<PAGE> 1
Templeton Global Governments Income Trust
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Auditors
McGludrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
[RECYCLED LOGO] TLTGG A96 10/96 [GRAPHIC]
TEMPLETON
GLOBAL
GOVERNMENTS
INCOME
TRUST
Annual Report
August 31, 1996
[FRANKLIN TEMPLETON LOGO]
<PAGE> 2
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
YOUR FUND'S OBJECTIVE:
The Templeton Global Governments Income Trust seeks current income, with
capital appreciation and growth of income, by investing primarily in a
portfolio of debt securities of governments and government agencies of various
nations throughout the world.
October 15, 1996
Dear Shareholder:
We are pleased to bring you this annual report of the Templeton Global
Governments Income Trust, 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.
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
1
<PAGE> 3
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 GOVERNMENTS INCOME TRUST
Geographic Distribution of Issuers of Securities
Based on Total Net Assets
8/31/96
Europe 38.4%
United States 30.3%
Latin America 13.4%
Australia & New Zealand 9.2%
Canada 7.9%
Asia 0.8%
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.
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
2
<PAGE> 4
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.
On August 31, 1996, approximately 96.4% of the Fund's portfolio was invested in
bonds, and the remaining 3.6% 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 85.5% of the
debt securities in the Fund's portfolio were rated AA or higher, 0.8% were rated
A or BBB, and 13.7% were rated below investment grade. The lower-rated bonds
represented obligations of Argentina, Brazil, India, Mexico, and Venezuela.
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
Portfolio Breakdown on 8/31/96
Based on Total Net Assets
<TABLE>
<S> <C>
Government Bonds 92.2%
Corporate Bonds 4.2%
Short-Term Obligations & Other Net Assets 3.6%
</TABLE>
For a complete list of portfolio holdings, please see page 7 of this report.
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.
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
3
<PAGE> 5
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 Governments Income
Trust and welcome any comments or suggestions you may have.
Sincerely,
/s/ Neil S. Devlin
- ----------------------------------------
Neil S. Devlin, CFA
Portfolio Manager
Templeton Global Governments Income Trust
Neil S. Devlin, CFA, became the principal portfolio manager of the Templeton
Global Governments Income Trust on May 23, 1996. Devlin has been with the
Templeton organization since 1987 and is currently executive vice president and
chief investment officer of the Templeton Global Bond Managers division of
Templeton Investment Counsel, Inc., an indirect wholly owned subsidiary of
Franklin Resources, Inc. He oversees Templeton's fixed-income group and directs
all investment strategies in both the developed and the emerging fixed-income
markets.
4
<PAGE> 6
PERFORMANCE SUMMARY
In market-price terms, the Templeton Global Governments Income Trust produced a
total return of 10.66% for the one-year period ended August 31, 1996. Based on
the change in actual net asset value (in contrast to market price), total return
was 12.95% for the same period. Both total return figures assume reinvestment of
income dividends in accordance with the dividend reinvestment plan.
During the reporting period, shareholders received income dividends totaling 35
cents ($0.35) per share and return of capital totaling 25 cents ($0.25) per
share. The Fund's closing price per share on the New York Stock Exchange (NYSE)
increased 12.5 cents, from $7.00 on August 31, 1995 to $7.125 on August 31,
1996, and the Fund's net asset value per share increased 30 cents, from $7.71 to
$8.01 during the same period. Of course, past performance is not predictive of
future results, and dividends will vary depending on income earned by the Fund,
and any profits realized from the sale of securities in the portfolio.
TEMPLETON GLOBAL GOVERNMENTS
INCOME TRUST
Periods ended August 31, 1996
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year (11/22/88)
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change
in net asset value 12.95% 45.08% 78.38%
Based on change
in market price 10.66% 21.20% 50.10%
Average Annual Total Return(2)
Based on change
in net asset value 12.95% 7.72% 7.73%
Based on change
in market price 10.66% 3.90% 5.40%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
All calculations assume reinvestment of dividend and capital gains
distributions, either at net asset value or at market price on the reinvestment
date, in accordance with the dividend reinvestment plan. Past performance is not
predictive of future results.
