ANNUAL REPORT
Templeton Global Bond Fund
August 31, 1999
[FRANKLIN TEMPLETON LOGO]
PAGE
[SEAL]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
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 the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
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SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton Global Bond Fund seeks current income with capital
appreciation and growth of income. Under normal market conditions, the Fund
invests primarily in the debt securities of companies, governments and
government agencies located anywhere in the world, including emerging markets.
- --------------------------------------------------------------------------------
Dear Shareholder:
This report of Templeton Global Bond Fund covers the fiscal year ended August
31, 1999, a period of significant volatility for global bond markets. During the
first part of the reporting period, many industrial economies experienced weak
growth and inflation remained benign. Bond prices rose as interest rates fell in
the U.S., Japan, and Europe, and bond investors generally expected further
interest rate cuts by monetary policymakers. In February, this perception
changed with the release of stronger-than-expected economic data regarding the
U.S. economy, and global debt markets experienced a temporary sell-off. But in
March, economic weakness in Europe, Japan, and some sectors of the U.S. economy
led
CONTENTS
Shareholder Letter ..... 1
Performance Summary .... 6
Financial Highlights &
Statement of Investments 10
Financial Statements ... 16
Notes to Financial
Statements ............. 19
Independent
Auditors' Report ....... 23
Tax Designation ........ 24
Change in Independent
Auditor ................ 25
[PYRAMID GRAPHIC]
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 13 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION OF
ISSUERS OF SECURITIES
Based on Total Net Assets
8/31/99
[PIE CHART]
Europe 43.0%
United States 27.6%
Canada 8.8%
Latin America 7.8%
Australia &
New Zealand 7.7%
Asia 2.1%
Short-Term
Investments &
Other Net Assets 3.0%
many investors to regain optimism about bonds. However, the continuing strength
of the U.S. economy led the Federal Reserve Board to raise domestic interest
rates in June and again in August 1999, and U.S. Treasury bond prices declined.
Elsewhere, the European Central Bank, Bank of England, and Bank of Japan lowered
interest rates in response to economic weakness, leading to higher bond prices
in those regions.
During the 12 months under review, the Fund's benchmark index, the Salomon
Brothers World Government Bond Index, which tracks bonds from around the world,
posted a 1.16% return in local currency terms. However, the weakness of the U.S.
dollar versus the euro and the Japanese yen resulted in a higher return of 4.20%
in U.S. dollar terms for the index. The J.P. Morgan U.S. Government Bond Index,
which tracks U.S. Treasury Securities, posted a -0.28% return for the same
period. The best performing sector for bonds was in developing market countries,
and emerging market securities, as measured by the J.P. Morgan Emerging Markets
Bond Index Plus, were up over 30% for the reporting period.(1) Within this
environment, Templeton Global Bond Fund - Class A posted a -1.02% one-year
cumulative total return for the period ended August 31, 1999, as shown in the
Performance Summary on page 7.
1. Sources: Salomon Brothers Inc. and J.P. Morgan Securities, Inc. Performance
includes reinvested interest. An index is an unmanaged group of securities used
to measure market performance. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
2
PAGE
The underperformance of the Fund versus the benchmark global index was due
partially to the fact that, although the Japanese market accounted for a large
portion of the benchmark index's positive performance, we did not invest in
Japanese bonds because of their relatively low yields. Also, the Fund's
allocation to emerging market debt was 5% to 6% early in the reporting period,
which is slightly less than the historical average of approximately 10% of total
net assets.
Throughout the reporting period, we attempted to maximize the Fund's return and
minimize the effects of short-term volatility by allocating approximately 87% of
total net assets to intermediate- and long-term bonds in the developed markets
and about 10% to what, in our opinion, were the highest quality, most-liquid
bonds available in emerging markets. Because emerging market bonds generally
outperformed bonds from developed markets, our exposure to such debt benefited
the Fund's performance.
Our geographic allocations changed during the period, with our North American
exposure falling from 46.5% at the beginning of the period to 36.4% at the end.
During the same time, our
PORTFOLIO BREAKDOWN
Based on Total Net Assets
8/31/99
Government Bonds 92.1%
Corporate Bonds 4.6%
Warrants 0.2%
Limited Partnerships 0.1%
Short-Term Investments &
Other Net Assets 3.0%
3
PAGE
exposure to Europe increased from 37.1% to 43.0%. We added a 2.8% position in
New Zealand, increased our Latin American exposure 2.8%, and changed the amount
of foreign exchange hedging undertaken for our European holdings. On August 31,
1999, the Fund's net U.S. dollar exposure was 40.9%, down from 86.1% at the
beginning of the period, while our net exposure to European currencies was
42.3%, up from 8.0%.
Looking forward, our outlook for the Fund is positive. In our opinion, global
economic growth could improve slightly in the short term, but inflation may
remain quite tame, which could be favorable for high-quality bonds. Although
debt securities from emerging markets may offer higher returns over the long
term as credit conditions in those countries generally improve, we believe such
bonds may be volatile in the interim.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1999, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our investment strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.
4
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It is also important to note that there are special risks involved with global
investing related to market, currency, economic, social, political, and other
factors, in addition to the heightened risks associated with the relatively
small size and lesser liquidity of emerging markets. These special risks and
other considerations are discussed in the Fund's prospectus.
We thank you for your participation in Templeton Global Bond Fund and welcome
your comments or suggestions.
