<PAGE> 1
TEMPLETON EMERGING
MARKETS APPRECIATION FUND
YOUR FUND'S OBJECTIVE:
The Templeton Emerging Markets Appreciation Fund seeks long-term capital
appreciation by investing substantially all of its assets in a portfolio of
equity securities and debt obligations of issuers in emerging market countries.
MARCH 31, 1997
Dear Shareholder:
We are pleased to bring you the annual report of the Templeton Emerging Markets
Appreciation Fund for the 12 months ended March 31, 1997.
During this period, securities markets in many emerging market countries
performed well in an environment of improved fiscal and monetary policies,
growing corporate earnings, and increased level of capital flows into these
nations. The Fund, which holds both stocks and bonds, provided a one-year total
return of 0.40% in market-price terms, and 22.40% in net asset value terms, as
shown in the Performance Summary on page 7. Lipper Analytical Services ranked
the Fund number two out of eight closed-end emerging market equity funds in
total return based on the change in net asset value during the one-year period
ended March 31, 1997. The Fund was also ranked number two out of eight funds in
the same category for the two-year period ended March 31, 1997.(1)
1. LIPPER ANALYTICAL SERVICES IS A NATIONALLY RECOGNIZED MUTUAL FUND RESEARCH
ORGANIZATION.
1
<PAGE> 2
TEMPLETON EMERGING MARKETS
APPRECIATION FUND
Portfolio Breakdown on 3/31/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Equities 52.9%
Fixed-Income Securities 34.4%
Short-Term Obligations
& Other Net Assets 12.7%
</TABLE>
On March 31, 1997, 52.9% of the Fund's total net assets were invested in
equities, 34.4% in fixed-income securities, and 12.7% in short-term obligations
and other net assets. These holdings were spread across 33 emerging market
countries, with no individual market representing more than 15.2% of the Fund's
assets. Our largest single-country exposure was in Mexico, followed by
Argentina, Brazil, Greece, and Turkey.
Latin American equity markets performed strongly during the reporting period, as
Mexico's early repayment of the loans it received in 1995 appeared to boost
investor confidence in the entire region. During the fiscal year, the Venezuelan
Stock Market Capital General Index rose 13.2%, Mexico's Bolsa 17.1%, Brazil's
Bovespa 83.5%, and Argentina's Merval 39.6%.(2) Many Latin American debt
securities also fared well. Increased demand for high-yielding debt securities
denominated in U.S. dollars, reduced government spending, and improved economic
conditions helped to attract foreign capital to Mexico and Argentina. Panama and
Peru restructured their non-performing debt, which had a positive impact on
their bond markets. As a result of these events, many Latin American bonds
rallied and stopped moving in concert with the U.S. Treasury market.
During the reporting period, Asian equity markets produced mixed results. The
growing Chinese economy contributed to strong upswings in the stock markets of
China and Hong Kong, the prices of many Malaysian shares responded positively to
improved economic conditions, and the Indonesian stock market rose largely due
to healthy corporate earnings growth. However, stock markets in South
2. SOURCE: BLOOMBERG. PRICE APPRECIATION IS MEASURED IN U.S. DOLLARS, AND
INDICES ARE UNMANAGED AND INCLUDE REINVESTED DIVIDENDS, IF ANY.
2
<PAGE> 3
TEMPLETON EMERGING MARKETS
APPRECIATION FUND
Geographic Distribution on 3/31/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Latin America 42.0%
Asia 22.4%
Europe 20.5%
Middle East/Africa 2.4%
Short-Term Obligations &
Other Net Assets 12.7%
</TABLE>
Korea, Pakistan, and Thailand presented a different picture. The South Korean
market fell sharply during most of 1996 in the context of a deteriorating
economy, poor corporate earnings, and rising interest rates. In Pakistan, where
allegations of corruption toppled the government of Prime Minister Bhutto, share
prices dropped throughout most of the reporting period. The Thai market declined
after a long political power struggle, and a sharply sinking economy hurt
corporate earnings.
Eastern European emerging markets remained popular with foreign investors, as
the Hungarian and Russian stock markets posted record highs. Russian share
prices, in particular, experienced phenomenal gains. Two Russian companies in
our portfolio on March 31, 1997 were GUM Trade House, which operates a large
chain of brand-name retail stores in the Moscow area, and Lukoil-Holdings, whose
oil and gas reserves are estimated to be the second-largest in the world.
Many fixed-income markets in this region also strengthened. Russian bond prices
appreciated significantly, as the country's government implemented monetary and
fiscal policies designed to solve its financial and economic problems. In
Bulgaria, where bond prices also rose, we increased the Fund's exposure, from
0.78% of total net assets on March 31, 1996, to 1.1% at the end of the reporting
period.
Looking forward, we believe that capital inflows to emerging market countries
may increase, and economic growth in China may benefit many Chinese, Hong Kong,
and Taiwanese securities. However, these markets could experience volatility,
and
3
<PAGE> 4
<TABLE>
<CAPTION>
TEMPLETON EMERGING MARKETS
APPRECIATION FUND
Top 10 Holdings on 3/31/97
Based on Total Net Assets
% OF TOTAL
COMPANY, INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Russia, 9.25%, 11/27/01, Reg S
Government Bond, Russia 3.6%
Telmex-Telefonos de Mexico SA, L, ADR
Telecommunications, Mexico 3.1%
Alpha Credit Bank
Banking, Greece 2.9%
Petrobras-Petroleo Brasileiro SA, pfd.
