 37,854,713 1,245,382 $ 53,856,505
Shares issued in reinvestment of distributions .. 415,266 9,098,474 181,329 8,773,549
Shares redeemed ................................. (1,762,149) (43,062,852) (1,854,594) (74,040,010)
---------- ------------- ---------- -------------
Net increase (decrease) ......................... 123,282 $ 3,890,335 (427,883) $ (11,409,956)
========== ============= ========== =============
ADVISOR CLASS SHARES:
Shares sold ..................................... 2,139,420 $ 58,206,598 748,176 $ 30,586,063
Shares issued in reinvestment of distributions .. 700,945 15,504,912 233,133 11,397,752
Shares redeemed ................................. (2,145,243) (54,880,619) (1,801,813) (76,857,591)
---------- ------------- ---------- -------------
Net increase (decrease) ......................... 695,122 $ 18,830,891 (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
29 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average weekly
net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS
- ------------------- -------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services based of 0.20% per year of
the average daily net assets of the Fund.
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act.
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.
Annual Report | 30
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (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 year:
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $224,200
Contingent deferred sales charges retained .. $ 48,767
E. TRANSFER AGENT FEES
For the year ended August 31, 2009, the Fund paid transfer agent fees of
$1,264,439, of which $725,411 was retained by Investor Services.
F. SPECIAL SERVICING AGREEMENT
Effective May 1, 2009, the Fund, which is an underlying investment of one or
more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds),
entered into a Special Servicing Agreement with the Allocator Funds, pursuant to
which the Fund pays a portion of eligible Allocator Funds' expenses, which
include transfer agency and shareholder service costs, to the extent such
payments are less than the amount of the benefits realized or expected to be
realized by the Fund from the investment in the Fund by the Allocator Funds. The
Allocator Funds are either managed by Franklin Advisers Inc. or administered by
FT Services, affiliates of TAML. Expenses allocated to the Fund under the
Special Servicing Agreement are included in transfer agent fees on the Statement
of Operations, and the amount payable to the Allocator Funds is included in the
payable to affiliates on the Statement of Assets and Liabilities. For the year
ended August 31, 2009, the Fund was allocated expenses of $46,127. At August 31,
2009, 9.27% of the Fund's outstanding shares were held by the Allocator Funds.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended August 31, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At August 31, 2009, the Fund had tax basis capital losses of
$6,453,484 expiring in 2017.
31 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
For tax purposes, realized capital 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, 2009, the Fund deferred realized capital losses of
$15,488,964.
The tax character of distributions paid during the years ended August 31, 2009
and August 31, 2008, was as follows:
2009 2008
----------- -----------
Distributions paid from:
Ordinary income ........... $17,569,692 $26,212,639
Long term capital gain .... 53,926,801 40,015,273
----------- -----------
$71,496,493 $66,227,912
=========== ===========
At August 31, 2009, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments ........................................ $ 561,920,682
=============
Unrealized appreciation .................................... $ 294,147,304
Unrealized depreciation .................................... (35,777,626)
-------------
Net unrealized appreciation (depreciation) ................. $ 258,369,678
=============
Distributable earnings - undistributed ordinary income ..... $ 11,736,964
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, passive foreign
investment company shares, and corporate actions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended August 31, 2009, aggregated $139,856,217 and $147,780,630,
respectively.
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the 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.
Annual Report | 32
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 August 31, 2009, the Fund had 66.3%, 16.4%, and
13.7% 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 $775 of its
pro rata portion of the Global Credit Facility, which is reflected in other
expenses on the Statement of Operations. During the year ended August 31, 2009,
the Fund did not utilize the Global Credit Facility.
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.
33 | Annual Report
Templeton China World Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FAIR VALUATION MEASUREMENTS (CONTINUED)
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.
At August 31, 2009, all the Fund's investments in securities carried at fair
value were in Level 1 inputs. For detailed industry descriptions, see the
accompanying Statement of Investments.
11. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through October 20, 2009, the issuance
date of the financial statements and determined that no events have occurred
that require disclosure.
