Annual Report
MARCH 31, 1998
TEMPLETON EMERGING MARKETS
APPRECIATION FUND, INC.
[LOGO] Franklin Templeton
PAGE
[PHOTO OF J. MARK MOBIUS APPEARS HERE]
J. MARK MOBIUS, PHD.
President
Templeton Emerging Markets
Appreciation Fund, Inc.
TECHNOLOGY UPDATE:
FRANKLIN TEMPLETON
COMBATS THE YEAR 2000 PROBLEM
By Charles B. Johnson,
President of Franklin Resources, Inc.
As we near the 21st century, Franklin Templeton is taking important steps to
tackle the computer glitch dubbed the Year 2000 Problem, Y2K, or the Millennium
Bug. The problem originated from the software designers' attempt to save memory
by recording years in a two-digit format -- "98" instead of "1998," for example
- -- but didn't take into account that the year 2000, or "00," could also be
interpreted as 1900. Uncorrected, this problem could prevent computers from
accurately processing date-sensitive data after 1999.
Franklin Templeton's Information Services & Technology division established a
Year 2000 Project Team that has already begun making the necessary software
changes to help our computer systems, which service the funds and their
shareholders, be Year 2000 Compliant. As changes reach completion, we plan to
conduct comprehensive tests to verify their effectiveness. We will also seek
reasonable assurances from all of our major software or data-services suppliers
that they will be Year 2000 Compliant.
In addition, with an estimated 80% of businesses facing the Year 2000 Problem,
mutual fund managers appreciate the impact it potentially could have on
companies. That's why Franklin Templeton managers are aware of this issue when
managing fund portfolios.
PAGE
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Emerging Markets Appreciation Fund seeks
capital appreciation by investing substantially all of its assets in a portfolio
of equity securities and debt obligations of issuers in emerging market
countries.
Dear Shareholder:
We are pleased to bring you this annual report for Templeton Emerging Markets
Appreciation Fund for the fiscal year ended March 31, 1998. During this period,
securities markets in developing nations experienced severe volatility due to
the Asian currency crisis. Although a number of markets recovered by the end of
the reporting period, many in Asia did not. Within this environment, the Fund
provided a one-year 15.12% cumulative total return in market-price terms, as
discussed in the Performance Summary on page 5. Based on change in net asset
value, total return was 3.31%. Lipper Analytical Services ranked the Fund second
out of six closed-end emerging market equity funds in total return, based on
change in net asset value during the one-year period ended March 31, 1998.(1)
(1.) Lipper Analytical Services is a nationally recognized mutual fund research
organization.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 8 of
this report.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Shareholder Letter .................. 1
Performance Summary ................. 5
Financial Highlights &
Statement of Investments ............ 7
Financial Statements ................ 17
Notes to the Financial
Statements .......................... 20
Independent Auditor's Report ........ 23
Tax Designation ..................... 25
</TABLE>
[GRAPH] PYRAMID
PAGE
This chart shows in pie format the asset allocation breakdown of the Fund's
securities on March 31, 1998, based on total net assets.
ASSET ALLOCATION
Based on Total Net Assets
3/31/98
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Equity 52.3%
Fixed-Income Securities 39.5%
Short-Term Investments & Other Net Assets 8.2%
</TABLE>
This chart shows in pie format thegeographic distribution breakdown of the
Fund's securities on March 31, 1998, based on total net assets.
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
3/31/98
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Latin America 51.6%
Asia 25.6%
Europe 11.8%
Middle-East & Africa 2.8%
Short-Term Investments & Other Net Assets 8.2%
</TABLE>
At the end of the reporting period, 52.3% of the Fund's total net assets were
invested in equities, 39.5% in fixed-income securities, and 8.2% in short-term
investments and other net assets. These holdings were spread across 35 emerging
market countries, with no individual market representing more than 18.9% of the
Fund's total net assets. Our largest single-country exposure was Mexico,
followed by Brazil, Argentina, and Turkey.
The devaluation of the Thai baht in July 1997 highlighted problems involving
high foreign debt levels and trade imbalances in many other Asian countries.
This triggered several other devaluations, thrusting many companies into
bankruptcy and adversely affecting banking systems in these nations. The
region's securities markets also suffered, as a rush for cash drove down equity
and bond prices in a wild melee of selling, the likes of which had not been seen
for many years.
Latin American markets overall fared better than their Asian counterparts.
Strong market-oriented policies and close economic ties to the United States
helped shelter these countries from the worst effects of the "Asian flu."
Although Latin American equity markets did decline during the middle of the
fiscal year, many rebounded and finished the year with an appreciable gain. For
example, Brazil's stock market advanced 25.2% and Mexico's 26.4% during the 12
months under review.(2) The prices of many debt securities also increased, as
rising oil prices boosted foreign exchange earnings in Ecuador, Mexico, and
Venezuela, leading to higher credit quality of many of their bonds. During the
reporting period, we boosted our position in Latin America from 42.0% to 51.6%
of total net assets.
Eastern European emerging markets also generally performed well during the
fiscal year. Foreign investors attracted by an improved
(2) Source: Bloomberg. Market return is measured in U.S. dollars and includes
reinvested dividends.
2
PAGE
Russian economy maintained their heavy buying of securities. The value of many
stocks appreciated substantially, and the bond market there rose 13.4%.(3)
Bulgarian bonds were strong as well, providing a 53.7% total return, largely
because investors responded positively to new economic policies and the July 1,
1997 implementation of a currency board.(3)
Looking forward, we will continue to focus on securities from countries
experiencing strong economic growth. In our opinion, the underlying value of
such securities should increase as a result of economic performance and improved
creditworthiness of these nations. At the same time, we will attempt to avoid
countries that are failing to make economic reforms and whose credibility is
weakened as a result of inconsistent economic policies. The Asian currency
crisis could represent an opportunity to purchase securities that were
previously overvalued, and markets such as Thailand may recover just as Mexico's
market rallied strongly after its 1994 peso crisis. We have already seen some of
the major markets in Asia and Latin America rally significantly from earlier
levels, and believe that now is the time to maintain our rational investing
approach and buy what we perceive to be bargain-priced securities.