Sincerely,
Portfolio Management Team
Templeton Global Bond Fund
5
PAGE
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, Fund shares were offered at a higher initial sales charge. Thus, actual
total returns would have been lower. On January 1, 1993, the Fund implemented a
Rule 12b-1 plan, which affects subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 8/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class' operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 8/31/99 8/31/98
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.68 $8.81 $9.49
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
-------------------------------
<S> <C>
Dividend Income $0.5500
Long-term Capital Gain $0.0500
TOTAL $0.6000
<CAPTION>
CLASS C CHANGE 8/31/99 8/31/98
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.68 $8.82 $9.50
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
-------------------------------
<S> <C>
Dividend Income $0.5126
Long-term Capital Gain $0.0500
TOTAL $0.5626
<CAPTION>
ADVISOR CLASS CHANGE 8/31/99 8/31/98
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.68 $8.81 $9.49
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
-------------------------------
<S> <C>
Dividend Income $0.5736
Long-term Capital Gain $0.0500
TOTAL $0.6236
</TABLE>
Templeton Global Bond Fund paid distributions derived from long-term capital
gains of 5.0 cents ($0.0500) per share in August, 1999. The Fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance is not predictive of future results.
6
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -1.02% 33.85% 88.42% 141.18%
Average Annual Total Return(2) -5.22% 5.11% 6.13% 6.68%
Value of $10,000 Investment(3) $9,478 $12,831 $18,128 $23,102
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -1.41% 7.52% 25.29%
Average Annual Total Return(2) -3.36% 2.10% 5.10%
Value of $10,000 Investment(3) $9,664 $10,645 $12,406
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -0.77% 35.42% 90.63% 142.77%
Average Annual Total Return(2) -0.77% 6.29% 6.72% 7.14%
Value of $10,000 Investment(3) $9,923 $13,542 $19,063 $24,277
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class. Since
January 2, 1997 (commencement of sales), the cumulative and average annual total
returns of Advisor Class shares were 3.10% and 1.15%, respectively.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. Also, as
a non-diversified series of an investment company, the Fund may invest in a
relatively small number of issuers and, as a result, be subject to greater risk
of loss with respect to its portfolio securities. You may have a gain or loss
when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
7
PAGE
AVERAGE ANNUAL TOTAL RETURN
8/31/99
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------
<S> <C>
1-Year -5.22%
5-Year 5.11%
10-Year 6.13%
Since Inception (9/18/86) 6.68%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
8/31/99
- --------------------------------------
<S> <C>
CLASS C
1-Year -3.36%
3-Year 2.10%
Since Inception (5/1/95) 5.10%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the Fund in composition, does not pay
management fees or expenses and includes reinvested interest. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes each class' current, applicable,
maximum sales charges, Fund expenses, account fees, and reinvested
distributions.
CLASS A
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
[GRAPHIC]
The following line graph compares the performance of Templeton Global Bond
Fund's Class A shares to that of the Salomon Brothers World Government Bond
Index and the Consumer Price Index based on a $10,000 investment from 9/1/89 to
8/31/99.
Templeton Global Bond Salomon CPI
Fund -Class A* World Gov't
Bond Index
--------------------------------------------------
09/01/1989 $9,575 $10,000 $10,000
09/30/1989 $9,641 $10,189 $10,032
10/31/1989 $9,660 $10,275 $10,081
11/30/1989 $9,670 $10,368 $10,104
12/31/1989 $9,777 $10,496 $10,119
01/31/1990 $9,664 $10,357 $10,224
02/28/1990 $9,629 $10,198 $10,272
03/31/1990 $9,610 $10,097 $10,328
04/30/1990 $9,559 $10,065 $10,345
05/31/1990 $9,818 $10,401 $10,369
06/30/1990 $10,038 $10,592 $10,425
