ANNUAL REPORT
TEMPLETON GLOBAL BOND FUND
AUGUST 31, 2000
[FRANKLIN TEMPLETON LOGO]
<PAGE>
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.
WE'RE ON THE WEB --
Now you can access online information about your Fund, including this
shareholder report. Find our Web site at franklintempleton.com, your online
resource for Fund literature, prices and performance, investor information and
around-the-clock account services.
<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.
This report of Templeton Global Bond Fund covers the fiscal year ended August
31, 2000. During the first half of the reporting period, upward revisions in
global economic growth forecasts, and inflationary fears stemming from higher
oil prices led many investors to be cautious about the possibility of rising
interest rates. Continuing U.S. economic growth, European economic recovery,
better-than-expected growth in Japan, and the possibility of a tighter monetary
policy stance by central banks all appeared to justify this cautious approach.
Most European countries experienced rising interest rates, the U.S. Federal
Reserve Board increased interest rates by 125 basis points, and many analysts
believed
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Shareholder Letter ..... 1
Performance Summary .... 6
Financial Highlights &
Statement of Investments 10
Financial Statements ... 16
Notes to Financial
Statements ............. 19
Report of Independent
Accountants ............ 24
</TABLE>
FUND CATEGORY
[PYRAMID GRAPHIC]
Global
Growth
Growth & Income
Income
Tax-Free Income
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 13.
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
[PIE CHART]
Europe 50.4%
Latin America 20.7%
United States 10.0%
Canada 6.3%
Australia & New Zealand 6.2%
Asia 3.8%
Short Term Investments & Other Net Assets 2.6%
that with the possible exception of Japan, industrial economies had reached the
bottom of their interest rate cycles.
However, during the second half of the period, a bond buyback program
implemented by the U.S. Treasury reduced the supply of U.S. bonds, and concerns
about inflation seemed to diminish due to the release of economic data showing
growth rates converging toward more sustainable levels. Bonds began to appear
more attractive to many investors who put money back into the global fixed
income markets.
European bond markets offered positive returns in local currency terms. The U.K.
and EMU bond indexes rose 4.33% and 2.45%, respectively. Although the Swedish
bond market outperformed the EMU countries, Denmark did not do as well. The
Japanese debt market performed well despite a 25 basis point increase in
short-term interest rates by the Bank of Japan in August 2000. And
Australia/Canada/New Zealand dollar-bloc bond markets, where rising commodity
prices supported the local currency and helped contain inflation, outperformed
the global bond markets in general, but underperformed that of the U.S. in local
currency terms.(1)
Due largely to higher commodity prices, the J.P. Morgan Emerging Markets Bond
Index Global (EMBI Global) increased 30.23% during the 12-month period.(2) These
higher commodity prices contributed to improved export revenues of emerging
1. Source: J.P. Morgan Securities, Inc.
2. Sources for all indexes: J.P. Morgan Securities, Inc. The J.P. Morgan
Emerging Markets Bond Index Global tracks total returns for U.S.-dollar
denominated debt instruments issued by emerging market sovereign and
quasi-sovereign entities. The J.P. Morgan Global Government Bond Index measures
and tracks bonds from around the world. The J.P. Morgan U.S. Government Bond
Index measures and tracks U.S. Treasury securities. Indexes are measured in U.S.
dollars (unless otherwise specified) and include reinvested interest. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
2
<PAGE>
market countries, and coupled with continued strength in the U.S. equity market,
helped to increase investor appetite for emerging market bonds. Most countries
covered by the index experienced rising bond prices, with the exceptions of
Nigeria and Cote d'Ivoire (the "Ivory Coast"). Russian bonds were among the best
performers, increasing 127.20%, followed by those of Ecuador, Algeria and
Brazil, up 55.45%, 42.70% and 38.86%, respectively.
Within this environment, Templeton Global Bond Fund - Class A posted a -1.80%
cumulative total return (in U.S. dollar terms) for the 12 months ended August
31, 2000, as shown in the Performance Summary beginning on page 6. The Fund's
benchmark, the Salomon Brothers World Government Bond Index, delivered a 4.10%
return in local currency terms for the same 12-month period. However, a stronger
dollar versus the euro and the Japanese yen resulted in a lower return of -2.21%
in U.S. dollar terms for the index. The J.P. Morgan Global Government Bond
Index, which measures and tracks bonds from around the world, posted returns of
4.40% and -2.04%, in local currency and U.S. dollar terms, respectively, for
the same period. The J.P. Morgan U.S. Government Bond Index, which measures and
tracks U.S. Treasury securities, was up 8.28%.(2)
<TABLE>
<CAPTION>
PORTFOLIO BREAKDOWN
Based on Total Net Assets
8/31/00
<S> <C>
Government Bonds 90.9%
Corporate Bonds 6.2%
Warrants 0.3%
Short-Term Investments &
Other Net Assets 2.6%
</TABLE>
3
<PAGE>
Throughout the reporting period, we attempted to meet the Fund's objective by
allocating approximately 70%-75% of total net assets to intermediate- and
long-term bonds in developed markets, with the remaining assets invested in what
we believed were the highest-quality and most-liquid bonds in emerging markets.
In our opinion, this combination of investments offered the potential for higher
long-term returns at the cost of modestly higher short-term volatility. Because
emerging market bonds generally outperformed higher-quality industrial market
debt during this period, our allocation to emerging market debt added positively
to the Fund's performance.
