<PAGE> 1
Templeton Global Bond Fund
Auditors
McGludrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Principal Underwriter:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be preceded or accompanied by the current prospectus of the
Templeton Global Bond Fund, which contains more complete information including
charges and expenses. Like any investment in securities, the Fund's portfolio
will be subject to the risk of loss from market, 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 the risk of such losses should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
[RECYCLE LOGO] TL406 A96 10/96
TEMPLETON
GLOBAL
BOND
FUND
Annual Report
August 31, 1996
[FRANKLIN TEMPLETON LOGO]
<PAGE> 2
TEMPLETON GLOBAL BOND FUND
YOUR FUND'S OBJECTIVE:
The Templeton Global Bond Fund seeks current income, with capital appreciation
and growth of income, through a flexible policy of investing primarily in a
portfolio of debt securities of companies, governments and government agencies
of various nations throughout the world. The Fund also may invest in preferred
stock, common stocks which pay dividends, and income-producing securities
convertible into common stock of such companies.
October 15, 1996
Dear Shareholder:
We are pleased to bring you this annual report of the Templeton Global Bond
Fund, formerly known as the Templeton Income Fund, which covers the 12 months
ended August 31, 1996.* Although global bond markets were subject to
considerable interest rate and currency volatility throughout the fiscal year,
they generally performed well.
In North America, U.S. economic growth slowed during the first half of the
reporting period, but rebounded strongly during the latter half. As the U.S.
economy gained strength, interest rates rose, and the 10-year Treasury bond's
yield climbed from 6.28% on August 31, 1995 to 6.94% on August 31, 1996.
Canada's economy followed a similar growth pattern, but did not rise as
significantly, and Canadian bond yields were not as dramatically affected.
*ON MAY 15, 1996, THE FUND'S NAME WAS CHANGED TO THE TEMPLETON GLOBAL BOND FUND,
AS MENTIONED IN OUR FEBRUARY 29, 1996 SEMI-ANNUAL REPORT.
1
<PAGE> 3
In Europe, unemployment was higher and economic growth was weaker than in the
U.S. Although the growth rate improved toward the end of the period, many
investors appeared to believe that inflation was under control and that,
therefore, European Central Banks would not need to raise interest rates. Steady
progress toward the European Monetary Union (EMU) was an important influence on
European bond markets. Efforts to meet standards for membership in the EMU have
led to improved fiscal and monetary policies and lower interest rates in many
European countries. During the reporting period, Italy and Spain, in particular,
benefited from falling interest rates, which reduced pressure on their
currencies and diminished the carrying costs of their large debts. Consequently,
their bond markets were among the strongest in Europe.
In the Pacific Rim region, Australia's bond market strengthened due to improved
economic fundamentals and moderate inflation. Japanese debt securities rose
dramatically in price during the period, as Japanese authorities lowered
interest rates in order to stimulate domestic economic activity. These lower
interest rates, however, also lessened international demand for the Japanese yen
and it declined significantly relative to the U.S. dollar. From the perspective
of a U.S. dollar-based investor, the decline in the value of a Japanese bond due
to the depreciation of the yen was greater than its price increase. Therefore,
the net return of these bonds to dollar-based investors was unattractive
relative to returns available in most of the world's other bond markets.
TEMPLETON GLOBAL BOND FUND
Geographic Distribution of Issuers of Securities
Based on Total Net Assets
8/31/96
Europe 41.4%
Canada 9.8%
Australia 9.1%
United States 29.2%
Latin America 6.9%
Asia 3.6%
Bond prices in emerging market countries were strongly influenced by improving
economic conditions in the U.S. The expanding U.S. economy fueled demand for
products of emerging market nations, which, we believe, made it easier for
emerging market debt obligations to be serviced.
2
<PAGE> 4
In our view, another important factor affecting global bond markets was the rise
in value of the U.S. dollar. Because of increased U.S. economic activity and
sluggish European and Japanese economies, interest rates rose higher in the U.S.
than in Europe or Japan. As a result, many investors were attracted to U.S.
dollar-denominated debt securities, and the U.S. dollar rose for much of the
period, which diminished the returns available in foreign-currency bond markets.
Responding to these conditions, we adopted three strategies. First, we
positioned the Fund's average maturity in anticipation of higher U.S. interest
rates. Because we believed that interest rates would rise in the U.S., we sold
longer-maturity U.S. bonds and focused on shorter-maturities to help reduce
interest-rate risk. Second, we decreased our exposure to bonds denominated in
foreign currencies because we believed that most of these currencies were likely
to depreciate versus the U.S. dollar over the course of the period. Third, we
shifted Fund assets from Germany and France to Italy, Spain, Sweden and the
United Kingdom because we felt that the fiscal policies of these countries would
generate higher returns than those available in the German and French markets.
TEMPLETON GLOBAL BOND FUND
Portfolio Breakdown on 8/31/96
Based on Total Net Assets
<TABLE>
<S> <C>
Government Bonds 84.9%
Corporate Bonds 4.4%
Common Stocks 5.3%
Preferred Stocks 1.2%
Short-Term Obligations & Other Net Assets 4.2%
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 11 OF THIS REPORT.