Energy Sources, Brazil 2.5%
Ergo Bank SA
Banking, Greece 2.4%
Cementos Mexicanos SA de CV (Cemex)
Building Materials & Components
Mexico 2.2%
Republic of Argentina, 11.375%, 1/30/17
Government Bond, Argentina 2.2%
United Mexico States, 9.875%, 1/15/07
Government Bond, Mexico 2.1%
Government of Brazil, 8.875%, 11/05/01
Government Bond, Brazil 2.1%
Electrobas-Centrais Eletricas Brasileiras SA, B, pfd.
Utilities - Electrical & Gas, Brazil 1.7%
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 10 OF THIS REPORT.
possibly even decline, because of China's takeover of Hong Kong and the death of
Deng Xiaoping, China's 92-year-old patriarch. Deng was primarily responsible for
the liberalization and rapid growth of China's economy during the past 20 years,
and the ability of these reforms to endure under new leadership may determine
the rate of future Chinese economic growth. In our opinion, the economic outlook
in Latin America is better than it has been for many years, but favorable
expectations for Russia's economy are partly clouded by its need to devise
adequate regulations for its capital markets and improve its tax collection
system.
Of course, investments in foreign securities involve special risks, such as
adverse economic, social and political developments in the countries where the
Fund is invested, as well as market and currency volatility. Emerging markets
involve heightened risks related to the same factors, in addition to risks
associated with the relatively small size and lesser liquidity of these markets.
While short-term volatility can be disconcerting, declines of as much as 40% to
50% are not unusual in emerging markets. In fact, the Hong Kong market has
increased 975% in the last 15 years, but has suffered five declines of more than
20% during that time.(3)
This discussion reflects the strategies we employed for the Fund during the 12
months under review, and includes our opinions as of the close of the period.
Since economic and market
3. SOURCE: BLOOMBERG. BASED ON QUARTERLY PERCENTAGE PRICE CHANGE OVER 15 YEARS
ENDED MARCH 31, 1997.
4
<PAGE> 5
conditions are constantly changing, our strategies, and our evaluations,
conclusions and decisions regarding portfolio holdings may change as new
circumstances arise. Although past performance of a specific investment or
sector cannot guarantee future performance, such information can be useful in
analyzing the securities we purchase or sell for the Fund.
We thank you for your participation in the Templeton Emerging Markets
Appreciation Fund, and welcome your comments and suggestions.
Sincerely,
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
President
Portfolio Manager - Equity Securities
Templeton Emerging Markets Appreciation Fund, Inc.
/s/ Ronald A. Johnson
Ronald A. Johnson, Ph.D.
Portfolio Manager - Fixed-Income Securities
Templeton Emerging Markets Appreciation Fund, Inc.
Since May 1996, Ronald A. Johnson, Ph.D., has been the principal portfolio
manager of the Fund's debt instruments. Dr. Johnson has been with the Templeton
organization since March 1995, and is currently vice president of the Templeton
Global Bond Managers division of Templeton Investment Counsel, Inc., the Fund's
sub-adviser. He holds a Ph.D. and an MA in economics from Stanford University,
and an MBA in finance and a BA in economics from Adelphi University. Prior to
joining the Templeton organization, Dr. Johnson was chief strategist and head of
research for JPBT Advisers, Inc. in Miami. Before joining JPBT, he was chief
economist and head of research at Vestrust Asset Management Corporation in
Miami. In addition, Dr. Johnson has held several positions at the Federal
Reserve Bank of New York, including chief of the Domestic Financial Markets
Division. Currently, Dr. Johnson co-directs the fixed-income research process
and manages several emerging markets fixed-income portfolios. Dr. J. Mark Mobius
continues as Templeton Emerging Markets Appreciation Fund's principal portfolio
manager for equity investments.
On April 16, 1996, the Fund's Board of Directors adopted a non-fundamental
policy permitting investment in Russian securities up to 5% of the Fund's total
assets. Russian securities involve additional significant risks, including
political and social uncertainty (for example, regional conflicts and risk of
war), currency exchange rate volatility, pervasiveness of corruption and crime
in the Russian economic system, delays in settling portfolio transactions and
risk of loss arising out of Russia's system of share registration and custody.
As you can see in the "Investment Portfolio" section of this report, the Fund
invests in Hong Kong securities. Hong Kong is scheduled to revert to the
sovereignty of China on July 1, 1997. As with any major political transfer of
power, this could result in political, social, economic, market or other
developments in Hong Kong, China or other countries that could affect the value
of Fund investments.
5
<PAGE> 6
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
6
<PAGE> 7
PERFORMANCE SUMMARY
In market-price terms, the Templeton Emerging Markets Appreciation Fund produced
a total return of 0.40% for the 12-month period ended March 31, 1997. Based on
the change in actual net asset value (in contrast to market price), the Fund
delivered a total return of 22.40% for the same period. Both total return
figures assume reinvestment of dividends and capital gains in accordance with
the dividend reinvestment plan. We have always maintained a long-term
perspective when managing the Fund, and we encourage shareholders to view their
investments in a similar manner.
During the reporting period, the Fund's closing price on the New York Stock
Exchange (NYSE) decreased $1.00, from $13.875 on March 31, 1996, to $12.875 on
March 31, 1997, while the net asset value increased $1.76, from $13.41 to
$15.17.
Shareholders received distributions of 51 cents ($0.51) per share in dividend
income and 62 cents ($0.62) per share in capital gains, of which 38 cents
($0.38) represented long-term gains and 24 cents ($0.24) represented short-term
gains. Past performance is not predictive of future results. Distributions will
vary depending on income earned by the Fund and any profits realized from the
sale of securities in the portfolio, as well as the level of the Fund's
operating expenses.
