SEMI ANNUAL REPORT
FEBRUARY 28, 1998
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
[LOGO] FRANKLIN TEMPLETON
PAGE
[LOGO] CELEBRATING OVER 50 YEARS
Thank you for investing with Franklin [Photo]
Templeton. We encourage our investors to Neil S. Devlin
maintain a long-term perspective, and to Portfolio Manager
expect that mixed in with the good years Templeton Global Governments
can be some bad years. It's important to Income Trust
remember that all securities markets
move both up and down, as do mutual fund
share prices. We appreciate your past
support and look forward to serving your
investment needs in the years ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds, which are managed by many of the investment professionals he
selected and trained.
PAGE
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Global Governments Income Trust seeks a high
level of current income consistent with preservation of capital. It seeks this
objective by investing primarily in a portfolio of debt securities issued or
guaranteed by governments, government agencies, and other government entities of
various nations throughout the world.
Dear Shareholder:
We are pleased to bring you this semi-annual report of Templeton Global
Governments Income Trust, which covers the period ended February 28, 1998.
Global fixed-income performance for the six months under review was influenced
by low inflation readings in almost all markets, and by a flight to high quality
assets as the Asian currency crises caused many investors to reduce their
emerging market holdings and seek safe harbor in bond markets like those of the
United States.
Despite accelerating economic growth, interest rates declined in many of the
world's markets, and bonds provided investors with attractive returns for the
period under review. In the U.S., as the risk of inflation continued to decline,
ten-year Treasury note yields fell from 6.30% at the beginning of the period to
5.57% at the end, with a resulting 4.66% rise in value of such notes.
You may find a complete listing of the Trust's portfolio holdings beginning on
page 8 of this report.
CONTENTS
Shareholder Letter.......... 1
Performance Summary......... 5
Financial Highlights &
Statement of Investments.... 7
Financial Statements........ 11
Notes to Financial
Statements.................. 14
[Pyramid of Fund Category not shown]
PAGE
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/28/98
<S> <C>
Europe 39.4%
Latin America 19.6%
United States 22.1%
Canada 8.7%
Australia & New Zealand 5.8%
Asia 0.1%
Short-Term Investments &
Other Net Assets 4.3%
</TABLE>
Other markets also experienced significant declines in yield and a corresponding
appreciation in bond value. Influenced by declining inflation in Europe, yields
on ten-year German government bonds fell during the period from 5.69% to 4.95%,
with bond values appreciating 3.43%.* The resurgence in value of European
currencies relative to the U.S. dollar also benefited bonds by contributing to
declining interest rates in Europe. However, although bonds generally provided
positive returns, there were industrial and emerging market countries where
bonds did not fare as well. Within this environment, the Trust delivered a
six-month total return of 3.20% in market-price terms and 3.51% in terms of net
asset value, as discussed in the Performance Summary on page 5.
Reacting to the depreciation of the U.S. dollar near the beginning of the period
and believing that it would likely rebound, we reduced the Trust's exposure to
non-U.S. currencies. We increased our use of hedges during the period,
specifically against European and Australian currencies and our net exposure
fell during the period from 41.2% of total net assets to 25.9% for European
currencies and from 4% to about 2% for Australian currencies. In fact, the U.S.
dollar recovered against many other currencies by the end of the period, and our
use of hedges helped protect the portfolio from declines in value of our foreign
currency-denominated holdings.
In December 1997 and January 1998, we increased the Trust's interest-rate
sensitivity by purchasing bonds with longer maturities because we believed
interest rates of many countries would decline in the near term. We lengthened
the Trust's average maturity from 5.4 years at the beginning of the period to
6.5 years at the end, primarily with our U.S., German, and Italian holdings.
*Source: Bloomberg. Change in value is measured in U.S. dollars and represents
price appreciation only.
2
PAGE
We believe that the future for global bond markets will be affected by the
ultimate impact of the Asian crises on other industrialized economies. Will the
crises cause growth to slow significantly in industrial markets? Will domestic
demand in non-Asian markets offset the impact of slower growth in Asia? Will the
risk of higher inflation resulting from low unemployment in many countries be
reduced by slower growth in Asia? The answers to these questions should affect
the course for interest rates over the balance of 1998. In our opinion, the
impact on U.S. economic growth should be relatively small. It could even be
beneficial from an inflation perspective, resulting in stable or modestly
declining U.S. interest rates. However, improved growth rates in Europe during
the year could lead to somewhat higher interest rates there. But the creation of
a common European currency, which is scheduled to be introduced in January 1999,
will be the focus for most markets and may help to keep European interest rates
relatively low, at least for the first half of 1998.
We also believe the U.S. dollar's value will probably be an important factor in
global financial markets. The strength of the U.S. economy, the persistent
weakness of the Japanese economy, and relatively low European interest rates may
help to keep the dollar's value firm in the intermediate term. Eventually,
however, slower Asian growth coupled with stronger European growth may cause a
weakening U.S. dollar.