On August 31, 1996, approximately 89.3% of the Fund's portfolio was invested in
bonds, 6.5% in equities, and the remaining 4.2% in short-term obligations and
other net assets. The portfolio consisted primarily of investment-grade
securities, as rated by one of the nationally recognized rating services, or of
non-rated securities we judged to be equivalent in quality. At the end of the
period, about 82.5% of the debt securities in the Fund's portfolio were rated AA
or higher, 7.5% were A or BBB, and 10.0% were below investment grade. The
lower-rated bonds represented obligations of Argentina, Venezuela, Indonesia,
Mexico, and Colombia.
This discussion reflects the strategies we employed for the Fund during the 12
months under review, and includes our opinions as of the close of the period.
3
<PAGE> 5
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings, may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the Fund.
Looking forward, we are optimistic about global bond markets. In our opinion,
worldwide inflation levels should remain stable in the near future, and
deflationary trends in Europe and Japan may result in lower interest rates
around the world. The combination of these factors could lead to improving bond
markets in most developing countries and in European nations currently
exhibiting slow economic growth. However, it is important to remember that there
are special risks involved with global investing such as risks related to
market, currency, economic, social, political, and other factors, in addition to
the heightened risks associated with developing markets and their relatively
small size and lesser liquidity.
We thank you for your participation in the Templeton Global Bond Fund and look
forward to serving your investment needs in the months and years to come.
Sincerely,
/s/ Thomas Latta
- ---------------------------
Thomas Latta
Portfolio Manager
Templeton Global Bond Fund
4
<PAGE> 6
PERFORMANCE SUMMARY
CLASS I
The Templeton Global Bond Fund Class I shares reported a total return of 11.44%
for the one-year period ended August 31, 1996. Total return measures the change
in value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the initial sales charge. While we expect
market volatility in the short term, we have always maintained a long-term
perspective when managing the Fund, and we encourage shareholders to view their
investments in a similar manner. As you can see from the table on page 6, the
Fund delivered a cumulative total return of more than 121% since its inception
on September 18, 1986.
During the reporting period, the price of the Fund's Class I shares, as measured
by net asset value, increased $0.44, from $9.32 on August 31, 1995 to $9.76 on
August 31, 1996, and shareholders received distributions of 58 cents ($0.58) per
share in dividend income and return of capital totaling 2 cents (0.02) per
share. Of course, past performance is not predictive of future results, and
dividends will vary depending on income earned by the Fund.
The graph on page 6 shows how a $10,000 investment in the Fund since its
inception has kept your purchasing power well ahead of inflation, as measured by
the Consumer Price Index (CPI). It also compares the Fund's performance during
the same period with the performance of the unmanaged Salomon Brothers World
Government Bond Index. Please remember that the Fund's performance differs from
that of an index because, among other things, an index is not managed according
to any investment strategy, includes no sales charges or management expenses,
and does not contain cash (the Fund generally carries a certain percentage of
cash at any given time). Of course, one cannot invest directly in an index, and
past performance is not predictive of future results.
5
<PAGE> 7
TEMPLETON GLOBAL BOND FUND - CLASS I
Total Return Index Comparison
$10,000 Investment (9/18/86-8/31/96)
Global Bond Class 1
<TABLE>
<CAPTION>
Date Total Value SB WGB CPI
<S> <C> <C> <C>
9/18/86 $ 9,579 $10,000 $10,000
9/1/86 9,579 9,920 10,018
10/1/86 9,598 9,834 10,027
11/1/86 9,713 10,015 10,036
12/1/86 9,887 10,196 10,045
1/1/87 10,265 10,502 10,109
2/1/87 10,382 10,667 10,145
3/1/87 10,500 10,913 10,191
4/1/87 10,361 11,039 10,246
5/1/87 10,352 10,929 10,282
6/1/87 10,482 10,842 10,318
7/1/87 10,492 10,626 10,345
8/1/87 10,714 10,787 10,399
9/1/87 10,561 10,483 10,453
10/1/87 10,316 11,189 10,481
11/1/87 10,481 11,577 10,490
12/1/87 10,721 12,074 10,490
1/1/88 10,774 12,009 10,517
2/1/88 10,933 12,113 10,545
3/1/88 11,072 12,330 10,590
4/1/88 11,061 12,270 10,645
5/1/88 11,062 12,154 10,681
6/1/88 11,028 11,889 10,727
7/1/88 11,050 11,817 10,772
8/1/88 10,956 11,684 10,817