The Fund's geographic allocation changed slightly during the period. Our
allocation to North America decreased from 36.4% to 16.3% of total net assets,
with U.S. and Canadian exposure decreasing by 17.6% and 2.5%, respectively. We
increased our European allocation slightly from 43.0% to 50.4%, adjusting the
underlying country mix to reduce our exposure to Germany and Spain, add to
positions in Italy, the U.K. and the Netherlands, and initiate new positions in
Belgium and France. The Fund's New Zealand allocation decreased by 2.1%, while
we added to our positions in Turkey and South Korea. We also increased our
holdings in Latin America by approximately 12.9%, leaving our exposure to that
region at 20.7% on August 31, 2000.
Looking forward, we are optimistic about prospects for global bond markets and
Templeton Global Bond Fund. In our opinion, global economic growth should remain
strong in the short term, and inflation could be relatively tame. This could
prove to be an attractive environment for high-quality bonds and contributes to
our positive outlook for the Fund. We also believe that the Fund's emerging
market positions may continue to offer attractive return opportunities for its
portfolio.
4
<PAGE>
It is 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 look forward to serving your future investment needs, and welcome your
comments or suggestions.
Portfolio Management Team
Templeton Global Bond Fund
This discussion reflects our views, opinions and portfolio holdings as of August
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
5
<PAGE>
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, 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: 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.
ONE-YEAR PERFORMANCE
AS OF 8/31/00
One-year cumulative total return represents the change in value of an investment
for the period indicated and does not include sales charges. 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 operating expenses
for each class. Past distributions are not indicative of future trends. All
total returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Cumulative Total Return -1.80%
Net Asset Value (NAV) $8.05 (8/31/00) $8.81 (8/31/99)
Change in NAV -$0.76
Distributions (9/1/99 - 8/31/00) Dividend Income $0.6000
Long-Term Capital Gain $0.0090
========================================
TOTAL $0.6090
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
One-Year Cumulative Total Return -2.34%
Net Asset Value (NAV) $8.05 (8/31/00) $8.82 (8/31/99)
Change in NAV -$0.77
Distributions (9/1/99 - 8/31/00) Dividend Income $0.5631
Long-Term Capital Gain $0.0090
=========================================
TOTAL $0.5721
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
<S> <C> <C>
One-Year Cumulative Total Return -1.65%
Net Asset Value (NAV) $8.04 (8/31/00) $8.81 (8/31/99)
Change in NAV -$0.77
Distributions (9/1/99 - 8/31/00) Dividend Income $0.6233
Long-Term Capital Gain $0.0090
=========================================
TOTAL $0.6323
</TABLE>
Templeton Global Bond Fund paid distributions derived from long-term capital
gains of 0.90 cents ($0.0090) per share in December 1999. The Fund hereby
designates such distributions as capital gain dividends in accordance with
Internal Revenue Code Section 852(b)(3).
Please see standardized SEC performance as of 8/31/00 and index comparison on
pages 8-9.
Past performance does not guarantee future results.
6
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
CLASS A 1-YEAR 5-YEAR 10-YEAR INCEPTION
(9/18/86)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) - 3.37% 16.20% 70.28% 135.70%
Average Annual Total Return(2) - 7.45% 2.16% 5.01% 5.97%
Value of $10,000 Investment(3) $9,255 $11,125 $16,302 $22,577
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) - 3.77% 14.01% 21.88%
Average Annual Total Return(2) - 5.63% 2.44% 3.53%
Value of $10,000 Investment(3) $9,437 $11,282 $12,068
</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) - 3.01% 18.01% 72.94% 39.38%
Average Annual Total Return(2) - 3.01% 3.37% 5.63% 6.42%
Value of $10,000 Investment(3) $9,699 $11,801 $17,294 $23,938
</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.) Effective 1/2/97, the Fund began offering Advisor Class shares, which do
not have sales charges or Rule 12b-1 plans. Performance quotations for this
class reflect the following methods of calculation: (a) For periods prior to
1/2/97, a restated figure is used based upon the Fund's Class A performance,
excluding the effect of Class A's maximum initial sales charge and including the
effect of the Class A Rule 12b-1 fees; and (b) for periods 1/1/97 and after, an
actual Advisor Class figure is used reflecting a deduction of all charges and
fees applicable to that class. Since 1/2/97 (commencement of sales), the
cumulative and average annual total returns of Advisor Class shares were 1.06%
and 0.28%.
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.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
7
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS A
<S> <C>
1-Year -5.96%
5-Year 2.66%
10-Year 5.07%
Since Inception (9/18/86) 6.05%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS C
<S> <C>
1-Year -4.23%
5-Year 2.95%
Since Inception (5/1/95) 3.66%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Average annual total return represents the change in value of an investment over
the periods shown. It includes the current, applicable, maximum sales charge(s),
Fund expenses, account fees and reinvested distributions. 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.
Class A (9/1/90 -8/31/00)
[CLASS A LINE GRAPH]
CLASS A PLOT POINTS
The following line graph compares the performance of Templeton Global Bond
Fund's Class A shares to that of the Salomon Brothers World Gov't Bond Index,
and to the Consumer Price Index based on a $10,000 investment from 9/1/90 to
8/31/00.
