SEMIANNUAL REPORT
February 28, 1999
TEMPLETON GLOBAL BOND FUND
[LOGO] FRANKLIN TEMPLETON(R)
PAGE
[SEAL] CELEBRATING 50 YEARS
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.
PAGE
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 six months ended February
28, 1999. During this period, the U.S. economy remained strong, as healthy
consumer spending offset reduced exports and business spending. Inflation
remained subdued, despite strong economic growth, partly because of productivity
gains, low commodity prices, and a relatively strong dollar. In Europe,
inflation reached historic lows and many economies there began to show signs of
slower economic growth. Many European central banks reduced official interest
rates during the fourth quarter of 1998, due largely
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ............................................... 1
Performance Summary .............................................. 6
Financial Highlights & Statement of Investments .................. 8
Financial Statements ............................................. 14
Notes to Financial Statements .................................... 17
</TABLE>
[GRAPH] PYRAMID
FUND CATEGORY
GLOBAL
GROWTH
GROWTH & INCOME
INCOME
TAX-FREE INCOME
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 11 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION OF ISSUERS OF SECURITIES
Based on Total Net Assets
2/28/99
[THIS CHART SHOWS IN BAR FORMAT THE GEOGRAPHIC DISTRIBUTION OF ISSUERS OF
SECURITIES OF TEMPLETON GLOBAL BOND FUND, BASED ON NET ASSETS AS OF 2/28/99.]
[BAR GRAPH]
<TABLE>
<S> <C>
Europe ............................................... 43.4%
United States ........................................ 30.7%
Australia & New Zealand .............................. 8.4%
Canada ............................................... 8.2%
Latin America ........................................ 6.9%
Asia ................................................. 1.0%
Short-Term Investments & Other Net Assets ............ 1.4%
</TABLE>
to concerns that the region could experience deflation if economic growth
continued to stagnate. In Asia, Japanese banks continued to be hamstrung by bad
debt. Although the Japanese government struggled to restructure the economy, its
efforts failed and the country remained in a recession.
Responding to these conditions, global bond investors reduced their holdings of
emerging market debt securities and increased their exposure to higher-quality,
developed market government bonds. Within this environment, Templeton Global
Bond Fund - Class A produced a 0.33% cumulative total return for the six-month
period ended February 28, 1999, as shown in the Performance Summary on page 6.
During the six months under review, we allocated approximately 91% of the Fund's
total net assets to intermediate- and long-term bonds from developed countries,
with the remaining assets invested in what we believed to be the highest
quality, most liquid bonds we could find in emerging markets. We believed this
strategy offered the potential for more attractive long-term returns at the cost
of modestly higher, short-term
2
PAGE
volatility. However, even though volatility did increase in many emerging
markets, our allocation to these assets helped the Fund's performance, as
emerging market debt in general returned 17.86% during the period under review,
as measured by the J.P. Morgan Emerging Market Bond Index Plus.(1)
The Fund's allocation to North American countries decreased during the period,
while its European exposure remained essentially unchanged. Its emerging markets
exposure increased slightly. During the period, we undertook hedging activities
in an effort to minimize the possible loss of value arising from changes in
exchange rates for the Fund's European currency-denominated bonds. Believing the
U.S. dollar could depreciate further in early 1999, we decreased our hedging
activities, and at the end of the reporting period, the Fund's net U.S. dollar
exposure was 42.4%, down from 86.1% at the beginning of the period.
Our long-term outlook for the Fund remains positive. In addition to continued
uncertainty about emerging markets, we believe the critical issue for future
interest rates will be the balance struck between global growth and inflation.
In our
PORTFOLIO BREAKDOWN
Based on Total Net Assets
2/28/99
[THIS CHART LISTS THE PORTFOLIO BREAKDOWN OF TEMPLETON GLOBAL BOND FUND, BASED
ON TOTAL NET ASSETS AS OF 2/28/99.]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C>
Government Bonds ......................................... 91.0%
Corporate Bonds .......................................... 7.3%
Common Stocks ............................................ 0.2%
Limited Partnerships ..................................... 0.1%
Short-Term Investments & Other Net Assets ................ 1.4%
</TABLE>
1. Source: Emerging Markets Bond Index Monitor, 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.
3
PAGE
opinion, economic growth for the remainder of 1999 probably will be
weaker than in the past several years. The extent of this weakness may largely
depend on economic developments in the U.S. The U.S. economy is dependent, to
some extent, on economic stability in Latin America, and problems there could
depress U.S. exports, which could in turn have a negative effect on European
economic performance. If combined with benign inflation, this could be an
attractive environment for high quality bonds.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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 past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.