TEMPLETON EMERGING MARKETS
APPRECIATION FUND
Periods ended 3/31/97
<TABLE>
<CAPTION>
Since
Inception
One-Year (4/29/94)
<S> <C> <C>
Cumulative Total Return(1)
Based on change in
net asset value 22.40% 29.07%
Based on change in
market price 0.40% 2.98%
Average Annual Total Return(2)
Based on change in
net asset value 22.40% 9.12%
Based on change in
market price 0.40% 1.01%
</TABLE>
1. CUMULATIVE TOTAL RETURNS REPRESENT THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE PERIODS INDICATED.
2. AVERAGE ANNUAL TOTAL RETURNS REPRESENT THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE PERIODS INDICATED.
ALL TOTAL RETURN CALCULATIONS ASSUME REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS, EITHER AT NET ASSET VALUE OR AT MARKET PRICE ON THE REINVESTMENT DATE, IN
ACCORDANCE WITH THE DIVIDEND REINVESTMENT PLAN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCIES AND THE ECONOMIC,
SOCIAL, AND POLITICAL CLIMATES OF COUNTRIES WHERE INVESTMENTS ARE MADE. EMERGING
MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO
THOSE ASSOCIATED WITH THE RELATIVELY SMALL SIZE AND LESSER LIQUIDITY OF THESE
MARKETS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE
IS NOT PREDICTIVE OF FUTURE RESULTS.
FROM SEPTEMBER 1, 1994 THROUGH AUGUST 30, 1995, EXPENSE REDUCTIONS BY THE FUND'S
BUSINESS MANAGER INCREASED THE FUND'S TOTAL RETURNS. WITHOUT THESE REDUCTIONS,
THE FUND'S TOTAL RETURNS WOULD HAVE BEEN LOWER.
7
<PAGE> 8
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF
SIR JOHN TEMPLETON
[photo of Sir John Templeton]
BY PROFESSOR
ROBERT HERRMANN
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs have been launched in various
locations, with the support of generous local donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
8
<PAGE> 9
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
APRIL 29, 1994
YEAR ENDED MARCH 31 (COMMENCEMENT
---------------------- OF OPERATIONS) TO
1997 1996 MARCH 31, 1995
---------- -------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.41 $ 12.05 $ 14.10
------- ------- -------
Income from investment operations:
Net investment income .62 .69 .48
Net realized and unrealized gain (loss) 2.27 1.64 (1.97)
------- ------- -------
Total from investment operations 2.89 2.33 (1.49)
------- ------- -------
Underwriting expenses deducted from capital -- -- (.15)
------- ------- -------
Distributions:
Dividends from net investment income (.51) (.86) (.32)
Distributions from net realized gains (.62) (.11) (.09)
------- ------- -------
Total distributions (1.13) (.97) (.41)
------- ------- -------
Change in net asset value 1.76 1.36 (2.05)
------- ------- -------
Net asset value, end of period $ 15.17 $ 13.41 $ 12.05
======= ======= =======
TOTAL RETURN*
Based on market value per share .40% 15.57% (11.25)%
Based on net asset value per share 22.40% 19.34% (11.64)%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000) $ 65,075 $57,516 $ 51,022
Ratio of expenses, inclusive of fee waiver, to average net assets 1.83% 1.64% 1.79%**
Ratio of net investment income to average net assets 4.29% 5.29% 3.98%**
Portfolio turnover rate 114.78% 26.92% 58.79%
Average commission rate paid (per share) $ .0036 $ .0008 --
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS: 47.6%
- ---------------------------------------------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD
DURABLES: 1.9%
Arcelik AS Tur. 2,293,264 $ 305,397
Bekoelektronik AS Tur. 723,423 93,506
McCarthy Retail Ltd. Zaf. 50,000 166,874
*Sanyo Universal Electric Public Co. Ltd. Tha. 20,000 37,083
Semi-Tech (Global) Co. Ltd. H.K. 113,200 119,793
Turk Demir Dokum, br. Tur. 4,715,996 535,678
-----------
1,258,331
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 0.7%
Associated Motorways Ltd. Lka. 72,000 41,660
Ciadea SA Arg. 55,346 246,328
PT Gadjah Tunggal, fgn. Ind. 146,500 65,592
Tofas Turk Otomobil Fabrikasi AS Tur. 1,736,000 125,112
-----------
478,692
- ---------------------------------------------------------------------------------------------------------------------
BANKING: 14.6%
Akbank Tur. 6,192,000 988,789
Alpha Credit Bank Gr. 23,332 1,714,033
*Alpha Credit Bank, rts. Gr. 18,666 148,935
Banco Bradesco SA Brz. 25,161,228 199,532
Banco Comercial Portugues SA Prt. 45,652 681,007
Banco de Galicia y Buenos Aires SA, B Arg. 131,827 806,902
Banco do Brasil SA Brz. 2,705,276 23,241
*Banco do Brasil SA, wts., series A Brz. 4,541,055 7,459
*Banco do Brasil SA, wts., series B Brz. 6,811,582 10,546
*Banco do Brasil SA, wts., series C Brz. 11,352,638 18,220
Banco Espirito Santo e Comercial de Lisboa Prt. 32,800 633,923
Banco Totta & Acores SA Prt. 13,090 197,611
BPI Socieda de Gestora de Participacoes Socias SA Prt. 3,835 57,803
BPI Socieda de Gestora de Participacoes Socias, new Prt. 1,457 21,091
Daegu Bank Co. Ltd. Kor. 8,953 71,996
Ergo Bank SA Gr. 18,000 1,145,566
*Ergo Bank, new Gr. 6,900 418,024
Espirito Santo Financial Holding SA, ADR Prt. 19,820 289,868
Grupo Financiero Banamex Accival SA, B Mex. 72,000 164,167
Grupo Financiero Banamex Accival SA, L Mex. 44,868 90,760
Grupo Financiero Bancomer SA de CV, B Mex. 2,046,000 725,047
Grupo Financiero Bancomer SA de CV, L Mex. 75,778 23,413
Grupo Financiero Serfin SA, B Mex. 54,277 20,946
HSBC Holdings PLC H.K. 22,371 519,672
National Bank of Greece SA Gr. 2,200 230,586
</TABLE>
10
<PAGE> 11
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
BANKING (cont.)