This discussion reflects the strategies we employed for the Trust during the six
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. All figures shown are as of February 28,
1998, and the Trust's holdings can be expected to change with market
developments and management of
<TABLE>
<CAPTION>
PORTFOLIO BREAKDOWN
Based on Total Net Assets
2/28/98
<S> <C>
Government Bonds 95.6%
Corporate Bonds 0.1%
Short-Term Investments
& Other Net Assets 4.3%
</TABLE>
3
PAGE
the portfolio. Although past performance of a specific investment or sector
cannot guarantee future performance, such information can be useful in analyzing
the securities we purchase or sell for the Trust.
As always, we remind you that there are special risks involved with global
investing related to market, currency, economic, social, political, and other
factors, in addition to the heightened risks associated with the relatively
small size and lesser liquidity of developing markets.
We thank you for your participation in 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. This authorization remains in effect.
4
PAGE
PERFORMANCE SUMMARY
In market-price terms, Templeton Global Governments Income Trust produced a
3.20% cumulative total return for the six-month period ended February 28, 1998.
Based on the change in net asset value (in contrast to market price), the Trust
delivered a 3.51% cumulative total return 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, the Trust's closing price on the New York Stock
Exchange decreased 6.25 cents ($0.0625) per share, from $7.5625 on August 31,
1997, to $7.50 on February 28, 1998, while the net asset value decreased 4 cents
($0.04), from $7.98 to $7.94.
Templeton Global Governments Income Trust shareholders received distributions of
30.0 cents ($0.3000) per share in dividend income during the period.
Distributions will vary depending on income earned by the Trust and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Trust's operating expenses.
Past performance is not predictive of future results.
5
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Periods ended 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (11/22/88)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return (1)
Based on change in net asset value 5.14% 40.79% 97.62%
Based on change in market price 10.11% 30.82% 78.22%
Average Annual Total Return (2)
Based on change in net asset value 5.14% 7.08% 7.63%
Based on change in market price 10.11% 5.52% 6.43%
</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 distributions at net asset value or at
market price on the reinvestment date, in accordance with the dividend
reinvestment plan and do not reflect sales charges that would have been paid at
inception or brokerage commissions that would have been paid on secondary market
purchases. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, currency volatility, and
the economic, social, and political climates of countries where investments are
made. Emerging markets involve heightened risks related to the same factors, in
addition to those associated with their relatively small size and lesser
liquidity. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
6
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1998 --------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994+ 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $7.98 $8.01 $7.71 $7.56 $8.37 $9.04
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .27 .56 .60 .64 .64 .74
Net realized and unrealized gain (.01)
(loss)................................. .01 .30 .15 (.81) (.55)
-----------------------------------------------------------------------------
Total from investment operations.......... .26 .57 .90 .79 (.17) .19
-----------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.30) (.56) (.35) (.59) -- (.53)
In excess of net investment income....... -- -- -- (.05) (.05) (.06)
Net realized gains....................... -- (.01) -- -- (.07) (.21)
In excess of net realized gains.......... -- (.02) -- -- -- --
Tax return of capital.................... -- (.01) (.25) -- (.52) (.06)
-----------------------------------------------------------------------------
Total distributions....................... (.30) (.60) (.60) (.64) (.64) (.86)
-----------------------------------------------------------------------------
Net asset value, end of period............ $7.94 $7.98 $8.01 $7.71 $7.56 $8.37
=============================================================================
Total Return*
Based on market value per share.......... 3.20% 15.01% 10.66% 15.87% (16.41)% (2.15)%
Based on net asset value per share....... 3.51% 7.95% 12.95% 11.92% (1.71)% 2.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $181,456 $182,223 $183,011 $176,212 $172,586 $190,358
Ratios to average net assets:
Expenses................................. 1.14%** .97% .96% 1.03% 1.06% 1.05%
Net investment income.................... 6.73%** 6.90% 7.50% 8.43% 8.04% 8.83%
Portfolio turnover rate................... 41.60% 197.82% 116.55% 111.03% 134.83% 279.24%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on weighted average shares outstanding.
See Notes to Financial Statements.