4
PAGE
It is important to remember 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 look
forward to serving your investment needs in the months and years to come.
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 2/28/99
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 (9/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.23 $9.49
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.3000
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.24 $9.50
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.2771
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.23 $9.49
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.3141
</TABLE>
Past performance is not predictive of future results.
6
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTHS 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.33% 0.73% 30.56% 102.40% 144.46%
Average Annual
Total Return(2) - 3.93% - 3.52% 4.57% 6.84% 7.08%
Value of $10,000
Investment(3) $ 9,607 $ 9,648 $ 12,506 $ 19,371 $ 23,416
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 6-MONTHS 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.09% 0.43% 13.63% 27.20%
Average Annual
Total Return(2) - 1.92% - 1.53% 3.99% 6.21%
Value of $10,000
Investment(3) $ 9,808 $ 9,847 $ 11,247 $ 12,595
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 6-MONTHS 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.47% 1.09% 31.28% 103.51% 145.81%
Average Annual
Total Return(2) 0.47% 1.09% 5.59% 7.36% 7.49%
Value of $10,000
Investment(3) $ 10,047 $ 10,109 $ 13,128 $ 20,351 $ 24,581
</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. Six-month return has not been
annualized.
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 only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total return of Advisor Class shares were 4.39% and 2.01%, 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. You may
have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
7
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994+
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $9.49 $9.82 $9.76 $9.32 $9.05 $9.96
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income.............. .28 .60 .63 .69 .73 .72
Net realized and unrealized gains
(losses)......................... (.24) (.32) .03 .35 .17 (.91)
---------------------------------------------------------------------------------------
Total from investment operations.... .04 .28 .66 1.04 .90 (.19)
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income.............. (.30) (.55) (.60) (.58) (.54) (.53)
Net realized gains................. -- (.06) -- -- -- (.07)
Tax return of capital.............. -- -- -- (.02) (.09) (.12)
---------------------------------------------------------------------------------------
Total distributions................. (.30) (.61) (.60) (.60) (.63) (.72)
---------------------------------------------------------------------------------------
Net asset value, end of period...... $9.23 $9.49 $9.82 $9.76 $9.32 $9.05
=======================================================================================
Total Return*....................... .33% 2.82% 6.87% 11.44% 10.43% (2.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)... $170,573 $189,898 $198,131 $185,596 $191,301 $205,482
Ratios to average net assets:
Expenses........................... 1.20%** 1.17% 1.15% 1.13% 1.18% 1.18%
Net investment income.............. 5.90%** 6.12% 6.41% 7.09% 7.99% 7.50%
Portfolio turnover rate............. 63.69% 75.95% 166.69% 109.40% 101.12% 139.23%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+Based on weighted average shares outstanding.
8
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------
(UNAUDITED) 1998 1997 1996 1995+
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period............ $9.50 $9.83 $9.77 $9.31 $9.05
---------------------------------------------------------------------
Income from investment operations:
Net investment income.......................... .26 .56 .57 .61 .21
Net realized and unrealized gains (losses)..... (.24) (.32) .05 .41 .24
---------------------------------------------------------------------
Total from investment operations................ .02 .24 .62 1.02 .45
---------------------------------------------------------------------
Less distributions from:
Net investment income.......................... (.28) (.51) (.56) (.54) (.15)
Net realized gains............................. -- (.06) -- -- --
Tax return of capital.......................... -- -- -- (.02) (.04)
---------------------------------------------------------------------
Total distributions............................. (.28) (.57) (.56) (.56) (.19)
---------------------------------------------------------------------
Net asset value, end of period.................. $9.24 $9.50 $9.83 $9.77 $9.31
=====================================================================
Total Return*................................... .09% 2.46% 6.44% 11.20% 5.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)............... $20,738 $20,404 $16,629 $6,563 $2,043
Ratios to average net assets:
Expenses....................................... 1.60%** 1.56% 1.54% 1.56% 1.57%**
Net investment income.......................... 5.50%** 5.73% 5.96% 6.69% 7.47%**
Portfolio turnover rate......................... 75.59% 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.