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 their relatively small size and lesser liquidity. While
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in
(3). Source: J.P. Morgan Securities, Inc. Emerging Markets Bond Index Plus.
Market return is measured in U.S. dollars.
TOP 10 HOLDINGS
3/31/98
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Telmex-Telefonos de
Mexico SA, ADR, L
Telecommunications, Mexico 4.7%
Republic of Venezuela,
9.25%, 9/15/27
Government Bonds, Venezuela 3.7%
United Mexican States,
9.875%, 1/15/07
Government Bonds, Mexico 3.6%
Alpha Credit Bank
Banking, Greece 2.8%
Cemex SA, B
Building Materials
& Components, Mexico 2.8%
Ergo Bank SA
Banking, Greece 2.5%
Centrais Eletricas Brasileiras
SA (Electrobras), pfd., B
Utilities Electrical & Gas, Brazil 2.5%
Republic of Argentina,
9.25%, 2/23/01
Government Bonds, Argentina 2.3%
Republic of Turkey, 144A,
10.00%, 9/19/07
Government Bonds, Turkey 2.2%
Akbank
Banking, Turkey 2.1%
</TABLE>
3
PAGE
This table shows the top 10 countries represented in the Fund on March 31, 1998,
based on total net assets.
TOP 10 COUNTRIES
REPRESENTED IN THE FUND
3/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Mexico 18.9%
Brazil 12.4%
Argentina 10.3%
Turkey 9.8%
Greece 6.5%
Venezuela 4.7%
Hong Kong 3.3%
Malaysia 2.7%
Russia 2.4%
Ecuador 2.4%
</TABLE>
emerging markets. In fact, the Hong Kong equity market has increased 1,056% in
the last 15 years, but has suffered five declines of more than 20% during that
time.(4)
Please remember this discussion reflects our views, opinions and portfolio
holdings as of March 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although historic
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
We thank you for your participation in 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.
(4). Source: Bloomberg. Market return is based on quarterly percentage price
change over 15 years ended March 31, 1998.
4
PAGE
PERFORMANCE SUMMARY
In market-price terms, Templeton Emerging Markets Appreciation Fund produced a
cumulative total return of 15.12% for the 12-month period ended March 31, 1998.
Based on the change in net asset value (in contrast to market price), the Fund
delivered a cumulative total return of 3.31% for the same period. Both total
return figures assume reinvestment of dividends and capital gains, if any, in
accordance with the dividend reinvestment and cash purchase plan.
During the reporting period, the Fund's closing price on the New York Stock
Exchange decreased 25 cents ($0.25) per share, from $12.875 on March 31, 1997,
to $12.625 on March 31, 1998, while the net asset value decreased $1.82 per
share, from $15.17 to $13.35.
Shareholders received per share distributions of 72 cents ($0.72) in dividend
income, 98.5 cents ($0.985) in long-term capital gains, and 44.5 cents ($0.445)
in short-term capital gains. Distributions will vary depending on income earned
by the Fund and any profits realized from the sale of securities in the Fund's
portfolio, as well as the level of the Fund's operating expenses.
Past performance is not predictive of future results.
5
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND
Periods ended 3/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (4/29/94)
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in net asset value 3.31% 50.91% 33.34%
Based on change in market price 15.12% 33.58% 18.55%
Average Annual Total Return(2)
Based on change in net asset value 3.31% 14.69% 8.41%
Based on change in market price 15.12% 10.12% 4.89%
</TABLE>
(1) Cumulative total return represents the change in value of an investment over
the periods indicated.
(2) Average annual total return represents the average annual change in value of
an investment over the periods indicated.
All 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 and cash purchase plan and do not reflect sales
charges that would have been paid at inception or brokerage commissions that
would have been paid on secondary market purchases.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of the countries where investments are made.
Emerging markets involve heightened risks related to the same factors, in
addition to those associated with their relatively small size and lesser
liquidity. You may have a gain or loss when you sell your shares.
Past 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.
Past performance is not predictive of future results.
6
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1998 1997 1996 1995+
-----------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $15.17 $13.41 $12.05 $14.10
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .56 .62 .69 .48
Net realized and unrealized gains (losses)................. (.23) 2.27 1.64 (1.97)
-----------------------------------------------
Total from investment operations............................ .33 2.89 2.33 (1.49)
-----------------------------------------------
Underwriting expenses deducted from capital................. -- -- -- (.15)
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.72) (.51) (.86) (.32)
Net realized gains......................................... (1.24) (.62) (.11) (.09)
In excess of net realized gains............................ (.19) -- -- --
-----------------------------------------------
Total distributions......................................... (2.15) (1.13) (.97) (.41)
-----------------------------------------------
Net asset value, end of year................................ $13.35 $15.17 $13.41 $12.05
===============================================
Total Return*
Based on market value per share............................ 15.12% .40% 15.57% (11.25)%
Based on net asset value per share......................... 3.31% 22.40% 19.34% (11.64)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $58,520 $65,075 $57,516 $51,022
Ratios to average net assets:
Expenses................................................... 1.88% 1.83% 1.64% 1.79%**
Net investment income...................................... 3.76% 4.29% 5.29% 3.98%**
Portfolio turnover rate..................................... 74.67% 114.78% 26.92% 58.79%
Average commission rate paid ***............................ $.0016 $.0036 $.0008 --
</TABLE>
*Total return is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
+For the period April 29, 1994 (commencement of operations) to March 31, 1995.
See Notes to Financial Statements.