9/1/88 11,145 11,986 10,890
10/1/88 11,412 12,540 10,926
11/1/88 11,553 12,731 10,935
12/1/88 11,479 12,602 10,953
1/1/89 11,713 12,418 11,008
2/1/89 11,569 12,426 11,053
3/1/89 11,627 12,254 11,117
4/1/89 11,755 12,415 11,189
5/1/89 11,696 12,153 11,253
6/1/89 11,814 12,398 11,280
7/1/89 12,177 12,962 11,307
8/1/89 12,201 12,526 11,325
9/1/89 12,286 12,764 11,362
10/1/89 12,310 12,871 11,416
11/1/89 12,323 12,989 11,444
12/1/89 12,460 13,147 11,462
1/1/90 12,315 12,974 11,580
2/1/90 12,271 12,774 11,634
3/1/90 12,246 12,647 11,698
4/1/90 12,181 12,608 11,717
5/1/90 12,511 13,027 11,744
6/1/90 12,792 13,265 11,807
7/1/90 13,206 13,680 11,852
8/1/90 13,252 13,574 11,961
9/1/90 13,259 13,726 12,062
10/1/90 13,453 14,338 12,134
11/1/90 13,567 14,576 12,161
12/1/90 13,692 14,720 12,161
1/1/91 13,948 15,088 12,234
2/1/91 14,051 15,093 12,252
3/1/91 13,735 14,545 12,271
4/1/91 13,990 14,769 12,289
5/1/91 14,090 14,749 12,326
6/1/91 13,947 14,595 12,362
7/1/91 14,077 14,907 12,380
8/1/91 14,369 15,196 12,416
9/1/91 14,897 15,790 12,471
10/1/91 15,104 15,956 12,489
11/1/91 15,104 16,205 12,526
12/1/91 15,733 17,048 12,534
1/1/92 15,446 16,744 12,553
2/1/92 15,356 16,650 12,598
3/1/92 15,264 16,474 12,663
4/1/92 15,449 16,593 12,680
5/1/92 15,899 17,102 12,698
6/1/92 16,368 17,581 12,744
7/1/92 16,761 17,990 12,771
8/1/92 16,791 18,494 12,806
9/1/92 16,139 18,679 12,842
10/1/92 16,299 18,171 12,887
11/1/92 16,137 17,882 12,905
12/1/92 16,223 17,989 12,896
1/1/93 16,341 18,302 12,959
2/1/93 16,647 18,663 13,005
3/1/93 16,954 18,950 13,050
4/1/93 17,262 19,350 13,087
5/1/93 17,367 19,544 13,105
6/1/93 17,245 19,503 13,123
7/1/93 17,351 19,557 13,123
8/1/93 17,633 20,146 13,160
9/1/93 17,580 20,386 13,188
10/1/93 17,847 20,351 13,242
11/1/93 17,506 20,207 13,251
12/1/93 17,902 20,378 13,251
1/1/94 18,392 20,541 13,287
2/1/94 17,936 20,408 13,332
3/1/94 17,274 20,379 13,377
4/1/94 17,219 20,402 13,396
5/1/94 17,125 20,222 13,406
6/1/94 16,863 20,513 13,451
7/1/94 17,070 20,677 13,487
8/1/94 17,241 20,605 13,541
9/1/94 17,184 20,753 13,578
10/1/94 17,376 21,085 13,587
11/1/94 17,260 20,795 13,605
12/1/94 17,260 20,853 13,605
1/1/95 17,300 21,291 13,660
2/1/95 17,576 21,836 13,714
3/1/95 17,715 23,133 13,759
4/1/95 18,134 23,561 13,805
5/1/95 18,716 24,225 13,832
6/1/95 18,756 24,368 13,860
7/1/95 18,958 24,427 13,860
8/1/95 19,061 23,586 13,896
9/1/95 19,429 24,112 13,924
10/1/95 19,779 24,291 13,970
11/1/95 19,966 24,565 13,960
12/1/95 20,403 24,823 13,950
1/1/96 20,487 24,518 14,033
2/1/96 20,339 24,393 14,078
3/1/96 20,382 24,359 14,151
4/1/96 20,487 24,261 14,206
5/1/96 20,615 24,266 14,233
6/1/96 20,895 24,458 14,242
7/1/96 20,959 24,927 14,269
8/1/96 21,241 25,024 14,296
</TABLE>
1. INCLUDES ALL SALES CHARGES AND REPRESENTS THE CHANGE IN VALUE OF AN
INVESTMENT OVER THE PERIOD SHOWN, ASSUMING REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
2. INDEX IS UNMANAGED AND INCLUDES REINVESTED DIVIDENDS.
3. SOURCE: U.S. BUREAU OF LABOR STATISTICS.
TEMPLETON GLOBAL BOND FUND - CLASS I
Periods Ended 8/31/96
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year (9/18/86)
<S> <C> <C> <C>
Cumulative
Total Return(1) 11.44% 47.83% 121.75%
Average Annual
Total Return(2) 6.74% 7.18% 7.86%
</TABLE>
1. CUMULATIVE TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE INDICATED PERIODS, AND DOES NOT INCLUDE THE INITIAL SALES CHARGE.
2. AVERAGE ANNUAL TOTAL RETURN REPRESENTS THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE INDICATED PERIODS, AND INCLUDES THE CURRENT, MAXIMUM
4.25% INITIAL SALES CHARGE.
ALL CALCULATIONS ASSUME REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS WHEN PAID.
PRIOR TO JULY 1, 1994, FUND SHARES WERE OFFERED AT A HIGHER INITIAL SALES
CHARGE. THUS, ACTUAL TOTAL RETURN TO PURCHASERS OF SHARES DURING THAT PERIOD
WOULD HAVE BEEN SOMEWHAT LOWER THAN NOTED ABOVE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCIES, AND THE
ECONOMIC AND POLITICAL CLIMATES IN COUNTRIES IN WHICH INVESTMENTS ARE MADE, SO
THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR INITIAL
COST. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
Under section 854(b)(2) of the Internal Revenue Code, the Templeton Global Bond
Fund hereby designates 3.02% of its ordinary income dividends paid by the Fund
during the fiscal year ended August 31, 1996, as income qualifying for the
corporate dividends received deduction.
6
<PAGE> 8
PERFORMANCE SUMMARY
CLASS II
The Templeton Global Bond Fund Class II shares reported a total return of 11.20%
for the one-year period ended August 31, 1996. Total return measures the change
in value of an investment, assuming reinvestment of dividends, and does not
include the initial sales charge.