<TABLE>
<CAPTION>
SALOMON CPI
TEMPLETON GLOBAL BOND WORLD GOV'T
FUND-CLASS A BOND INDEX
-----------------------------------------------
<S> <C> <C> <C>
09/01/1990 $9,577 $10,000 $10,000
09/30/1990 $9,581 $10,111 $10,084
10/31/1990 $9,722 $10,563 $10,145
11/30/1990 $9,805 $10,738 $10,167
12/31/1990 $9,894 $10,845 $10,167
01/31/1991 $10,080 $11,116 $10,228
02/28/1991 $10,154 $11,119 $10,243
03/31/1991 $9,926 $10,715 $10,258
04/30/1991 $10,110 $10,880 $10,273
05/31/1991 $10,182 $10,866 $10,303
06/30/1991 $10,079 $10,753 $10,334
07/31/1991 $10,173 $10,983 $10,349
08/31/1991 $10,384 $11,197 $10,379
09/30/1991 $10,765 $11,634 $10,426
10/31/1991 $10,915 $11,756 $10,441
11/30/1991 $10,915 $11,941 $10,471
12/31/1991 $11,369 $12,561 $10,479
01/31/1992 $11,162 $12,336 $10,494
02/29/1992 $11,097 $12,267 $10,532
03/31/1992 $11,031 $12,137 $10,585
04/30/1992 $11,164 $12,223 $10,600
05/31/1992 $11,489 $12,598 $10,615
06/30/1992 $11,828 $12,951 $10,653
07/31/1992 $12,112 $13,253 $10,676
08/31/1992 $12,134 $13,624 $10,706
09/30/1992 $11,663 $13,760 $10,736
10/31/1992 $11,779 $13,386 $10,774
11/30/1992 $11,662 $13,173 $10,789
12/31/1992 $11,724 $13,252 $10,783
01/31/1993 $11,809 $13,482 $10,836
02/28/1993 $12,030 $13,747 $10,874
03/31/1993 $12,252 $13,958 $10,912
04/30/1993 $12,475 $14,253 $10,942
05/31/1993 $12,550 $14,396 $10,957
06/30/1993 $12,462 $14,365 $10,972
07/31/1993 $12,539 $14,406 $10,972
08/31/1993 $12,742 $14,839 $11,003
09/30/1993 $12,704 $15,015 $11,025
10/31/1993 $12,897 $14,990 $11,072
11/30/1993 $12,651 $14,882 $11,079
12/31/1993 $12,937 $15,009 $11,078
01/31/1994 $13,291 $15,130 $11,109
02/28/1994 $12,961 $15,031 $11,148
03/31/1994 $12,483 $15,009 $11,186
04/30/1994 $12,443 $15,027 $11,201
05/31/1994 $12,375 $14,895 $11,208
06/30/1994 $12,186 $15,110 $11,246
07/31/1994 $12,336 $15,230 $11,276
08/31/1994 $12,459 $15,177 $11,322
09/30/1994 $12,418 $15,287 $11,352
10/31/1994 $12,557 $15,532 $11,361
11/30/1994 $12,473 $15,319 $11,376
12/31/1994 $12,473 $15,361 $11,376
01/31/1995 $12,502 $15,683 $11,420
02/28/1995 $12,701 $16,085 $11,466
03/31/1995 $12,802 $17,040 $11,504
04/30/1995 $13,104 $17,356 $11,542
05/31/1995 $13,525 $17,844 $11,565
06/30/1995 $13,554 $17,949 $11,587
07/31/1995 $13,700 $17,991 $11,587
08/31/1995 $13,774 $17,373 $11,619
09/30/1995 $14,041 $17,761 $11,640
10/31/1995 $14,294 $17,893 $11,679
11/30/1995 $14,428 $18,096 $11,670
12/31/1995 $14,744 $18,285 $11,663
01/31/1996 $14,805 $18,059 $11,731
02/29/1996 $14,698 $17,967 $11,769
03/31/1996 $14,729 $17,942 $11,830
04/30/1996 $14,805 $17,871 $11,875
05/31/1996 $14,898 $17,875 $11,898
06/30/1996 $15,100 $18,015 $11,906
07/31/1996 $15,146 $18,361 $11,928
08/31/1996 $15,350 $18,432 $11,951
09/30/1996 $15,586 $18,507 $11,989
10/31/1996 $15,950 $18,853 $12,027
11/30/1996 $16,364 $19,102 $12,050
12/31/1996 $16,396 $18,947 $12,050
01/31/1997 $16,187 $18,441 $12,088
02/28/1997 $16,138 $18,302 $12,124
03/31/1997 $15,993 $18,163 $12,154
04/30/1997 $16,025 $18,004 $12,169
05/31/1997 $16,140 $18,493 $12,162
06/30/1997 $16,354 $18,714 $12,176
07/31/1997 $16,420 $18,568 $12,191
08/31/1997 $16,404 $18,557 $12,214
09/30/1997 $16,671 $18,952 $12,244
10/31/1997 $16,739 $19,346 $12,275
11/30/1997 $16,705 $19,049 $12,268
12/31/1997 $16,696 $18,991 $12,253
01/31/1998 $16,714 $19,176 $12,275
02/28/1998 $16,799 $19,332 $12,300
03/31/1998 $16,799 $19,140 $12,324
04/30/1998 $16,903 $19,446 $12,346
05/31/1998 $16,938 $19,492 $12,369
06/30/1998 $16,956 $19,520 $12,383
07/31/1998 $16,938 $19,546 $12,398
08/31/1998 $16,867 $20,079 $12,413
09/30/1998 $17,419 $21,146 $12,428
10/31/1998 $17,490 $21,773 $12,458
11/30/1998 $17,436 $21,466 $12,458
12/31/1998 $17,599 $21,898 $12,450
01/31/1999 $17,581 $21,697 $12,481
02/28/1999 $16,922 $21,004 $12,493
03/31/1999 $17,032 $21,053 $12,531
04/30/1999 $17,197 $21,044 $12,622
05/31/1999 $16,826 $20,690 $12,622
06/30/1999 $16,658 $20,327 $12,622
07/31/1999 $16,789 $20,825 $12,655
08/31/1999 $16,695 $20,922 $12,693
09/30/1999 $16,885 $21,248 $12,749
10/31/1999 $16,847 $21,238 $12,774
11/30/1999 $16,635 $21,015 $12,780
12/31/1999 $16,749 $20,964 $12,780
01/31/2000 $16,535 $20,963 $12,815
02/29/2000 $16,671 $20,516 $12,889
03/31/2000 $16,829 $21,000 $12,992
04/30/2000 $16,373 $20,315 $13,003
05/31/2000 $16,176 $20,473 $13,013
06/30/2000 $16,716 $20,970 $13,084
07/31/2000 $16,536 $20,615 $13,112
08/31/2000 $16,394 $20,459 $13,112
</TABLE>
CLASS C (5/1/95-8/31/00)
[CLASS C LINE GRAPH]
CLASS C PLOT POINTS
The following line graph compares the performance of Templeton Global Bond
Fund's Class C shares to that of the Salomon Brothers World Gov't Bond Index,
and to the Consumer Price Index based on a $10,000 investment from 5/1/95 to
8/31/00.