07/31/1990 $10,363 $10,923 $10,464
08/31/1990 $10,399 $10,838 $10,560
09/30/1990 $10,404 $10,958 $10,649
10/31/1990 $10,557 $11,448 $10,713
11/30/1990 $10,647 $11,638 $10,737
12/31/1990 $10,744 $11,754 $10,737
01/31/1991 $10,945 $12,047 $10,801
02/28/1991 $11,026 $12,051 $10,817
03/31/1991 $10,778 $11,614 $10,833
04/30/1991 $10,978 $11,792 $10,849
05/31/1991 $11,056 $11,777 $10,880
06/30/1991 $10,944 $11,655 $10,914
07/31/1991 $11,047 $11,904 $10,929
08/31/1991 $11,275 $12,135 $10,961
09/30/1991 $11,690 $12,609 $11,010
10/31/1991 $11,853 $12,742 $11,026
11/30/1991 $11,852 $12,942 $11,057
12/31/1991 $12,346 $13,614 $11,066
01/31/1992 $12,121 $13,370 $11,082
02/29/1992 $12,050 $13,295 $11,122
03/31/1992 $11,978 $13,154 $11,178
04/30/1992 $12,123 $13,247 $11,194
05/31/1992 $12,476 $13,654 $11,210
06/30/1992 $12,844 $14,036 $11,250
07/31/1992 $13,152 $14,363 $11,275
08/31/1992 $13,177 $14,766 $11,306
09/30/1992 $12,665 $14,913 $11,338
10/31/1992 $12,790 $14,508 $11,378
11/30/1992 $12,663 $14,277 $11,394
12/31/1992 $12,731 $14,363 $11,387
01/31/1993 $12,823 $14,612 $11,443
02/28/1993 $13,063 $14,899 $11,483
03/31/1993 $13,304 $15,128 $11,524
04/30/1993 $13,546 $15,448 $11,555
05/31/1993 $13,628 $15,603 $11,571
06/30/1993 $13,533 $15,569 $11,587
07/31/1993 $13,615 $15,614 $11,587
08/31/1993 $13,837 $16,083 $11,619
09/30/1993 $13,795 $16,274 $11,643
10/31/1993 $14,005 $16,246 $11,692
11/30/1993 $13,737 $16,130 $11,700
12/31/1993 $14,048 $16,267 $11,699
01/31/1994 $14,433 $16,398 $11,732
02/28/1994 $14,074 $16,291 $11,773
03/31/1994 $13,555 $16,267 $11,813
04/30/1994 $13,512 $16,286 $11,829
05/31/1994 $13,438 $16,143 $11,836
06/30/1994 $13,232 $16,376 $11,876
07/31/1994 $13,395 $16,507 $11,908
08/31/1994 $13,529 $16,449 $11,957
09/30/1994 $13,485 $16,568 $11,988
10/31/1994 $13,635 $16,834 $11,997
11/30/1994 $13,545 $16,603 $12,013
12/31/1994 $13,545 $16,648 $12,013
01/31/1995 $13,575 $16,998 $12,060
02/28/1995 $13,792 $17,433 $12,108
03/31/1995 $13,902 $18,468 $12,149
04/30/1995 $14,230 $18,810 $12,189
05/31/1995 $14,687 $19,340 $12,213
06/30/1995 $14,718 $19,453 $12,237
07/31/1995 $14,877 $19,499 $12,237
08/31/1995 $14,957 $18,829 $12,270
09/30/1995 $15,247 $19,250 $12,293
10/31/1995 $15,521 $19,393 $12,333
11/30/1995 $15,667 $19,613 $12,324
12/31/1995 $16,011 $19,818 $12,316
01/31/1996 $16,076 $19,573 $12,389
02/29/1996 $15,961 $19,473 $12,429
03/31/1996 $15,994 $19,446 $12,493
04/30/1996 $16,077 $19,369 $12,541
05/31/1996 $16,177 $19,373 $12,565
06/30/1996 $16,397 $19,525 $12,573
07/31/1996 $16,447 $19,899 $12,597
08/31/1996 $16,668 $19,977 $12,621
09/30/1996 $16,925 $20,058 $12,661
10/31/1996 $17,320 $20,433 $12,701
11/30/1996 $17,769 $20,703 $12,725
12/31/1996 $17,804 $20,535 $12,725
01/31/1997 $17,577 $19,986 $12,765
02/28/1997 $17,524 $19,837 $12,803
03/31/1997 $17,366 $19,686 $12,835
04/30/1997 $17,402 $19,513 $12,851
05/31/1997 $17,526 $20,043 $12,843
06/30/1997 $17,758 $20,283 $12,858
07/31/1997 $17,830 $20,125 $12,874
08/31/1997 $17,812 $20,113 $12,898
09/30/1997 $18,103 $20,541 $12,931
10/31/1997 $18,176 $20,967 $12,963
11/30/1997 $18,140 $20,645 $12,955
12/31/1997 $18,130 $20,583 $12,940
01/31/1998 $18,149 $20,783 $12,963
02/28/1998 $18,242 $20,952 $12,989
03/31/1998 $18,242 $20,745 $13,015
04/30/1998 $18,354 $21,076 $13,038
05/31/1998 $18,393 $21,126 $13,062
06/30/1998 $18,412 $21,156 $13,077
07/31/1998 $18,392 $21,184 $13,093
08/31/1998 $18,315 $21,762 $13,109
09/30/1998 $18,915 $22,919 $13,124
10/31/1998 $18,992 $23,598 $13,156
11/30/1998 $18,934 $23,265 $13,156
12/31/1998 $19,110 $23,733 $13,148
01/31/1999 $19,090 $23,515 $13,180
02/28/1999 $18,375 $22,765 $13,193
03/31/1999 $18,494 $22,817 $13,233
04/30/1999 $18,674 $22,808 $13,330
05/31/1999 $18,271 $22,424 $13,330
06/30/1999 $18,089 $22,031 $13,330
07/31/1999 $18,231 $22,570 $13,370
08/31/1999 $18,128 $22,675 $13,402
CLASS C
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/99)
[GRAPHIC]
The following line graph compares the performance of Templeton Global Bond
Fund's Class C shares to that of the Salomon Brothers World Government Bond
Index and the Consumer Price Index, based on a $10,000 investment from 5/1/95 to
8/31/99.