During the reporting period, the price of the Fund's Class II shares, as
measured by net asset value, increased $0.46, from $9.31 on August 31, 1995 to
$9.77 on August 31, 1996. During this time, shareholders received distributions
of 53.95 cents ($0.5395) per share in dividend income and return of capital
totaling 2 cents (0.02) per share. Of course, past performance is not predictive
of future results, and dividends will vary depending on income earned by the
Fund.
The graph on page 8 shows how a $10,000 investment in the Fund since its
inception has kept your purchasing power well ahead of inflation, as measured by
the Consumer Price Index (CPI). It also compares the Fund's performance during
the same period with the performance of the unmanaged Salomon Brothers World
Government Bond Index. Please remember that the Fund's performance differs from
that of an index because, among other things, an index is not managed according
to any investment strategy, includes no sales charges or management expenses,
and does not contain cash (the Fund generally carries a certain percentage of
cash at any given time). Of course, one cannot invest directly in an index, and
past performance is not predictive of future results.
7
<PAGE> 9
TEMPLETON GLOBAL BOND FUND-CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95-8/31/96)
Global Bond Class 2
<TABLE>
<CAPTION>
Date Total Value SB WGB CPI
<S> <C> <C> <C>
5/1/95 $ 9,902 $10,000 $10,000
5/31/95 10,209 10,282 10,020
6/30/95 10,229 10,343 10,040
7/31/95 10,337 10,367 10,040
8/31/95 10,377 10,011 10,066
9/30/95 10,585 10,234 10,086
10/31/95 10,772 10,310 10,120
11/30/95 10,869 10,426 10,112
12/31/95 11,103 10,536 10,105
1/31/96 11,156 10,406 10,165
2/29/96 11,084 10,353 10,198
3/31/96 11,103 10,339 10,251
4/30/96 11,145 10,297 10,291
5/31/96 11,199 10,299 10,310
6/30/96 11,347 10,381 10,316
7/31/96 11,379 10,580 10,336
8/31/96 11,440 10,621 10,356
</TABLE>
1. INCLUDES ALL SALES CHARGES AND REPRESENTS THE CHANGE IN VALUE OF AN
INVESTMENT OVER THE PERIOD SHOWN, ASSUMING REINVESTMENT OF DIVIDENDS. PAST
PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
2. INDEX IS UNMANAGED AND INCLUDES REINVESTED DIVIDENDS.
3. SOURCE: U.S. BUREAU OF LABOR STATISTICS.
TEMPLETON GLOBAL BOND FUND - CLASS II
Periods Ended 8/31/96
<TABLE>
<CAPTION>
Since
Inception
One-Year (5/1/95)
<S> <C> <C>
Cumulative
Total Return(1) 11.20% 16.53%
Average Annual
Total Return(2) 9.14% 10.59%
</TABLE>
1. CUMULATIVE TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE INDICATED PERIODS. IT DOES NOT INCLUDE SALES CHARGES.
2. AVERAGE ANNUAL TOTAL RETURN REPRESENTS THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE INDICATED PERIODS. IT INCLUDES THE 1.0% INITIAL SALES
CHARGE AND THE 1.0% CONTINGENT DEFERRED SALES CHARGE, APPLICABLE TO SHARES
REDEEMED WITHIN THE FIRST 18 MONTHS OF INVESTMENT.
ALL CALCULATIONS ASSUME REINVESTMENT OF DIVIDENDS WHEN PAID. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCIES AND THE
ECONOMIC AND POLITICAL CLIMATES IN COUNTRIES IN WHICH INVESTMENTS ARE MADE, SO
THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR INITIAL
COST. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
Under section 854(b)(2) of the Internal Revenue Code, the Templeton Global Bond
Fund hereby designates 3.02% of its ordinary income dividends paid by the Fund
during the fiscal year ended August 31, 1996, as income qualifying for the
corporate dividends received deduction.
8
<PAGE> 10
TEMPLETON GLOBAL BOND FUND
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE -- CLASS I
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------------------------
1996 1995 1994+ 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.32 $ 9.05 $ 9.96 $ 10.55 $ 9.81
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .69 .73 .72 .82 .83
Net realized and unrealized gain (loss) .35 .17 (.91) (.35) .75
-------- -------- -------- -------- --------
Total from investment operations 1.04 .90 (.19) .47 1.58
-------- -------- -------- -------- --------
Distributions:
Dividends from net investment income (.58) (.54) (.53) (.76) (.84)
Distributions from net realized gains -- -- (.07) (.30) --
Tax basis return of capital (.02) (.09) (.12) -- --
-------- -------- -------- -------- --------
Total distributions (.60) (.63) (.72) (1.06) (.84)
-------- -------- -------- -------- --------
Change in net asset value .44 .27 (.91) (.59) .74
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.76 $ 9.32 $ 9.05 $ 9.96 $ 10.55
======== ======== ======== ======== ========
TOTAL RETURN* 11.44% 10.43% (2.01)% 5.00% 16.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $185,596 $191,301 $205,482 $206,667 $179,799
Ratio of expenses to average net assets 1.13% 1.18% 1.18% 1.01% 0.98%
Ratio of net investment income to average net assets 7.09% 7.99% 7.50% 8.45% 8.14%
Portfolio turnover rate 109.40% 101.12% 139.23% 266.93% 233.93%
</TABLE>
* TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
+ BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING.
