<PAGE> 1
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.
April 15, 1997
Dear Shareholder:
We are pleased to bring you this semi-annual report of the Templeton Global
Governments Income Trust, which covers the six months ended February 28, 1997.
During the period under review, interest rates fell in almost all global bond
markets, increasing the value of these fixed-income securities. However, at the
same time, the U.S. dollar rose against most foreign currencies, reducing
returns for U.S. holders of foreign bonds. Since these events affected markets
differently, market selection and currency management were two key factors
affecting the Fund's performance. As discussed in the Performance Summary on
page 5, the Fund provided a six-month total return of 7.81% in market-price
terms and 5.37% in terms of net asset value.
During the summer of 1996, many bond investors feared that strong economic
growth, especially in
1
<PAGE> 2
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Geographic Distribution of Issuers of Securities on 2/28/97
Based on Total New Assets
[PIE CHART]
<TABLE>
<S> <C>
European Stocks 38.8%
United States Stocks 26.3%
Latin American Stocks 14.2%
Australian & New Zealand Stocks 11.8%
Canadian Stocks 8.1%
Asian Stocks 0.8%
</TABLE>
the U.S., would lead to higher interest rates. However, the U.S. Federal Reserve
did not raise interest rates at its September meeting, signaling confidence in
the economy's ability to expand without significant inflation. Reports released
later indicated that U.S. economic growth had, in fact, "slowed" during the
third quarter of 1996. This boosted investors' expectations for bonds, and from
September 1 to the end of the reporting period, bond prices rose, and the yield
on the U.S. ten-year Treasury fell, from nearly 7.00% to approximately 6.5%.(1)
Interest rates in most foreign markets also fell during the period. Attempting
to meet requirements for membership in the European Monetary Union, the French,
Italian, and Spanish governments cut their budgets aggressively, leading to an
even greater interest-rate drop in Europe than in the United States. Italian
ten-year government bond yields declined from 8.32% to 6.38%, while the
equivalent bond yields in France fell from 6.49% to 5.41%. Rates in most other
European countries decreased by a comparable amount. Japan was the only
industrial country where yields fell less than in the U.S. With short-term rates
at approximately 0.3%, Japanese monetary authorities could do little to lower
interest rates in an effort to stimulate their moribund economy.
While the interest-rate environment was generally beneficial for U.S. investors
in global bonds, the foreign exchange market was decidedly less so. Because
interest rates fell by a greater amount in almost all of the industrial world
than in the
1. Source: Federal Reserve Board.
2
<PAGE> 3
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Portfolio Breakdown on 2/28/97
Based on Total Net Assets
<TABLE>
<S> <C>
Government Bonds 88.8%
Corporate Bonds 1.7%
Short-Term Obligations & Other Net Assets 9.5%
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 9 OF THIS REPORT.
SHORT-TERM OBLIGATIONS & OTHER NET ASSETS INCLUDES A 0.2% UNREALIZED GAIN IN
FORWARD EXCHANGE CONTRACTS.
United States, the value of the dollar rose. The strength of the U.S. economy
also enhanced the appeal of the dollar, and only two major currencies
appreciated against it -- the British pound by 4.39% and the Canadian dollar by
0.04%. The currencies of all other major industrial countries declined,
sometimes significantly, versus the dollar. For example, the German mark fell
12.26%, the Japanese yen 9.31%, and the Italian lira 10.79%.
The above factors had a significant impact on the debt securities of emerging
market nations. Their higher yields were extremely attractive to investors, and
in an environment of foreign currency depreciation, their denomination in U.S.
dollars made these securities even more appealing. As a result, bond markets in
emerging market countries performed extremely well.
Responding to these conditions, we maintained our holdings of emerging market
debt, while reducing the Fund's exposure to depreciating foreign currencies. We
decreased our holdings in Spain, from 6.8% to 1.8%; in Denmark, from 7.1% to
3.7%; in Italy, from 10.6% to 8.3%; and in the U.K., from 8.1% to 4.6%. But,
believing that Germany's economy represented a better prospect for meeting
investors' expectations than many of Europe's other economies, we increased our
investment in German bonds, from 2.9% at the beginning of the period, to 16.7%
at the end.
During the six months under review, we made extensive use of currency hedges to
increase our exposure to the U.S. dollar. By the end of the period, our total
exposure to the U.S. dollar represented 59.5% of the Fund, up from 44.5% at the
end of August 1996. We perceive further currency depreciation as a very real
risk in Europe, and will continue hedging the Fund's currency holdings, seeking
to protect the dollar value of the
3
<PAGE> 4
portfolio. Our exposure to interest-rate risk has remained roughly constant over
the period, with the Fund's average bond maturity remaining at 6.1 years.