Templeton Global Salomon World CPI
Bond Fund -Class C* Gov't Bond
Index
-----------------------------------------------
05/01/1995 $9,902 $10,000 $10,000
05/31/1995 $10,209 $10,281 $10,020
06/30/1995 $10,229 $10,342 $10,040
07/31/1995 $10,337 $10,366 $10,040
08/31/1995 $10,377 $10,010 $10,067
09/30/1995 $10,585 $10,234 $10,086
10/31/1995 $10,772 $10,310 $10,119
11/30/1995 $10,869 $10,426 $10,112
12/31/1995 $11,103 $10,536 $10,105
01/31/1996 $11,156 $10,405 $10,164
02/29/1996 $11,084 $10,352 $10,197
03/31/1996 $11,103 $10,338 $10,250
04/30/1996 $11,145 $10,297 $10,289
05/31/1996 $11,199 $10,299 $10,309
06/30/1996 $11,347 $10,380 $10,316
07/31/1996 $11,379 $10,579 $10,335
08/31/1996 $11,539 $10,620 $10,355
09/30/1996 $11,700 $10,663 $10,388
10/31/1996 $11,982 $10,863 $10,421
11/30/1996 $12,288 $11,006 $10,441
12/31/1996 $12,308 $10,917 $10,441
01/31/1997 $12,147 $10,625 $10,473
02/28/1997 $12,094 $10,546 $10,505
03/31/1997 $11,981 $10,465 $10,531
04/30/1997 $12,014 $10,374 $10,544
05/31/1997 $12,095 $10,656 $10,537
06/30/1997 $12,239 $10,783 $10,550
07/31/1997 $12,285 $10,699 $10,563
08/31/1997 $12,282 $10,692 $10,583
09/30/1997 $12,478 $10,920 $10,609
10/31/1997 $12,512 $11,147 $10,636
11/30/1997 $12,489 $10,976 $10,629
12/31/1997 $12,485 $10,942 $10,617
01/31/1998 $12,481 $11,049 $10,636
02/28/1998 $12,541 $11,139 $10,657
03/31/1998 $12,549 $11,028 $10,678
04/30/1998 $12,610 $11,204 $10,697
05/31/1998 $12,632 $11,231 $10,717
06/30/1998 $12,654 $11,247 $10,730
07/31/1998 $12,636 $11,262 $10,742
08/31/1998 $12,584 $11,569 $10,755
09/30/1998 $12,977 $12,184 $10,768
10/31/1998 $13,025 $12,545 $10,794
11/30/1998 $12,993 $12,368 $10,794
12/31/1998 $13,109 $12,617 $10,788
01/31/1999 $13,090 $12,501 $10,814
02/28/1999 $12,595 $12,102 $10,825
03/31/1999 $12,672 $12,130 $10,858
04/30/1999 $12,792 $12,125 $10,937
05/31/1999 $12,511 $11,921 $10,937
06/30/1999 $12,383 $11,712 $10,937
07/31/1999 $12,476 $11,999 $10,969
08/31/1999 $12,406 $12,055 $10,996
Past performance is not predictive of future results.
8
PAGE
ADVISOR CLASS***
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
[GRAPHIC]
The following line graph compares the performance of Templeton Global Bond
Fund's Advisor Class shares to the Salomon Brothers World Government Bond Index
and the Consumer Price Index, based on a $10,000 investment from 9/1/89 to
8/31/99.
Templeton Global Salomon World CPI
Bond Fund - Gov't Bond
Advisor Class Index
-----------------------------------------------
09/01/1989 $10,000 $10,000 $10,000
09/30/1989 $10,069 $10,189 $10,032
10/31/1989 $10,089 $10,275 $10,081
11/30/1989 $10,100 $10,368 $10,104
12/31/1989 $10,212 $10,496 $10,119
01/31/1990 $10,093 $10,357 $10,224
02/28/1990 $10,057 $10,198 $10,272
03/31/1990 $10,036 $10,097 $10,328
04/30/1990 $9,983 $10,065 $10,345
05/31/1990 $10,254 $10,401 $10,369
06/30/1990 $10,484 $10,592 $10,425
07/31/1990 $10,823 $10,923 $10,464
08/31/1990 $10,861 $10,838 $10,560
09/30/1990 $10,866 $10,958 $10,649
10/31/1990 $11,026 $11,448 $10,713
11/30/1990 $11,120 $11,638 $10,737
12/31/1990 $11,221 $11,754 $10,737
01/31/1991 $11,431 $12,047 $10,801
02/28/1991 $11,516 $12,051 $10,817
03/31/1991 $11,257 $11,614 $10,833
04/30/1991 $11,466 $11,792 $10,849
05/31/1991 $11,548 $11,777 $10,880
06/30/1991 $11,431 $11,655 $10,914
07/31/1991 $11,538 $11,904 $10,929
08/31/1991 $11,776 $12,135 $10,961
09/30/1991 $12,209 $12,609 $11,010
10/31/1991 $12,379 $12,742 $11,026
11/30/1991 $12,379 $12,942 $11,057
12/31/1991 $12,894 $13,614 $11,066
01/31/1992 $12,659 $13,370 $11,082
02/29/1992 $12,585 $13,295 $11,122
03/31/1992 $12,510 $13,154 $11,178
04/30/1992 $12,662 $13,247 $11,194
05/31/1992 $13,030 $13,654 $11,210
06/30/1992 $13,414 $14,036 $11,250
07/31/1992 $13,737 $14,363 $11,275
08/31/1992 $13,762 $14,766 $11,306
09/30/1992 $13,227 $14,913 $11,338
10/31/1992 $13,358 $14,508 $11,378
11/30/1992 $13,226 $14,277 $11,394
12/31/1992 $13,296 $14,363 $11,387
01/31/1993 $13,393 $14,612 $11,443
02/28/1993 $13,643 $14,899 $11,483
03/31/1993 $13,895 $15,128 $11,524
04/30/1993 $14,148 $15,448 $11,555
05/31/1993 $14,233 $15,603 $11,571
06/30/1993 $14,134 $15,569 $11,587
07/31/1993 $14,220 $15,614 $11,587
08/31/1993 $14,451 $16,083 $11,619
09/30/1993 $14,408 $16,274 $11,643
10/31/1993 $14,627 $16,246 $11,692
11/30/1993 $14,347 $16,130 $11,700
12/31/1993 $14,672 $16,267 $11,699
01/31/1994 $15,074 $16,398 $11,732
02/28/1994 $14,700 $16,291 $11,773
03/31/1994 $14,157 $16,267 $11,813
04/30/1994 $14,112 $16,286 $11,829
05/31/1994 $14,035 $16,143 $11,836