9
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------
(UNAUDITED) 1998 1997+
---------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $9.49 $9.82 $10.16
---------------------------------------------
Income from investment operations:
Net investment income...................................... .28 .62 .42
Net realized and unrealized losses......................... (.23) (.32) (.34)
---------------------------------------------
Total from investment operations............................ .05 .30 .08
---------------------------------------------
Less distributions from:
Net investment income...................................... (.31) (.57) (.42)
Net realized gains......................................... -- (.06) --
---------------------------------------------
Total distributions......................................... (.31) (.63) (.42)
---------------------------------------------
Net asset value, end of period.............................. $9.23 $9.49 $9.82
============================================
Total Return*............................................... .47% 3.08% .80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $1,324 $11,330 $12,742
Ratios to average net assets:
Expenses................................................... .95%** .91% .88%**
Net investment income...................................... 6.33%** 6.38% 6.76%**
Portfolio turnover rate..................................... 75.59% 75.95% 166.69%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
10
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS 98.6%
ARGENTINA 2.6%
Perez Companc SA, 144A, 8.125%, 7/15/07..................... $5,000,000 $ 4,225,000
Republic of Argentina:
8.375%, 12/20/03........................................... 480,000 421,200
11.00%, 10/09/06........................................... 460,000 417,738
------------
5,063,938
------------
AUSTRALIA 4.4%
Government of Australia, 7.50%, 7/15/05..................... 12,358,000 AUD 8,518,935
------------
CANADA 8.2%
Government of Canada:
10.50%, 7/01/00............................................ 10,600,000 CAD 7,484,745
10.50%, 3/01/01............................................ 6,235,000 CAD 4,525,053
10.00%, 5/01/02............................................ 5,135,000 CAD 3,849,192
------------
15,858,990
------------
CHILE 1.9%
Compania Sud Americana de Vapores SA:
7.375%, 12/08/03........................................... 1,500,000 1,333,034
144A, 7.375%, 12/08/03..................................... 2,500,000 2,221,723
------------
3,554,757
------------
COLOMBIA 1.1%
Republic of Colombia, 7.25%, 2/23/04........................ 2,500,000 2,149,743
------------
CROATIA 1.5%
Republic of Croatia, 7.00%, 2/27/02......................... 3,000,000 2,875,500
------------
DENMARK 2.3%
Kingdom of Denmark:
9.00%, 11/15/00............................................ 6,605,000 DKK 1,060,116
8.00%, 3/15/06............................................. 18,589,000 DKK 3,355,215
------------
4,415,331
------------
GERMANY 11.1%
Federal Republic of Germany:
Bundesrep, 7.75%, 2/21/00.................................. 10,586,298 EUR 12,146,440
5.25%, 2/21/01............................................. 127,823 EUR 145,973
8.00%, 7/22/02............................................. 4,399,667 EUR 5,535,384
Hypothekenbank In Essen AG, 5.25%, 1/22/08.................. 2,960,380 EUR 3,480,506
------------
21,308,303
------------
INDIA .1%
Essar Steel Ltd., FRN, Reg S, 7.635%, 7/15/99............... 315,000 228,375
------------
</TABLE>
11
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDONESIA .4%
PT Astra International, 9.75%, 4/29/01...................... $2,000,000 $ 690,000
------------
ITALY 7.4%
Buoni Poliennali Del Tesoro, 6.75%, 7/01/07................. 1,243,000 EUR 1,608,484
Government of Italy:
10.50%, 7/15/00............................................ 655,899 EUR 789,858
10.50%, 11/01/00........................................... 1,823,090 EUR 2,233,858
10.50%, 4/01/05............................................ 6,476,000 EUR 9,623,537
------------
14,255,737
------------
MEXICO .7%
Nacional Financiera Sociedad Nacional de Credito, 9.70%,
3/12/02................................................... 900,000 892,125
United Mexican States, 9.75%, 2/06/01....................... 460,000 470,925
------------
1,363,050
------------
NEW ZEALAND 4.0%
Government of New Zealand:
6.50%, 2/15/00............................................. 7,240,000 NZD 3,854,814
8.00%, 11/15/06............................................ 6,437,000 NZD 3,832,038
------------
7,686,852
------------
SOUTH KOREA .5%
Pohang Iron & Steel, 6.625%, 7/01/03........................ 1,000,000 918,980
------------
SPAIN 7.8%
Government of Spain:
12.25%, 3/25/00............................................ 5,725,902 EUR 6,874,917
10.10%, 2/28/01............................................ 3,142,692 EUR 3,909,779
10.15%, 1/31/06............................................ 2,849,000 EUR 4,277,800
------------
15,062,496
------------
SWEDEN 4.1%
Kingdom of Sweden, 10.25%, 5/05/03.......................... 51,400,000 SEK 7,862,949
------------
UNITED KINGDOM 9.2%
United Kingdom:
8.00%, 12/07/00............................................ 5,825,000 GBP 9,788,897
7.00%, 11/06/01............................................ 1,175,000 GBP 1,979,290
8.50%, 7/16/07............................................. 2,976,000 GBP 5,992,810
------------
17,760,997
------------
</TABLE>
12
PAGE
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED STATES 30.7%