ABBREVIATIONS
SELECTED PORTFOLIO
ADR - American Depository Receipt
Annual Report | 34
Templeton China World Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON CHINA WORLD FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton China World Fund (the
"Fund") at August 31, 2009, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2009 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 20, 2009
35 | Annual Report
Templeton China World Fund
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $53,926,800 as a long
term capital gain dividend for the fiscal year ended August 31, 2009.
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $11,131,049 as a short term capital gain dividend for
purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended August 31, 2009.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $4,399,173 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August
31, 2009. Distributions, including qualified dividend income, paid during
calendar year 2009 will be reported to shareholders on Form 1099-DIV in January
2010. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
At August 31, 2008, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from income paid to the Fund on these investments. As shown in the table below,
the Fund designates to shareholders the foreign source income and foreign taxes
paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on December 18, 2008, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.
The following table provides a detailed analysis of foreign tax paid, foreign
source income, and foreign qualified dividends as designated by the Fund, to
Class A, Class B, Class C, and Advisor Class shareholders of record.
RECORD DATE: 12/18/2008
FOREIGN TAX PAID FOREIGN SOURCE FOREIGN QUALIFIED
CLASS PER SHARE INCOME PER SHARE DIVIDENDS PER SHARE
- ----- ---------------- ---------------- -------------------
Class A ............ $0.0694 $0.8356 $0.1536
Class B ............ $0.0694 $0.5976 $0.1098
Class C ............ $0.0694 $0.6142 $0.1129
Advisor Class ...... $0.0694 $0.9513 $0.1748
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or, as a tax
deduction.
Annual Report | 36
Templeton China World Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
Foreign Source Income Per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income.(1)
Foreign Qualified Dividends Per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund.(1)
In January 2009, shareholders received Form 1099-DIV which included their share
of taxes paid and foreign source income distributed during the calendar year
2008. The Foreign Source Income reported on Form 1099-DIV has not been adjusted
for the rate differential on foreign source qualified dividend income.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their 2008 individual income tax returns.
(1) Qualified dividends are taxed at a maximum rate of 15% (5% for those in the
10% and 15% income tax bracket). In determining the amount of foreign tax
credit that may be applied against the U.S. tax liability of individuals
receiving foreign source qualified dividends, adjustments may be required
to the foreign tax credit limitation calculation to reflect the rate
differential applicable to such dividend income. The rules however permit
certain individuals to elect not to apply the rate differential adjustments
for capital gains and/or dividends for any taxable year. Please consult
your tax advisor and the instructions to Form 1116 for more information.
37 | Annual Report
Templeton China World Fund
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF
PORTFOLIOS IN FUND
NAME, YEAR OF BIRTH LENGTH OF COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- ----------------- --------------------- ------------------- ---------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1993 134 Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ANN TORRE BATES (1958) Trustee Since 2008 31 SLM Corporation (Sallie Mae)
500 East Broward Blvd. and Allied Capital
Suite 2100 Corporation (financial
Fort Lauderdale, FL 33394-3091 services).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Independent strategic and financial consultant; and FORMERLY, Executive Vice President and Chief Financial Officer, NHP
Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).
FRANK J. CROTHERS (1944) Trustee Since 1999 23 Fortis, Inc. (utility
500 East Broward Blvd. holding company), Victory
Suite 2100 Nickel Inc. (mineral
Fort Lauderdale, FL 33394-3091 exploration) and ABACO
Markets Limited (retail
distributors).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Vice Chairman, Caribbean Utilities Company, Ltd. and director of various other private business and nonprofit
organizations.
EDITH E. HOLIDAY (1952) Lead Trustee since 1996 134 Hess Corporation
500 East Broward Blvd. Independent and Lead Independent (exploration and refining of
Suite 2100 Trustee Trustee since 2007 oil and gas), H.J. Heinz
Fort Lauderdale, FL 33394-3091 Company (processed foods and
allied products), RTI
International Metals, Inc.
