<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
APRIL 29 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 12.05 $ 14.10
------- --------
Income from investment operations:
Net investment income .69 .48
Net realized and unrealized gain (loss) 1.64 (1.97)
------- --------
Total from investment operations 2.33 (1.49)
------- --------
Underwriting expenses deducted from capital -- (.15)
------- --------
Distributions:
Dividends from net investment income (.86) (.32)
Distributions from net realized gains (.11) (.09)
------- --------
Total distributions (.97) (.41)
------- --------
Change in net asset value 1.36 (2.05)
------- --------
Net asset value, end of period $ 13.41 $ 12.05
======= ========
TOTAL RETURN*
Based on market value per share 15.57% (11.25)%
Based on net asset value per share 19.34% (11.64)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $57,516 $ 51,022
Ratio of expenses, inclusive of fee waiver,
to average net assets 1.64% 1.79%**
Ratio of net investment income to average net
assets 5.29% 3.98%**
Portfolio turnover rate 26.92% 58.79%
Average commission rate paid (per share) $ .0008
</TABLE>
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 49.1%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.9%
Arcelik AS Tur. 1,528,843 $ 201,714
Bekoteknik AS Tur. 482,282 54,832
Foshan Electrical and Lighting Co.
Ltd., B Chn. 400,000 280,579
Semi-Tech (Global) Co. Ltd. H.K. 113,718 171,297
Turk Demir Dokum, br. Tur. 3,143,998 375,100
-----------
1,083,522
- -------------------------------------------------------------------------------
Automobiles: 1.0%
Associated Motorways Ltd. Lka. 72,000 57,502
Ciadea SA Arg. 59,333 272,932
Jardine International Motor
Holdings Ltd. H.K. 72,000 95,888
Otosan Otomobil Sanayii AS Tur. 212,700 73,144
Tofas Turk Otomobil Fabrikasi AS Tur. 944,000 108,650
-----------
608,116
- -------------------------------------------------------------------------------
Banking: 13.4%
Akbank Tur. 2,074,000 212,509
*Akbank, new Tur. 3,111,000 283,830
*Akbank, rts. Tur. 2,074,000 80,055
Alpha Credit Bank Gr. 14,000 1,005,689
Banco Bansud SA, B Arg. 2,110 17,935
Banco Bradesco SA Brz. 16,774,152 142,636
Banco Comercial Portugues SA Prt. 37,000 508,195
Banco de Galicia y Buenos Aires
SA, B Arg. 110,979 664,764
Banco do Brasil SA Braz. 2,705,276 27,112
Banco Espirito Santo e Comercial
de Lisboa Prt. 33,800 539,364
Banco Portugues de Investimento
SA, new Prt. 6,035 74,542
Banco Totta & Acores SA Prt. 12,000 233,659
Banco Totta & Acores SA, new Prt. 1,090 19,795
Daegu Bank Co. Ltd. Kor. 8,527 138,307
Ergo Bank SA Gr. 18,000 881,950
Espirito Santo Financial Holding
SA, ADR Port. 19,820 237,840
First National Bank Holdings Ltd. Zaf. 40,000 339,516
Grupo Financiero Banamex Accival
SA, B Mex. 72,000 153,269
Grupo Financiero Banamex Accival
SA, L Mex. 3,600 6,880
Grupo Financiero Bancomer SA de
CV, B Mex. 2,046,000 820,029
Grupo Financiero Bancomer SA de
CV, L Mex. 75,778 25,142
Grupo Financiero Serfin SA, B Mex. 40,000 26,012
HSBC Holdings PLC H.K. 57,299 859,411
National Bank of Greece SA Gr. 2,000 116,223
PT Ficorinvest Bank, fgn. Ind. 81,000 89,211
PT Inter-Pacific Bank, fgn. Ind. 9,500 6,908
</TABLE>
2
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Banking (cont.)
Turkiye Garanti Bankasi AS Tur. 2,003,400 $ 188,403
-----------
7,699,186
- -------------------------------------------------------------------------------
Building Materials & Components: 3.8%
Akcimento Ticaret AS Tur. 75,000 72,637
Cemex SA, B Mex. 262,000 997,930
Cimentas Izmir Cimento Fabrikasi
TAS Tur. 525,250 335,446
Cimsa Cimento Sanayi ve Ticaret AS Tur. 224,000 138,340
Izocam Ticaret ve Sanayii AS, br. Tur. 49,714 6,699
K Wah International Holdings Ltd. H.K. 885,051 140,757
*K Wah International Holdings
Ltd., wts. H.K. 83,806 3,793
*Royal Ceramic Industry Public Co.
Ltd. Tha. 149,000 213,928
*Royal Ceramic Industry Public Co.
Ltd., fgn. Tha. 32,000 45,944
Shanghai Yaohua Pilkington Glass,
B Chn. 77,000 73,920
Thai Asahi Glass Public Co. Ltd. Tha. 72,610 138,042
-----------
2,167,436
- -------------------------------------------------------------------------------
Chemicals: 0.4%
PT Unggul Indah Corp., fgn. Ind. 68,200 73,655
Shanghai Chlor-Alkali Chemical Co.
Ltd., B Chn. 312,000 77,376
Shenzhen Petrochemical (Group)
Shareholding
Co. Ltd., B Chn. 249,600 57,123
-----------
208,154
- -------------------------------------------------------------------------------
Construction & Housing: 0.2%
Hopewell Holdings Ltd. H.K. 206,106 119,922
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.5%
*Dae Duck Electronics Co. Ltd. Kor. 2,060 84,796
*Great Wall Electronic
International Ltd. H.K. 566,000 43,178
Netas Northern Electric
Telekomunic Asyon AS Tur. 594,000 183,423
-----------
311,397
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
S. Megga International Holdings
Ltd. H.K. 494,000 19,482
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.1%
Ssangyong Oil Refining Co., Ltd Kor. 1,000 24,161
- -------------------------------------------------------------------------------
Energy Sources: 1.6%
Engen Ltd. Zaf. 25,774 182,468
*Engen Ltd., rts. Zaf. 6,443 1,620
Perez Companc SA, B Arg. 14,690 83,145
Transportadora de Gas del Sur SA,
B Arg. 81,931 193,357
</TABLE>
3
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Energy Sources (cont.)