7
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 48.4%
APPLIANCES & HOUSEHOLD DURABLES .8%
Arcelik AS.................................................. Turkey 2,574,896 $ 222,472
Beko Elektronik AS.......................................... Turkey 1,075,990 46,483
Sanyo Universal Electric Public Co. Ltd. ................... Thailand 20,000 6,624
Semi-Tech Co. Ltd. ......................................... Hong Kong 491,601 52,660
*Semi-Tech Co. Ltd., wts. .................................. Hong Kong 11,320 15
Turk Demir Dokum, br. ...................................... Turkey 3,772,993 135,052
-----------
463,306
-----------
AUTOMOBILES .5%
Associated Motorways Ltd. .................................. Sri Lanka 48,300 27,078
*Bajaj Auto Ltd. ........................................... India 2,350 35,370
Cycle & Carriage Ltd. ...................................... Singapore 11,000 49,721
Perusahaan Otomobil Nasional Bhd., fgn. .................... Malaysia 67,000 116,882
PT Gadjah Tunggal........................................... Indonesia 293,000 13,549
Renault Argentina SA........................................ Argentina 20,915 43,927
-----------
286,527
-----------
BANKING 12.4%
Akbank...................................................... Turkey 16,867,518 1,231,814
*Alpha Credit Bank.......................................... Greece 21,178 1,639,113
AMMB Holdings Bhd. ......................................... Malaysia 33,400 38,355
Banco Bradesco SA........................................... Brazil 24,959,625 248,049
Banco de Galicia y Buenos Aires SA, B....................... Argentina 31,247 192,510
Banco do Brasil SA.......................................... Brazil 2,355,276 19,885
*Banco do Brasil SA, wts., B................................ Brazil 4,711,582 14,088
*Banco do Brasil SA, wts., C................................ Brazil 4,978,638 16,420
Bangkok Bank Public Co. Ltd. ............................... Thailand 35,000 72,675
*Daegu Bank Co. Ltd. ....................................... South Korea 12,071 24,578
Ergo Bank SA................................................ Greece 20,390 1,460,163
*Grupo Financiero Banamex Accival SA, B..................... Mexico 57,000 145,210
*Grupo Financiero Banamex Accival SA, L..................... Mexico 31,868 74,077
*Grupo Financiero Bancomer SA de CV, B...................... Mexico 1,439,000 848,061
*Grupo Financiero Bancomer SA de CV, L...................... Mexico 34,778 14,535
*Grupo Financiero Serfin SA de CV, B........................ Mexico 41,277 9,207
HSBC Holdings Plc. ......................................... Hong Kong 17,164 525,001
*National Bank of Greece SA................................. Greece 320 35,024
Philippine Commercial International Bank Inc. .............. Philippines 10,000 49,604
PT Bank International Indonesia, fgn. ...................... Indonesia 1,415,000 114,509
PT Inter-Pacific Bank, fgn. ................................ Indonesia 9,500 1,277
Public Bank................................................. Malaysia 145,000 70,508
Thai Farmers Bank Public Co. Ltd. .......................... Thailand 39,000 75,019
Turkiye Garanti Bankasi AS.................................. Turkey 8,588,999 339,242
-----------
7,258,924
-----------
</TABLE>
8
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BEVERAGES & TOBACCO .5%
Fraser and Neave Ltd., fgn. ................................ Singapore 27,000 $ 114,520
PT Hanjaya Mandala Sampoerna................................ Indonesia 46,000 41,746
Quilmes Industrial SA....................................... Argentina 14,000 160,125
-----------
316,391
-----------
BROADCASTING & PUBLISHING
Times Publishing Ltd. ...................................... Singapore 13,000 25,920
-----------
BUILDING MATERIALS & COMPONENTS 3.9%
*Cemex SA, B................................................ Mexico 301,000 1,625,499
Cementos Argos SA........................................... Colombia 21,300 79,816
*Cimentas Izmir Cimento Fabrikasi Turk AS................... Turkey 3,755,152 224,022
*Cimsa Cimento Sanayi ve Ticaret AS......................... Turkey 1,627,000 88,695
Gujarat Ambuja Cements Ltd. ................................ India 2,500 17,312
Izocam Ticaret ve Sanayii AS, br. .......................... Turkey 149,142 4,541
*Jordan Cement Factories Ltd. .............................. Jordan 12,000 45,738
PT Indocement Tunggal Prakarsa.............................. Indonesia 70,500 25,877
*PT Semen Cibinong, loc. ................................... Indonesia 437,500 25,289
PT Semen Gresik............................................. Indonesia 71,000 52,532
*Royal Ceramic Industry Public Co. Ltd., fgn. .............. Thailand 141,700 14,802
Shanghai Yaohua Pilkington Glass, B......................... China 96,250 17,806
Siam Cement Public Co. Ltd. ................................ Thailand 1,600 18,507
Siam Cement Public Co. Ltd., fgn. .......................... Thailand 2,550 35,343
*Thai Asahi Glass Public Co. Ltd. .......................... Thailand 72,610 16,649
Tipco Asphalt Public Co. Ltd. .............................. Thailand 600 856
-----------
2,293,284
-----------
CHEMICALS 1.2%
Aeci Ltd. .................................................. South Africa 5,000 18,654
*Atanor Cia Nacional Para la Industria Quimica SA, D........ Argentina 56,550 67,870
Borsodchem RT............................................... Hungary 150 4,712
Borsodchem RT, GDR.......................................... Hungary 150 4,673
Engro Chemical Pakistan Ltd. ............................... Pakistan 1,000 2,299
Indian Petrochemicals Corp. Ltd. ........................... India 57,500 101,289
Petkim Petrokimya Holding AS................................ Turkey 30,000 17,280
PT Unggul Indah Corp. ...................................... Indonesia 136,400 26,807
Reliance Industries Ltd., GDR............................... India 5,600 46,760
Shanghai Chlor-Alkali Chemical Co. Ltd., B.................. China 256,600 44,135
Shanghai Petrochemical Co. Ltd., H.......................... China 516,000 77,916
Singapore Petroleum Company, fgn. .......................... Singapore 2,000 1,102
Slovnaft AS................................................. Slovak Republic 8,000 190,342