<TABLE>
<CAPTION>
SALOMON
TEMPLETON WORLD
GLOBAL BOND GOV'T BOND
FUND-CLASS C INDEX CPI
-----------------------------------------------
<S> <C> <C> <C>
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 $10,965
08/31/1999 $12,406 $12,055 $10,998
09/30/1999 $12,541 $12,243 $11,046
10/31/1999 $12,508 $12,237 $11,068
11/30/1999 $12,344 $12,108 $11,073
12/31/1999 $12,425 $12,079 $11,073
01/31/2000 $12,262 $12,079 $11,104
02/29/2000 $12,359 $11,821 $11,167
03/31/2000 $12,472 $12,100 $11,257
04/30/2000 $12,131 $11,705 $11,266
05/31/2000 $11,981 $11,796 $11,275
06/30/2000 $12,362 $12,082 $11,336
07/31/2000 $12,239 $11,878 $11,360
08/31/2000 $12,115 $11,788 $11,360
</TABLE>
Past performance does not guarantee future results.
8
<PAGE>
ADVISOR CLASS (9/1/90-8/31/00)
[ADVISOR CLASS LINE GRAPH]
ADVISOR CLASS PLOT POINTS
The following line graph compares the performance of Templeton Global Bond
Fund's Advisor Class shares to that of the Salomon Brothers World Gov't Bond
Index, and to the Consumer Price Index based on a $10,000 investment from 9/1/90
to 8/31/00.
<TABLE>
<CAPTION>
TEMPLETON GLOBAL SALOMON
BOND FUND- WORLD GOV'T
ADVISOR CLASS BOND INDEX CPI
--------------------------------------------------
<S> <C> <C> <C>
09/01/1990 $10,000 $10,000 $10,000
09/30/1990 $10,005 $10,111 $10,084
10/31/1990 $10,152 $10,563 $10,145
11/30/1990 $10,238 $10,738 $10,167
12/31/1990 $10,333 $10,845 $10,167
01/31/1991 $10,526 $11,116 $10,228
02/28/1991 $10,604 $11,119 $10,243
03/31/1991 $10,365 $10,715 $10,258
04/30/1991 $10,558 $10,880 $10,273
05/31/1991 $10,633 $10,866 $10,303
06/30/1991 $10,525 $10,753 $10,334
07/31/1991 $10,624 $10,983 $10,349
08/31/1991 $10,844 $11,197 $10,379
09/30/1991 $11,242 $11,634 $10,426
10/31/1991 $11,399 $11,756 $10,441
11/30/1991 $11,399 $11,941 $10,471
12/31/1991 $11,874 $12,561 $10,479
01/31/1992 $11,658 $12,336 $10,494
02/29/1992 $11,589 $12,267 $10,532
03/31/1992 $11,521 $12,137 $10,585
04/30/1992 $11,660 $12,223 $10,600
05/31/1992 $11,999 $12,598 $10,615
06/30/1992 $12,353 $12,951 $10,653
07/31/1992 $12,650 $13,253 $10,676
08/31/1992 $12,673 $13,624 $10,706
09/30/1992 $12,180 $13,760 $10,736
10/31/1992 $12,300 $13,386 $10,774
11/30/1992 $12,178 $13,173 $10,789
12/31/1992 $12,243 $13,252 $10,783
01/31/1993 $12,332 $13,482 $10,836
02/28/1993 $12,563 $13,747 $10,874
03/31/1993 $12,795 $13,958 $10,912
04/30/1993 $13,028 $14,253 $10,942
05/31/1993 $13,106 $14,396 $10,957
06/30/1993 $13,015 $14,365 $10,972
07/31/1993 $13,094 $14,406 $10,972
08/31/1993 $13,307 $14,839 $11,003
09/30/1993 $13,268 $15,015 $11,025
10/31/1993 $13,469 $14,990 $11,072
11/30/1993 $13,212 $14,882 $11,079
12/31/1993 $13,511 $15,009 $11,078
01/31/1994 $13,881 $15,130 $11,109
02/28/1994 $13,536 $15,031 $11,148
03/31/1994 $13,037 $15,009 $11,186
04/30/1994 $12,995 $15,027 $11,201
05/31/1994 $12,925 $14,895 $11,208
06/30/1994 $12,727 $15,110 $11,246
07/31/1994 $12,884 $15,230 $11,276
08/31/1994 $13,013 $15,177 $11,322
09/30/1994 $12,970 $15,287 $11,352
10/31/1994 $13,115 $15,532 $11,361
11/30/1994 $13,027 $15,319 $11,376
12/31/1994 $13,027 $15,361 $11,376
01/31/1995 $13,057 $15,683 $11,420
02/28/1995 $13,266 $16,085 $11,466
03/31/1995 $13,371 $17,040 $11,504
04/30/1995 $13,686 $17,356 $11,542
05/31/1995 $14,126 $17,844 $11,565
06/30/1995 $14,155 $17,949 $11,587
07/31/1995 $14,308 $17,991 $11,587
08/31/1995 $14,386 $17,373 $11,619
09/30/1995 $14,663 $17,761 $11,640
10/31/1995 $14,927 $17,893 $11,679
11/30/1995 $15,067 $18,096 $11,670
12/31/1995 $15,397 $18,285 $11,663
01/31/1996 $15,461 $18,059 $11,731
02/29/1996 $15,349 $17,967 $11,769
03/31/1996 $15,381 $17,942 $11,830
04/30/1996 $15,461 $17,871 $11,875
05/31/1996 $15,557 $17,875 $11,898
06/30/1996 $15,769 $18,015 $11,906
07/31/1996 $15,818 $18,361 $11,928
08/31/1996 $16,030 $18,432 $11,951
09/30/1996 $16,277 $18,507 $11,989
10/31/1996 $16,657 $18,853 $12,027
11/30/1996 $17,089 $19,102 $12,050
12/31/1996 $17,123 $18,947 $12,050
01/31/1997 $17,008 $18,441 $12,088
02/28/1997 $16,961 $18,302 $12,124
03/31/1997 $16,810 $18,163 $12,154
04/30/1997 $16,847 $18,004 $12,169
05/31/1997 $16,988 $18,493 $12,162
06/30/1997 $17,184 $18,714 $12,176
07/31/1997 $17,256 $18,568 $12,191
08/31/1997 $17,259 $18,557 $12,214
09/30/1997 $17,544 $18,952 $12,244
10/31/1997 $17,602 $19,346 $12,275
11/30/1997 $17,577 $19,049 $12,268
12/31/1997 $17,584 $18,991 $12,253
01/31/1998 $17,588 $19,176 $12,275
02/28/1998 $17,681 $19,332 $12,300
03/31/1998 $17,702 $19,140 $12,324
04/30/1998 $17,798 $19,446 $12,346
05/31/1998 $17,839 $19,492 $12,369
06/30/1998 $17,880 $19,520 $12,383
07/31/1998 $17,846 $19,546 $12,398
08/31/1998 $17,791 $20,079 $12,413
09/30/1998 $18,358 $21,146 $12,428
10/31/1998 $18,441 $21,773 $12,458
11/30/1998 $18,387 $21,466 $12,458
12/31/1998 $18,582 $21,898 $12,450
01/31/1999 $18,567 $21,697 $12,481
02/28/1999 $17,875 $21,004 $12,493
03/31/1999 $17,994 $21,053 $12,531
04/30/1999 $18,155 $21,044 $12,622
05/31/1999 $17,766 $20,690 $12,622
06/30/1999 $17,592 $20,327 $12,622
07/31/1999 $17,734 $20,825 $12,655
08/31/1999 $17,655 $20,922 $12,693
09/30/1999 $17,844 $21,248 $12,749
10/31/1999 $17,827 $21,238 $12,774
11/30/1999 $17,606 $21,015 $12,780
12/31/1999 $17,710 $20,964 $12,780
01/31/2000 $17,487 $20,963 $12,815
02/29/2000 $17,636 $20,516 $12,889
03/31/2000 $17,807 $21,000 $12,992
04/30/2000 $17,349 $20,315 $13,003
05/31/2000 $17,124 $20,473 $13,013
06/30/2000 $17,701 $20,970 $13,084
07/31/2000 $17,513 $20,615 $13,112
08/31/2000 $17,361 $20,459 $13,112
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
ADVISOR CLASS***
<S> <C>
1-Year -1.65%
5-Year 3.83%
10-Year 5.67%
Since Inception (9/18/86) 6.48%
</TABLE>
*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 (8/31/00). The
Consumer Price Index is a commonly used measure of inflation.
*** Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods 1/1/97 and after, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class.
Past performance does not guarantee future results.