9
<PAGE> 11
TEMPLETON GLOBAL BOND FUND
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE -- CLASS II
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1995+
YEAR ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1995
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.31 $ 9.05
-------- --------
Income from investment operations:
Net investment income .61 .21
Net realized and unrealized gain .41 .24
-------- --------
Total from investment operations 1.02 .45
-------- --------
Distributions:
Dividends from net investment income (.54) (.15)
Tax basis return of capital (.02) (.04)
-------- --------
Total distributions (.56) (.19)
-------- --------
Change in net asset value .46 .26
-------- --------
Net asset value, end of period $ 9.77 $ 9.31
======== ========
TOTAL RETURN* 11.20% 5.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 6,563 $ 2,043
Ratio of expenses to average net assets 1.56% 1.57%**
Ratio of net investment income to average net assets 6.69% 7.47%**
Portfolio turnover rate 109.40% 101.12%
</TABLE>
* TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
+ COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 12
TEMPLETON GLOBAL BOND FUND
Investment Portfolio, August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY * COUNTRY ISSUE VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
BONDS--CORPORATE: 4.4%
- -------------------------------------------------------------------------------------------------------------------------
2,000,000 U.S. Banco de Galicia y Buenos Aires SA, 9.00%, 11/01/03 $ 1,770,000
4,000,000 U.S. Compania Sud Americana de Vapores SA, 7.375%, 12/08/03 3,770,000
2,250,000 U.S. PIV Investment Finance (Cayman) Ltd., 4.50%, conv., 12/01/00 1,912,500
1,000,000 U.S. Pohang Iron & Steel, 6.625%, 7/01/03 947,850
------------
TOTAL BONDS--CORPORATE (cost $8,708,491) 8,400,350
- -------------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES: 84.9%
- -------------------------------------------------------------------------------------------------------------------------
9,195,000,000 Itl. Buoni Poliennali del Tes, 9.50%, 12/01/97 6,140,241
3,950,000,000 Itl. Buoni Poliennali del Tes, 8.50%, 8/01/99 2,611,859
6,040,000,000 Itl. Buoni Poliennali del Tes, 10.50%, 11/01/00 4,233,415
1,973,000 U.S. Essar Gujarat Ltd., 8.099%, FRN, 7/15/99, 144A 1,908,877
15,590,000 Aus. Government of Australia, 7.00%, 4/15/00 12,192,521
Government of Canada:
6,350,000 Can. 8.50%, 4/01/02 4,995,763
4,000,000 Can. 8.00%, 6/01/23 2,945,884
Government of Denmark:
10,238,000 Dem. 9.00%, 11/15/98 1,941,801
20,769,000 Dem. 8.00%, 5/15/03 3,865,816
Government of Italy:
3,265,000,000 Itl. 12.00%, 1/01/97 2,170,474
4,000,000,000 Itl. 12.00%, 1/20/98 2,764,681
3,005,000,000 Itl. 11.60%, 8/01/99 2,011,353
555,000,000 Itl. 10.50%, 7/15/00 388,520
Government of Spain:
400,000,000 Sp. 11.60%, 1/15/97 3,238,506
931,870,000 Sp. 12.25%, 3/25/00 8,423,494
374,300,000 Sp. 11.30%, 1/15/02 3,366,383
Kingdom of Denmark:
21,980,000 Dem. 9.00%, 11/15/00 4,275,704
21,472,000 Dem. 8.00%, 11/15/01 4,036,090
Sek. Kingdom of Sweden, 13.00%, 6/15/01 3,842,364
Province of British Columbia:
3,000,000 Can. 7.75%, 6/16/03 2,267,650
5,000,000 Can. 8.50%, 8/23/13 3,854,854
2,000,000 U.S. PT Astra International, 9.75%, 4/29/01 2,070,000
3,000,000 Can. Province of Ontario, 8.00%, 3/11/03 2,296,739
3,000,000 Can. Province of Quebec, 9.25%, 4/01/02 2,410,502
Republic of Argentina:
3,000,000 U.S. 8.375%, 12/20/03 2,557,500
905,000 U.S. 5.25%, 3/31/23 485,306
15,590,000 Aus. Republic of Australia, 12.00%, 11/15/01 5,233,414
2,500,000 Col. Republic of Colombia, 7.25%, 2/23/04 2,281,250
</TABLE>
11
<PAGE> 13
TEMPLETON GLOBAL BOND FUND
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY * COUNTRY ISSUE VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES: (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
7,545,000 Ger. Republic of Germany, 8.00%, 7/22/02 $ 5,682,267
1,320,000 Irl. Republic of Ireland, 6.25%, 10/18/04 1,976,930
United Kingdom:
2,280,000 U.K. 12.00%, 11/20/98 3,958,024
4,725,000 U.K. 9.50%, 10/25/04 8,140,243
2,380,000 U.K. 10.25%, 11/22/99 4,059,255
500,000 U.S. United Mexican States, 9.75%, 2/06/01 504,375
6,885,000 U.S. U.S. Treasury Bond, 6.375%, 8/15/02 6,748,402
U.S. Treasury Notes:
21,895,000 U.S. 6.125%, 7/21/00 21,491,256
10,090,000 U.S. 6.25%, 8/31/00 9,938,650
2,500,000 U.S. Venezuela Front Load Interest Reduction Bond, A, 3/31/07 1,926,563
------------
TOTAL BONDS--GOVERNMENT & GOVERNMENT AGENCIES (cost $164,615,366) 163,236,926
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES**
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 5.3%
- -------------------------------------------------------------------------------------------------------------------------
999,667 U.S. +Acadia Partners LP 998,267
96,000 U.S. American Health Properties Inc. 2,100,000
108,000 U.S. Long Island Lighting Co. 1,863,000
68,000 U.S. Meditrust Inc. 2,329,000
333 U.S. +Penobscot Partners LP 3,665
70,000 U.S. Texas Utilities Electric Co. 2,870,000
------------
TOTAL COMMON STOCKS (cost $10,160,740) 10,163,932
- -------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 1.2%