YPF Sociedad Anonima, ADR Arg. 24,000 $ 483,000
-----------
943,590
- -------------------------------------------------------------------------------
Financial Services: 1.0%
Alpha Leasing SA Gr. 10,000 220,072
Etba Leasing Gr. 12,600 218,694
PT Sinar Mas Multi Artha, fgn. Ind. 28,000 31,138
Sun Hung Kai & Co. Ltd. H.K. 349,000 108,301
-----------
578,205
- -------------------------------------------------------------------------------
Food & Household Products: 1.9%
Chareon Pokphand Feedmill Public
Co. Ltd., fgn. Tha. 13,000 82,383
Del Monte Royal Foods Ltd. Zaf. 5,800 7,293
Elais Oleaginous Co. Gr. 8,800 285,014
Grupo Industrial Maseca SA de CV,
B Mex. 25,913 21,803
PT Anwar Sierad, fgn. Ind. 102,000 97,070
PT Charoen Pokphand Indonesia,
fgn. Ind. 46,000 95,423
PT Cipendawa Farm Enterprises,
fgn. Ind. 65,000 54,908
PT Japfa Comfeed Indonesia, fgn. Ind. 67,000 42,985
PT Multibreeder Adirama, fgn. Ind. 193,500 94,143
Vitro SA Mex. 166,000 313,715
-----------
1,094,737
- -------------------------------------------------------------------------------
Forest Products & Paper: 0.7%
Portucel Industrial Empresa
Product de Celulose SA Prt. 32,000 192,801
PT Barito Pacific Timber, fgn. Ind. 221,000 222,134
-----------
414,935
- -------------------------------------------------------------------------------
Health & Personal Care: 0.1%
Hankook Cosmetics Co. Ltd. Kor. 3,000 71,333
- -------------------------------------------------------------------------------
Industrial Components: 0.5%
Marshall Boya ve Vernik Sanayii AS Tur. 1,620,528 161,496
*Shanghai Rubber Belt Co. Ltd., B Chn. 549,000 103,212
Shanghai Tyre & Rubber Co. Ltd., B Chn. 169,000 42,250
-----------
306,958
- -------------------------------------------------------------------------------
Insurance: 0.1%
Anadolu Anonim Turk Sigorta
Sirketi Tur. 305,920 23,187
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.6%
Hinds Hotels International Ltd. Sgp. 129,000 149,371
Shangri-La Hotels (Malaysia) Bhd. Mal. 141,000 152,147
</TABLE>
4
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Leisure & Tourism (cont.)
Shangri La Hotels (Malaysia) Bhd.,
fgn. Mal. 27,000 $ 29,134
-----------
330,652
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.3%
*Keppel Philippine Holdings Inc., B Phl. 265,625 78,125
*Shanghai Erfangji Textile
Machinery Co. Ltd., B Chn. 323,400 42,689
Shanghai Industrial Sewing Machine
Corp. Chn. 192,000 26,112
Shanghai Steel Tube Co. Ltd., B Chn. 249,700 33,959
-----------
180,885
- -------------------------------------------------------------------------------
Merchandising: 0.7%
*Cifra SA, C Mex. 68,056 89,236
Dairy Farm International Holdings
Ltd. H.K. 126,693 119,725
Wo Kee Hong Holdings Ltd. H.K. 1,010,000 180,217
*Yaohan Hongkong Corp. Ltd. H.K. 460,000 22,007
-----------
411,185
- -------------------------------------------------------------------------------
Metals & Mining: 1.6%
Antofagasta Holdings PLC Chl. 34,000 188,376
Eregli Demir ve Celik Fabrikalari
AS Tur. 1,736,000 202,243
Hellas Can--Container Manufacturers Gr. 18,270 413,831
Philex Minning Corp., B Phl. 1,103,300 115,893
-----------
920,343
- -------------------------------------------------------------------------------
Multi-Industry: 5.1%
Cheung Kong Holdings Ltd. H.K. 106,000 746,961
Clal Industries Ltd. Isr. 10,000 57,173
DESC SA, B Mex. 3,033 13,786
Jardine Strategic Holdings Ltd. H.K. 28,125 88,875
*Jardine Strategic Holdings Ltd.,
wts. H.K. 3,125 1,172
Koc Holding AS Tur. 699,000 210,941
Koc Yatirim ve Sanayii Mamullesi
Pazarlanca AS Tur. 1,096,000 307,671
Lai Sun Garment International Ltd. H.K. 163,000 186,521
Perlis Plantations Bhd., fgn. Mal. 60,000 220,553
Rembrandt Group Ltd. Zaf. 20,000 182,333
Saha Union Public Co. Ltd., fgn. Tha. 80,000 109,316
Shenzhen Gintian Industrial Co.
Ltd., B Chn. 208,800 55,615
*Sociedad Comercial del Palata
Cadelplata Come Arg. 151,000 407,700
Stelux International Holdings Ltd. H.K. 473,254 108,921
Transarchipel Shipping Ltd.--TSL Zmb. 700,000 225,574
-----------
2,923,112
- -------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate: 4.4%
Bangkok Land Public Co. Ltd., fgn. Tha. 118,000 $ 161,240
First Capital Corp., Ltd., fgn. Sgp. 36,000 112,013
Hang Lung Development Co. Ltd. H.K. 300,000 572,149
Lai Sun Development Co. Ltd. H.K. 1,178,000 199,532
New World Development Co. Ltd. H.K. 112,926 525,645
PT Duta Anggada Realty, fgn. Ind. 162,000 98,738
PT Summarecon Agung, fgn. Ind. 153,000 89,981
Shanghai Jinqiao Export Processing
Zone
Development, B Chn. 115,000 36,800
Shenzhen Properties & Resources
Development
(Group) Ltd., B Chn. 209,000 39,184
Sun Hung Kai Properties Ltd. H.K. 65,000 582,008
Tian An China Investments Co. Ltd. H.K. 768,000 119,162
-----------
2,536,452
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 1.0%
China First Pencil Co. Ltd., B Chn. 366,000 135,420
*Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 1,572,000 47,969
Shanghai Wingsung Stationery Co.
Ltd., B Chn. 297,000 55,242
Shenzhen China Bicycles Co.