9
<PAGE>
TEMPLETON GLOBAL BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $8.81 $9.49 $9.82 $9.76 $9.32
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .65 .58 .60 .63 .69
Net realized and unrealized gains (losses)................ (.80) (.66) (.32) .03 .35
--------------------------------------------------------
Total from investment operations........................... (.15) (.08) .28 .66 1.04
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.60) (.55) (.55) (.60) (.58)
Net realized gains........................................ (.01) (.05) (.06) -- --
Tax return of capital..................................... -- -- -- -- (.02)
--------------------------------------------------------
Total distributions........................................ (.61) (.60) (.61) (.60) (.60)
--------------------------------------------------------
Net asset value, end of year............................... $8.05 $8.81 $9.49 $9.82 $9.76
========================================================
Total Return*.............................................. (1.80)% (1.02)% 2.82% 6.87% 11.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $114,247 $146,753 $189,898 $198,131 $185,596
Ratios to average net assets:
Expenses.................................................. 1.23% 1.22% 1.17% 1.15% 1.13%
Net investment income..................................... 7.19% 6.20% 6.12% 6.41% 7.09%
Portfolio turnover rate.................................... 179.84% 74.60% 75.95% 166.69% 109.40%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
10
<PAGE>
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $8.82 $9.50 $9.83 $9.77 $9.31
---------------------------------------------------
Income from investment operations:
Net investment income...................................... .58 .54 .56 .57 .61
Net realized and unrealized gains (losses)................. (.78) (.66) (.32) .05 .41
---------------------------------------------------
Total from investment operations............................ (.20) (.12) .24 .62 1.02
---------------------------------------------------
Less distributions from:
Net investment income...................................... (.56) (.51) (.51) (.56) (.54)
Net realized gains......................................... (.01) (.05) (.06) -- --
Tax return of capital...................................... -- -- -- -- (.02)
---------------------------------------------------
Total distributions......................................... (.57) (.56) (.57) (.56) (.56)
---------------------------------------------------
Net asset value, end of year................................ $8.05 $8.82 $9.50 $9.83 $9.77
===================================================
Total Return*............................................... (2.34)% (1.41)% 2.46% 6.44% 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $11,966 $17,386 $20,404 $16,629 $6,563
Ratios to average net assets:
Expenses................................................... 1.62% 1.62% 1.56% 1.54% 1.56%
Net investment income...................................... 6.78% 5.80% 5.73% 5.96% 6.69%
Portfolio turnover rate..................................... 179.84% 74.60% 75.95% 166.69% 109.40%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
11
<PAGE>
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------
2000 1999 1998 1997+
----------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $8.81 $9.49 $9.82 $10.16
------------------------------------------------
Income from investment operations:
Net investment income...................................... .63 .61 .62 .42
Net realized and unrealized losses......................... (.77) (.67) (.32) (.34)
------------------------------------------------
Total from investment operations............................ (.14) (.06) .30 .08
------------------------------------------------
Less distributions from:
Net investment income...................................... (.62) (.57) (.57) (.42)
Net realized gains......................................... (.01) (.05) (.06) --
------------------------------------------------
Total distributions......................................... (.63) (.62) (.63) (.42)
------------------------------------------------
Net asset value, end of year................................ $8.04 $8.81 $9.49 $9.82
================================================
Total Return*............................................... (1.65)% (.77)% 3.08% .80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $413 $1,261 $11,330 $12,742
Ratios to average net assets:
Expenses................................................... .98% .97% .91% .88%**
Net investment income...................................... 7.28% 6.42% 6.38% 6.76%**
Portfolio turnover rate..................................... 179.84% 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 effective year ended August 31,
1999.
See Notes to Financial Statements.
12
<PAGE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.4%
ARGENTINA 4.5%
Pecom Energia SA, 144A, 8.125%, 7/15/07..................... $ 5,000,000 $ 4,425,000
Republic of Argentina:
11.00%, 10/09/06.......................................... 225,000 213,750
11.75%, 4/07/09........................................... 800,000 747,800
11.375%, 1/30/17.......................................... 200,000 176,750
9.75%, 9/19/27............................................ 150,000 115,828
------------
5,679,128
------------
AUSTRALIA 3.9%
Australian Government, 10.00%, 10/15/07..................... 2,263,000AUD 1,582,479
Queensland Treasury Corp., 6.50%, 6/14/05................... 5,796,000AUD 3,338,485
------------
4,920,964
------------
BELGIUM 2.3%
Kingdom of Belgium, 8.50%, 10/01/07......................... 2,786,000EUR 2,882,103
------------
BRAZIL 3.1%
Government of Brazil:
9.375%, 4/07/08........................................... 800,000 728,500