- -------------------------------------------------------------------------------------------------------------------------
9,600 U.S. American Health Properties Psychiatric Group, pfd. 132,000
91,700 U.S. Santander Finance Ltd., B, pfd. 2,154,950
------------
TOTAL PREFERRED STOCKS (cost $2,218,671) 2,286,950
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
TEMPLETON GLOBAL BOND FUND
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY* COUNTRY ISSUE VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 1.7%
- -------------------------------------------------------------------------------------------------------------------------
260,000 U.S. Federal Home Loan Mortgage Corp. 6.00%, 9/03/96 $ 260,000
175,000 U.S. Federal National Mortgage Association, 5.25%, 9/11/96 174,790
696,000 U.S. Generale Bank, 5.125%, 9/03/96 696,000
2,096,000 U.S. U.S. Treasury Bills, 4.91% to 5.08% with maturities to 12/12/96 2,088,606
------------
TOTAL SHORT TERM OBLIGATIONS (cost $3,218,468) 3,219,396
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 97.5% (cost $188,921,736) 187,307,554
UNREALIZED GAIN ON FORWARD EXCHANGE CONTRACTS 20,350
OTHER ASSETS, LESS LIABILITIES: 2.5% 4,831,038
------------
TOTAL NET ASSETS: 100.0% $192,158,942
============
</TABLE>
* CURRENCY OF COUNTRIES INDICATED.
** COUNTRY OF ORIGIN INDICATED.
+ NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 15
TEMPLETON GLOBAL BOND FUND
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $188,921,736) $187,307,554
Cash 25,362
Receivables:
Fund shares sold 904,396
Interest and dividends 4,333,081
Unrealized gains in forward exchange
contracts (Note 5) 58,979
------------
Total assets 192,629,372
------------
Liabilities:
Payable for fund shares redeemed 181,048
Unrealized loss in forward
exchange contracts (Note 5) 38,629
Accrued expenses 250,753
------------
Total liabilities 470,430
------------
Net assets, at value $192,158,942
============
Net assets consist of:
Net unrealized depreciation $ (1,568,842)
Accumulated net realized loss (3,351,051)
Net capital paid in on shares of
beneficial interest 197,078,835
------------
Net assets, at value $192,158,942
============
Class I
Net asset value per share
($185,596,462 / 19,015,037
shares outstanding) $ 9.76
============
Maximum offering price
($9.76 / 95.75%) $ 10.19
============
Class II
Net asset value per share
($6,562,480 / 671,960
shares outstanding) $ 9.77
============
Maximum offering price
($9.77 / 99.00%) $ 9.87
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1996
<TABLE>
<S> <C> <C>
Investment Income
(net of $303,470
foreign taxes withheld):
Interest $15,184,186
Dividends 725,468
-----------
Total income $15,909,654
Expenses:
Management fees (Note 3) 968,182
Administrative fees (Note 3) 278,143
Distribution fees (Note 3)
Class I shares 418,096
Class II shares 25,585
Transfer agent fees (Note 3) 248,000
Custodian fees 37,136
Reports to shareholders 126,000
Audit fees 34,500
Legal fees (Note 3) 10,000
Registration and filing fees 35,900
Trustees' fees and expenses 16,500
Other 583
-----------
Total expenses 2,198,625
-----------
Net investment income 13,711,029
Realized and unrealized gain
(loss):
Net realized gain (loss) on:
Investments 948,102
Foreign currency
transactions including
currency options (1,111,717)
-----------
(163,615)
-----------
Net unrealized appreciation
on:
Investments 7,472,895
Foreign currency
translations of other
assets and liabilities 55,648
-----------
7,528,543
-----------
Net realized and
unrealized gain 7,364,928
-----------
Net increase in net assets
resulting from operations $21,075,957
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 16
TEMPLETON GLOBAL BOND FUND
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 13,711,029 $ 15,815,724
Net realized loss from security and foreign currency transactions (163,615) (6,288,764)
Net unrealized appreciation 7,528,543 9,899,060
------------ ------------
Net increase in net assets resulting from operations 21,075,957 19,426,020
Distributions to shareholders:
From net investment income
Class I (11,385,814) (11,763,904)
Class II (224,274) (15,280)
Tax basis return of capital
Class I (377,284) (1,970,755)
Class II (7,432) (4,562)
Capital share transactions (Note 2)
Class I (14,645,026) (19,854,728)
Class II 4,379,078 2,044,452
------------ ------------
Net decrease in net assets (1,184,795) (12,138,757)
Net assets:
Beginning of year 193,343,737 205,482,494
------------ ------------
End of year $192,158,942 $193,343,737
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 17
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Global Bond Fund (the Fund), formerly Templeton Income Fund, is a
separate series of Templeton Income Trust (the Trust), a Massachusetts Business
Trust, which is an open-end, non-diversified management investment company,
registered under the Investment Company Act of 1940. The Fund seeks current
income with capital appreciation and growth of income through a flexible policy
of investing in debt securities, governments and government agencies of various
nations throughout the world. The following summarizes the Fund's significant
accounting policies.