*Unipetrol.................................................. Czech Republic 30,602 85,835
-----------
689,674
-----------
CONSTRUCTION & HOUSING
Italian-Thai Development Public Co. Ltd. ................... Thailand 20,000 15,796
-----------
</TABLE>
9
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRICAL & ELECTRONICS .8%
Acma Ltd. .................................................. Singapore 8,000 $ 6,192
Daewoo Electronics Co. ..................................... South Korea 10,000 42,960
Empresa Nacional de Electricidad SA, ADR.................... Chile 4,100 78,925
Great Wall Electronic International Ltd. ................... Hong Kong 693,102 33,992
LG Electronics Inc. ........................................ South Korea 2,000 27,581
*Netas Northern Electric Telekomunic Asyon AS............... Turkey 572,000 181,210
Reunert Ltd. ............................................... South Africa 24,200 46,825
Samsung Display Devices Ltd. ............................... South Korea 1,450 68,051
-----------
485,736
-----------
ENERGY SOURCES 1.4%
Engen Ltd. ................................................. South Africa 20,207 87,220
Hindustan Petroleum Corp. Ltd. ............................. India 2,100 23,429
Transportadora de Gas del Sur SA, B......................... Argentina 34,000 79,062
Transportadora de Gas del Sur SA, B, ADR.................... Argentina 1,300 15,194
YPF Sociedad Anonima, ADR................................... Argentina 18,530 630,020
-----------
834,925
-----------
FINANCIAL SERVICES .7%
Alpha Leasing SA............................................ Greece 9,480 173,426
Etba Leasing................................................ Greece 16,380 117,300
Industrial Finance Corp. of Thailand........................ Thailand 4,400 2,494
Industrial Finance Corp. of Thailand, fgn. ................. Thailand 1,200 703
MBF Capital Bhd. ........................................... Malaysia 250,000 107,143
Phatra Thanakit Public Co. Ltd. ............................ Thailand 9,386 9,326
*PT Sinar Mas Multi Artha, wts., fgn. ...................... Indonesia 4,260 59
Thai Investments and Securities Ltd. ....................... Thailand 6,400 5,503
-----------
415,954
-----------
FOOD & HOUSEHOLD PRODUCTS 1.3%
Bonnita Holdings Ltd. ...................................... South Africa 80,000 12,860
Boustead Holdings Bhd., fgn. ............................... Malaysia 11,000 11,181
Chareon Pokphand Feedmill Public Co. Ltd., fgn. ............ Thailand 11,000 19,057
*Del Monte Royal Foods Ltd. ................................ South Africa 135,800 83,544
PT Charoen Pokphand Indonesia............................... Indonesia 115,000 6,315
PT Japfa Comfeed Indonesia.................................. Indonesia 67,000 4,066
PT Multibreeder Adirama Indonesia TBK....................... Indonesia 193,500 6,152
Vitro SA.................................................... Mexico 154,000 613,794
-----------
756,969
-----------
FOREST PRODUCTS & PAPER 1.4%
Aracruz Celulose SA, ADR.................................... Brazil 36,000 540,000
Portucel Industrial Empresa Product de Celulose SA.......... Portugal 16,800 153,457
PT Indah Kiat Pulp & Paper Corp. ........................... Indonesia 65,000 16,156
PT Tjiwi Kimia TBK.......................................... Indonesia 155,500 36,403
</TABLE>
10
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER (CONT.)
Sappi Ltd. ................................................. South Africa 10,177 $ 49,481
Shin Poong Paper Manufacturing Co. Ltd. .................... South Korea 1,400 18,195
-----------
813,692
-----------
HEALTH & PERSONAL CARE .1%
Hankook Cosmetics Co. Ltd. ................................. South Korea 3,000 33,574
PT Tempo Scan Pacific....................................... Indonesia 102,000 7,370
-----------
40,944
-----------
INDUSTRIAL COMPONENTS .7%
BTR Dunlop Ltd. ............................................ South Africa 50,000 29,768
Leader Universal Holdings Bhd. ............................. Malaysia 68,000 31,571
Marshall Boya ve Vernik Sanayii AS.......................... Turkey 1,545,528 216,198
*Shanghai Rubber Belt Co. Ltd., B........................... China 563,650 84,548
Shanghai Tyre & Rubber Co. Ltd., B.......................... China 134,300 30,889
-----------
392,974
-----------
INSURANCE .3%
*Anadolu Anonim Turk Sigorta Sirketi, br. .................. Turkey 1,223,680 34,235
Compania Suramericana de Inversiones SA..................... Colombia 9,748 143,248
-----------
177,483
-----------
LEISURE & TOURISM 1.2%
Genting Berhad.............................................. Malaysia 25,000 85,852
Hinds Hotels International Ltd. ............................ Singapore 129,000 111,028
Hong Kong & Shanghai Hotels Ltd. ........................... Hong Kong 16,000 13,112
*Hotel Shilla Co. .......................................... South Korea 13,900 65,235
Overseas Union Enterprise Ltd. ............................. Singapore 18,000 43,022
Republic Hotels & Resorts Ltd. ............................. Singapore 49,000 20,328
Resorts World Bhd. ......................................... Malaysia 100,000 221,154
Shangri La Hotels (Malaysia) Bhd. .......................... Malaysia 141,000 55,393
Shangri La Hotels (Malaysia) Bhd., fgn. .................... Malaysia 27,000 10,607
Sun International (South Africa) Ltd. ...................... South Africa 162,000 75,551
-----------
701,282
-----------
MACHINERY & ENGINEERING .9%
Jurong Shipyard Ltd., fgn. ................................. Singapore 30,000 156,037
*Keppel Philippine Holdings Inc., B......................... Philippines 366,562 13,541
*Mannesmann SA.............................................. Brazil 760,000 88,897
PT United Tractors.......................................... Indonesia 13,000 2,630
Samsung Heavy Industries Co. Ltd. .......................... South Korea 3,000 19,495
*Shanghai Erfangji Textile Machinery Co. Ltd., B............ China 293,314 25,812
*Shanghai Steel Tube Co. Ltd., B............................ China 249,700 26,468
Tata Engineering & Locomotive Co., GDR...................... India 6,200 47,740
</TABLE>
11
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING (CONT.)