(Holdings) Ltd., B Chn. 139,200 22,498
Yue Yuen Industrial (Holdings)
Ltd. H.K. 1,236,000 300,450
-----------
561,579
- -------------------------------------------------------------------------------
Telecommunications: 3.3%
Pakistan Telecom Corp. PTC Pkr. 29,000 29,517
Telebras-Telecomunicacoes
Brasileiras SA Brz. 4,525,000 179,104
Telmex-Telefonos de Mexico SA, L,
ADR Mex. 51,800 1,702,925
-----------
1,911,546
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.8%
Hua Thai Manufacturing Public Co.
Ltd. Tha. 16,000 40,558
*Laws International Holdings Ltd. H.K. 438,000 43,607
PT Eratex Djaja, fgn. Ind. 144,000 46,193
PT Ganda Wangsa Utama, fgn. Ind. 275,600 91,356
PT Hadtex Indosyntec, fgn. Ind. 114,000 62,168
PT Polysindo Eka Perkasa, fgn. Ind. 616,000 368,862
Shanghai Lian Hua Fibre Corp., B Chn. 248,400 42,228
Thai Rayon Public Co. Ltd. Tha. 17,000 113,791
Thai Wacoal Public Co. Ltd., fgn. Tha. 12,500 100,874
Tungtex (Holdings) Co. Ltd. H.K. 1,364,000 126,982
-----------
1,036,619
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
APRIL 29, 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 12.05 $ 14.10
------- --------
Income from investment operations:
Net investment income .69 .48
Net realized and unrealized gain (loss) 1.64 (1.97)
------- --------
Total from investment operations 2.33 (1.49)
------- --------
Underwriting expenses deducted from capital -- (.15)
------- --------
Distributions:
Dividends from net investment income (.86) (.32)
Distributions from net realized gains (.11) (.09)
------- --------
Total distributions (.97) (.41)
------- --------
Change in net asset value 1.36 (2.05)
------- --------
Net asset value, end of period $ 13.41 $ 12.05
======= ========
TOTAL RETURN*
Based on market value per share 15.57% (11.25)%
Based on net asset value per share 19.34% (11.64)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $57,516 $ 51,022
Ratio of expenses, inclusive of fee waiver,
to average net assets 1.64% 1.79%**
Ratio of net investment income to average net
assets 5.29% 3.98%**
Portfolio turnover rate 26.92% 58.79%
Average commission rate paid (per share) $ .0008
</TABLE>
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 49.1%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.9%
Arcelik AS Tur. 1,528,843 $ 201,714
Bekoteknik AS Tur. 482,282 54,832
Foshan Electrical and Lighting Co.
Ltd., B Chn. 400,000 280,579
Semi-Tech (Global) Co. Ltd. H.K. 113,718 171,297
Turk Demir Dokum, br. Tur. 3,143,998 375,100
-----------
1,083,522
- -------------------------------------------------------------------------------
Automobiles: 1.0%
Associated Motorways Ltd. Lka. 72,000 57,502
Ciadea SA Arg. 59,333 272,932
Jardine International Motor
Holdings Ltd. H.K. 72,000 95,888
Otosan Otomobil Sanayii AS Tur. 212,700 73,144
Tofas Turk Otomobil Fabrikasi AS Tur. 944,000 108,650
-----------
608,116
- -------------------------------------------------------------------------------
Banking: 13.4%
Akbank Tur. 2,074,000 212,509
*Akbank, new Tur. 3,111,000 283,830
*Akbank, rts. Tur. 2,074,000 80,055
Alpha Credit Bank Gr. 14,000 1,005,689
Banco Bansud SA, B Arg. 2,110 17,935
Banco Bradesco SA Brz. 16,774,152 142,636
Banco Comercial Portugues SA Prt. 37,000 508,195
Banco de Galicia y Buenos Aires
SA, B Arg. 110,979 664,764
Banco do Brasil SA Braz. 2,705,276 27,112
Banco Espirito Santo e Comercial
de Lisboa Prt. 33,800 539,364
Banco Portugues de Investimento
SA, new Prt. 6,035 74,542
Banco Totta & Acores SA Prt. 12,000 233,659
Banco Totta & Acores SA, new Prt. 1,090 19,795
Daegu Bank Co. Ltd. Kor. 8,527 138,307
Ergo Bank SA Gr. 18,000 881,950
Espirito Santo Financial Holding
SA, ADR Port. 19,820 237,840
First National Bank Holdings Ltd. Zaf. 40,000 339,516
Grupo Financiero Banamex Accival
SA, B Mex. 72,000 153,269
Grupo Financiero Banamex Accival
SA, L Mex. 3,600 6,880
Grupo Financiero Bancomer SA de
CV, B Mex. 2,046,000 820,029
Grupo Financiero Bancomer SA de
CV, L Mex. 75,778 25,142
Grupo Financiero Serfin SA, B Mex. 40,000 26,012
HSBC Holdings PLC H.K. 57,299 859,411
National Bank of Greece SA Gr. 2,000 116,223
PT Ficorinvest Bank, fgn. Ind. 81,000 89,211
PT Inter-Pacific Bank, fgn. Ind. 9,500 6,908
</TABLE>
8
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Banking (cont.)
Turkiye Garanti Bankasi AS Tur. 2,003,400 $ 188,403
-----------
7,699,186
- -------------------------------------------------------------------------------
Building Materials & Components: 3.8%
Akcimento Ticaret AS Tur. 75,000 72,637
Cemex SA, B Mex. 262,000 997,930
Cimentas Izmir Cimento Fabrikasi
TAS Tur. 525,250 335,446
Cimsa Cimento Sanayi ve Ticaret AS Tur. 224,000 138,340
Izocam Ticaret ve Sanayii AS, br. Tur. 49,714 6,699
K Wah International Holdings Ltd. H.K. 885,051 140,757
*K Wah International Holdings
Ltd., wts. H.K. 83,806 3,793
*Royal Ceramic Industry Public Co.
Ltd. Tha. 149,000 213,928
*Royal Ceramic Industry Public Co.
Ltd., fgn. Tha. 32,000 45,944
Shanghai Yaohua Pilkington Glass,
B Chn. 77,000 73,920
Thai Asahi Glass Public Co. Ltd. Tha. 72,610 138,042
-----------
2,167,436
- -------------------------------------------------------------------------------
Chemicals: 0.4%
PT Unggul Indah Corp., fgn. Ind. 68,200 73,655
Shanghai Chlor-Alkali Chemical Co.