06/30/1994 $13,820 $16,376 $11,876
07/31/1994 $13,990 $16,507 $11,908
08/31/1994 $14,130 $16,449 $11,957
09/30/1994 $14,084 $16,568 $11,988
10/31/1994 $14,241 $16,834 $11,997
11/30/1994 $14,146 $16,603 $12,013
12/31/1994 $14,146 $16,648 $12,013
01/31/1995 $14,179 $16,998 $12,060
02/28/1995 $14,405 $17,433 $12,108
03/31/1995 $14,519 $18,468 $12,149
04/30/1995 $14,862 $18,810 $12,189
05/31/1995 $15,339 $19,340 $12,213
06/30/1995 $15,372 $19,453 $12,237
07/31/1995 $15,538 $19,499 $12,237
08/31/1995 $15,622 $18,829 $12,270
09/30/1995 $15,924 $19,250 $12,293
10/31/1995 $16,211 $19,393 $12,333
11/30/1995 $16,363 $19,613 $12,324
12/31/1995 $16,722 $19,818 $12,316
01/31/1996 $16,790 $19,573 $12,389
02/29/1996 $16,670 $19,473 $12,429
03/31/1996 $16,704 $19,446 $12,493
04/30/1996 $16,791 $19,369 $12,541
05/31/1996 $16,896 $19,373 $12,565
06/30/1996 $17,125 $19,525 $12,573
07/31/1996 $17,178 $19,899 $12,597
08/31/1996 $17,408 $19,977 $12,621
09/30/1996 $17,677 $20,058 $12,661
10/31/1996 $18,089 $20,433 $12,701
11/30/1996 $18,558 $20,703 $12,725
12/31/1996 $18,595 $20,535 $12,725
01/31/1997 $18,361 $19,986 $12,765
02/28/1997 $18,310 $19,837 $12,803
03/31/1997 $18,147 $19,686 $12,835
04/30/1997 $18,188 $19,513 $12,851
05/31/1997 $18,340 $20,043 $12,843
06/30/1997 $18,551 $20,283 $12,858
07/31/1997 $18,629 $20,125 $12,874
08/31/1997 $18,633 $20,113 $12,898
09/30/1997 $18,941 $20,541 $12,931
10/31/1997 $19,003 $20,967 $12,963
11/30/1997 $18,976 $20,645 $12,955
12/31/1997 $18,983 $20,583 $12,940
01/31/1998 $18,987 $20,783 $12,963
02/28/1998 $19,088 $20,952 $12,989
03/31/1998 $19,112 $20,745 $13,015
04/30/1998 $19,215 $21,076 $13,038
05/31/1998 $19,259 $21,126 $13,062
06/30/1998 $19,303 $21,156 $13,077
07/31/1998 $19,267 $21,184 $13,093
08/31/1998 $19,206 $21,762 $13,109
09/30/1998 $19,819 $22,919 $13,124
10/31/1998 $19,908 $23,598 $13,156
11/30/1998 $19,851 $23,265 $13,156
12/31/1998 $20,061 $23,733 $13,148
01/31/1999 $20,044 $23,515 $13,180
02/28/1999 $19,297 $22,765 $13,193
03/31/1999 $19,426 $22,817 $13,233
04/30/1999 $19,598 $22,808 $13,330
05/31/1999 $19,178 $22,424 $13,330
06/30/1999 $18,991 $22,031 $13,330
07/31/1999 $19,145 $22,570 $13,370
08/31/1999 $19,171 $22,675 $13,402
AVERAGE
ANNUAL TOTAL RETURN 8/31/99
ADVISOR CLASS***
1-Year - 0.77%
5-Year 6.29%
10-Year 6.72%
Since Inception (9/18/86) 7.14%
*Source: Salomon Brothers. The unmanaged Salomon Brothers World Government Bond
Index (SB WGBI) tracks the performance of government bond markets in 17
countries. It includes fixed-rate U.S. and foreign government bonds with
remaining maturities of one year or more. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
**Source: Consumer Price Index, U.S. Bureau of Labor Statistics (8/31/99). The
Consumer Price Index is a commonly used measure of inflation.
***On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to Advisor Class
shares.
Past performance is not predictive of future results.
9
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1999+ 1998 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $9.49 $9.82 $9.76 $9.32 $9.05
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .58 .60 .63 .69 .73
Net realized and unrealized gains (losses)................ (.66) (.32) .03 .35 .17
--------------------------------------------------------
Total from investment operations........................... (.08) .28 .66 1.04 .90
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.55) (.55) (.60) (.58) (.54)
Net realized gains........................................ (.05) (.06) -- -- --
Tax return of capital..................................... -- -- -- (.02) (.09)
--------------------------------------------------------
Total distributions........................................ (.60) (.61) (.60) (.60) (.63)
--------------------------------------------------------
Net asset value, end of year............................... $8.81 $9.49 $9.82 $9.76 $9.32
========================================================
Total Return*.............................................. (1.02)% 2.82% 6.87% 11.44% 10.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $146,753 $189,898 $198,131 $185,596 $191,301
Ratios to average net assets:
Expenses.................................................. 1.22% 1.17% 1.15% 1.13% 1.18%
Net investment income..................................... 6.20% 6.12% 6.41% 7.09% 7.99%
Portfolio turnover rate.................................... 74.60% 75.95% 166.69% 109.40% 101.12%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding.