+*Acadia Partners LP........................................ $ 999,667 $ 155,628
Fannie Mae, 5.25%, 1/15/09.................................. 5,489,000 5,263,594
+*Penobscot Partners LP..................................... 333 3,800
U. S. Treasury Bonds:
6.375%, 8/15/27............................................ 4,935,000 5,340,598
5.25%, 11/15/28............................................ 35,784,000 33,882,973
U.S. Treasury Note, 7.875%, 11/15/04........................ 12,553,000 14,078,980
+Washington Mutual Inc...................................... 10,474 418,960
------------
59,144,533
------------
VENEZUELA .6%
Venezuela Front Load Interest Reduction Bond, A, 6.125%,
3/31/07................................................... 2,023,802 1,245,903
------------
TOTAL LONG TERM INVESTMENTS (COST $207,558,356)............. 189,965,369
------------
SHORT TERM INVESTMENT (COST $740,000) .4%
Den Danske Bank, 4.813%, 3/01/99, Time Deposit.............. 740,000 740,000
------------
TOTAL INVESTMENTS (COST $208,298,356) 99.0%................. 190,705,369
NET EQUITY IN FORWARD CONTRACTS............................. (15,735)
OTHER ASSETS, LESS LIABILITIES 1.0%......................... 1,946,328
------------
TOTAL NET ASSETS 100.0%..................................... $192,635,962
============
</TABLE>
CURRENCY ABBREVIATIONS:
AUD -- Australian Dollar
CAD -- Canadian Dollar
DKK -- Danish Krone
EUR -- European Unit
GBP -- British Pound
NZD -- New Zealand Dollar
SEK -- Swedish Krona
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Securities represent equity investments.
See Notes to Financial Statements.
13
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $208,298,356).... $190,705,369
Cash....................................................... 8,894
Receivables:
Fund shares sold.......................................... 438,962
Dividends and interest.................................... 4,617,077
------------
Total assets.......................................... 195,770,302
------------
Liabilities:
Payables:
Investment securities purchased........................... 896,766
Fund shares redeemed...................................... 1,930,021
To affiliates............................................. 176,163
Distributions to shareholders.............................. 205
Unrealized loss on forward exchange contracts (Note 6)..... 15,735
Accrued expenses........................................... 115,450
------------
Total liabilities..................................... 3,134,340
------------
Net assets, at value........................................ $192,635,962
============
Net assets consist of:
Undistributed net investment income........................ $ 466,077
Net unrealized depreciation................................ (17,705,013)
Accumulated net realized gain.............................. 365,745
Beneficial shares.......................................... 209,509,153
------------
Net assets, at value........................................ $192,635,962
============
CLASS A:
Net asset value per share ($170,573,093 / 18,471,486 shares
outstanding)............................................. $9.23
============
Maximum offering price per share ($9.23 / 95.75%).......... $9.64
============
CLASS C:
Net asset value per share ($20,738,403 / 2,243,249 shares
outstanding)*............................................ $9.24
============
Maximum offering price per share ($9.24 / 99.00%).......... $9.33
============
ADVISOR CLASS:
Net asset value per share ($1,324,466 / 143,548 shares
outstanding)............................................. $9.23
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
14
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
Dividends.................................................. $ 83,463
Interest................................................... 7,301,551
-----------
Total investment income............................... $ 7,385,014
Expenses:
Management fees (Note 3)................................... 517,467
Administrative fees (Note 3)............................... 155,240
Distribution fees (Note 3)
Class A................................................... 227,587
Class C................................................... 69,112
Transfer agent fees (Note 3)............................... 161,200
Custodian fees............................................. 13,800
Reports to shareholders.................................... 50,000
Registration and filing fees............................... 38,400
Professional fees.......................................... 38,400
Trustees' fees and expenses................................ 12,200
Other...................................................... 992
-----------
Total expenses........................................ 1,284,398
-----------
Net investment income........................... 6,100,616
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 4,786,029
Foreign currency transactions............................. (4,288,909)
-----------
Net realized gain..................................... 497,120
Net unrealized depreciation on:
Investments............................................... (5,184,192)
Translation of assets and liabilities denominated in
foreign currencies...................................... (101,804)
-----------
Net unrealized depreciation........................... (5,285,996)
-----------
Net realized and unrealized loss............................ (4,788,876)
-----------
Net increase in net assets resulting from operations........ $ 1,311,740
===========
</TABLE>
See Notes to Financial Statements.