Ltd., B Chn. 312,000 77,376
Shenzhen Petrochemical (Group)
Shareholding
Co. Ltd., B Chn. 249,600 57,123
-----------
208,154
- -------------------------------------------------------------------------------
Construction & Housing: 0.2%
Hopewell Holdings Ltd. H.K. 206,106 119,922
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.5%
*Dae Duck Electronics Co. Ltd. Kor. 2,060 84,796
*Great Wall Electronic
International Ltd. H.K. 566,000 43,178
Netas Northern Electric
Telekomunic Asyon AS Tur. 594,000 183,423
-----------
311,397
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
S. Megga International Holdings
Ltd. H.K. 494,000 19,482
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.1%
Ssangyong Oil Refining Co., Ltd Kor. 1,000 24,161
- -------------------------------------------------------------------------------
Energy Sources: 1.6%
Engen Ltd. Zaf. 25,774 182,468
*Engen Ltd., rts. Zaf. 6,443 1,620
Perez Companc SA, B Arg. 14,690 83,145
Transportadora de Gas del Sur SA,
B Arg. 81,931 193,357
</TABLE>
9
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Energy Sources (cont.)
YPF Sociedad Anonima, ADR Arg. 24,000 $ 483,000
-----------
943,590
- -------------------------------------------------------------------------------
Financial Services: 1.0%
Alpha Leasing SA Gr. 10,000 220,072
Etba Leasing Gr. 12,600 218,694
PT Sinar Mas Multi Artha, fgn. Ind. 28,000 31,138
Sun Hung Kai & Co. Ltd. H.K. 349,000 108,301
-----------
578,205
- -------------------------------------------------------------------------------
Food & Household Products: 1.9%
Chareon Pokphand Feedmill Public
Co. Ltd., fgn. Tha. 13,000 82,383
Del Monte Royal Foods Ltd. Zaf. 5,800 7,293
Elais Oleaginous Co. Gr. 8,800 285,014
Grupo Industrial Maseca SA de CV,
B Mex. 25,913 21,803
PT Anwar Sierad, fgn. Ind. 102,000 97,070
PT Charoen Pokphand Indonesia,
fgn. Ind. 46,000 95,423
PT Cipendawa Farm Enterprises,
fgn. Ind. 65,000 54,908
PT Japfa Comfeed Indonesia, fgn. Ind. 67,000 42,985
PT Multibreeder Adirama, fgn. Ind. 193,500 94,143
Vitro SA Mex. 166,000 313,715
-----------
1,094,737
- -------------------------------------------------------------------------------
Forest Products & Paper: 0.7%
Portucel Industrial Empresa
Product de Celulose SA Prt. 32,000 192,801
PT Barito Pacific Timber, fgn. Ind. 221,000 222,134
-----------
414,935
- -------------------------------------------------------------------------------
Health & Personal Care: 0.1%
Hankook Cosmetics Co. Ltd. Kor. 3,000 71,333
- -------------------------------------------------------------------------------
Industrial Components: 0.5%
Marshall Boya ve Vernik Sanayii AS Tur. 1,620,528 161,496
*Shanghai Rubber Belt Co. Ltd., B Chn. 549,000 103,212
Shanghai Tyre & Rubber Co. Ltd., B Chn. 169,000 42,250
-----------
306,958
- -------------------------------------------------------------------------------
Insurance: 0.1%
Anadolu Anonim Turk Sigorta
Sirketi Tur. 305,920 23,187
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.6%
Hinds Hotels International Ltd. Sgp. 129,000 149,371
Shangri-La Hotels (Malaysia) Bhd. Mal. 141,000 152,147
</TABLE>
10
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Leisure & Tourism (cont.)
Shangri La Hotels (Malaysia) Bhd.,
fgn. Mal. 27,000 $ 29,134
-----------
330,652
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.3%
*Keppel Philippine Holdings Inc., B Phl. 265,625 78,125
*Shanghai Erfangji Textile
Machinery Co. Ltd., B Chn. 323,400 42,689
Shanghai Industrial Sewing Machine
Corp. Chn. 192,000 26,112
Shanghai Steel Tube Co. Ltd., B Chn. 249,700 33,959
-----------
180,885
- -------------------------------------------------------------------------------
Merchandising: 0.7%
*Cifra SA, C Mex. 68,056 89,236
Dairy Farm International Holdings
Ltd. H.K. 126,693 119,725
Wo Kee Hong Holdings Ltd. H.K. 1,010,000 180,217
*Yaohan Hongkong Corp. Ltd. H.K. 460,000 22,007
-----------
411,185
- -------------------------------------------------------------------------------
Metals & Mining: 1.6%
Antofagasta Holdings PLC Chl. 34,000 188,376
Eregli Demir ve Celik Fabrikalari
AS Tur. 1,736,000 202,243
Hellas Can--Container Manufacturers Gr. 18,270 413,831
Philex Minning Corp., B Phl. 1,103,300 115,893
-----------
920,343
- -------------------------------------------------------------------------------
Multi-Industry: 5.1%
Cheung Kong Holdings Ltd. H.K. 106,000 746,961
Clal Industries Ltd. Isr. 10,000 57,173
DESC SA, B Mex. 3,033 13,786
Jardine Strategic Holdings Ltd. H.K. 28,125 88,875
*Jardine Strategic Holdings Ltd.,
wts. H.K. 3,125 1,172
Koc Holding AS Tur. 699,000 210,941
Koc Yatirim ve Sanayii Mamullesi
Pazarlanca AS Tur. 1,096,000 307,671
Lai Sun Garment International Ltd. H.K. 163,000 186,521
Perlis Plantations Bhd., fgn. Mal. 60,000 220,553
Rembrandt Group Ltd. Zaf. 20,000 182,333
Saha Union Public Co. Ltd., fgn. Tha. 80,000 109,316
Shenzhen Gintian Industrial Co.