A. SECURITIES VALUATIONS:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal exchange
on which the securities are traded. Over-the-counter securities and listed
securities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and
approved in good faith by the Board of Trustees.
B. FOREIGN EXCHANGE CONTRACTS:
The Fund enters into forward exchange contracts and currency option contracts in
order to hedge against foreign exchange risks.
(i) Forward Exchange Contracts: These contracts are valued daily and the Fund's
equity therein, representing unrealized gain or loss on the contracts, is
included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option expires,
the premium (original option value) is realized as a gain if the option was
written or realized as a loss if the option was purchased. When the exercise of
an option results in a cash settlement, the difference between the premium and
the settlement proceeds is realized as a gain or loss. When securities are
acquired or delivered upon exercise of an option, the acquisition cost or sale
proceeds are adjusted by the amount of the premium. When an option is closed,
the difference between the premium and the cost to close the position is
realized as a gain or loss.
C. INDEXED SECURITIES:
The Fund may invest in debt instruments in which the principal and/or interest
is dependent on another factor such as a yield curve, currency exchange rates or
commodity prices. The Fund's objective in holding these securities, commonly
called structured notes, is to tailor the Fund's investments to the specific
risk and returns it wishes to assume while avoiding unwanted risk or change the
Fund's exposure to a particular foreign exchange rate or the spread between two
foreign exchange rates.
D. FOREIGN CURRENCY TRANSACTIONS:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
enters into foreign exchange contracts to minimize foreign exchange risk between
the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest,
16
<PAGE> 18
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
and foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities resulting from changes in the
exchange rates.
E. FUTURES CONTRACTS:
The Fund may enter into futures contracts and options written on futures
contracts in order to hedge against risks from changes in interest rates. These
futures contracts and options written on futures contracts are valued daily and
the Fund's equity therein, representing unrealized gain or loss on the contract,
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations. Margin deposits of
cash or securities required with respect to contracts traded on exchanges are
maintained by the Fund's custodian in segregated accounts. Variation margin
payments are made or received on futures as appreciation or depreciation in the
contracts occurs each week.
F. INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
G. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND EXPENSES:
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Certain dividend 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,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
H. 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. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Fund offers two classes of shares: Class I and Class II Shares. Shares of
each class are identical except for their initial sales load, a contingent
deferred sales charge on Class II shares, distribution fees, and voting rights
on matters affecting a single class. At August 31, 1996, 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>
CLASS I
---------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 3,539,465 $ 34,194,502 3,800,472 $ 34,199,533
Shares issued on reinvestment of distributions 841,801 8,104,725 1,045,727 9,400,075
Shares redeemed (5,902,799) (56,944,253) (7,025,706) (63,454,336)
---------- ------------ ---------- ------------
Net decrease (1,521,533) $(14,645,026) (2,179,507) $(19,854,728)
========== ============ ========== ============
</TABLE>
17
<PAGE> 19
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS II
--------------------------------------------
FOR THE PERIOD
MAY 1, 1995
YEAR ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1995
--------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold 584,301 $ 5,648,608 243,599 $2,270,114
Shares issued on reinvestment of distributions 18,544 179,041 1,611 14,937
Shares redeemed (150,240) (1,448,571) (25,855) (240,599)
---------- ------------ ---------- ------------
Net increase 452,605 $ 4,379,078 219,355 $2,044,452
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
The Fund pays monthly an investment management fee to TICI equal, on annual
basis, to 0.50% of the average daily net assets of the Fund up to $200 million,
reduced to 0.45% of such average daily net assets in excess of $200 million and
further reduced to 0.40% of such average net assets in excess of $1.3 billion.
The Fund pays TGII monthly its allocated share of an administrative fee of 0.15%
per annum on the first $200 million of the Trust's average daily net assets,
0.135% of the next $500 million, and 0.10% of the next $500 million and 0.075%
per annum of such average net assets in excess of $1.2 billion. For the year
ended August 31, 1996, FTD received net commissions of $21,650 and FTIS received
fees of $248,000.
Under the distribution plans for Class I and Class II shares, the Fund
reimburses FTD monthly, for FTD's cost and expenses in connection with any
activity which is primarily intended to result in sales of Fund shares, subject
to a maximum of 0.25% and 0.65% per annum of the average daily net assets of
Class I and Class II shares, respectively. Under the Class I distribution plan
costs and expenses exceeding the maximum may be reimbursed in subsequent
periods. At August 31, 1996, unreimbursed expenses amounted to $3,416. Class II
shares redeemed within 18 months are subject to a contingent deferred sales
charge. Contingent deferred sales charges of $1,894 were paid during the year
ended August 31, 1996.
An officer of the Trust is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $10,000 for the year ended August 31,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1996, aggregated $199,641,810 and $206,358,720, respectively.