(manufacture and
distribution of titanium),
Canadian National Railway
(rail-road) and White
Mountains Insurance Group,
Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
Annual Report | 38
NUMBER OF
PORTFOLIOS IN FUND
NAME, YEAR OF BIRTH LENGTH OF COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- ----------------- --------------------- ------------------- ---------------------------------
DAVID W. NIEMIEC (1949) Trustee Since 2005 23 Emeritus Corporation
500 East Broward Blvd. (assisted living) and OSI
Suite 2100 Pharmaceuticals, Inc.
Fort Lauderdale, FL 33394-3091 (pharmaceutical products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); and FORMERLY, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg
Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief
Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
FRANK A. OLSON (1932) Trustee Since 2003 134 Hess Corporation (exploration
500 East Broward Blvd. and refining of oil and gas).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2005 142 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
CONSTANTINE D. TSERETOPOULOS Trustee Since 1999 23 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
ROBERT E. WADE (1946) Trustee Since 2006 38 El Oro Ltd (investments).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney at law.
39 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF
PORTFOLIOS IN FUND
NAME, YEAR OF BIRTH LENGTH OF COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- ----------------- --------------------- ------------------- ---------------------------------
**CHARLES B. JOHNSON (1933) Trustee, Chairman Trustee and Chairman 134 None
One Franklin Parkway of the Board of the Board since
San Mateo, CA 94403-1906 and Vice 1995 and Vice
President President since 1993
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41
of the investment companies in Franklin Templeton Investments.
**GREGORY E. JOHNSON (1961) Trustee Since 2007 90 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director,
Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President -
Vice President AML Compliance since
- AML 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Chief Executive Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Officer -
San Mateo, CA 94403-1906 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
Annual Report | 40
NUMBER OF
PORTFOLIOS IN FUND
NAME, YEAR OF BIRTH LENGTH OF COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- ----------------- --------------------- ------------------- ---------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Vice President since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin
Templeton Investments.
MARK MOBIUS (1936) President and President since 1993 Not Applicable Not Applicable
17th Floor, Chater House Chief Executive and Chief Executive
8 Connaught Road Central Officer - Officer - Investment
Hong Kong Investment Management since 2002
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Executive Chairman, Templeton Asset Management Ltd.; and officer and/or
director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies
in Franklin Templeton Investments; and FORMERLY, President, International Investment Trust Company Limited (investment manager of
Taiwan R.O.C. Fund) (1986-1987); and Director, Vickers da Costa, Hong Kong (1983-1986).
MARK H. OTANI (1968) Treasurer, Chief Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Financial
San Mateo, CA 94403-1906 Officer and
Chief Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Fund Accounting Operations, Franklin Templeton Investments; and officer of 14 of the investment companies in
Franklin Templeton Investments.
41 | Annual Report
NUMBER OF
PORTFOLIOS IN FUND
NAME, YEAR OF BIRTH LENGTH OF COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- ----------------- --------------------- ------------------- ---------------------------------
ROBERT C. ROSSELOT (1960) Secretary and Secretary since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Vice President and Vice President
Suite 2100 since August 2009
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the
South; and officer of 45 of the investment companies in Franklin Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since August 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be interested person of the Trust under
the federal securities laws due to his position as officer and director and
major shareholder of Franklin Resources, Inc. (Resources), which is the
parent company of the Trust's investment manager and distributor. Gregory
E. Johnson is considered to be interested person of the Trust under the
federal securities laws due to his position as officer and director
Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF ANN TORRE BATES AND DAVID W. NIEMIEC AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MS. BATES AND MR. NIEMIEC QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MS. BATES HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2008. SHE
CURRENTLY SERVES AS A DIRECTOR OF SLM CORPORATION AND ALLIED CAPITAL CORPORATION
AND WAS FORMERLY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF NHP
INCORPORATED AND VICE PRESIDENT AND TREASURER OF US AIRWAYS, INC. MR. NIEMIEC
HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005, CURRENTLY SERVES
AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY ITS MANAGING DIRECTOR FROM
1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS CORPORATION AND OSI
PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS FORMERLY MANAGING
DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS VICE CHAIRMAN
FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF DILLON, READ
& CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES
THAT MS. BATES AND MR. NIEMIEC HAVE EACH ACQUIRED AN UNDERSTANDING OF GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION
OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND
RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A
BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO
THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND
PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE
FUNCTIONS. MS. BATES AND MR. NIEMIEC ARE INDEPENDENT BOARD MEMBERS AS THAT TERM
IS DEFINED UNDER THE APPLICABLE U.S. SECURITIES AND EXCHANGE COMMISSION RULES
AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 42
Templeton China World Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held May 19, 2009, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for the Fund prepared by Lipper, Inc. (Lipper), an independent
organization, as well as additional material, including a Fund profitability
analysis report prepared by management. The Lipper report compared the Fund's
investment performance and expenses with those of other mutual funds deemed
comparable to the Fund as selected by Lipper. The Fund profitability analysis
report discussed the profitability to Franklin Templeton Investments from its
overall U.S. fund operations, as well as on an individual fund-by-fund basis.