Tata Engineering & Locomotive Co. Telco..................... India 20,000 $ 148,369
Thai Engine Manufacturing Public Company Ltd. .............. Thailand 4,800 11,006
-----------
539,995
-----------
MERCHANDISING .6%
Cifra SA, C................................................. Mexico 28,556 50,286
Dairy Farm International Holdings Ltd. ..................... Hong Kong 123,614 148,337
*Siam Makro Public Company Ltd. ............................ Thailand 70,000 123,949
-----------
322,572
-----------
METALS & MINING 1.9%
Antofagasta Holdings Plc. .................................. Chile 38,181 207,146
Ashanti Goldfields Co. Ltd., GDR............................ Ghana 14,308 133,243
Companhia Siderurgica Nacional Sid Nacional CSN............. Brazil 1,370,000 40,592
Eregli Demir ve Celik Fabrikalari AS........................ Turkey 1,736,000 217,844
Hellas Can Sa Packaging Manufacturers....................... Greece 18,270 270,811
Natsteel Ltd. .............................................. Singapore 39,000 60,613
*Philex Mining Corp., B..................................... Philippines 3,154,950 79,914
PT Tambang Timah (Persero).................................. Indonesia 38,000 31,850
South African Iron & Steel Industrial Corp. Ltd. ........... South Africa 217,672 60,045
Tata Iron & Steel Co. Ltd. ................................. India 4,500 17,005
-----------
1,119,063
-----------
MULTI-INDUSTRY 5.4%
*A Soriano Corp. ........................................... Philippines 500,000 18,206
Anglo American Industrial Corp. Ltd. ....................... South Africa 19,896 489,602
Anglovaal Industries Ltd. .................................. South Africa 29,000 50,645
Cheung Kong Holdings Ltd. .................................. Hong Kong 60,000 425,900
Hong Leong Industries Bhd. ................................. Malaysia 56,400 74,374
*Hong Leong Industries Bhd., wts., fgn. .................... Malaysia 8,500 1,856
Koc Holding AS.............................................. Turkey 4,393,175 695,880
Koor Industries Ltd. ....................................... Israel 1,701 211,539
Lai Sun Garment International Ltd. ......................... Hong Kong 88,000 44,010
Larsen and Toubro Ltd. ..................................... India 28,850 177,488
Malbak Ltd. ................................................ South Africa 12,750 11,892
McCarthy Retail Ltd. ....................................... South Africa 44,785 68,435
Perlis Plantations Bhd., fgn. .............................. Malaysia 70,000 110,577
*Renong Bhd. ............................................... Malaysia 329,000 130,154
Saha Union Public Co. Ltd., fgn. ........................... Thailand 39,000 37,758
Samsung Electronics Co. Ltd. ............................... South Korea 1,350 71,155
Sembawang Corp. Ltd. ....................................... Singapore 28,000 62,415
Sociedad Comercial del Plata Cadelplata Come................ Argentina 248,040 320,020
Swire Pacific Ltd., A....................................... Hong Kong 1,000 5,291
Transarchipel Shipping Ltd. - TSL........................... Zimbabwe 587,000 150,839
-----------
3,158,036
-----------
</TABLE>
12
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 1.7%
Belle Corp. ................................................ Philippines 396,000 $ 22,987
Filinvest Development Corp. ................................ Philippines 200,000 17,678
First Capital Corp. Ltd., fgn. ............................. Singapore 34,000 32,000
Hang Lung Development Co. Ltd. ............................. Hong Kong 217,000 315,069
Hong Leong Properties Bhd., fgn. ........................... Malaysia 35,000 11,346
Island & Peninsula Bhd., fgn. .............................. Malaysia 30,000 24,725
Land and House Public Co. Ltd. ............................. Thailand 7,900 3,673
Land and House Public Co. Ltd., fgn. ....................... Thailand 600 298
MCL Land Ltd. .............................................. Singapore 42,000 31,207
New World Development Co. Ltd. ............................. Hong Kong 66,147 233,486
PT Ciputra Dev. ............................................ Indonesia 175,000 9,104
PT Pakuwon Jati............................................. Indonesia 134,000 6,971
PT Summarecon Agung......................................... Indonesia 327,787 19,895
Sun Hung Kai Properties Ltd. ............................... Hong Kong 6,000 40,848
United Industrial Corporation Ltd., fgn. ................... Singapore 391,000 170,684
United Overseas Land Ltd. .................................. Singapore 73,000 55,598
-----------
995,569
-----------
RECREATION & OTHER CONSUMER GOODS .4%
China First Pencil Co. Ltd., B.............................. China 512,107 103,446
*Shanghai Wingsung Co. Ltd., B.............................. China 392,783 69,915
*Shenzhen China Bicycles Co. Ltd., B........................ China 68,200 11,794
Yue Yuen Industrial (Holdings) Ltd. ........................ Hong Kong 39,000 76,004
-----------
261,159
-----------
TELECOMMUNICATIONS 6.4%
Compania De Telecommunications De Chile SA, Spons. ADR...... Chile 2,000 55,125
Hellenic Telecommunications Organizations................... Greece 5,500 137,595
Jasmine International Public Co. Ltd. ...................... Thailand 60,600 37,055
Pakistan Telecommunications Corp., PTC, A................... Pakistan 17,000 11,281
Telecomunicacoes Brasileiras SA (Telebras).................. Brazil 4,525,000 467,603
Telefonica del Peru SA, ADR B............................... Peru 11,000 237,187
Telefonos de Mexico SA (Telmex), ADR, L..................... Mexico 48,300 2,722,912
Total Access Communication Public Co. Ltd. ................. Thailand 14,600 17,228
United Communications Industries, fgn. ..................... Thailand 10,000 9,045
United Communications Industry Public Co. Ltd., loc. ....... Thailand 60,000 50,446
-----------
3,745,477
-----------
TEXTILES & APPAREL .3%
BYC Co. Ltd. ............................................... South Korea 700 32,347
Graboplast Textil Es Muborgyarto Rt......................... Hungary 1,000 40,693
Hua Thai Manufacturing Public Co. Ltd. ..................... Thailand 16,000 17,529
Thai Rayon Public Co. Ltd. ................................. Thailand 17,000 30,318
Thai Wacoal Public Co. Ltd., fgn. .......................... Thailand 18,750 38,933
-----------
159,820
-----------
</TABLE>
13
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 1.4%
Chiwan Wharf Holdings Ltd., B............................... China 134,000 $ 35,626
Delgro Corp. ............................................... Singapore 8,000 9,560
Guangshen Railway Co. Ltd., ADR............................. China 1,400 16,625
Guangshen Railway Co. Ltd., H............................... China 334,000 76,729