15
PAGE
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,100,616 $ 14,102,046
Net realized gain from investments and foreign currency
transactions............................................ 497,120 897,695
Net unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... (5,285,996) (8,488,427)
---------------------------------------
Net increase in net assets resulting from operations.... 1,311,740 6,511,314
Distributions to shareholders from:
Net investment income:
Class A.................................................. (5,664,369) (11,190,365)
Class C.................................................. (615,111) (1,004,165)
Advisor Class............................................ (140,873) (803,082)
Net realized gains:
Class A.................................................. (117) (1,112,297)
Class C.................................................. -- (115,925)
Advisor Class............................................ -- (67,412)
Capital share transactions (Note 2):
Class A.................................................. (14,675,844) (1,581,970)
Class C.................................................. 930,815 4,463,377
Advisor Class............................................ (10,142,302) (970,039)
---------------------------------------
Net decrease in net assets.............................. (28,996,061) (5,870,564)
Net assets:
Beginning of period........................................ 221,632,023 227,502,587
---------------------------------------
End of period.............................................. $192,635,962 $221,632,023
=======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 466,077 $ 785,814
=======================================
</TABLE>
See Notes to Financial Statements.
16
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited)
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 conditions,
the Fund invests 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 liaibilities 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
17
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
1. SUMMARY OF ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
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.
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 February 28, 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>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold................................................ 3,949,650 $ 38,214,453 5,805,764 $ 56,610,214
Shares issued on reinvestment of distributions............. 427,209 4,119,604 935,877 9,102,189
Shares redeemed............................................ (5,906,557) (57,009,901) (6,908,185) (67,294,373)
-------------------------------------------------------------
Net decrease............................................... (1,529,698) $(14,675,844) (166,544) $ (1,581,970)
=============================================================
</TABLE>
18
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
2. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold................................................ 376,108 $ 3,637,919 910,441 $ 8,897,295
Shares issued on reinvestment of distributions............. 54,811 529,055 100,468 976,732
Shares redeemed............................................ (335,120) (3,236,159) (555,304) (5,410,650)
------------------------------------------------------------
Net increase............................................... 95,799 $ 930,815 455,605 $ 4,463,377
============================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold................................................ 200,759 $ 1,949,232 957,957 $ 9,380,180
Shares issued on reinvestment of distributions............. 5,182 49,921 18,458 178,859
Shares redeemed............................................ (1,256,415) (12,141,455) (1,080,092) (10,529,078)
------------------------------------------------------------
Net decrease............................................... (1,050,474) $(10,142,302) (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>
19
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (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 up to 0.25% and 0.65% per year of the average
daily net assets of Class A and Class C shares, respectively, for costs incurred
in marketing the Fund's Class A and Class C shares. Under the Class A
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At February 28, 1999, unreimbursed cost were $106,502. Distributors
received net commissions on sales of the Fund's shares and received contingent
deferred sales charges for the year of $7,472 and $4,859, respectively.
Legal fees of $24,410 were paid to a law firm in which a partner is an officer
of the Trust.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At February 28, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 404,648
Unrealized depreciation..................................... (17,997,635)
------------
Net unrealized depreciation................................. $(17,592,987)
============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $109,757,947 and $126,585,359,
respectively.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values
20
PAGE
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
and interest rates and contract positions that are not exact offsets. The
contract amount indicates the extent of the Fund's involvement in such
contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of February 28, 1999, the Fund had the following forward foreign exchange
contracts outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
------------------ -------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1,605,000 European Unit............................................... U.S. $1,770,026 4/02/99 U.S. $ --
Net unrealized loss on offsetting forward exchange contract...... (15,735)
--------
Net unrealized loss on forward exchange contract............... U.S. $(15,735)
--------
--------
</TABLE>
21
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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
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
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 Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund
Franklin 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**
California**
Colorado
Connecticut
Florida**
Georgia
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan+
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
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.
PAGE
----------------------
[LOGO] Bulk Rate
FRANKLIN TEMPLETON(R) U.S. Postage
Templeton Global Bond Fund PAID
777 Mariners Island Blvd., P.O. Box 7777 So. San Francisco, CA
San Mateo, CA 94403-7777 Permit No. 655
----------------------
SEMIANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
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 S99 04/99 [RECYCLE LOGO] Printed on recycled paper