Ltd., B Chn. 208,800 55,615
*Sociedad Comercial del Palata
Cadelplata Come Arg. 151,000 407,700
Stelux International Holdings Ltd. H.K. 473,254 108,921
Transarchipel Shipping Ltd.--TSL Zmb. 700,000 225,574
-----------
2,923,112
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate: 4.4%
Bangkok Land Public Co. Ltd., fgn. Tha. 118,000 $ 161,240
First Capital Corp., Ltd., fgn. Sgp. 36,000 112,013
Hang Lung Development Co. Ltd. H.K. 300,000 572,149
Lai Sun Development Co. Ltd. H.K. 1,178,000 199,532
New World Development Co. Ltd. H.K. 112,926 525,645
PT Duta Anggada Realty, fgn. Ind. 162,000 98,738
PT Summarecon Agung, fgn. Ind. 153,000 89,981
Shanghai Jinqiao Export Processing
Zone
Development, B Chn. 115,000 36,800
Shenzhen Properties & Resources
Development
(Group) Ltd., B Chn. 209,000 39,184
Sun Hung Kai Properties Ltd. H.K. 65,000 582,008
Tian An China Investments Co. Ltd. H.K. 768,000 119,162
-----------
2,536,452
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 1.0%
China First Pencil Co. Ltd., B Chn. 366,000 135,420
*Fu Hui Jewellery Co. (H.K.) Ltd. H.K. 1,572,000 47,969
Shanghai Wingsung Stationery Co.
Ltd., B Chn. 297,000 55,242
Shenzhen China Bicycles Co.
(Holdings) Ltd., B Chn. 139,200 22,498
Yue Yuen Industrial (Holdings)
Ltd. H.K. 1,236,000 300,450
-----------
561,579
- -------------------------------------------------------------------------------
Telecommunications: 3.3%
Pakistan Telecom Corp. PTC Pkr. 29,000 29,517
Telebras-Telecomunicacoes
Brasileiras SA Brz. 4,525,000 179,104
Telmex-Telefonos de Mexico SA, L,
ADR Mex. 51,800 1,702,925
-----------
1,911,546
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.8%
Hua Thai Manufacturing Public Co.
Ltd. Tha. 16,000 40,558
*Laws International Holdings Ltd. H.K. 438,000 43,607
PT Eratex Djaja, fgn. Ind. 144,000 46,193
PT Ganda Wangsa Utama, fgn. Ind. 275,600 91,356
PT Hadtex Indosyntec, fgn. Ind. 114,000 62,168
PT Polysindo Eka Perkasa, fgn. Ind. 616,000 368,862
Shanghai Lian Hua Fibre Corp., B Chn. 248,400 42,228
Thai Rayon Public Co. Ltd. Tha. 17,000 113,791
Thai Wacoal Public Co. Ltd., fgn. Tha. 12,500 100,874
Tungtex (Holdings) Co. Ltd. H.K. 1,364,000 126,982
-----------
1,036,619
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Transportation: 1.2%
Chiwan Wharf Holdings Ltd., B Chn. 170,000 $ 66,712
Malaysian International Shipping
Corp. Bhd., fgn. Mal. 229,333 648,115
-----------
714,827
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 1.6%
Central Costanera SA, B Arg. 120,000 348,000
Central Termoelectricia de Buenos
Aires Arg. 14,646 17,575
CEZ, GDR Csk. 8,000 304,000
CEZ, GDS, 144A U.S. 6,000 228,000
-----------
897,575
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.2%
East Asiatic Co. (Hong Kong) Ltd. H.K. 945,000 123,410
-----------
TOTAL COMMON STOCKS (cost $30,852,891) 28,222,506
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 3.3%
- -------------------------------------------------------------------------------
Banco do Brazil SA, pfd. Brz. 20,000,000 202,460
Banespa-Banco do Estado de Sao
Paulo SA, pfd. Brz. 1,924,200 7,616
Cia Mesbla SA, pfd. Brz. 2,465,000 53,649
Eletrobras-Centrais Eletricas
Brasileiras SA, B, pfd. Brz. 2,613,000 714,188
Itausa-Investimentos Itau SA, pfd. Brz. 72,200 48,969
Petrobras-Petroleo Brasileiro SA,
pfd. Brz. 7,347,000 877,609
-----------
TOTAL PREFERRED STOCKS (cost $2,430,571) 1,904,491
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
BONDS--CORPORATE: 7.6%
- -------------------------------------------------------------------------------
Bariven SA, 10.625%, 3/17/02 U.S. 330,000 $ 336,600
Bridas Corp., Yankee, 12.50%,
11/15/99 U.S. 460,000 480,125
Centrais Electricas
Brasileiras SA, 10.00%,
10/30/98, 144A U.S. 200,000 204,250
CEZ, 14.375%, 1/27/01 Csk. 15,590,000 616,694
Essar Gujarat Ltd., 8.09922%,
FRN, 7/15/99, 144A U.S. 210,000 204,750
Guaranteed Capital Corp.
Ltd., 11.00%, 3/21/97 U.S. 150,000 150,375
Industrias Metalurficas
Pescarmona, 11.75%, 3/27/98 U.S. 250,000 250,000
Philippine Long Distance
Telephone Co., 10.625%,
6/02/04 U.S. 500,000 539,700
PIV Investment Finance
(Cayman) Ltd., 4.50%, conv.,
12/01/00 U.S. 330,000 278,850
Produvisa Capital Corp.,
9.50%, 11/29/96 U.S. 350,000 336,000
PT Astra International,
9.75%, 4/29/01 U.S. 175,000 188,125
PT Polysindo Eka Perkasa
Global, 13.00%, 6/15/01 U.S. 500,000 527,500
Tjiwi Kimia International
Finance Co. BV, 13.25%,
8/01/01 U.S. 250,000 268,750
-----------
TOTAL BONDS--CORPORATE (cost $4,197,898) 4,381,719
- -------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES:
27.9%
- -------------------------------------------------------------------------------
Abril SA, 12.00%, 10/25/03,
144A U.S. 250,000 259,375
Argentina Domestic Securities
(Morgan Stanley), 14.75%,
9/01/02 U.S. 430,000 416,025
Associacion Nacional del
Cafe, 11.00%, 8/31/98 U.S. 460,000 473,800
Banco Central de Costa Rica,
A, 6.25%, 5/21/10 U.S. 400,000 260,000
Banco Ganadero SA, 9.75%,
8/26/99, 144A U.S. 200,000 204,500
Bancomer S.A., 8.00%, 7/07/98 U.S. 500,000 480,000
Brazil C Bond, 8.00%, 4/15/14 U.S. 1,167,331 688,301
Ceskoslovenska Bchodni Banka,
11.125%, 8/26/97 Csk. 5,420,000 201,376
Argentina Local Markets
Securities Trust 1994-1
(Goldman Sachs Group, L.P.),
13.375%, 8/15/01 U.S. 750,000 757,500
Government of Brazil:
4.25%, 4/15/24 U.S. 1,750,000 890,312
6.375%, FRN, A, 1/01/01 U.S. 1,534,500 1,377,214
conv., L, 6.875%, FRN,
4/15/12 U.S. 1,200,000 744,000
Government of Poland:
2.750%, 10/27/24 U.S. 1,000,000 492,500
PDI, 3.75%, FRN, 10/27/14 U.S. 347,000 262,852
6.875%, FRN, 10/27/24 U.S. 319,000 282,315
Government of Uruguay, A,
6.75%, 2/19/21 U.S. 250,000 180,000
Kingdom of Jordan, 6.4375%,
FRN, 12/23/05 U.S. 700,000 542,500
</TABLE>
14
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES
(CONT.)