Keppel Corp. Ltd. .......................................... Singapore 38,000 114,353
*Korea Express Co. Ltd. .................................... South Korea 3,000 14,729
Malaysian Airline System Bhd. .............................. Malaysia 23,000 27,170
Malaysian International Shipping Corp., fgn. ............... Malaysia 229,333 441,025
Neptune Orient Lines Ltd. .................................. Singapore 97,000 46,248
Regional Container Lines Public Co. Ltd., fgn. ............. Thailand 30,000 33,822
SBS Bus Service Ltd., fgn................................... Singapore 5,500 2,707
-----------
818,594
-----------
UTILITIES ELECTRICAL & GAS 2.1%
*CEZ AS..................................................... Czech Republic 29,000 871,970
Enersia SA, ADR............................................. Chile 1,200 37,875
Korea Electric Power Corp. ................................. South Korea 5,400 70,181
Nafta Gbely AS.............................................. Slovak Republic 1,200 30,223
Unified Energy System....................................... Russia 700,000 220,500
-----------
1,230,749
-----------
WHOLESALE & INTERNATIONAL TRADE .1%
Metro Holdings Ltd., fgn. .................................. Singapore 24,000 30,613
-----------
TOTAL COMMON STOCKS (COST $29,788,203)...................... 28,351,428
-----------
PREFERRED STOCKS 3.9%
Banco do Brazil SA, pfd. ................................... Brazil 15,400,000 180,133
Brasmotor SA, pfd. ......................................... Brazil 407,500 59,492
Centrais Eletricas Brasileiras SA (Electrobras), pfd., B.... Brazil 24,956,000 1,233,479
Investimentos Itau SA, pfd. ................................ Brazil 960,200 836,021
-----------
TOTAL PREFERRED STOCKS (COST $2,174,113).................... 2,309,125
-----------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS - CORPORATE 6.8%
Banco Ganadero SA, 144A, 9.75%, 8/26/99..................... Colombia $ 200,000 206,000
Banco Nacional Obra Serv., 9.625%, 11/15/03................. Mexico 125,000 131,250
Bepensa SA, 144A, 9.75%, 9/30/04............................ Mexico 270,000 274,725
Bridas Corp., Yankee, 12.50%, 11/15/99...................... Argentina 460,000 493,948
Cemex SA, 144A, 10.75%, 7/15/00............................. Mexico 230,000 244,950
Centrais Electricas Brasileiras SA, 144A, 10.00%,
10/30/98.................................................. Brazil 200,000 201,000
Essar Steel Ltd., 144A, FRN, 8.275%, 7/20/99................ India 30,000 27,450
Pera Financial Services, 9.375%, 10/15/02................... Turkey 300,000 283,500
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04.......................................... Philippines 500,000 504,375
9.25%, 6/30/06............................................ Philippines 190,000 190,000
PIV Investment Finance (Cayman) Ltd., cvt., 4.50%.,
12/01/00.................................................. Hong Kong 330,000 24,750
</TABLE>
14
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
----------------------------------------------
<S> <C> <C> <C>
BONDS - CORPORATE (CONT.)
Poland Communications Inc., 9.875%, 11/01/03................ Poland $ 280,000 $ 278,600
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... Mexico 320,000 297,600
PT Astra International, 9.75%, 4/29/01...................... Indonesia 175,000 70,070
PT Indah Kiat Financial Mauritius, 10.00%, 7/01/07.......... Indonesia 625,000 513,000
Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01........... Indonesia 250,000 229,375
-----------
TOTAL BONDS - CORPORATE (COST $4,441,639)................... 3,970,593
-----------
BONDS - GOVERNMENT & GOVERNMENT AGENCIES 32.7%
Abril SA, 144A, 12.00%, 10/25/03............................ Brazil 250,000 262,813
Associacion Nacional del Cafe, 11.00%, 8/31/98.............. Guatemala 92,000 92,000
Government of Brazil:
9.375%, 4/07/08........................................... Brazil 950,000 947,501
FRN, 6.75%, 4/15/12....................................... Brazil 1,115,000 898,969
8.00%, 4/15/14............................................ Brazil 159,636 136,693
10.125%, 5/15/27.......................................... Brazil 1,075,000 1,066,938
Minfin of Russia, 144A, 10.00%, 6/26/07..................... Russia 1,260,000 1,205,662
Republic of Argentina:
9.25%, 2/23/01............................................ Argentina 1,320,000 1,365,375
8.75%, 5/09/02............................................ Argentina 325,000 320,856
11.00%, 10/09/06.......................................... Argentina 225,000 250,453
Reg S, 11.75%, 2/12/07.................................... Argentina 490,000ARS 510,289
11.375%, 1/30/17.......................................... Argentina 300,000 339,188
9.75%, 9/19/27............................................ Argentina 1,240,000 1,224,500
Republic of Ecuador:
11.25%, 4/25/02........................................... Ecuador 600,000 622,500
144A, 11.25%, 4/25/02..................................... Ecuador 750,000 778,125
Republic of Panama, FRN, 6.844%, 5/14/02.................... Panama 346,163 341,836
Republic Of Turkey:
144A, 9.875%, 2/23/05..................................... Turkey 500,000 511,875
144A, 10.00%, 9/19/07..................................... Turkey 1,230,000 1,260,750
Republic of Venezuela:
144A, 9.125%, 6/18/07..................................... Venezuela 280,000 282,100
Reg S, 9.125%, 6/18/07.................................... Venezuela 300,000 302,250
9.25%, 9/15/27............................................ Venezuela 2,400,000 2,178,000
Sei Holdings IX Inc., 144A, 11.00%, 11/30/00................ Trinidad and Tobago 210,000 225,658
United Mexican States:
9.75%, 2/06/01............................................ Mexico 340,000 359,550
9.875%, 1/15/07........................................... Mexico 1,950,000 2,098,688
8.625%, 3/12/08........................................... Mexico 825,000 822,937
11.375%, 9/15/16.......................................... Mexico 450,000 529,875
11.50%, 5/15/26........................................... Mexico 175,000 213,062
-----------
TOTAL BONDS - GOVERNMENT & GOVERNMENT AGENCIES (COST
$19,076,066).............................................. 19,148,443
-----------
</TABLE>
15
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-----------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 10.1%
Deutsche Bank AG, 5.875%, 4/01/98........................... United States $ 454,000 $ 454,000
U.S. Treasury Bills, 4.965% to 5.39% with maturities to
6/25/98................................................... United States 5,467,000 5,425,981
-----------
TOTAL SHORT TERM INVESTMENTS (COST $5,880,101).............. 5,879,981