5
<PAGE> 7
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(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 $ 7.71 $ 7.56 $ 8.37 $ 9.04 $ 8.54
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .60 .64 .64 .74 .84
Net realized and unrealized gain (loss) .30 .15 (.81) (.55) .50
-------- -------- -------- -------- --------
Total from investment operations .90 .79 (.17) .19 1.34
-------- -------- -------- -------- --------
Distributions:
Dividends from net investment income (.35) (.59) -- (.53) (.84)
Distributions from net realized gains -- -- (.07) (.21) --
Amount in excess of net investment income -- (.05) (.05) (.06) --
Tax basis return of capital (.25) -- (.52) (.06) --
-------- -------- -------- -------- --------
Total distributions (.60) (.64) (.64) (.86) (.84)
-------- -------- -------- -------- --------
Change in net asset value .30 .15 (.81) (.67) .50
-------- -------- -------- -------- --------
Net asset value, end of year $ 8.01 $ 7.71 $ 7.56 $ 8.37 $ 9.04
======== ======== ======== ======== ========
TOTAL RETURN
Based on market value per share 10.66% 15.87% (16.41)% (2.15)% 17.02%
Based on net asset value per share 12.95% 11.92% (1.71)% 2.46% 16.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $183,011 $176,212 $172,586 $190,358 $200,814
Ratio of expenses to average net assets .96% 1.03% 1.06% 1.05% 1.08%
Ratio of net investment income to average net assets 7.50% 8.43% 8.04% 8.83% 9.40%
Portfolio turnover rate 116.55% 111.03% 134.83% 279.24% 306.92%
</TABLE>
+BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 8
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Investment Portfolio, August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY* VALUE
<C> <C> <S> <C>
- ------------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES: 92.2%
- ------------------------------------------------------------------------------------------------------------------------
Buoni Poliennali del Tes:
8,585,000,000 Itl. 9.50%, 12/01/97 $ 5,732,895
3,640,000,000 Itl. 8.50%, 8/01/99 2,406,877
5,680,000,000 Itl. 10.50%, 11/01/00 3,981,092
7,120,000 Dem. Federal Republic of Germany, 8.00%, 7/22/02 5,362,192
Government of Australia:
13,940,000 Aus. 7.00%, 4/15/00 10,902,100
4,910,000 Aus. 12.00%, 11/15/01 4,600,906
418,600 U.S. Government of Brazil, 6.375%, 1/01/01 401,856
Government of Canada:
1,104,000 Can. 10.50%, 3/01/01 926,721
2,550,000 Can. 9.75%, 6/01/21 2,229,222
3,250,000 Can. 8.00%, 6/01/23 2,393,531
Government of Italy:
3,515,000,000 Itl. 12.00%, 1/01/97 2,336,666
4,000,000,000 Itl. 12.00%, 1/20/98 2,764,681
3,230,000,000 Itl. FRN, 8/01/99 2,161,953
Government of Spain:
1,029,930,000 Sp. 12.25%, 3/25/00 9,309,893
344,600,000 Sp. 11.30%, 1/15/02 3,099,267
Kingdom of Denmark:
9,020,000 Den. 9.00%, 11/15/98 1,710,788
22,410,000 Den. 9.00%, 11/15/00 4,359,350
18,918,000 Den. 8.00%, 11/15/01 3,556,015
18,096,000 Den. 8.00%, 5/15/03 3,368,280
8,350,000 Can. Province of British Columbia, 9.85%, 5/01/98 6,537,915
3,000,000 Can. Province of Ontario, 8.00%, 3/11/03 2,296,739
Republic of Argentina:
1,615,000 U.S. 10.95%, 11/01/99 1,673,544
8,420,000 U.S. 8.375%, 12/20/03 7,178,050
4,410,000 U.S. 5.25%, VRN, 3/31/23 2,364,863
1,235,000 Irl. Republic of Ireland, 6.25%, 10/18/04 1,849,628
19,600,000 Swe. Sweden Kingdom, 13.00%, 6/15/01 3,603,365
United Kingdom:
2,055,000 U.K. 12.00%, 11/20/98 3,567,430
2,165,000 U.K. 10.25%, 11/22/99 3,692,557
4,360,000 U.K. 9.50%, 10/25/04 7,511,420
8,445,000 U.S. U.S. Treasury Bonds, 6.375%, 8/15/02 8,277,451
</TABLE>
7
<PAGE> 9
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY* VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES (CONT.)