This discussion reflects the strategies we employed for the Fund during the six
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 guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the Fund.
As always, we remind you that there are special risks involved with global
investing related to market, currency, economic, political, and other factors,
in addition to the heightened risks associated with the relatively small size
and lesser liquidity of developing markets.
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
On February 21, 1997, the Board of Trustees of the Trust authorized management
to implement an open-market share repurchase program pursuant to which the Trust
from time to time at the discretion of management may purchase up to an
aggregate of 2 million shares of the Trust's shares of beneficial interest
(approximately 10% of the shares outstanding on February 18, 1997) in
open-market transactions.
4
<PAGE> 5
PERFORMANCE SUMMARY
In market-price terms, the Templeton Global Governments Income Trust produced a
total return of 7.81% for the six-month period ended February 28, 1997. Based on
the change in actual net asset value (in contrast to market price), the Fund
delivered a total return of 5.37% for the same period. Both total return figures
assume reinvestment of dividends and capital gains in accordance with the
dividend reinvestment plan.
During the reporting period, Templeton Global Governments Income Trust
shareholders received income distributions of 30 cents ($0.30) per share. The
Fund's closing price on the New York Stock Exchange (NYSE) increased 25 cents
($0.25), from $7.125 on August 31, 1996 to $7.375 on February 28, 1997, and the
Fund's net asset value per share increased 13 cents ($0.13), from $8.01 on
August 31, 1996 to $8.14 on February 28, 1997. Of course, past performance is
not predictive of future results, and distributions 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 2/28/97
<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 10.80% 40.88% 87.97%
Based on change
in market price 12.47% 21.47% 61.86%
Average Annual Total Return(2)
Based on change
in net asset value 10.80% 7.10% 7.93%
Based on change
in market price 12.47% 3.97% 6.00%
</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 total return calculations assume reinvestment of distributions at net asset
value or at market price on the reinvestment date, in accordance with the
dividend reinvestment plan. Investment return and principal value will fluctuate
with market conditions, currencies and the political and economic climates of
the countries where investments are made. Emerging markets involve heightened
risks related to the same factors, in addition to those associated with the
relatively small size and lesser liquidity of these markets. You may have a gain
or loss when you sell your shares. Past performance is not predictive of future
results.
5
<PAGE> 6
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
BY PROFESSOR ROBERT HERRMANN
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs
6
<PAGE> 7
have been launched in various locations, with the support of generous local
donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
7
<PAGE> 8
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 28, 1997 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994+ 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.01 $ 7.71 $ 7.56 $ 8.37 $ 9.04 $ 8.54
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income .29 .60 .64 .64 .74 .84
Net realized and unrealized gain (loss) .14 .30 .15 (.81) (.55) .50
-------- -------- -------- -------- -------- --------
Total from investment operations .43 .90 .79 (.17) .19 1.34
-------- -------- -------- -------- -------- --------
Distributions:
Dividends from net investment income (.30) (.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 (.30) (.60) (.64) (.64) (.86) (.84)
-------- -------- -------- -------- -------- --------
Change in net asset value .13 .30 .15 (.81) (.67) .50
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.14 $ 8.01 $ 7.71 $ 7.56 $ 8.37 $ 9.04
======== ======== ======== ======== ======== ========
TOTAL RETURN*
Based on market value per share 7.81% 10.66% 15.87% (16.41)% (2.15)% 17.02%
Based on net asset value per share 5.37% 12.95% 11.92% (1.71)% 2.46% 16.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 185,935 $183,011 $176,212 $172,586 $190,358 $200,814
Ratio of expenses to average net assets .94%** .96% 1.03% 1.06% 1.05% 1.08%
Ratio of net investment income to average
net assets 7.04%** 7.50% 8.43% 8.04% 8.83% 9.40%
Portfolio turnover rate 97.09% 116.55% 111.03% 134.83% 279.24% 306.92%
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
+ BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Investment Portfolio, February 28, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY* VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT & GOVERNMENT AGENCIES: 88.8%
- ---------------------------------------------------------------------------------------------------------------------
Buoni Poliennali del Tes:
2,665,000,000 Itl. 12.00%, 1/17/99 $ 1,701,280
5,680,000,000 Itl. 10.50%, 11/01/00 3,706,246