Included with such profitability analysis report was information on a
fund-by-fund basis listing portfolio managers and other accounts they manage, as
well as information on management fees charged by the Manager and its affiliates
including management's explanation of differences where relevant and a
three-year expense analysis with an explanation for any increase in expense
ratios. Additional material accompanying such report was a memorandum prepared
by management describing project initiatives and capital investments relating to
the services provided to the Fund by the Franklin Templeton Investments
organization, as well as a memorandum relating to economies of scale and a
comparative analysis concerning transfer agent fees charged the Fund. Such
material also discussed some of the actions taken by management in coping with
problems arising out of the past year's financial upheaval.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy
43 | Annual Report
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
of net asset value calculations. The Board also noted the extent of benefits
provided Fund shareholders from being part of the Franklin Templeton family of
funds, including the right to exchange investments between the same class of
funds without a sales charge, the ability to reinvest Fund dividends into other
funds and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Among other factors taken into account by the Board
were the Manager's best execution trading policies, including a favorable report
by an independent portfolio trading analytical firm. Consideration was also
given to the experience of the Fund's portfolio management team, the number of
accounts managed and general method of compensation. In this latter respect, the
Board noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, and the
continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to the overall performance and
actions taken by the Manager and its affiliates in response to problems arising
out of the market turmoil and financial crisis experienced during the past year.
In this respect, the Board noted that management's independent credit analysis
and diligent risk management procedures had minimized exposure of funds within
the Franklin Templeton complex to subprime mortgages and that its continuous
monitoring of counterparty credit risk had limited fund exposure to firms
experiencing financial difficulties like Bear Stearns and AIG. The same type of
conservative approach and attention to risk had also prevented any structured
investment products or other volatile instruments from being held in the
portfolios of any of the money market funds within the Franklin Templeton
complex, including the sweep money fund utilized by many of the funds as part of
their cash management. The Board also took into account, among other things,
management's efforts in establishing a $725 million global credit facility for
the benefit of the funds and other accounts managed by Franklin Templeton
Investments to provide a source of cash for temporary and emergency purposes or
to meet unusual redemption requests as well as the strong financial position of
the Manager's parent company and its commitment to the mutual fund business. The
Board also noted that during the past year Franklin Templeton Investments, like
many other fund managers, had announced a hiring freeze and implemented employee
reductions, and the Board discussed with management the nature of such
reductions and steps being taken to minimize any negative impact on the nature
and quality of services being provided the Fund.
Annual Report | 44
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement renewal.
The Fund had converted from a closed-end fund to an open-end fund in August 2003
and the Lipper report for this agreement renewal showed the performance of the
Fund's Class A shares for the five-year period ended February 28, 2009, in
comparison with a performance universe consisting of the Fund and all retail and
institutional China region funds as selected by Lipper. Consistent with the
market sell-off that occurred in 2008, the Fund and all other funds within such
universe experienced losses for the one-year period. On a comparative basis, the
Lipper report showed the Fund's total return for the one-year period to be in
the highest, or best performing quintile of such performance universe, and to be
in the second-highest quintile of such universe during the previous three- and
five-year periods on an annualized basis. The Board noted such favorable
comparative performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group.