- --------------------------------------------------------------------------------
Kingdom of Morocco Loan
Partn., 6.59375%, FRN,
1/01/09 U.S. 1,500,000 $ 1,031,250
National Bank of Hungary,
7.95%, 11/01/03 U.S. 200,000 198,000
Philippine Pars, B, 6.25%,
FRN, 12/01/17 U.S. 500,000 393,750
Republic of Argentina:
6.5625%, FRN, 3/31/23 U.S. 300,000 193,125
6.3125%, FRN, 3/31/05 U.S. 965,000 696,006
Republic of Bulgaria, IAB,
6.25%, FRN, 7/28/24 U.S. 1,000,000 448,125
Republic of Ecuador:
6.0625%, FRN, 2/28/25, 144A U.S. 825,000 440,344
6.8125%, FRN, 2/27/15 U.S. 1,051,683 412,600
IE, 6.50%, FRN, 12/21/04,
144A U.S. 168,150 116,024
PDI, 3.00%, FRN, 2/27/15,
144A U.S. 854,882 333,355
Republic of Lithuania:
10.00%, 12/22/97 U.S. 10,000 9,887
10.00%, 12/22/97, 144A U.S. 150,000 148,312
Republic of Panama, 6.75%,
FRN, 5/10/02 U.S. 500,000 443,750
Sei Holdings IX Inc., 11%,
11/30/20, 144A U.S. 210,000 218,400
Thailand Military Bank, CD
11.00%, 6/05/96 Thb. 10,000,000 390,526
United Mexican States:
10.8125%, FRN, 7/20/97, 144A U.S. 750,000 777,188
A, 6.25% 12/31/19 U.S. 700,000 445,375
B, 6.25%, 12/31/19 U.S. 560,000 356,300
Venezuela Front Load Interest
Reduction Bond, B, 6.625%,
3/31/07 U.S. 750,000 457,500
-----------
TOTAL BONDS--GOVERNMENT & GOVERNMENT
AGENCIES (cost $15,353,494) 16,022,387
- --------------------------------------------------------------------------------
INDEXED SECURITIES: 0.9%
- --------------------------------------------------------------------------------
Morgan Stanley Group,
Principal and interest is
linked to the change in the
Indian Rupee to U.S. Dollar
foreign exchange rate
between issue date (31.41
Rupee/U.S. Dollar) and
maturity date, 14.00%,
6/26/96 U.S. 210,000 185,850
National Westminister Bank
PLC Principal and interest
is linked to the change in
the Indian Rupee to U.S.
Dollar foreign exchange rate
between issue date (31.42
Rupee/U.S. Dollar) and
maturity date, 14.00%,
4/24/96 U.S. 350,000 316,890
-----------
TOTAL INDEXED SECURITIES (cost $582,893) 502,740
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 9.8% (cost
$5,650,969)
- -----------------------------------------------------------------------------
U.S. Treasury Bills, 4.59%
to 5.09%, with
maturities to 6/06/96 U.S. 5,700,000 $ 5,650,190
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.6% (cost
$59,068,716) 56,684,033
UNREALIZED LOSS IN FORWARD EXCHANGE
CONTRACTS: (0.1%) (1,021)
OTHER ASSETS, LESS LIABILITIES: 1.5% 832,896
-----------
TOTAL NET ASSETS: 100.0% $57,515,908
===========
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$59,068,716) $ 56,684,033
Cash 2,815
Receivables:
Investment securities sold 180,942
Dividends and interest 806,646
Unamortized organization costs 12,099
------------
Total assets 57,686,535
------------
Liabilities:
Unrealized loss in forward exchange
contracts (Note 5) 1,021
Accrued expenses 169,606
------------
Total liabilities 170,627
------------
Net assets, at value $ 57,515,908
============
Net assets consist of:
Net unrealized depreciation $ (2,386,121)
Accumulated net realized gain 67,886
Net capital paid in on shares of capital stock 59,834,143
------------
Net assets, at value $ 57,515,908
============
Shares outstanding 4,288,756
============
Net asset value per share
($57,515,908 / 4,288,756) $ 13.41
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended March 31, 1996
<TABLE>
<S> <C> <C>
Investment income:
(net of $59,520 foreign taxes withheld)
Dividends $1,026,800
Interest 2,835,040
----------
Total income $3,861,840
Expenses:
Management fees (Note 3) 552,008
Administrative fees (Note 3) 139,232
Transfer agent fees 47,865
Custodian fees 45,155
Reports to shareholders 22,743
Audit fees 44,800
Legal fees (Note 3) 12,970
Registration and filing fees 16,784
Directors' fees and expenses 14,899
Amortization of organization costs 3,909
Other 15,724
----------
Total expenses 916,089
----------
Net investment income 2,945,751
Realized and unrealized gain:
Net realized gain on:
Investments 380,237
Foreign currency transactions 1,070
----------
381,307
----------
Net unrealized appreciation on:
Investments 6,490,508
Foreign currency translation of other assets and
liabilities 11,556
----------
6,502,064
----------
Net realized and unrealized gain 6,883,371
----------
Net increase in net assets resulting from operations $9,829,122
==========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
17
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 29, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,945,751 $ 2,039,681
Net realized gain on investment and foreign
currency transactions 381,307 542,555
Net unrealized appreciation (depreciation) 6,502,064 (8,888,185)
----------- -----------
Net increase (decrease) in net assets
resulting from operations 9,829,122 (6,305,949)
Distributions to shareholders:
From net investment income (3,652,323) (1,333,109)
From net realized gain (453,927) (402,049)
Capital share transactions (Note 2) 771,006 58,963,126
----------- -----------
Net increase in net assets 6,493,878 50,922,019
Net assets:
Beginning of period 51,022,030 100,011
----------- -----------
End of period $57,515,908 $51,022,030
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Emerging Markets Appreciation Fund, Inc. (the Fund) was organized as
a Maryland corporation and is a closed-end, non-diversified management invest-
ment company registered under the Investment Company Act of 1940. The Fund
seeks to achieve its objective by investing primarily in equity securities and
debt obligations of issuers in emerging market countries. The following summa-
rizes the Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange
on which the securities are traded. Over-the-counter securities and listed se-
curities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and ap-
proved in good faith by the Board of Directors.