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes:
24,330,000 U.S. 6.125%, 7/31/00 $ 23,881,355
16,910,000 U.S. 6.25%, 8/31/00 16,656,350
5,755,000 U.S. United Mexican States, 9.75%, 2/06/01 5,805,356
3,000,000 U.S. Venezuela Front Load Interest Reduction Bond, A, 3/31/07 2,311,875
------------
TOTAL BONDS--GOVERNMENT & GOVERNMENT AGENCIES (cost $169,882,043) 168,812,183
- ------------------------------------------------------------------------------------------------------------------------
BONDS--CORPORATE: 4.2%
- ------------------------------------------------------------------------------------------------------------------------
1,500,000 U.S. Dine SA de CV, 8.125%, 10/15/98 1,473,750
1,845,265 U.S. Electricidad de Caracas, FRN, 9/30/03 1,393,175
1,525,000 U.S. Essar Gujarat Ltd., FRN, 7/15/99, 144A 1,475,438
2,000,000 U.S. Perez Companc SA, 8.375%, 7/30/98 1,985,000
1,650,000 Aus. TNT Pacific Finance Ltd., 9.00%, conv., 7/27/98 1,272,604
------------
TOTAL BONDS--CORPORATE (cost $7,426,001) 7,599,967
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 2.2%
- ------------------------------------------------------------------------------------------------------------------------
515,000 U.S. Federal Home Loan Mortgage Corp., 5.24%, 9/12/96 514,320
880,000 U.S. Federal National Mortgage Assn., 5.23% to 5.26% with maturities to 9/12/96 879,208
2,714,000 U.S. U.S. Treasury Bills, 4.91% to 5.08% with maturities to 12/12/96 2,702,595
------------
TOTAL SHORT TERM OBLIGATIONS (cost $4,094,504) 4,096,123
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.6% (cost $181,402,548) 180,508,273
UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 0.1% 18,516
OTHER ASSETS, LESS LIABILITIES: 1.3% 2,483,862
------------
TOTAL NET ASSETS: 100.0% $183,010,651
============
</TABLE>
* CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 10
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $181,402,548) $180,508,273
Cash 1,335
Interest receivable 3,842,219
Unrealized gains on forward exchange
contracts (Note 6) 53,664
------------
Total assets 184,405,491
------------
Liabilities:
Dividends payable 1,142,141
Unrealized loss on forward exchange
contracts (Note 6) 35,148
Accrued expenses 217,551
------------
Total liabilities 1,394,840
------------
Net assets, at value $183,010,651
============
Net assets consist of:
Distributions in excess of net
investment income $ (1,142,142)
Net unrealized depreciation (852,404)
Accumulated net realized loss (2,526,986)
Net capital paid in on shares of
beneficial interest 187,532,183
------------
Net assets, at value $183,010,651
============
Shares outstanding 22,842,821
============
Net asset value per share
($183,010,651 / 22,842,821) $ 8.01
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1996
<TABLE>
<S> <C> <C>
Interest income:
(net of $287,549 foreign
taxes withheld) $15,359,551
Expenses:
Management fees (Note 3) $ 999,135
Administrative fees (Note 3) 454,154
Transfer agent fees (Note 3) 44,500
Custodian fees 21,004
Reports to shareholders 137,900
Audit fees 34,500
Legal fees (Note 3) 2,500
Registration and filing fees 28,850
Trustees' fees and expenses 10,100
Other 6,742
----------
Total expenses 1,739,385
-----------
Net investment income 13,620,166
Realized and unrealized
gain (loss):
Net realized loss on:
Investments (1,263,708)
Foreign currency
transactions (1,139,983)
----------
(2,403,691)
----------
Net unrealized appreciation on:
Investments 9,147,680
Foreign currency
translation of other
assets and liabilities 139,985
----------
9,287,665
----------
Net realized and
unrealized gain 6,883,974
-----------
Net increase in net assets
resulting from operations $20,504,140
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 11
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
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 $ 13,620,166 $ 14,514,565
Net realized loss on investment and foreign currency transactions (2,403,691) (5,503,941)
Net unrealized appreciation 9,287,665 9,120,491
------------ ------------
Net increase in net assets resulting from operations 20,504,140 18,131,115
Distributions to shareholders:
From net investment income (8,073,916) (13,363,049)
Amount in excess of net investment income -- (1,142,142)
Tax basis return of capital (5,631,777) --
------------ ------------
Net increase in net assets 6,798,447 3,625,924
Net assets:
Beginning of year 176,212,204 172,586,280
------------ ------------
End of year $183,010,651 $176,212,204
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 12
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Global Governments Income Trust (the Fund) is a Massachusetts business
trust and a closed-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, by investing primarily in a portfolio
of debt securities of governments and government agencies of various nations
throughout the world. The following summarizes the Fund's significant accounting
policies.
A. SECURITIES VALUATIONS:
Securities, including options, listed or traded on a recognized national or
foreign 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 a foreign exchange contract 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.