10
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------
1999++ 1998 1997 1996 1995+
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $9.50 $9.83 $9.77 $9.31 $9.05
-------------------------------------------------------
Income from investment operations:
Net investment income...................................... .54 .56 .57 .61 .21
Net realized and unrealized gains (losses)................. (.66) (.32) .05 .41 .24
-------------------------------------------------------
Total from investment operations............................ (.12) .24 .62 1.02 .45
-------------------------------------------------------
Less distributions from:
Net investment income...................................... (.51) (.51) (.56) (.54) (.15)
Net realized gains......................................... (.05) (.06) -- -- --
Tax return of capital...................................... -- -- -- (.02) (.04)
-------------------------------------------------------
Total distributions......................................... (.56) (.57) (.56) (.56) (.19)
-------------------------------------------------------
Net asset value, end of year................................ $8.82 $9.50 $9.83 $9.77 $9.31
=======================================================
Total Return*............................................... (1.41)% 2.46% 6.44% 11.20% 5.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $17,386 $20,404 $16,629 $6,563 $2,043
Ratios to average net assets:
Expenses................................................... 1.62% 1.56% 1.54% 1.56% 1.57%**
Net investment income...................................... 5.80% 5.73% 5.96% 6.69% 7.47%**
Portfolio turnover rate..................................... 74.60% 75.95% 166.69% 109.40% 101.12%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
++Based on average weighted shares outstanding.
11
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------
YEAR ENDED AUGUST 31,
----------------------------------
1999++ 1998 1997+
----------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $9.49 $9.82 $10.16
----------------------------------
Income from investment operations:
Net investment income...................................... .61 .62 .42
Net realized and unrealized losses......................... (.67) (.32) (.34)
----------------------------------
Total from investment operations............................ (.06) .30 .08
----------------------------------
Less distributions from:
Net investment income...................................... (.57) (.57) (.42)
Net realized gains......................................... (.05) (.06) --
----------------------------------
Total distributions......................................... (.62) (.63) (.42)
----------------------------------
Net asset value, end of year................................ $8.81 $9.49 $9.82
==================================
Total Return*............................................... (.77)% 3.08% .80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $1,261 $11,330 $12,742
Ratios to average net assets:
Expenses................................................... .97% .91% .88%**
Net investment income...................................... 6.42% 6.38% 6.76%**
Portfolio turnover rate..................................... 74.60% 75.95% 166.69%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
12
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.0%
ARGENTINA 4.0%
Perez Companc SA, 144A, 8.125%, 7/15/07..................... $ 5,000,000 $ 4,350,000
Republic of Argentina, 8.75%, 5/09/02....................... 2,500,000 2,258,750
------------
6,608,750
------------
AUSTRALIA 3.3%
Government of Australia, 6.75%, 11/15/06.................... 2,700,000AUD 1,771,354
Queensland Treasury Corp., 6.50%, 6/14/05................... 5,796,000AUD 3,742,774
------------
5,514,128
------------
CANADA 8.8%
Government of Canada:
10.50%, 7/01/00........................................... 9,000,000CAD 6,280,277
10.50%, 3/01/01........................................... 6,235,000CAD 4,468,041
10.00%, 5/01/02........................................... 5,135,000CAD 3,798,118
------------
14,546,436
------------
COLOMBIA 1.5%
Republic of Colombia, 7.25%, 2/23/04........................ 2,950,000 2,421,614
------------
DENMARK 2.4%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 6,605,000DKK 994,771
8.00%, 3/15/06............................................ 18,589,000DKK 3,051,996
------------
4,046,767
------------
GERMANY 10.0%
Federal Republic of Germany:
Bundesrep, 7.75%, 2/21/00................................. 10,586,298EUR 11,428,841
8.00%, 7/22/02............................................ 4,399,667EUR 5,150,410
------------
16,579,251
------------
INDIA .1%
++Essar Steel Ltd., Reg S, FRN, zero coupon, 7/20/99........ 315,000 141,750
------------
INDONESIA .2%
*PT Astra International, wts., 12/31/03..................... 1,880,582IDR 294,032
------------
ITALY 7.9%
Buoni Poliennali del Tesoro, 6.75%, 7/01/07................. 1,243,000EUR 1,455,495
Government of Italy:
10.50%, 7/15/00........................................... 655,899EUR 734,566
10.50%, 11/01/00.......................................... 1,823,090EUR 2,078,717
10.50%, 4/01/05........................................... 6,476,000EUR 8,756,195
------------
13,024,973
------------
MEXICO 1.1%
United Mexican States, 9.75%, 4/06/05....................... 1,800,000 1,806,750
------------
</TABLE>
13
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NETHERLANDS .7%
Astra Overseas Finance NV, Reg S, FRN:
Series I, 6.294%, 12/31/01................................ $ 300,000 $ 226,500
Series II, 6.294%, 6/30/05................................ 1,013,000 602,735
Series III, zero coupon, 6/30/06.......................... 1,311,000 399,855
------------
1,229,090
------------
NEW ZEALAND 4.4%
Government of New Zealand:
6.50%, 2/15/00............................................ 7,240,000 NZD 3,769,752
8.00%, 11/15/06........................................... 6,437,000 NZD 3,530,624
------------
7,300,376
------------
SPAIN 8.4%
Government of Spain:
12.25%, 3/25/00........................................... 5,725,902 EUR 6,353,378