PT Inter-Pacific Bank, fgn. Ind. 9,500 $ 6,232
Turkiye Garanti Bankasi AS Tur. 4,507,650 307,207
-----------
9,522,576
- ---------------------------------------------------------------------------------------------------------------------
BEVERAGES & TOBACCO: 0.5%
Quilmes Industrial SA Arg. 20,000 227,500
Zaklady Piwowarskie W Zywcu SA Pln. 1,000 69,930
-----------
297,430
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS &
COMPONENTS: 3.0%
Akcansa Cimento AS Tur. 146,091 23,747
Cementos Mexicanos SA de CV (Cemex), B Mex. 304,000 1,224,894
Cimentas Izmir Cimento Fabrikasi TAS Tur. 1,513,061 219,276
Cimsa Cimento Sanayi ve Ticaret AS Tur. 1,047,000 170,187
Gujarat Ambuja Cements Ltd. Inr. 4,000 28,030
Izocam Ticaret ve Sanayii AS, br. Tur. 74,571 7,010
K Wah International Holdings Ltd. H.K. 19,912 3,649
*Royal Ceramic Industry Public Co. Ltd. Tha. 149,000 35,018
*Royal Ceramic Industry Public Co. Ltd., fgn. Tha. 32,000 7,521
Shanghai Yaohua Pilkington Glass, B Chn. 96,250 48,510
Siam Cement Public Co. Ltd. (The), fgn. Tha. 5,000 130,225
Thai Asahi Glass Public Co. Ltd. Tha. 72,610 76,233
-----------
1,974,300
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS: 1.0%
Atanor Cia Nacional Para la Industria Quimica SA, D Arg. 56,550 96,149
Chemopetrol Group AS Csk. 2,782 131,759
*Petkim Petrokimya Holding AS Tur. 30,000 14,571
PT Unggul Indah Corp., fgn. Ind. 68,200 93,736
Shanghai Chlor-Alkali Chemical Co. Ltd., B Chn. 312,000 100,464
Slovnaft AS Slovk. 8,000 245,421
-----------
682,100
- ---------------------------------------------------------------------------------------------------------------------
CONSTRUCTION &
HOUSING: 0.1%
International Pipe Ltd. H.K. 4,978 726
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL &
ELECTRONICS: 0.5%
Dae Duck Electronics Co. Ltd. Kor. 2,163 112,800
Great Wall Electronic International Ltd. H.K. 530,679 67,117
Netas Northern Electric Telekomunic Asyon AS Tur. 594,000 169,841
-----------
349,758
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS &
INSTRUMENT: 0.1%
S. Megga International Holdings Ltd. H.K. 494,000 $ 36,339
- ---------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT &
SERVICES: 0.1%
Ssangyong Oil Refining Co Ltd Kor. 1,000 18,090
- ---------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 2.1%
Engen Ltd. Zaf. 20,207 109,276
Lukoil-Holdings Rus. 3,000 42,600
Perez Companc SA, B Arg. 20,010 154,701
*Purneftegaz Rus. 40,000 198,800
YPF Sociedad Anonima, ADR Arg. 32,000 848,000
-----------
1,353,377
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 0.9%
Alpha Leasing SA Gr. 10,000 250,604
Etba Leasing Gr. 12,600 168,232
MBF Capital Bhd. Mal. 50,000 88,369
PT Sinar Mas Multi Artha, fgn. Ind. 56,800 63,873
-----------
571,078
- ---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSING
PRODUCTS: 1.6%
Boustead Holdings Bhd., fgn. Mal. 10,000 25,219
Chareon Pokphand Feedmill Public Co. Ltd., fgn. Tha. 13,000 38,817
Del Monte Royal Foods Ltd. Zaf. 135,800 115,228
Elais Oleaginous Co. Gr. 8,800 255,930
PT Charoen Pokphand Indonesia, fgn. Ind. 46,000 51,728
PT Cipendawa Farm Enterprises, fgn. Ind. 65,000 26,395
PT Japfa Comfeed Indonesia TBK Ind. 67,000 44,648
PT Multibreeder Adirama, fgn. Ind. 193,500 62,458
Vitro SA Mex. 179,000 449,221
-----------
1,069,644
- ---------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS &
PAPER: 0.5%
Portucel Industrial Empresa Product de Celulose SA Prt. 32,000 208,700
Sappi Ltd. Zaf. 10,177 79,099
-----------
287,799
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL
CARE: 0.1%
Hankook Cosmetics Co. Ltd. Kor. 3,000 $ 70,352
- ------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
COMPONENTS: 0.9%
BTR Dunlop Ltd. Zaf. 50,000 61,093