-----------
TOTAL INVESTMENTS (COST $61,360,122) 101.9%................. 59,659,570
OTHER ASSETS, LESS LIABILITIES (1.9%)....................... (1,139,923)
-----------
TOTAL NET ASSETS 100.0%..................................... $58,519,647
===========
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
ARS -- Argentina Peso
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
16
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $61,360,122)..... $59,659,570
Receivables:
Investment securities sold................................ 764,307
Dividends and interest.................................... 561,742
Organization costs......................................... 4,302
-----------
Total assets.......................................... 60,989,921
-----------
Liabilities:
Payables:
Investment securities purchased........................... 2,304,903
To affiliates............................................. 63,230
Funds advanced by custodian................................ 11,756
Accrued expenses........................................... 90,385
-----------
Total liabilities..................................... 2,470,274
-----------
Net assets, at value........................................ $58,519,647
===========
Net assets consist of:
Undistributed net investment income........................ $ 49,894
Net unrealized depreciation................................ (1,694,196)
Accumulated distributions in excess of net realized loss... (834,116)
Capital shares............................................. 60,998,065
-----------
Net assets, at value........................................ $58,519,647
===========
Net asset value per share ($58,519,647 / 4,384,710 shares
outstanding).............................................. $13.35
===========
</TABLE>
See Notes to Financial Statements.
17
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $30,997)
Dividends.................................................. $ 852,816
Interest................................................... 2,753,197
-----------
Total investment income............................... $ 3,606,013
Expenses:
Management fees (Note 3)................................... 799,588
Administrative fees (Note 3)............................... 159,918
Transfer agent fees........................................ 18,277
Custodian fees............................................. 56,369
Reports to shareholders.................................... 54,984
Registration and filing fees............................... 16,170
Professional fees (Note 3)................................. 70,826
Directors' fees and expenses............................... 14,807
Amortization of organization costs......................... 3,898
Other...................................................... 8,935
-----------
Total expenses........................................ 1,203,772
-----------
Net investment income........................... 2,402,241
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 3,763,109
Foreign currency transactions............................. (62,563)
-----------
Net realized gain...................................... 3,700,546
Net unrealized appreciation (depreciation) on:
Investments............................................... (4,615,569)
Translation of assets and liabilities denominated in
foreign currencies...................................... 14,488
-----------
Net unrealized depreciation............................ (4,601,081)
-----------
Net realized and unrealized loss............................ (900,535)
-----------
Net increase in net assets resulting from operations........ $ 1,501,706
===========
</TABLE>
See Notes to Financial Statements.
18
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,402,241 $ 2,640,752
Net realized gain from investments and foreign currency
transactions............................................ 3,700,546 4,471,472
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (4,601,081) 5,293,006
-----------------------------
Net increase in net assets resulting from operations.... 1,501,706 12,405,230
Distributions to shareholders from:
Net investment income..................................... (3,087,904) (2,187,265)
Net realized gains........................................ (5,298,805) (2,659,029)
In excess of net realized gains........................... (834,116) --
Capital share transactions (Note 2)........................ 1,163,922 --
-----------------------------
Net increase (decrease) in net assets................... (6,555,197) 7,558,936
Net assets:
Beginning of year.......................................... 65,074,844 57,515,908
-----------------------------
End of year................................................ $58,519,647 $65,074,844
=============================
Undistributed net investment income included in net assets:
End of year................................................ $ 49,894 $ 453,487
=============================
</TABLE>
See Notes to Financial Statements.
19
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Emerging Markets Appreciation Fund, Inc. (the Fund) is registered
under the Investment Company Act of 1940 as a closed-end, non-diversified
investment company. The Fund seeks capital appreciation by investing
substantially all of its assets in a portfolio of equity securities and debt
obligations of issuers in emerging market countries. The following summarizes
the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. FORWARD EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
d. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
20
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
f. ORGANIZATION COSTS:
Organization costs are 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.
2. CAPITAL STOCK
At March 31, 1998, there were 100,000,000 shares authorized ($0.01 par value).
During the year ended March 31, 1998, 95,954 shares were issued for $1,163,922
from reinvested distributions. During the year ended March 31, 1997, there were
no shares issued; all reinvested distributions were satisfied with previously
issued shares purchased in the open market.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
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. (FT Services), the Fund's investment manager,
sub-advisor and administrative manager, respectively.
The Fund pays an investment management fee to TAML of 1.25% per year 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 of 0.30% per year of the
Fund's average daily net assets. TAML pays an economic consulting and
shareholder servicing fee to Paine Webber of 0.10% per year of the average daily
net assets of the Fund. The Fund pays FT Services an administrative fee of 0.25%
per year 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.