14.50%, 10/15/09.......................................... 1,825,000 2,027,119
Series L, cvt., FRN, 7.4375%, 4/15/12..................... 310,000 240,058
12.75%, 1/15/20........................................... 500,000 489,375
10.125%, 5/15/27.......................................... 600,000 477,150
------------
3,962,202
------------
CANADA 6.3%
Government of Canada:
10.50%, 3/01/01........................................... 6,235,000CAD 4,323,487
10.00%, 5/01/02........................................... 5,135,000CAD 3,704,868
------------
8,028,355
------------
COLOMBIA 2.0%
Republic of Colombia, 7.25%, 2/23/04........................ 2,950,000 2,559,125
------------
DENMARK 2.6%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 6,605,000DKK 792,069
8.00%, 3/15/06............................................ 18,589,000DKK 2,448,846
------------
3,240,915
------------
FRANCE 6.7%
Government of France:
8.25%, 2/27/04............................................ 6,748,000EUR 6,547,024
8.50%, 10/25/08........................................... 1,832,000EUR 1,952,038
------------
8,499,062
------------
GERMANY 3.2%
Federal Republic of Germany, 8.00%, 7/22/02................. 4,399,667EUR 4,096,916
------------
INDIA .1%
+*Essar Steel Ltd., Reg. S, FRN, 7.635%, 7/20/99............ 315,000 165,375
------------
</TABLE>
13
<PAGE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDONESIA .3%
*P.T. Astra International, wts., 12/31/03................... 1,880,582 IDR $ 421,520
------------
ITALY 9.9%
Buoni Poliennali del Tesoro:
6.75%, 7/01/07............................................ 1,243,000 EUR 1,176,916
8.75%, 7/01/06............................................ 2,751,000 EUR 2,828,286
Government of Italy:
10.50%, 11/01/00.......................................... 1,823,090 EUR 1,632,968
10.50%, 4/01/05........................................... 6,476,000 EUR 6,883,053
------------
12,521,223
------------
MEXICO 7.7%
Bepensa SA, 144A, 9.75%, 9/30/04............................ 230,000 212,750
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... 49,349 38,245
United Mexican States:
9.875%, 1/15/07........................................... 4,350,000 4,612,088
8.625%, 3/12/08........................................... 2,410,000 2,401,565
11.375%, 9/15/16.......................................... 2,140,000 2,514,500
------------
9,779,148
------------
NETHERLANDS 3.2%
Astra Overseas Finance NV, Reg S, FRN:
Series I, 6.7775%, 12/31/01............................... 300,000 270,000
Series II, 6.7775%, 6/30/05............................... 1,044,018 678,612
Series III, zero cpn., 6/30/06............................ 1,311,000 419,520
Government of Netherlands, 7.75%, 3/01/05................... 2,779,000 EUR 2,697,468
------------
4,065,600
------------
NEW ZEALAND 2.3%
Government of New Zealand, 8.00%, 11/15/06.................. 6,437,000 NZD 2,922,740
------------
PANAMA
Republic of Panama, FRN, 7.93%, 5/14/02..................... 24,616 24,382
------------
SOUTH KOREA 2.2%
Hanvit Bank, 144A, 12.75%, 3/01/10.......................... 1,660,000 1,703,658
Republic of Korea, 8.875%, 4/15/08.......................... 1,000,000 1,055,600
------------
2,759,258
------------
SPAIN 6.9%
Bonos y Oblig del Estado, 8.80%, 4/30/06.................... 2,717,000 EUR 2,788,742
Government of Spain:
10.10%, 2/28/01........................................... 3,142,692 EUR 2,857,564
10.15%, 1/31/06........................................... 2,849,000 EUR 3,061,130
------------
8,707,436
------------
SWEDEN 4.9%
Kingdom of Sweden, 10.25%, 5/05/03.......................... 51,400,000 SEK 6,155,716
------------
TRINIDAD AND TOBAGO
SEI Holdings IX Inc., 144A, 11.00%, 11/30/00................ 30,000 30,000
------------
</TABLE>
14
<PAGE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TURKEY 1.2%
Republic of Turkey, 12.375%, 6/15/09........................ $ 1,450,000 $ 1,574,700
------------
UNITED KINGDOM 10.7%
United Kingdom:
8.00%, 12/07/00........................................... 5,825,000 GBP 8,518,716
8.50%, 7/16/07............................................ 2,976,000 GBP 5,020,114
------------
13,538,830
------------
UNITED STATES 10.0%
++*Acadia Partners LP....................................... 999,667 12,096
++*Penobscot Partners LP.................................... 333 2,892
U.S. Treasury Bond:
6.375%, 8/15/27........................................... 3,415,000 3,641,244
5.25%, 11/15/28........................................... 3,840,000 3,535,200
U.S. Treasury Note:
6.125%, 8/31/02........................................... 4,450,000 4,447,219
7.875%, 11/15/04.......................................... 923,000 984,149
------------
12,622,800
------------
VENEZUELA 3.4%
Republic of Venezuela:
FRN, 7.875%, 12/18/07..................................... 178,570 153,570
Reg S, 9.125%, 6/18/07.................................... 400,000 317,000
9.25%, 9/15/27............................................ 3,425,000 2,323,648
Venezuela Front Load Interest Reduction Bond, A, FRN,
7.4375%, 3/31/07.......................................... 1,666,650 1,444,776
------------
4,238,994
------------
TOTAL LONG TERM INVESTMENTS (COST $147,930,818)............. 123,396,492
OTHER ASSETS, LESS LIABILITIES 2.6%......................... 3,229,143
------------
TOTAL NET ASSETS 100.0%..................................... $126,625,635
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
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
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Represents defaulted bonds.
++Securities represent equity investments.
See Notes to Financial Statements.
15
<PAGE>
TEMPLETON GLOBAL BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $147,930,818).... $123,396,492
Cash....................................................... 85,178
Receivables:
Investment securities sold................................ 4,581,585
Fund shares sold.......................................... 243,175
Dividends and interest.................................... 3,517,817
------------
Total assets.......................................... 131,824,247
------------
Liabilities:
Payables:
Investment securities purchased........................... 4,441,019
Fund shares redeemed...................................... 517,378
To affiliates............................................. 111,650
Accrued expenses........................................... 128,565
------------
Total liabilities..................................... 5,198,612
------------
Net assets, at value........................................ $126,625,635
============
Net assets consist of:
Undistributed net investment income........................ $ 244,634
Net unrealized depreciation................................ (24,636,485)
Accumulated net realized loss.............................. (16,746,124)
Beneficial shares.......................................... 167,763,610
------------
Net assets, at value........................................ $126,625,635
============
CLASS A:
Net asset value per share ($114,246,520 / 14,199,581 shares
outstanding)............................................. $8.05
============
Maximum offering price per share ($8.05 / 95.75%).......... $8.41
============
CLASS C:
Net asset value per share ($11,966,385 / 1,485,639 shares
outstanding)*............................................. $8.05
============
Maximum offering price per share ($8.05 / 99.00%).......... $8.13
============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($412,730 / 51,349 shares outstanding).................... $8.04
============
</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, 2000
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $7,171)
Dividends.................................................. $ 67,602
Interest................................................... 12,706,076
------------
Total investment income............................... $ 12,773,678
Expenses:
Management fees (Note 4)................................... 759,639
Administrative fees (Note 4)............................... 227,895
Distribution fees (Note 4)
Class A................................................... 341,818
Class C................................................... 94,313
Transfer agent fees (Note 4)............................... 261,703
Custodian fees............................................. 32,518
Reports to shareholders.................................... 68,931
Registration and filing fees............................... 36,023
Professional fees.......................................... 65,231
Trustees' fees and expenses................................ 30,571
Other...................................................... 1,936
------------
Total expenses........................................ 1,920,578
------------
Net investment income........................... 10,853,100
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (15,899,139)
Foreign currency transactions............................. (156,500)
------------
Net realized loss...................................... (16,055,639)
Net unrealized appreciation (depreciation) on:
Investments............................................... 2,512,574
Translation of assets and liabilities denominated in
foreign currencies...................................... (91,505)
------------
Net unrealized appreciation............................ 2,421,069
------------
Net realized and unrealized loss............................ (13,634,570)
------------
Net decrease in net assets resulting from operations........ $ (2,781,470)
============
</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, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 10,853,100 $ 12,022,661
Net realized gain (loss) from investments and foreign
currency transactions.................................... (16,055,639) 19,329
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 2,421,069 (13,157,946)
-------------------------------
Net decrease in net assets resulting from operations.... (2,781,470) (1,115,956)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (9,561,861) (10,143,914)
Class C.................................................. (958,385) (1,108,554)
Advisor Class............................................ (50,970) (179,587)
Net realized gains:
Class A.................................................. (153,023) (835,181)
Class C.................................................. (17,062) (98,495)
Advisor Class............................................ (1,226) (7,158)
-------------------------------
Total distributions to shareholders........................ (10,742,527) (12,372,889)
Beneficial share transactions (Note 3):
Class A.................................................. (20,312,928) (31,043,022)
Class C.................................................. (4,145,377) (1,555,156)
Advisor Class............................................ (792,188) (10,144,875)
-------------------------------
Total beneficial share transactions........................ (25,250,493) (42,743,053)
Net decrease in net assets.............................. (38,774,490) (56,231,898)
Net assets:
Beginning of year.......................................... 165,400,125 221,632,023
-------------------------------
End of year................................................ $126,625,635 $165,400,125
===============================
Undistributed net investment income included in net assets:
End of year................................................ $ 244,634 $ --
===============================
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT 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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
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.