Leader Universal Holdings Bhd. Mal. 37,000 82,861
Marshall Boya ve Vernik Sanayii AS Tur. 1,620,528 244,371
Shanghai Rubber Belt Co. Ltd., B Chn. 549,000 133,956
Shanghai Tyre & Rubber Co. Ltd., B Chn. 169,000 75,374
-------
597,655
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE: 0.4%
Anadolu Anonim Turk Sigorta Sirketi Tur. 611,840 35,947
Compania Suramericana de Seguros Col. 10,000 217,558
-------
253,505
- ------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.6%
Hinds Hotels International Ltd. Sgp. 129,000 213,437
Shangri-La Hotels (Malaysia) Bhd. Mal. 141,000 159,306
Shangri La Hotels (Malaysia) Bhd., fgn. Mal. 27,000 30,505
-------
403,248
- ------------------------------------------------------------------------------------------------------------------------
MACHINERY &
ENGINEERING: 0.7%
Jurong Shipyard Ltd., fgn. Sgp. 38,000 172,309
*Keppel Philippine Holdings Inc., B Phl. 318,750 44,733
Mannesmann SA Brz. 800,000 101,959
*Shanghai Erfangji Textile Machinery Co. Ltd., B Chn. 355,740 65,456
Shanghai Industrial Sewing Machine Corp. Chn. 192,000 36,864
Shanghai Steel Tube Co. Ltd., B Chn. 249,700 49,940
-------
471,261
- ------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 0.6%
Cifra SA de CV, A Mex. 10,892 15,248
Cifra SA, C Mex. 89,056 124,663
Dairy Farm International Holdings Ltd. H.K. 124,582 94,060
GUM Trade House Russ. 1,000 27,500
*Wo Kee Hong Holdings Ltd. H.K. 750,000 75,497
*Yaohan Hongkong Corp. Ltd. H.K. 460,000 16,919
-------
353,887
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------------------------------------------------
METAL & MINING: 1.8%
Antofagasta Holdings PLC Chl. 34,000 $ 204,145
Ashanti Goldfields Co. Ltd., GDR Ghana 10,000 137,500
Eregli Demir ve Celik Fabrikalari AS Tur. 1,736,000 234,585
Hellas Can-Container Manufacturers Gr. 18,270 309,837
Philex Minning Corp., B Phl. 2,103,300 247,306
PT Tambang Timah (Persero), fgn. Ind. 34,000 53,103
-----------
1,186,476
- ------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 5.0%
Anglo American Industrial Corp. Ltd. Zaf. 10,560 430,094
Cheung Kong Holdings Ltd. H.K. 55,000 484,436
Clal Industries Ltd. Isr. 10,000 48,581
DESC SA, B Mex. 3,033 20,272
DESC SA, C Mex. 63 418
Hong Leong Industries Bhd. Mal. 56,400 179,788
*Hong Leong Industries BHD, wts., fgn. Mal. 8,500 9,261
Koc Holding AS Tur. 1,164,999 305,726
Koc Yatirim ve Sanayii Mamullesi Pazarlanca AS Tur. 1,534,400 456,756
Koor Industries Ltd. Isr. 1,000 91,656
Lai Sun Garment International Ltd. H.K. 88,000 112,432
Perlis Plantations Bhd., fgn. Mal. 70,000 216,080
Renong Bhd. Mal. 50,000 84,737
Saha Union Public Co. Ltd., fgn. Tha. 39,000 32,682
*Sociedad Comercial del Plata Cadelplata Come Arg. 151,000 471,191
Transarchipel Shipping Ltd.-TSL Zmb. 587,000 338,854
-----------
3,282,964
- ------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 2.1%
Bangkok Land Public Co. Ltd., fgn. Tha. 114,400 119,006
First Capital Corp. Ltd., fgn. Sgp. 36,000 99,688
Hang Lung Development Co. Ltd. H.K. 196,000 355,389
New World Development Co. Ltd. H.K. 64,774 349,420
PT Summarecon Agung, fgn. Ind. 318,240 152,427
Shanghai Jinqiao Export Processing Zone
Development, B Chn. 115,000 65,320
Sun Hung Kai Properties Ltd. H.K. 24,000 253,978
-----------
1,395,228
- ------------------------------------------------------------------------------------------------------------------------
RECREATION & OTHER
CONSUMER GOODS: 0.7%
China First Pencil Co. Ltd., B Chn. 402,600 189,222
*China First Pencil Co. Ltd., B, rts. Chn. 402,600 19,325
Shanghai Wingsung Stationery Co. Ltd., B Chn. 341,550 100,416
</TABLE>
14
<PAGE> 15
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------------------------------------------------
RECREATION & OTHER
CONSUMER GOODS (cont.)