Included in professional fees are legal fees of $15,070 that were paid to a law
firm in which a partner is an officer of the Fund.
21
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Notes to Financial Statements (continued)
4. INCOME TAXES
At March 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $61,669,627 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 7,214,525
Unrealized depreciation..................................... (9,224,582)
-----------
Net unrealized depreciation................................. $(2,010,057)
===========
</TABLE>
Net realized capital gains differ for financial statements and tax purposes
primarily due to differing tax treatments of passive foreign investment
companies, wash sales, and losses realized on the sale of securities subsequent
to October 31.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 1998 aggregated $42,026,379 and $44,473,386,
respectively.
22
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 statement of investments, of Templeton Emerging Markets Appreciation Fund,
Inc. as of March 31, 1998, 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, 1998, 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
presentation. We believe that our audits provide a 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, 1998, 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.
McGLADREY & PULLEN LLP
New York, New York
April 24, 1998
23
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Annual Meeting of Shareholders, September 23, 1997
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on September 23, 1997. The
purpose of the meeting was to elect five Directors of the Fund, to ratify the
selection of McGladrey & Pullen, LLP, as the Fund's independent auditors for the
fiscal year ending March 31, 1998, and in their discretion, to authorize the
proxyholders to vote upon such other matters that may legally come before the
meeting or any other adjournment thereof. At the meeting, the following persons
were elected by the shareholders to serve as Directors of the Fund: Frank J.
Crothers, Martin L. Flanagan, Andrew H. Hines, Jr., Edith E. Holiday, and
Charles B. Johnson.* The shareholders ratified the selection of McGladrey &
Pullen, LLP, to serve as the Fund's independent auditors for the fiscal year
ending March 31, 1998. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of five (5) Directors for the terms set forth below:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2000: FOR SHARES WITHHELD SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Martin L. Flanagan.......................................... 3,422,111 79.79% 100,997 2.36%
Andrew H. Hines, Jr......................................... 3,439,785 80.21% 83,323 1.94%
Edith E. Holiday............................................ 3,421,811 79.79% 101,297 2.36%
Charles B. Johnson.......................................... 3,444,418 80.31% 78,690 1.84%
TERM EXPIRING 1998:
- --------------
Frank J. Crothers........................................... 3,423,377 79.82% 99,731 2.33%
</TABLE>
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP, as
independent auditors of the Fund for the fiscal year ending March 31, 1998:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3,423,404 79.82% 42,764 1.00% 56,940 1.33%
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Galbraith,
Rupert H. Johnson, Jr., Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps
are Directors of the Fund who are currently serving and whose terms of office
continued after the Annual Meeting of Shareholders.
24
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amounts as capital gain dividends for the fiscal year
ended March 31, 1998:
<TABLE>
<S> <C>
28% Rate Gain............................... $ 331,595
20% Rate Gain............................... 2,618,115
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Total....................................... $2,949,710
==========
</TABLE>
25
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TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
Dividend Reinvestment and Cash Purchase Plan
The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with
the following features: --Shareholders must affirmatively elect to participate
in the Plan; Stock dividends and capital gains distributions will be reinvested
automatically; ChaseMellon Shareholder Services, Investor Services, P.O. Box
3338, South Hackensack, NJ 07606-1938, will provide additional Plan information
upon request. --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 at
the valuation date, the participant will receive the dividends entirely in stock
at a price equal to the 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 or if dividends and/or capital gains distributions are payable only
in cash, the participant will receive shares purchased on the New York Stock
Exchange or otherwise on the open market. --A participant has the option of
submitting additional payments to Mellon Securities Trust Company (the "Plan
Agent"), in any amounts of at least $100, up to a maximum of $5,000 per month,
for the purchase of Fund shares for his or her account. These payments shall be
made by check or money order payable to "Mellon Securities Trust Co." and sent
to ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009,
Pittsburgh, PA 15250-8009, Attn: Templeton Emerging Markets Appreciation Fund,
Inc. The Plan Agent shall apply such payments (less a $5.00 service charge and
less a pro rata share of trading fees) to purchases of Fund shares in the open
market. --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 participant may withdraw from the Plan without penalty at
any time by written notice to the Plan Agent sent to ChaseMellon Shareholder
Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938.
Upon withdrawal, the participant will receive, without charge, stock
certificates issued in the participant's name for all full shares held by the
Plan Agent; or, if the participant wishes, the Plan Agent will sell the
participant's shares and send the proceeds, less a service charge of $5.00 and
less trading fees. --Whenever shares are purchased on the New York Stock
Exchange or otherwise on the open market, each participant will pay a pro rata
portion of trading fees. Trading fees will be deducted from amounts to be
invested.
26
PAGE
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC.
SHAREHOLDER INFORMATION
Shares of Templeton Emerging Markets Appreciation Fund, Inc. are traded daily on
the New York Stock Exchange under the symbol "TEA." Information about the net
asset value and the market price is published each Monday in the Wall Street
Journal, weekly in Barron's and each Saturday in The New York Times and other
newspapers. Daily market prices for the Fund's shares are published in the New
York Stock Exchange Composite Transactions section of newspapers.
For current information about dividends and shareholder accounts, call
1-800-416-5585.
The daily closing net asset value may be obtained when available on a two
business day delay basis by calling Franklin Templeton Fund Information after 10
a.m. Eastern Time any business day at 1-800-DIAL BEN (1-800-342-5236).
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 request that his or her name be added to the Fund's mailing list, by
writing Templeton Emerging Markets Appreciation Fund, Inc., 100 Fountain
Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
27
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PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global
Currency Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Floating Rate Trust
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**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. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
05/98
PAGE
TEMPLETON EMERGING MARKETS
APPRECIATION FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
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
down as well as up, 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. Printed on recycled paper
TLTEA A98 5/98 [Recycled Paper LOGO] Printed on recycled paper