The cost of securities for federal income tax purposes is $188,923,525. Realized
gains and losses are reported on an identified cost basis.
At August 31, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 3,319,342
Unrealized depreciation (4,935,313)
-----------
Net unrealized depreciation $(1,615,971)
===========
</TABLE>
18
<PAGE> 20
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
During the year ended August 31, 1996, the Fund has been a party to financial
instruments with off-balance sheet risks, primarily forward exchange contracts,
in order to minimize the risk to the Fund, with respect to its portfolio
transactions, from adverse changes in the relationship between the U.S. dollar
and foreign currencies and interest rates. These instruments involve market risk
in excess of the amount recognized on the Statement of Assets and Liabilities.
Some of 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 and interest rates and contract
positions that are not exact offsets. The contract amount indicates the extent
of the Fund's involvement in such contracts.
Forwards: A forward exchange contract is an agreement between two parties to
exchange different currencies at a specific rate at an agreed future date.
At August 31, 1996, the Fund had outstanding forward exchange contracts for the
purchase and sale of currencies as set out below. These contracts are reported
in the financial statements at the Fund's net equity, as measured by the
difference between the forward exchange rates at the reporting date and the
forward exchange rates at the date of entry into the contract:
<TABLE>
<S> <C>
Unrealized gain on offsetting forward exchange contracts $ 58,979
Unrealized loss on offsetting forward exchange contracts (38,629)
--------
Net unrealized gain on forward exchange contracts $ 20,350
========
</TABLE>
6. TAX LOSS CARRYOVERS
At August 31, 1996, the Fund had tax basis capital losses of $2,300,000 which
may be carried over to offset future capital gains. Such losses expire in 2003.
19
<PAGE> 21
TEMPLETON GLOBAL BOND FUND
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Global Bond Fund -- Templeton Income Trust
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Global Bond Fund, a series of Templeton
Income Trust, as of August 31, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated in the accompanying financial statements. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Global Bond Fund as of August 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
[McGladrey & Pullen, LLP]
New York, New York
September 27, 1996
20
<PAGE> 22
NOTES
-----
<PAGE> 23
LITERATURE REQUEST
- --------------------------------------------------------------------------------
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send 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 INCOME
Franklin Global Health Franklin Adjustable Rate
Care Fund Securities Fund
Franklin Templeton Franklin Adjustable U.S.
Japan Fund Government Securities Fund
Templeton Developing Franklin's AGE High
Markets Trust Income Fund
Templeton Foreign Fund Franklin Investment Grade
Templeton Foreign Smaller Income Fund
Companies Fund Franklin Short-Intermediate U.S.
Templeton Global Government Securities Fund
Infrastructure Fund Franklin U.S. Government
Templeton Global Securities Fund
Opportunities Trust Franklin Money Fund
Templeton Global Franklin Federal Money Fund
Real Estate Fund
Templeton Global Smaller FOR NON-U.S. INVESTORS:
Companies Fund
Templeton Greater Franklin Tax-Advantaged
European Fund High Yield Securities Fund
Templeton Growth Fund Franklin Tax-Advantaged
Templeton Latin America International Bond Fund
Fund Franklin Tax-Advantaged U.S.
Templeton Pacific Government Securities Fund
Growth Fund
Templeton World Fund FOR CORPORATIONS:
GLOBAL GROWTH AND INCOME Franklin Corporate Qualified
Dividend Fund
Franklin Global Utilities Fund
Franklin Templeton German FRANKLIN FUNDS SEEKING
Government Bond Fund TAX-FREE INCOME
Franklin Templeton
Global Currency Fund Federal Intermediate-Term
Templeton Global Bond Fund Tax-Free Income Fund
Templeton Growth and Federal Tax-Free Income Fund
Income Fund High Yield Tax-Free
Income Fund
GLOBAL INCOME Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Franklin Global Government Income Fund
Income Fund Tax-Exempt Money Fund
Franklin Templeton Hard
Currency Fund FRANKLIN STATE-SPECIFIC
Franklin Templeton High FUNDS SEEKING
Income Currency Fund TAX-FREE INCOME
Templeton Americas
Government Securities Fund Alabama
Arizona*
GROWTH Arkansas**
California*
Franklin Blue Chip Fund Colorado
Franklin California Growth Fund Connecticut
Franklin DynaTech Fund Florida*
Franklin Equity Fund Georgia
Franklin Gold Fund Hawaii**
Franklin Growth Fund Indiana
Franklin MidCap Growth Fund Kentucky
Franklin Small Cap Growth Fund Louisiana
Maryland
GROWTH AND INCOME Massachusetts***
Michigan*
Franklin Asset Allocation Fund Minnesota***
Franklin Balance Sheet Missouri
Investment Fund New Jersey
Franklin Convertible New York*
Securities Fund North Carolina
Franklin Equity Income Fund Ohio***
Franklin Income Fund Oregon
Franklin MicroCap Value Fund Pennsylvania
Franklin Natural Resources Fund Tennessee**
Franklin Real Estate Texas
Securities Fund Virginia
Franklin Rising Dividends Fund Washington**
Franklin Strategic Income Fund
Franklin Utilities Fund VARIABLE ANNUITIES
Franklin Value Fund
Templeton American Trust, Inc. Franklin Valuemark(SM)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities. 10/96.1