Shenzhen China Bicycles Co. (Holdings) Ltd., B Chn. 139,200 $ 66,917
Yue Yuen Industrial (Holdings) Ltd. H.K. 52,000 107,373
-----------
483,253
- ------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 4.1%
Hellenic Telecommunications Organizations OTE SA Gr. 8,000 173,742
Pakistan Telecom Corp. PTC Pkr. 29,000 20,802
Telebras-Telecomunicacoes Brasileiras SA Brz. 4,525,000 456,195
Telmex-Telefonos de Mexico SA, L, ADR Mex. 51,800 1,994,300
-----------
2,645,039
- ------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL: 0.6%
Hua Thai Manufacturing Public Co. Ltd. Tha. 16,000 41,919
PT Eratex Djaja, fgn. Ind. 94,500 27,551
PT Ganda Wangsa Utama, fgn. Ind. 171,100 76,607
*Thai Rayon Public Co. Ltd. Tha. 17,000 58,784
Thai Wacoal Public Co. Ltd., fgn. Tha. 18,750 71,518
Tungtex (Holdings) Co. Ltd. H.K. 1,264,000 119,081
-----------
395,460
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 1.2%
Chiwan Wharf Holdings Ltd., B Chn. 160,000 123,066
Malaysian International Shipping Corp. Bhd., fgn. Mal. 229,333 569,110
Pakistan International Airlines Corp. Pkr. 5,500 1,633
Regional Container Line Public Co. Ltd., fgn. Thi. 10,000 87,074
-----------
780,883
- ------------------------------------------------------------------------------------------------------------------------
utilities-ELECTRICAL &
GAS: 1.0%
CEZ Csk. 9,000 327,527
CEZ, GDR Csk. 8,000 284,000
Nafta Gbely AS Slovk 1,200 60,869
-----------
672,396
- ------------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL
TRADE: 0.2%
*East Asiatic Co. (Hong Kong) Ltd. (The) H.K. 945,000 107,321
-----------
TOTAL COMMON STOCKS
(cost $29,080,618) 30,999,168
- ------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 5.3%
- ------------------------------------------------------------------------------------------------------------------------
Banco do Brazil SA, pfd. Brz. 20,000,000 157,659
Banespa-Banco do Estado de Sao Paulo SA, pfd. Brz. 1,924,200 9,719
</TABLE>
15
<PAGE> 16
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
Eletrobras-Centrais Eletricas Brasileiras SA, B,
pfd. Brz. 2,613,000 $ 1,124,879
Itausa-Investimentos Itau SA, pfd. Brz. 572,200 486,174
Petrobras-Petroleo Brasileiro SA, pfd. Brz. 8,347,000 1,658,762
-----------
TOTAL PREFERRED STOCKS
(cost $2,925,000) 3,437,193
- ---------------------------------------------------------------------------------------------------------------------
CURRENCY PRINCIPAL**
- ---------------------------------------------------------------------------------------------------------------------
BONDS -- CORPORATE: 7.2%
- ---------------------------------------------------------------------------------------------------------------------
Bridas Corp., Yankee, 12.50%, 11/15/99 U.S. 460,000 498,525
Cementos de Mexico Sa de CV, 10.75%, 7/15/00,
144A U.S. 230,000 238,625
Centrais Electricas Brasileiras SA, 10.00%,
10/30/98, 144A U.S. 200,000 206,500
CEZ, 14.375%, 1/27/01 Csk. 15,590,000 552,023
Essar Gujarat Ltd., 8.3375%, FRN, 7/15/99, 144A U.S. 210,000 201,600
Industrias Metalurficas Pescarmona,
11.75%, 3/27/98, 144A U.S. 250,000 256,875
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04 U.S. 500,000 558,125
9.25%, 6/30/06 U.S. 190,000 196,175
PIV Investment Finance (Cayman) Ltd., 4.50%,
conv., 12/01/00 U.S. 330,000 288,750
Poland Communications Inc., 9.875%, 11/01/03,
144A U.S. 280,000 273,000
PT Astra International, 9.75%, 4/29/01 U.S. 175,000 182,875
PT Polysindo Eka Perkasa, 13.00%, 6/15/01 U.S. 500,000 563,750
PT Polysindo International Finance Co., B,
11.375%, 6/15/06 U.S. 105,000 112,612
Tjiwi Kimia International Finance Co. BV,
13.25%, 8/01/01 U.S. 250,000 281,250
Tevecap SA, 12.625%, 11/26/04, 144A U.S. 250,000 258,750
-----------
TOTAL BONDS -- CORPORATE
(cost $4,487,593) 4,669,435
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE CURRENCY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS -- GOVERNMENT &
GOVERNMENT AGENCIES:
27.2%
- ---------------------------------------------------------------------------------------------------------------------
Abril SA, 12.00%, 10/25/03, 144A U.S. 250,000 $ 263,750
Associacion Nacional del Cafe, 11.00%, 8/31/98 U.S. 276,000 281,175
Banco Ganadero SA, 9.75%, 8/26/99, 144A U.S. 200,000 208,500
Bancomer S.A., 8.00%, 7/07/98 U.S. 500,000 500,938
Banco Nacional Obra Service, 9.625%, 11/15/03 U.S. 125,000 125,937
Ceskoslovenska Bchodni Banka, 11.125%, 8/26/97 Csk. 5,420,000 186,400
Argentina Local Markets Securities Trust 1994-I,
(Goldman Sachs group, L.P.), 13.375%, 8/15/01 U.S. 750,000 863,437
Government of Brazil:
8.875%, 11/05/01 U.S. 1,350,000 1,344,937
6.5625%, FRN, 4/15/12 conv., L U.S. 1,165,000 918,894
Government of Poland, 6.50%, FRN, 10/27/24 U.S. 325,000 318,094
Argentina Domestic Securities (Morgan Stanley),
14.75%, 9/01/02 U.S. 430,000 498,800
Republic of Argentina:
9.25%, 2/23/01 U.S. 1,070,000 1,084,712
11.00%, 10/09/06 U.S. 175,000 179,594
11.375%, 1/30/17 U.S. 1,425,000 1,460,625
Republic of Bulgaria:
IAB, 6.5625%, FRN, 7/28/11 U.S. 500,000 286,250
6.5625%, 7/28/24, Disc U.S. 700,000 414,750
Republic of Ecuador, disc, FRN, 6.4375%, 2/28/25 U.S. 300,000 195,375
Republic of Lithuania:
10.00%, 12/22/97 U.S. 10,000 10,182
10.00%, 12/22/97, 144A U.S. 150,000 152,738
Republic of Panama, 6.54688%, FRN, 5/10/02 U.S. 423,080 410,916
Republic of Venezuela:
6.75%, 3/31/20, PAR BOND, B U.S. 490,000 344,225
6.4375%, 3/31/20, FRN, Series W U.S. 310,000 250,519
Russia:
9.25%, 11/27/01, Reg S U.S. 2,415,000 2,333,494
* When Issue, 12/31/97 U.S. 875,000 492,188
Sei Holdings IX Inc., 11.00%, 11/30/00, 144A U.S. 210,000 222,600
United Mexico States:
11.00781%, 7/21/97, FRN, 144A U.S. 750,000 761,250
9.875%, 1/15/07 U.S. 1,325,000 1,379,656
11.375%, 9/15/16 U.S. 1,045,000 1,090,719
11.50%, 5/15/26, GLOB BD U.S. 875,000 920,937
Venezuela DCB, 6.50%, FRN, 12/18/07 U.S. 250,000 215,625
-----------
TOTAL BONDS -- GOVERNMENT
& GOVERNMENT AGENCIES
(cost $17,536,696) 17,717,217
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Investment Portfolio, March 31, 1997 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE CURRENCY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM
OBLIGATIONS: 13.6%
- ---------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, 6.50%, 4/01/97 U.S. 863,000 $ 863,000