Lipper expense data is based upon historical information taken from each fund's
most recent annual report and, as a result of the severe decline in mutual fund
industry assets during the last quarter of 2008, is based on asset levels that
are higher than the level currently existing for most funds. While recognizing
the limitations inherent in Lipper's methodology and recognizing that current
expense ratios may increase as assets decline, the Board believed that the
independent analysis conducted by Lipper remained an appropriate measure of
comparative expenses. In reviewing comparative costs, Lipper provides
information on the Fund's contractual investment management fee in comparison
with the contractual investment management fee that would have been charged by
other funds within its Lipper expense group assuming they were similar in size
to the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper contractual investment management
fee analysis includes administrative charges as being part of a management fee,
and actual total expenses, for comparative consistency, are shown by Lipper for
Fund Class A shares. The Lipper expense group consisted of seven funds and the
expense comparisons showed the Fund's contractual investment management fee rate
to be the highest in such group, and its actual total expense rate to be the
second highest in such group. The Board noted that the Fund's actual total
expense rate was within 23 basis points of the expense group median and found
such comparative fee and expenses to be acceptable in view of the Fund's
comparative performance and factors relating to the Fund's operations, such as
the background and experience of its portfolio managers and research staff, and
their physical presence and coverage in the geographical area in which the Fund
invests.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin
45 | Annual Report
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Templeton's U.S. fund business, as well as its profits in providing management
and other services to the Fund during the 12-month period ended September 30,
2008, being the most recent fiscal year end for Franklin Resources, Inc., the
Manager's parent. During such period, the assets of the Franklin Templeton U.S.
fund business were significantly higher than currently existing, and to such
extent the profitability analysis does not reflect current fund operations.
While taking this into account in assessing the significance of the Fund
profitability analysis, the Board recognized such analysis was made at a given
point in time and that the decline in assets and effect on profitability would
be reflected in the profitability analysis covering Franklin Resources' 2009
fiscal year period. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to the Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that, while being continuously refined and reflecting
changes in the Manager's own cost accounting, the allocation methodology was
consistent with that followed in profitability report presentations for the Fund
made in prior years and that the Fund's independent registered public accounting
firm had been engaged by the Manager to perform certain procedures on a biennial
basis, specified and approved by the Manager and the Fund's Board solely for
their purposes and use in reference to the profitability analysis. In reviewing
and discussing such analysis, management discussed with the Board its belief
that costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to the Fund was not excessive in view of the nature,
quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager and its affiliates as the Fund grows larger and the
extent to which this is reflected in the level of management fees charged. While
recognizing that any precise determination is inherently subjective, the Board
noted that based upon the Fund profitability analysis, it appears that as some
funds get larger, at some point economies of scale do result in the Manager
realizing a larger profit
Annual Report | 46
Templeton China World Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
margin on management services provided such a fund. The Fund is charged a fee
for administrative services at the rate of 0.20% of its net assets, as well as a
separate fee for management advisory services at the rate of 1.25% on the first
$1 billion of its net assets; 1.20% on the next $4 billion of net assets; with
additional breakpoints continuing on net assets exceeding $5 billion. At the
start of 2008, the Fund had net assets of approximately $1.24 billion, which had
declined to $507 million at December 31, 2008, and the Board believed that to
the extent any economies of scale may be realized by the Manager and its
affiliates, this schedule of fees provides some sharing of benefits with the
Fund and its shareholders.
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.
47 | Annual Report
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ANNUAL 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 A2009 10/09
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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $35,517 for the fiscal year ended August 31, 2009 and $38,362 for the
fiscal year ended August 31, 2008.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $6,000 for the fiscal year ended
August 31, 2009 and $0 for the fiscal year ended August 31, 2008. The services
for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31, 2009
and $819 for the fiscal year ended August 31, 2008. The services for which these
fees were paid include review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31,
2009 and $283,258 for the fiscal year ended August 31, 2008. The services for
which these fees were paid include review of materials provided to the fund
Board in connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $6,000 for the fiscal year ended August 31, 2009 and $284,077
for the fiscal year ended August 31, 2008.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(A)(1) Code of Ethics
(A)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of 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: October 28, 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: October 28, 2009
By /s/MARK H. OTANI
- ------------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: October 28, 2009