5,330,000,000 Itl. 10.50%, 9/01/05 3,724,273
19,200,000 Dem. Federal Republic of Germany, 8.00%, 7/22/02 13,141,546
26,455,000 Dem. Federal Republic of Germany, Unity, 8.00%, 1/21/02 17,983,345
18,765,000 Aus. Government of Australia, 10.00%, 10/15/02 16,316,726
Government of Brazil:
3,420,000 U.S. 8.875%, 11/05/01 3,450,780
1,110,000 U.S. 5.00%, 4/15/24 729,131
Government of Canada:
1,104,000 Can. 10.50%, 3/01/01 956,727
13,400,000 Can. 9.75%, 12/01/01 11,497,758
620,000 Can. 10.25%, 2/01/04 559,381
2,200,000 Can. 9.75%, 6/01/21 2,110,597
9,605,000,000 Itl. Government of Italy, 10.50%, 7/15/00 6,251,725
7,380,000 N.Z. Government of New Zealand, 10.00%, 3/15/02 5,610,461
406,230,000 Sp. Government of Spain, 12.25%, 3/25/00 3,317,118
Kingdom of Denmark:
2,310,000 Den. 9.00%, 11/15/00 410,154
18,918,000 Den. 8.00%, 11/15/01 3,293,424
18,096,000 Den. 8.00%, 5/15/03 3,160,449
Republic of Argentina:
1,615,000 U.S. 10.95%, 11/01/99 1,715,937
6,530,000 U.S. 8.375%, 12/20/03 6,309,612
4,030,000 U.S. 5.25%, VRN, 3/31/23 2,684,987
1,000,000 U.S. Republic of Venezuela, 6.75%, 3/31/20, Par Bond B 770,000
Sweden Kingdom:
10,200,000 Swe. 13.00%, 6/15/01 1,741,312
32,700,000 Swe. 10.25%, 5/05/03 5,286,655
4,670,000 U.K. United Kingdom, 9.75%, 8/27/02 8,528,491
8,445,000 U.S. U.S. Treasury Bonds, 6.375%, 8/15/02 8,437,079
U.S. Treasury Notes:
13,170,000 U.S. 6.25%, 8/31/00 13,157,647
9,118,000 U.S. 7.25%, 8/15/04 9,514,059
United Mexican States:
4,210,000 U.S. 9.75%, 2/06/01 4,394,187
2,500,000 U.S. A, 6.25%, 12/31/19 1,914,063
3,000,000 U.S. Venezuela Front Load Interest Reduction Bond, A, 3/31/07 2,728,125
------------
TOTAL BONDS--GOVERNMENT & GOVERNMENT AGENCIES (cost $167,910,403) 165,103,275
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY* VALUE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
BONDS--CORPORATE: 1.7%
---------------------------------------------------------------------------------------------------------------------
1,815,188 U.S. Electricidad de Caracas, FRN, 9/30/03 $ 1,629,132
1,525,000 U.S. Essar Gujarat Ltd., FRN, 7/15/99, 144A 1,475,437
------------
TOTAL BONDS--CORPORATE (cost $2,829,112) 3,104,569
- ----------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATION: 0.4% (cost $739,682)
- ----------------------------------------------------------------------------------------------------------------------
740,000 U.S. Federal Home Loan Mortgage Corp., 5.13%, 3/13/97 738,923
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 90.9% (cost $171,479,197) 168,946,767
UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 0.2% 492,183
OTHER ASSETS, LESS LIABILITIES: 8.9% 16,496,270
------------
TOTAL NET ASSETS: 100.0% $185,935,220
============
</TABLE>
* CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (unaudited)
Assets:
Investments in securities, at value
(identified cost $171,479,197) $168,946,767
Receivables:
Investment securities sold 24,308,843
Interest 3,844,053
Unrealized gains on forward exchange
contracts (Note 6) 731,193
-----------
Total assets 197,830,856
-----------
Liabilities:
Payables:
Investment securities purchased 10,276,565
Dividends 1,142,141
Unrealized loss on forward exchange
contracts (Note 6) 239,010
Accrued expenses 237,920
-----------
Total liabilities 11,895,636
-----------
Net assets, at value $185,935,220
=============
Net assets consist of:
Distributions in excess of net
investment income $(1,417,117)
Net unrealized depreciation (2,190,905)
Accumulated net realized gain 2,011,059
Net capital paid in on shares of
beneficial interest 187,532,183
-----------
Net assets, at value $185,935,220
=============
Shares outstanding 22,842,821
=============
Net asset value per share
($185,935,220 / 22,842,821) $ 8.14
=============
STATEMENT OF OPERATIONS
for the six months ended February 28, 1997
(unaudited)
Interest income:
(net of $125,988 foreign
taxes withheld) $7,457,962
Expenses:
Management fees (Note 3) 513,916
Administrative fees (Note 3) 233,597
Transfer agent fees 14,500
Custodian fees 20,000
Reports to shareholders 40,500
Audit fees 14,000
Legal fees 2,000
Registration and filing fees 32,500
Trustees' fees and expenses 6,000
Other 3,078
------------
Total expenses 880,091
----------
Net investment income 6,577,871
Realized and unrealized
gain (loss):
Net realized gain on:
Investments 2,088,757
Foreign currency
transactions 2,449,288
------------
4,538,045
------------
Net unrealized appreciation
(depreciation) on:
Investments (1,638,155)
Foreign currency transla-
tion of other assets and
liabilities 299,654
------------
(1,338,501)
------------
Net realized and
unrealized gain 3,199,544
----------
Net increase in net assets
resulting from operations $9,777,415
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 6,577,871 $ 13,620,166
Net realized gain (loss) on investment and foreign currency transactions 4,538,045 (2,403,691)
Net unrealized appreciation (depreciation) (1,338,501) 9,287,665
------------ ------------
Net increase in net assets resulting from operations 9,777,415 20,504,140
Distributions to shareholders:
From net investment income (6,852,846) (8,073,916)
Tax basis return of capital -- (5,631,777)
------------ ------------