11
<PAGE> 13
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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, 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 at the end of the
fiscal period, 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 on a weekly basis as appreciation or
depreciation in the contracts occurs.
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 of 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 a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on 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
As of August 31, 1996, there were an unlimited number of shares of beneficial
interest authorized ($0.01 par value). During the years ended August 31, 1996
and 1995, there were no share transactions.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), and Templeton Global Investors, Inc. (TGII),
the Fund's investment manager and administrative manager, respectively. The Fund
pays monthly an investment management fee to TICI equal, on an annual basis, to
0.55% of the average daily net assets of the Fund up to $200 million and 0.50%
of the average daily net assets in excess of $200 million. The Fund pays TGII
monthly a fee of 0.25% per annum on the Fund's average daily net assets. TGII
has entered into a Sub-Administrator Agreement with Dean Witter Reynolds, Inc.
through its InterCapital Division (DWR InterCapital), whereby DWR InterCapital
provides certain administrative services. For its services, the TGII pays to
InterCapital a fee equal , on an annual basis, to 0.15% of the Fund's average
net assets.
12
<PAGE> 14
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received fees of $2,500 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 $203,411,821 and $200,275,653, respectively.
The cost of securities for federal income tax purposes is the same as that shown
in the investment portfolio. 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 $ 2,722,870
Unrealized depreciation (3,617,145)
-----------
Net unrealized depreciation $ (894,275)
===========
</TABLE>
5. TAX LOSS CARRYOVERS
At August 31, 1996, the Fund had tax basis losses of $1,600,000 which may be
carried over to offset future capital gains. Such losses expire in 2004.
6. 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:
Contracts to sell:
<TABLE>
<S> <C>
Net unrealized gain from offsetting forward exchange contracts $ 53,664
Net unrealized losses from offsetting forward exchange contracts (35,148)
--------
Net unrealized gain in forward exchange contracts $ 18,516
========
</TABLE>
13
<PAGE> 15
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Global Governments Income Trust
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Global Government 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 Governments Income Trust 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
14
<PAGE> 16
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan ( the "Plan") with the following
features: --If shares of the Fund are held in the shareholder's name, the
shareholder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder
instructs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. --Participants should contact Dean Witter Trust
Company, P.O. Box 1040, Jersey City, New Jersey 07303, to receive the Plan
brochure. --To receive dividends or distributions in cash, the shareholder must
notify Dean Witter Trust Company (the "Plan Agent") or the institution in whose
name the shares are held. The Plan Agent must receive written notice within 10
business days before the record date for the distribution. --Whenever the Trust
declares dividends in either cash or common stock of the Trust, if the market
price is equal to or exceeds net asset value at the valuation date (payable
date), participants will receive the dividends entirely in stock at a price
equal to the net asset value but not less than 95% of the then current market
price of the Trust's shares. If the market price is lower than net asset value
and if dividends and/or capital gains distributions are payable only in cash,
the participant will receive shares purchased on the New York Stock Exchange.
- --The automatic reinvestment of dividends and/or capital gains does not relieve
the participant of any income tax which may be payable on dividends or
distributions. --The participant may withdraw from the Plan without penalty at
any time by written notice to the Plan Agent. Upon withdrawal, the participant
will receive, without charge, stock certificates issued in the participant's
name for all full shares; or, if the participant's wishes, the Plan Agent will
sell the participant's shares and send the proceeds, net of any brokerage
commissions. A $5.00 fee is charged by the Plan Agent upon any cash withdrawal
or termination. --Whenever shares are purchased on the New York Stock Exchange,
each participant will pay a pro rata portion of brokerage commissions. Brokerage
commissions will be deducted from amounts to be invested.
15
<PAGE> 17
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
- --------------------------------------------------------------------------------
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center Plaza II
Jersey City, N.J. 07311
SHAREHOLDER INFORMATION
Shares of Templeton Global Governments Income Trust are traded daily on the New
York Stock Exchange under the symbol "TGG." Information about the net asset
value and the market price is published weekly in Barron's and in the Monday
edition of the Wall Street Journal in a section called "Closed-End Bond Funds."
If any shareholder is not receiving copies of the Reports to Shareholders
because shares are registered in a broker's name or in a custodian's name, he or
she can request that his or her name be added to the Trust's mailing list, by
writing Templeton Global Governments Income Trust, 700 Central Avenue, St.
Petersburg, FL 33701.
For information about dividends and shareholder accounts, call 1-800-526-3143.
16
<PAGE> 18
NOTES
-----
<PAGE> 19
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