Federal Home Loan Mortgage Corp., 5.30%, 4/17/97 U.S. 1,750,000 1,745,769
Federal National Mortgage Assn., 5.33% , 4/03/97 U.S. 300,000 299,909
United States Treasury Bills, 4.92% to 5.20%
with maturities to 6/19/97 U.S. 5,938,000 5,915,354
-----------
TOTAL SHORT TERM
OBLIGATIONS
(cost $8,824,605) 8,824,032
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.9%
(cost $62,854,512) 65,647,045
UNREALIZED LOSS IN FORWARD
EXCHANGE CONTRACTS: (0.0%) (7,253)
OTHER ASSETS, LESS
LIABILITIES: (0.9)% (564,948)
-----------
TOTAL NET ASSETS: 100.0% $65,074,844
===========
</TABLE>
* NON-INCOME PRODUCING
** DENOMINATED IN CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 19
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in securities at value
(identified cost $62,854,512) $65,647,045
Cash 128,419
Receivables:
Investment securities sold 4,402,089
Dividends and interest 723,418
Unamortized organization costs 8,200
-----------
Total assets 70,909,171
-----------
Liabilities:
Payable for investment securities
purchased 5,642,169
Unrealized loss in forward exchange
contracts (Note 5) 7,253
Accrued expenses 184,905
-----------
Total liabilities 5,834,327
-----------
Net assets, at value $65,074,844
===========
Net assets consist of:
Undistributed net investment income $ 453,487
Net unrealized appreciation 2,906,885
Accumulated net realized gain 1,880,329
Net capital paid in on shares of
capital stock 59,834,143
-----------
Net assets, at value $65,074,844
===========
Shares outstanding 4,288,756
===========
Net asset value per share
($65,074,844 divided by 4,288,756 shares
outstanding) $ 15.17
===========
</TABLE>
STATEMENT OF OPERATIONS
for the year ended March 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
(net of $29,172 foreign
taxes withheld)
Dividends $1,028,497
Interest 2,738,453
----------
Total income $ 3,766,950
Expenses:
Management fees (Note 3) 769,155
Administrative fees (Note 3) 153,831
Transfer agent fees 21,758
Custodian fees 66,101
Reports to shareholders 29,881
Audit fees 38,010
Legal fees 5,794
Registration and filing fees 16,364
Directors' fees and expenses 14,565
Amortization of organization
costs 3,898
Other 6,841
----------
Total expenses 1,126,198
-----------
Net investment income 2,640,752
Realized and unrealized gain:
Net realized gain on:
Investments 4,428,400
Foreign currency
transactions 43,072
----------
4,471,472
----------
Net unrealized appreciation
(depreciation) on:
Investments 5,299,700
Foreign currency
translation of other
assets and liabilities (6,694)
----------
5,293,006
----------
Net realized and
unrealized gain 9,764,478
-----------
Net increase in net assets
resulting from operations $12,405,230
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 2,640,752 $ 2,945,751
Net realized gain on investments and foreign currency transactions 4,471,472 381,307
Net unrealized appreciation 5,293,006 6,502,064
----------- -----------
Net increase in net assets resulting from operations 12,405,230 9,829,122
Distributions to shareholders:
From net investment income (2,187,265) (3,652,323)
From net realized gain (2,659,029) (453,927)
Fund share transactions (Note 2) -- 771,006
----------- -----------
Net increase in net assets 7,558,936 6,493,878
Net assets:
Beginning of year 57,515,908 51,022,030
----------- -----------
End of year $65,074,844 $57,515,908
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 21
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 investment
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 summarizes
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
securities 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 in good faith by
management and approved by the Board of Directors.
B. FOREIGN EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts and currency option contracts
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 contracts, is
included in the Statement of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as investments:
options written (sold) are accounted for as liabilities. When an option
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. 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 currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
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
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest, 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 exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange rates.
D. 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.
21
<PAGE> 22
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
E. 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
securities is recorded as soon as information is available to the Fund. Interest
income 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.
F. UNAMORTIZED ORGANIZATION COSTS:
Organization costs are being amortized on a straight line basis over five years.
G. 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.
H. SECURITIES TRADED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS:
The Fund may trade securities on a when-issued or 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 acquiring such
securities, it may sell such securities before the settlement date. These
securities are identified on the accompanying Investment Portfolio. The Fund has
set aside sufficient investment securities as collateral for these purchase
commitments.
Included in the statement of assets and liabilities as of March 31, 1997, are
receivables for investment securities sold and payables for investment
securities purchased of $4,153,175 and $4,548,193, respectively, related to the
sale and purchase of Russian when-issued securities. The realization of these
receivables and payables are subject to the risk that such securities may never
be issued. Included in net unrealized gains on investments are unrealized gains
of $122,484 related to positions sold and unrealized losses of $25,314 on
positions held as of March 31, 1997. In the event these securities are not
issued, such gains and losses will not be realized.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At March 31, 1997, there were 100,000,000 shares of capital stock authorized
($0.01 par value).