10.10%, 2/28/01........................................... 3,142,692 EUR 3,635,465
10.15%, 1/31/06........................................... 2,849,000 EUR 3,877,258
------------
13,866,101
------------
SOUTH KOREA 1.2%
Korea Development Bank, 7.125%, 4/22/04..................... 2,000,000 1,926,500
------------
SWEDEN 4.4%
Kingdom of Sweden, 10.25%, 5/05/03.......................... 51,400,000 SEK 7,310,651
------------
TURKEY .6%
Republic of Turkey, 12.375%, 6/15/09........................ 1,000,000 991,200
------------
UNITED KINGDOM 9.2%
United Kingdom:
8.00%, 12/07/00........................................... 5,825,000 GBP 9,623,880
8.50%, 7/16/07............................................ 2,976,000 GBP 5,658,568
------------
15,282,448
------------
UNITED STATES 27.6%
+*Acadia Partners LP........................................ 999,667 114,362
+*Penobscot Partners LP..................................... 333 3,083
U.S. Treasury Bonds:
6.375%, 8/15/27........................................... 4,935,000 4,935,000
5.25%, 11/15/28........................................... 35,284,000 30,531,704
U.S. Treasury Note, 7.875%, 11/15/04........................ 9,273,000 10,006,151
------------
45,590,300
------------
</TABLE>
14
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
VENEZUELA 1.2%
Republic of Venezuela, 9.25%, 9/15/27....................... $ 1,000,000 $ 605,000
Venezuela Front Load Interest Reduction Bond, A, 6.125%,
3/31/07................................................... 1,904,752 1,327,374
------------
1,932,374
------------
TOTAL LONG TERM INVESTMENTS (COST $185,979,780)............. 160,413,491
------------
SHORT TERM INVESTMENT (COST $1,861,000) 1.1%
Chase Securities Inc., 5.50%, 9/01/99, Time Deposit......... 1,861,000 1,861,000
------------
TOTAL INVESTMENTS (COST $187,840,780) 98.1%................. 162,274,491
OTHER ASSETS, LESS LIABILITIES 1.9%......................... 3,125,634
------------
TOTAL NET ASSETS 100.0%..................................... $165,400,125
============
</TABLE>
CURRENCY ABBREVIATIONS:
AUD -- Australian Dollar
CAD -- Canadian Dollar
DKK -- Danish Krone
EUR -- European Unit
GBP -- Great British Pound
IDR -- Indonesia Rupah
NZD -- New Zealand Dollar
SEK -- Swedish Krona
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Securities represent equity investments.
++Represents defaulted bonds.
See Notes to Financial Statements.
15
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $187,840,780).... $162,274,491
Receivables:
Investment securities sold................................ 1,727,190
Fund shares sold.......................................... 267,665
Interest.................................................. 3,947,281
------------
Total assets.......................................... 168,216,627
------------
Liabilities:
Payables:
Fund shares redeemed...................................... 2,085,505
To affiliates............................................. 174,245
Funds advanced by custodian................................ 445,216
Accrued expenses........................................... 111,536
------------
Total liabilities..................................... 2,816,502
------------
Net assets, at value........................................ $165,400,125
============
Net assets consist of:
Net unrealized depreciation................................ $(25,576,963)
Accumulated net realized gain.............................. 323,657
Beneficial shares.......................................... 190,653,431
------------
Net assets, at value........................................ $165,400,125
============
CLASS A:
Net asset value per share ($146,753,335 / 16,649,045 shares
outstanding)............................................. $8.81
============
Maximum offering price per share ($8.81 / 95.75%).......... $9.20
============
CLASS C:
Net asset value per share ($17,385,571 / 1,970,916 shares
outstanding)*............................................. $8.82
============
Maximum offering price per share ($8.82 / 99.00%).......... $8.91
============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($1,261,219 / 143,181 shares outstanding)................. $8.81
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
16
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $6,248)
Dividends.................................................. $ 119,065
Interest................................................... 14,362,109
------------
Total investment income............................... $ 14,481,174
Expenses:
Management fees (Note 3)................................... 975,877
Administrative fees (Note 3)............................... 292,763
Distribution fees (Note 3)
Class A................................................... 431,311
Class C................................................... 131,290
Transfer agent fees (Note 3)............................... 389,700
Custodian fees............................................. 31,900
Reports to shareholders.................................... 75,900
Registration and filing fees............................... 49,300
Professional fees.......................................... 56,200
Trustees' fees and expenses................................ 21,700
Other...................................................... 2,572
------------
Total expenses........................................ 2,458,513
------------
Net investment income........................... 12,022,661
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 4,355,970
Foreign currency transactions............................. (4,336,641)
------------
Net realized gain...................................... 19,329
Net unrealized appreciation (depreciation) on:
Investments............................................... (13,993,424)
Translation of assets and liabilities denominated in
foreign currencies...................................... 835,478
------------
Net unrealized depreciation............................ (13,157,946)
------------
Net realized and unrealized loss............................ (13,138,617)
------------
Net decrease in net assets resulting from operations........ $ (1,115,956)
============
</TABLE>
See Notes to Financial Statements.