Net increase in net assets 2,924,569 6,798,447
Net assets:
Beginning of period 183,010,651 176,212,204
------------ ------------
End of period $ 185,935,220 $ 183,010,651
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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 in
good faith by management and approved 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.
13
<PAGE> 14
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (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 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 February 28, 1997, there were an unlimited number of shares of beneficial
interest authorized ($0.01 par value). During the six months ended February 28,
1997 and the year ended August 31, 1996, 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 Franklin Templeton Services, Inc. (FTSI),
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 FTSI
monthly a fee of 0.25% per annum on the Fund's average daily net assets. FTSI
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 FTSI pays to
InterCapital a fee equal , on an annual basis, to 0.15% of the Fund's average
net assets.
14
<PAGE> 15
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1997 aggregated $166,841,764 and $175,699,074,
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 February 28, 1997, 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 $ 1,289,312
Unrealized depreciation (3,821,742)
-----------
Net unrealized depreciation $(2,532,430)
===========
</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 2003.
6. FINANCIAL INSTRUMENTS
During the six months ended February 28, 1997, 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 February 28, 1997, 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>
Contracts to sell:
8,300,000 Deutschemarks for 5,027,865 U.S. dollars, March 7, 1997 $104,179
9,700,000 Deutschemarks for 5,894,256 U.S. dollars, March 7, 1997 140,069
8,800,000 Deutschemarks for 5,237,316 U.S. dollars, March 7, 1997 17,022
8,800,000 Deutschemarks for 5,227,516 U.S. dollars, March 24, 1997 1,794
--------
263,064
Unrealized gain from offsetting forward exchange contracts 468,129
--------
731,193
--------
Contracts to sell:
24,300,000 Deutschemarks for 14,244,385 U.S. dollars, March 7, 1997 (111,422)
15,954,000 Deutschemarks for 9,429,078 U.S. dollars, March 7, 1997 (35,077)
10,247,000 Australian dollar for 7,892,598 U.S. dollars, March 13, 1997 (65,017)
--------
(211,516)
Contracts to buy:
16,133,000 Deutschemarks for 9,595,834 U.S. dollars, March 7, 1997 (27,494)
--------
(239,010)
--------
Net unrealized gain in forward exchange contracts $492,183
========
</TABLE>
15
<PAGE> 16
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Annual Meeting of Shareholders, March 25, 1997 and April 1, 1997
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on March 25, 1997 and April 1,
1997. The purpose of the meeting was to elect four Trustees of the Fund, to
ratify the selection of McGladrey & Pullen, LLP, as the Fund's independent
public accountants for the fiscal year ending August 31, 1997, to consider a
shareholder proposal to amend the Fund's Declaration of Trust to convert the
Fund from a closed-end investment company to an open-end investment company and
in their discretion, to authorize the proxyholders to vote upon such other
matters which may legally come before the meeting or any other adjournment
thereof. At the meeting, the following persons were elected by the shareholders
to serve as Trustees of the Fund: Nicholas F. Brady, Edith E. Holiday, Charles
B. Johnson and Betty P. Krahmer. The shareholders ratified the selection of
McGladrey & Pullen, LLP, to serve as the Fund's independent public accountants
for the fiscal year ending August 31, 1997. The proposal to amend the Fund's
Declaration of Trust to convert the Fund from a closed-end investment company to
an open-end investment company was rejected by shareholders. No other business
was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. Election of four (4) Trustees for the terms set forth below:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
FOR SHARES WITHHELD SHARES
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Term Expiring 2000:
Nicholas F. Brady 18,686,541 81.80% 235,672 1.04%
Edith E. Holiday 18,688,789 81.81% 233,424 1.03%
Charles B. Johnson 18,735,887 82.02% 186,326 0.82%
Betty P. Krahmer 18,723,744 81.97% 198,469 0.87%
</TABLE>
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent
public accountants of the Fund for the fiscal year ending August 31, 1997:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
----------- ----------- -------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
18,612,364 81.48% 94,432 0.42% 215,417 0.94%
</TABLE>
3. Rejection of the proposal to amend the Fund's Declaration of Trust to convert
the Fund from a closed-end investment company to an open-end investment
company:
<TABLE>
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
---------- ----------- --------- ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3,420,426 14.97% 7,172,310 31.40% 513,116 2.25% 7,816,361 34.22%
</TABLE>
16
<PAGE> 17
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.