b. Foreign Exchange Contracts:
The Fund may enter into forward exchange contracts and currency option con-
tracts in order to hedge against foreign exchange risks.
(i) Forward Exchange Contracts: These contracts are valued daily and the
Fund's equity therein, representing unrealized gain or loss on the con-
tracts, is included in the Statement of Assets and Liabilities. Realized
and unrealized gains and losses are included in the Statement of Opera-
tions.
(ii) Currency Option Contracts: Options purchased are recorded as invest-
ments: options written (sold) are accounted for as liabilities. When an op-
tion expires, the premium (original option value) is realized as a gain if
the option was written or realized as a loss if the option was purchased.
When the exercise of an option results in a cash settlement, the difference
between the premium and the settlement proceeds is realized as a gain or
loss. When securities are acquired or delivered upon exercise of an option,
the acquisition cost or sale proceeds are adjusted by the amount of the
premium. When an option is closed, the difference between the premium and
the cost to close the position is realized as a gain or loss.
c. Indexed Securities:
The Fund may invest in debt instruments in which the principal and/or interest
is dependent on another factor such as yield curve, currency exchange rates or
commodity prices. The Fund's objective in holding these notes, commonly called
structured notes, is to tailor the Fund's investments to the specific risk and
returns it wishes to assume while avoiding unwanted risk.
d. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest,
19
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign ex-
change gains and losses arise from changes in the value of assets and liabili-
ties other than investments in securities at the end of the fiscal period, re-
sulting from changes in the exchange rates.
e. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
f. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
g. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over five
years.
h. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
On April 29, 1994, the Fund completed its initial public offering of 4,000,000
shares of its common stock. Proceeds paid to the Fund amounted to $55,776,685,
after deduction of underwriting commissions and expenses of $623,315. On June
17, 1994, the Fund completed a subsequent offering of 225,000 shares of its
common stock resulting in additional proceeds of $3,172,500.
At March 31, 1996, there were 100,000,000 shares of capital stock authorized
($0.01 par value).
During the year ended March 31, 1996, and for the period from June 17, 1994 to
March 31, 1995 55,508 and 1,155 shares were issued for $771,006 and $13,942,
respectively, from reinvested distributions.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton Asset
Management Limited (TAML), Templeton Investment Counsel, Inc. (TICI) and Tem-
pleton Global Investors, Inc. (TGII), the Fund's investment manager, sub-advi-
sor and administrative manager, respectively.
The Fund pays monthly an investment management fee to TAML equal, on an annual
basis, to 1.25% of the average daily net assets of the Fund. TAML has entered
into a sub-advisory agreement with TICI, whereby TICI manages the debt compo-
nent of the Fund's portfolio. For its services TAML pays to TICI a fee equal,
on an annual basis, to 0.30% of the Fund's average daily net assets. TAML pays
monthly an economic consulting and shareholder servicing fee to Paine Webber
equal, on an annual basis, to 0.10% of the average daily net assets of the
Fund. TAML and Paine Webber have agreed to reduce their fees by one half during
the quarter following the fiscal period ending May 31, 1994 and any succeeding
four full fiscal quarters in which the average closing price of the Fund's
shares on the New York Stock Exchange is less than the $15 initial offering
price. Such reduction in fees for TAML and Paine Webber amounted to $144,150
and $11,564 respectively, for the year ended March 31, 1996. The Fund pays TGII
monthly an administrative fee of 0.25% per annum of the Fund's average daily
net assets, of which 0.20% is paid to Princeton Administrators, L.P., an affil-
iate of Merrill Lynch Asset Management for sub-administrative services, subject
to a minimum monthly fee of $8,333.
20
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $12,970 for the year ended March 31,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended March 31, 1996 aggregated $14,099,883 and $13,000,399, respectively.
The cost of securities for federal income tax purposes is $59,085,053. Realized
gains and losses are reported on an identified cost basis.
At March 31, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income taxes purposes, was
as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 4,577,359
Unrealized depreciation (6,978,379)
-----------
Net unrealized depreciation $(2,401,020)
===========
</TABLE>
5. FINANCIAL INSTRUMENTS
During the year ended March 31, 1996, the Fund has been a party to financial
instruments with off-balance-sheet risks, primarily forward exchange contracts,
in order to minimize the risk to the Fund, with respect to its portfolio trans-
actions, from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities;
some of which have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts, fu-
ture movement in currency values and interest rates and contract positions that
are not exact offsets. The contract amount indicates the extent of the Fund's
involvement in such contracts.
Forwards: A forward exchange contract is an agreement between two parties to
exchange different currencies at a specific rate at an agreed future date.
At March 31, 1996, the Fund had an outstanding forward exchange contract for
the sale of currency as set out below. These contracts are reported in the fi-
nancial statements at the Fund's net equity, as measured by the difference be-
tween the forward exchange rates at the reporting date and the forward exchange
rates at the date of entry into the contract:
<TABLE>
<S> <C>
Net unrealized loss in forward exchange contract to sell
780,000
Deutschemarks for 528,688 U.S. Dollars, May 13, 1996 $(1,021)
</TABLE>
21
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Emerging Markets Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Emerging Markets Appreciation Fund, Inc.
as of March 31, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
the periods indicated in the accompanying financial statements. These financial
statements and financial highlights are the responsibility of the Fund's man-
agement. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Emerging Markets Appreciation Fund, Inc. as of March 31, 1996, the re-
sults of its operations, the changes in its net assets and the financial high-
lights for the periods indicated, in conformity with generally accepted ac-
counting principles.