17
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 12,022,661 $ 14,102,046
Net realized gain from investments and foreign currency
transactions............................................. 19,329 897,695
Net unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... (13,157,946) (8,488,427)
-------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (1,115,956) 6,511,314
Distributions to shareholders from:
Net investment income:
Class A.................................................. (10,143,914) (11,190,365)
Class C.................................................. (1,108,554) (1,004,165)
Advisor Class............................................ (179,587) (803,082)
Net realized gains:
Class A.................................................. (835,181) (1,112,297)
Class C.................................................. (98,495) (115,925)
Advisor Class............................................ (7,158) (67,412)
Beneficial share transactions (Note 2):
Class A.................................................. (31,043,022) (1,581,970)
Class C.................................................. (1,555,156) 4,463,377
Advisor Class............................................ (10,144,875) (970,039)
-------------------------------
Net decrease in net assets.............................. (56,231,898) (5,870,564)
Net assets:
Beginning of year.......................................... 221,632,023 227,502,587
-------------------------------
End of year................................................ $165,400,125 $221,632,023
===============================
Undistributed net investment income included in net assets:
End of year................................................ $ -- $ 785,814
===============================
</TABLE>
See Notes to Financial Statements.
18
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Global Bond Fund (the Fund), is a separate, non-diversified series of
Templeton Income Trust (the Trust), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks current
income with capital appreciation and growth of income. Under normal market
conditions, the Fund invests primarily in the debt securities of companies,
governments and government agencies located anywhere in the world including
emerging markets. 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 Trustees.
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 denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. 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.
d. 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
19
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
1. SUMMARY OF ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Distributions to shareholders are recorded on the ex-dividend
date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
e. 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.
f. 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. BENEFICIAL SHARES
The Fund offers three classes of shares: Class A, Class C and Advisor Class
shares. Effective January 1, 1999, Class I and Class II shares were renamed
Class A and Class C, respectively. The shares differ by their initial sales
load, distribution fees, voting rights on matters affecting a single class of
shares and the exchange privilege of each class.
At August 31, 1999, there were an unlimited number of shares of beneficial
interest authorized ($.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
------------1999--------------------------------1998-----------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold.............................................. 7,334,312 $ 69,058,663 5,805,764 $ 56,610,214
Shares issued on reinvestment of distributions........... 859,601 8,035,267 935,877 9,102,189
Shares redeemed.......................................... (11,546,052) (108,136,952) (6,908,185) (67,294,373)
---------------------------------------------------------------
Net decrease............................................. (3,352,139) $ (31,043,022) (166,544) $ (1,581,970)
===============================================================
</TABLE>
20
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
------------1999--------------------------------1998-----------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold.............................................. 561,727 $ 5,324,535 910,441 $ 8,897,295
Shares issued on reinvestment of distributions........... 111,143 1,040,014 100,468 976,732
Shares redeemed.......................................... (849,404) (7,919,705) (555,304) (5,410,650)
---------------------------------------------------------------
Net increase (decrease).................................. (176,534) $ (1,555,156) 455,605 $ 4,463,377
===============================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
------------1999--------------------------------1998-----------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold.............................................. 223,677 $ 2,157,693 957,957 $ 9,380,180
Shares issued on reinvestment of distributions........... 8,389 78,938 18,458 178,859
Shares redeemed.......................................... (1,282,907) (12,381,506) (1,080,092) (10,529,078)
---------------------------------------------------------------
Net decrease............................................. (1,050,841) $ (10,144,875) (103,677) $ (970,039)
===============================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers of Templeton Investment Counsel,
Inc. (TICI), Franklin Templeton Services, Inc. (FT Services), Franklin/Templeton
Distributors, Inc. (Distributors), and Franklin/Templeton Investor Services,
Inc. (Investor Services), the Fund's investment manager, administrative manager,
principal underwriter, and transfer agent, respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>
21
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------
<S> <C>
0.15% First $200 million
0.135% Next $500 million
0.10% Next $500 million
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.25% and 0.65% per year of the average daily net assets of Class A
and Class C shares, respectively. Under the Class A distribution plan, costs
exceeding the maximum may be reimbursed in subsequent periods. At August 31,
1999, unreimbursed costs were $154,594. Distributors received net commissions on
sales of the Fund's shares and received contingent deferred sales charges for
the year of $10,375 and $10,964, respectively.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At August 31, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 7,778
Unrealized depreciation..................................... (25,574,067)
------------
Net unrealized depreciation................................. $(25,566,289)
============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1999 aggregated $141,212,218 and $180,254,696, respectively.
22
PAGE
TEMPLETON GLOBAL BOND FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Global Bond Fund
series of Templeton Income Trust (the "Fund") at August 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at August 31, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended August 31, 1998, including financial
highlights for each of the four years in the period then ended, were audited by
other independent accountants whose report dated September 29, 1998 expressed an
unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 30, 1999
23
PAGE
TEMPLETON GLOBAL BOND FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $1,318,083 as a capital gain dividend for the fiscal year ended
August 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
.75% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1999.
24
PAGE
TEMPLETON GLOBAL BOND FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the August 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On August 31, 1999, the Fund, with the approval of its Board of Directors and
its Audit Committee, engaged PwC as its independent auditors.
25
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ANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Templeton Global Bond
Fund prospectus, which contains more complete information including risk
factors, charges and expenses. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors, as well as investment decisions by the
Investment Manager, which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
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.
406 A99 10/99 [LOGO] Printed on recycled paper