During the year ended March 31, 1997, there were no shares issued. For the year
ended March 31, 1996, 55,508 shares were issued for $771,006 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
Franklin Templeton Services, Inc. (FTSI), the Fund's investment manager,
sub-advisor 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 component
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. The Fund
pays FTSI 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., for
sub-administrative services, subject to a minimum monthly fee of $8,333.
22
<PAGE> 23
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 legal fees for the year ended March 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 1997 aggregated $61,488,411 and $65,403,527 respectively.
The cost of securities for federal income tax purposes is $62,945,769. Realized
gains and losses are reported on an identified cost basis.
At March 31, 1997, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income taxes purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 8,537,489
Unrealized depreciation (5,836,213)
----------
Net unrealized appreciation $ 2,701,276
==========
</TABLE>
5. FINANCIAL INSTRUMENTS
During the year ended March 31, 1997, 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
transactions, 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,
future 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, 1997, the Fund had an outstanding forward exchange contract for the
sale of currency as set out below. These contracts are reported in the financial
statements at the Fund's net equity, as measured by the difference between 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 810,000
Deutschemarks for 479,764 U.S. Dollars, April 30, 1997 $(7,253)
</TABLE>
23
<PAGE> 24
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, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, 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 management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principals used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Emerging Markets Appreciation Fund, Inc. as of March 31, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
April 25, 1997
24
<PAGE> 25
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
instructs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. --Participants should contact Chase Mellon
Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750,
Pittsburgh, PA 15230, to receive the Plan brochure. --To receive dividends or
distributions in cash, the shareholder must notify Chase 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 dividends
and/or capital gains distributions are payable only in cash, the participant
will receive shares purchased on the New York Stock Exchange. --The automatic
reinvestment of dividends and/or capital gains does not relieve the participant
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, without charge,
stock certificates issued and in the participant's name for all full shares; or,
if the participant's wishes, Mellon will sell the participant'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 deducted from amounts to be
invested.
25
<PAGE> 26
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chase 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
because 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 Central
Avenue, St. Petersburg, FL 33701.
26
<PAGE> 27
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) 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.
GLOBAL GROWTH GROWTH
Franklin Global Health Care Fund Franklin Blue Chip Fund
Franklin Templeton Japan Fund Franklin California Growth Fund
Templeton Developing Markets Trust Franklin DynaTech Fund
Templeton Foreign Fund Franklin Equity Fund
Templeton Foreign Smaller Franklin Gold Fund
Companies Fund
Franklin Growth Fund
Templeton Global Infrastructure Fund
Franklin MidCap Growth Fund
Templeton Global
Opportunities Trust Franklin Small Cap Growth Fund
Templeton Global Real Estate Fund Mutual Discovery Fund
Templeton Global Smaller
Companies Fund GROWTH AND INCOME
Templeton Greater European Fund Franklin Asset Allocation Fund
Templeton Growth Fund Franklin Balance Sheet
Investment Fund
Templeton Latin America Fund
Franklin Convertible Securities Fund
Templeton Pacific Growth Fund
Franklin Equity Income Fund
Templeton World Fund
Franklin Income Fund
GLOBAL GROWTH AND INCOME Franklin MicroCap Value Fund
Franklin Global Utilities Fund Franklin Natural Resources Fund
Franklin Templeton German Franklin Real Estate Securities Fund
Government Bond Fund
Franklin Rising Dividends Funds
Franklin Templeton
Global Currency Fund Franklin Strategic Income Fund
Mutual European Fund Franklin Utilities Fund
Templeton Global Bond Fund Franklin Value Fund
Templeton Growth and Income Fund Mutual Beacon Fund
Mutual Qualified Fund
GLOBAL INCOME
Mutual Shares Fund
Franklin Global Government
Income Fund Templeton American Trust, Inc.
Franklin Templeton Hard
Currency Fund FUND ALLOCATOR SERVICE
Franklin Templeton High Franklin Templeton
Income Currency Fund Conservative Target Fund
Templeton Americas Franklin Templeton
Government Securities Fund Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
Franklin Adjustable Rate TAX-FREE INCOME
Securities Fund
Alabama
Franklin Adjustable U.S.
Government Securities Fund Arizona*
Franklin's AGE High Income Fund Arkansas**
Franklin Investment California*
Grade Income Fund
Colorado
Franklin Short-Intermediate U.S.
Government Securities Fund Connecticut
Franklin U.S. Government Florida*
Securities Fund
Georgia
Franklin Money Fund
Hawaii**
Franklin Federal Money Fund
Indiana
FOR NON-U.S. INVESTORS: Kentucky
Franklin Tax-Advantaged Louisiana
High Yield Securities Fund
Maryland
Franklin Tax-Advantaged
International Bond Fund Massachusetts***
Franklin Tax-Advantaged U.S. Michigan*
Government Securities Fund
Minnesota***
FOR CORPORATIONS: Missouri
Franklin Corporate Qualified New Jersey
Dividend Fund
New York*
North Carolina
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME Ohio***
Federal Intermediate-Term Oregon
Tax-Free Income Fund
Pennsylvania
Federal Tax-Free Income Fund
Tennessee**
High Yield Tax-Free Income Fund
Texas
Insured Tax-Free Income Fund
Virginia
Puerto Rico Tax-Free Income Fund
Washington**
Tax-Exempt Money Fund
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES, AND/OR A HIGH YIELD
PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**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.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97
<PAGE> 28
[WORLD MAP LOGO]
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.
TEMPLETON
EMERGING
MARKETS
APPRECIATION
FUND, INC.
ANNUAL REPORT
MARCH 31, 1997
[FRANKLIN TEMPLETON 50 YEAR LOGO]
[TEMPLETON LOGO]
[RECYCLE LOGO]
TLTEA A97 5/97