McGladrey & Pullen LLP
New York, New York
April 26, 1996
22
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
The Fund offers a Dividend Reinvestment Plan (the "Plan") with the following
features: . If shares of the Fund are held in the shareholder's name, the
shareholder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder in-
structs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. . Participants should contact Chemical Mellon Se-
curities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pitts-
burgh, PA 15230, to receive the Plan brochure. . To receive dividends or dis-
tributions in cash, the shareholder must notify Chemical Mellon Securities
Trust Company ("Mellon") or the institution in whose name the shares are held.
Mellon must receive written notice within 10 business days before the record
date for the distribution. . Whenever the Fund declares dividends in either
cash or common stock of the Fund, if the market price is equal to or exceeds
net asset value but not less than 95% of the then current market price of the
Fund's shares. If the market price is lower than net asset value and if divi-
dends and/or capital gains distributions are payable only in cash, the partici-
pant will receive shares purchased on the New York Stock Exchange. . The auto-
matic reinvestment of dividends and/or capital gains does not relieve the par-
ticipant of any income tax which may be payable on dividends or distributions.
. The participants may withdraw from the Plan without penalty at any time by
written notice to Mellon. Upon withdrawal, the participant will receive, with-
out charge, stock certificates issued and in the participant's name for all
full shares; or, if the participant's wishes, Mellon will sell the partici-
pant's shares and send the proceeds, net of any brokerage commissions. A $5.00
fee is charges by Mellon upon any cash withdrawal or termination. . Whenever
shares are purchased on the New York Stock Exchange, each participant will pay
a pro rata portion of brokerage commissions. Brokerage commissions will be de-
ducted from amounts to be invested.
23
<PAGE>
Templeton Emerging Markets Appreciation Fund, Inc.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chemical Mellon Shareholder Services
Securities Transfer Services
450 West 33rd Street, 15th Floor
New York, NY 10001
800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Emerging Markets Appreciation Fund shares is published each Monday in the Wall
Street Journal, weekly in Barron's and each Saturday in The New York Times and
other newspapers in a table called "Publicly Traded Funds". Daily market prices
for the Fund's shares are published in the New York Stock Exchange Composite
Transactions section of newspapers under the designation "TempltnTEA". The
Fund's New York Stock Exchange trading symbol is TEA.
For current information about the net asset value, call 1-800-292-9293.
If any shareholder is not receiving copies of the Reports to Shareholders be-
cause shares are registered in a broker's name or in a custodian's name, he or
she can write and request that his or her name be added to the Fund's mailing
list, by writing Templeton Emerging Markets Appreciation Fund, Inc., 700 Cen-
tral Avenue, St. Petersburg, FL 33701.
24
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
The Franklin Templeton Group
Literature Request - Call today for a free descriptive brochure and prospectus
on any of the funds listed below. The prospectus contains more complete
information, including fees, charges and expenses, and should be read carefully
before investing or sending money.
<TABLE>
<S> <C> <C> <C>
Templeton Funds Florida* Franklin Funds Seeking Franklin Templeton Global
American Trust Georgia Growth and Income Currency Funds
Americas Government Hawaii** Balance Sheet German Government
Securities Indiana Investment Fund Bond
Developing Markets Trust Kentucky Convertible Securities Fund Global Currency
Foreign Fund Louisiana Equity Income Fund High Income Currency
Global Infrastructure Fund Maryland Global Utilities Fund Hard Currency
Global Opportunities Trust Massachusetts*** Income Fund Franklin Money
Greater European Fund Michigan*** MicroCap Value Market Funds
Growth Fund Minnesota*** Natural Resources Fund Money Fund
Growth and Income Fund Missouri Premier Return Fund Federal Money Fund
Global Bond Fund New Jersey Real Estate Securities Fund Tax-Exempt Money
Latin America Fund New York* Rising Dividends Fund Fund
Pacific Growth North Carolina Strategic Income Fund California Tax-Exempt
Global Real Estate Fund Ohio*** Utilities Fund Money Fund
Global Smaller Oregon Value New York Tax-Exempt
Company Fund Pennsylvania Money Fund
World Fund Tennessee Franklin Funds Seeking IFT U.S. Treasury Money
Texas High Current Income Market Portfolio
Franklin Funds Seeking Virginia AGE High Income Fund
Tax-Free Income Washington** Global Government Franklin Fund for Corporations
Federal Tax-Free Income Fund Corporate Qualified
Income Fund Franklin Funds Investment Grade Dividend Fund
Federal Intermediate-Term Seeking Capital Growth Income Fund
Tax-Free Income Fund California Growth Fund U.S. Government Franklin Tax-Deferred
High Yield DynaTech Fund Securities Fund Annuity
Insured Tax-Free Equity Fund Franklin Valuemark
Income Fund*** Global Health Care Franklin Funds Seeking Franklin Templeton
Puerto Rico Tax-Free Gold Fund High Current Income and Valuemark Income Plus
Income Fund Growth Fund Stability of Principal (an immediate annuity)
International Adjustable Rate
Franklin State-Specific Equity Fund Securities Fund
Funds Seeking Tax-Free Income Japan Fund Adjustable U.S. Government
Alabama Small Cap Growth Fund Securities Fund
Arizona* Short-Intermediate U.S.
Arkansas** Government
California* Securities Fund
Colorado
Connecticut Franklin Funds for
Non-U.S. Investors
Tax-Advantaged High Yield
Securities Fund
Tax-Advantaged International
Bond Fund
Tax-Advantaged U.S.
Government Securities Fund
</TABLE>
Fund Information: 1-800/342-5236
Shareholder Services: 1-800/632-2301
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
<PAGE>
- --------------------------
TEMPLETON EMERGING
MARKETS
APPRECIATION FUND,
INC.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Investors should be aware that the value of investments made for the Fund may
go up as well as down and that the investment manager may make errors in
selecting securities for the Fund's portfolio. Like any investment in
securities, the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political, and other factors. The Fund and Fund
investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept the risk of such losses should not
invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our
service departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
[RECYCLE LOGO APPEARS HERE]
[LOGO TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.]
TLTEA A96 05/96
Annual Report
March 31, 1996