19
<PAGE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. 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.
e. 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. MERGER WITH TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
On October 21, 1999, the Fund acquired all of the net assets of the Templeton
Americas Government Securities Fund pursuant to a plan of reorganization
approved by the Templeton Americas Government Securities Fund's shareholders.
The merger was accomplished by a tax-free exchange of 1,947,905 Class A shares
(valued at $8.78 per share) for the net assets of the Templeton Americas
Government Securities Fund, which aggregated $17,102,608, including $(1,480,591)
of unrealized depreciation. The combined net assets of the Fund immediately
after the merger were $176,515,833.
3. BENEFICIAL SHARES
The Fund offers three classes of shares: Class A, Class C, and Advisor Class
shares. Effective January 1, 1999, Class I and Class II shares were renamed
Class A and Class C, respectively. The shares differ by their initial sales
load, distribution fees, voting rights on matters affecting a single class of
shares and the exchange privilege of each class.
At August 31, 2000, there were an unlimited number of shares of beneficial
interest authorized ($.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold............................................. 4,856,098 $ 41,533,584 7,334,312 $ 69,058,663
Shares issued on reinvestment of distributions.......... 816,148 6,892,717 859,601 8,035,267
Shares issued on merger (Note 2)........................ 1,947,905 17,102,608 -- --
Shares redeemed......................................... (10,069,615) (85,841,837) (11,546,052) (108,136,952)
----------------------------------------------------------------
Net decrease............................................ (2,449,464) $(20,312,928) (3,352,139) $ (31,043,022)
----------------------------------------------------------------
</TABLE>
20
<PAGE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
3. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold............................................. 307,863 $ 2,652,496 561,727 $ 5,324,535
Shares issued on reinvestment of distributions.......... 95,814 810,511 111,143 1,040,014
Shares redeemed......................................... (888,954) (7,608,384) (849,404) (7,919,705)
----------------------------------------------------------------
Net decrease............................................ (485,277) $ (4,145,377) (176,534) $ (1,555,156)
================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold............................................. 13,235 $ 114,687 223,677 $ 2,157,693
Shares issued on reinvestment of distributions.......... 3,164 27,167 8,389 78,938
Shares redeemed......................................... (108,231) (934,042) (1,282,907) (12,381,506)
----------------------------------------------------------------
Net decrease............................................ (91,832) $ (792,188) (1,050,841) $ (10,144,875)
================================================================
</TABLE>
4. 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)
4. 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,
2000, unreimbursed cost were $215,334. Distributors received net commissions on
sales of the Fund's shares and received contingent deferred sales charges for
the year of $6,082 and $34,061, respectively.
5. 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.
At August 31, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $152,970,226 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 323,223
Unrealized depreciation..................................... (29,896,957)
------------
Net unrealized depreciation................................. $(29,573,734)
------------
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of wash sales,
losses realized subsequent to October 31 on the sales of securities and foreign
currencies and foreign currency gains/losses on the sale of debt instruments.
At August 31, 2000, the Fund had deferred capital and foreign currency losses
occurring subsequent to October 31, 1999 of $4,373,382 and $5,974,614,
respectively. For tax purposes, such losses will be reflected in the year ending
August 31, 2001.
22
<PAGE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
5. INCOME TAXES (CONT.)
At August 31, 2000, the Fund had tax basis capital losses of $1,358,720,
including $855,111 from the merger of Templeton Americas Government Securities
Fund described in Note 2, which may be carried over to offset future capital
gains. Such losses expire as follows:
Capital loss carryovers expiring in:
<TABLE>
<S> <C>
2007........................................................ $ 855,111
2008........................................................ 503,609
----------
$1,358,720
----------
</TABLE>
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $239,133,998 and $278,240,946, respectively.
23
<PAGE>
TEMPLETON GLOBAL BOND FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Income
Trust -- Templeton Global Bond Fund (the "Fund") at August 31, 2000, the results
of its operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
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 audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, 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 audits, which included confirmation
of securities at August 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above. The
financial highlights for each of the three years ending August 31, 1998 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 29, 2000
24
<PAGE>
[FRANKLIN TEMPLETON INVESTMENTS LOGO]
Templeton Global Bond Fund
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
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. 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 A00 10/00 [RECYCLED LOGO] Printed on recycled paper