17
<PAGE> 18
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.
18
<PAGE> 19
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including
fees, charges and expenses, and should be read carefully before investing or
sending money.
GLOBAL GROWTH INCOME FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
Franklin Global Health Care Fund Franklin Adjustable Rate
TAX-FREE INCOME
Securities Fund
Franklin Templeton Japan Fund
Franklin Adjustable U.S.
Alabama
Templeton Developing Markets Trust
Government Securities Fund
Arizona*
Templeton Foreign Fund
Franklin's AGE High Income Fund
Arkansas**
Templeton Foreign Smaller
Franklin Investment
Companies Fund California*
Grade Income Fund
Templeton Global Infrastructure Fund
Colorado
Franklin Short-Intermediate U.S.
Templeton Global
Government Securities Fund
Connecticut
Opportunities Trust
Franklin U.S. Government
Florida*
Templeton Global Real Estate Fund
Securities Fund
Georgia
Templeton Global Smaller
Franklin Money Fund
Companies Fund Hawaii**
Franklin Federal Money Fund
Templeton Greater European Fund Indiana
Templeton Growth Fund Kentucky
FOR NON-U.S. INVESTORS:
Templeton Latin America Fund Louisiana
Franklin Tax-Advantaged
High Yield Securities Fund
Templeton Pacific Growth Fund Maryland
Franklin Tax-Advantaged
Templeton World Fund Massachusetts***
International Bond Fund
Michigan*
Franklin Tax-Advantaged U.S.
GLOBAL GROWTH AND INCOME
Minnesota***
Government Securities Fund
Franklin Global Utilities Fund
Missouri
FOR CORPORATIONS:
Franklin Templeton German
New Jersey
Franklin Corporate Qualified
Government Bond Fund
New York*
Dividend Fund
Franklin Templeton
North Carolina
Global Currency Fund
Ohio***
Mutual European Fund
FRANKLIN FUNDS SEEKING
Oregon
Templeton Global Bond Fund
TAX-FREE INCOME
Pennsylvania
Templeton Growth and Income Fund
Federal Intermediate-Term
Tennessee**
Tax-Free Income Fund
Texas
GLOBAL INCOME Federal Tax-Free Income Fund
Virginia
High Yield Tax-Free Income Fund
Franklin Global Government
Income Fund
Washington**
Insured Tax-Free Income Fund
Franklin Templeton Hard
Puerto Rico Tax-Free Income Fund
VARIABLE ANNUITIES+
Currency Fund
Tax-Exempt Money Fund
Franklin Valuemark(R)
Franklin Templeton High
Income Currency Fund
Franklin Templeton
Valuemark Income Plus
Templeton Americas
(an immediate annuity)
Government Securities Fund
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES,
AND/OR A HIGH YIELD PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS THAT PAY INTEREST
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
***PORTFOLIO OF INSURED MUNICIPAL SECURITIES.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97 GROWTH
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES:
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
<PAGE> 20
Templeton Global Governments
Income Trust
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Investors should be aware that the value of an investment 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.
[GRAPHIC]
TEMPLETON
GLOBAL GOVERNMENTS
INCOME
TRUST
SEMI-ANNUAL REPORT
FEBRUARY 28, 1997
[50 YEAR FRANKLIN TEMPLETON STAMP]
[FRANKLIN TEMPLETON LOGO]
TLTGG S97 4/97
[RECYCLE LOGO]