7
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-------
<S> <C> <C>
LONG TERM SECURITIES 95.7%
ARGENTINA 6.2%
Republic of Argentina:
10.95%, 11/01/99.......................................... $ 1,615,000 $ 1,709,881
8.75%, 5/09/02............................................ 400,000 390,800
8.375%, 12/20/03.......................................... 6,530,000 6,497,350
11.00%, 10/09/06.......................................... 300,000 337,500
11.375%, 1/30/17.......................................... 480,000 546,300
9.75%, 9/19/27............................................ 1,841,000 1,834,096
------------
11,315,927
------------
AUSTRALIA 4.0%
Government of Australia, 10.00%, 10/15/02................... 8,999,000AUD 7,196,824
------------
BRAZIL 4.8%
Government of Brazil:
8.875%, 11/05/01.......................................... 485,000 504,400
6.563%, 4/15/09........................................... 4,085,000 3,365,019
6.75%, 4/15/12, FRN....................................... 4,275,000 3,302,438
10.125%, 5/15/27.......................................... 1,100,000 1,067,000
Republic of Brazil, 8.00%, 4/15/14.......................... 570,131 469,492
------------
8,708,349
------------
CANADA 8.7%
Government of Canada:
10.50%, 7/01/00........................................... 7,000,000CAD 5,481,395
10.50%, 3/01/01........................................... 8,324,000CAD 6,686,220
10.00%, 5/01/02........................................... 4,310,000CAD 3,552,566
------------
15,720,181
------------
DENMARK 1.7%
Government of Denmark, 8.00%, 5/15/03....................... 14,340,000DKK 2,374,928
Kingdom of Denmark, 9.00%, 11/15/00......................... 4,815,000DKK 776,336
------------
3,151,264
------------
GERMANY 13.3%
Europe Economic Community, 6.50%, 3/10/00................... 22,450,000DEM 12,933,240
Federal Republic of Germany, 8.00%, 7/22/02................. 17,920,000DEM 11,266,992
------------
24,200,232
------------
INDIA .1%
Essar Steel Ltd., 8.275%, 7/15/99, 144A, FRN................ 255,000 220,575
------------
</TABLE>
8
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
ITALY 6.2%
Buoni Poliennali del Tes:
12.00%, 1/17/99........................................... 2,665,000,000ITL $ 1,567,138
10.50%, 11/01/00.......................................... 2,900,000,000ITL 1,847,615
10.50%, 9/01/05........................................... 2,330,000,000ITL 1,724,704
Government of Italy, 10.50%, 7/15/00........................ 9,605,000,000ITL 6,037,751
------------
11,177,208
------------
MEXICO 5.0%
United Mexican States:
9.75%, 2/06/01............................................ 3,310,000 3,525,150
9.875%, 1/15/07........................................... 2,030,000 2,212,700
11.375%, 9/15/16.......................................... 1,600,000 1,904,000
6.25%, 12/31/19........................................... 1,675,000 1,414,328
------------
9,056,178
------------
NEW ZEALAND 1.8%
Government of New Zealand, 6.50%, 2/15/00................... 5,690,000NZD 3,260,823
------------
PANAMA .5%
Republic of Panama, 8.875%, 9/30/27......................... 960,000 948,600
------------
SPAIN 7.4%
Government of Spain:
12.25%, 3/25/00........................................... 851,130,000ESP 6,383,198
10.10%, 2/28/01........................................... 455,600,000ESP 3,428,113
10.90%, 8/30/03........................................... 423,950,000ESP 3,558,654
------------
13,369,965
------------
SWEDEN 5.9%
Kingdom of Sweden:
13.00%, 6/15/01........................................... 13,500,000SEK 2,086,150
10.25%, 5/05/03........................................... 44,500,000SEK 6,821,210
8.00%, 8/15/07............................................ 12,200,000SEK 1,808,333
------------
10,715,693
------------
UNITED KINGDOM 4.9%
United Kingdom:
8.00%, 12/07/00........................................... 5,115,000GBP 8,711,376
7.00%, 11/06/01........................................... 95,000GBP 159,154
------------
8,870,530
------------
</TABLE>
9
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
UNITED STATES 22.1%
U.S. Treasury Bond, 6.375%, 8/15/02......................... $ 7,585,000 $ 7,814,924
U.S. Treasury Note:
6.625%, 4/30/02........................................... 6,940,000 7,200,257
7.25%, 8/15/04............................................ 9,118,000 9,901,583
6.125%, 8/15/07........................................... 9,868,000 10,176,385
6.125%, 11/15/27.......................................... 4,821,000 4,958,100
------------
40,051,249
------------
VENEZUELA 3.1%
Republic of Venezuela, 9.25%, 9/15/27....................... 3,584,000 3,207,680
Venezuela Front Load Interest Reduction Bond, 6.75%,
3/31/07, FRN.............................................. 2,714,283 2,429,283
------------
5,636,963
------------
TOTAL LONG TERM SECURITIES (COST $176,812,960).............. 173,600,561
------------
SHORT TERM INVESTMENT (COST $3,670,000) 2.0%
Nationsbank Corp., 5.50%, 3/02/98........................... 3,670,000 3,670,000
------------
TOTAL INVESTMENTS (COST $180,482,960) 97.7%................. 177,270,561
NET EQUITY IN FORWARD CONTRACTS............................. (84,881)
OTHER ASSETS, LESS LIABILITIES 2.3%......................... 4,270,016
------------
TOTAL NET ASSETS 100.0%..................................... $181,455,696
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
ESP -- Spanish Peseta
GBP -- British Pound
ITL -- Italian Lira
NZD -- New Zealand Dollar
SEK -- Swedish Krona
</TABLE>
*Securities traded in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
10
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $180,482,960).... $177,270,561
Cash....................................................... 1,233
Receivables:
Investment securities sold................................ 213,508
Dividends and interest.................................... 5,567,047
Unrealized gain on forward exchange contracts (Note 6).... 218,281
------------
Total assets.......................................... 183,270,630
------------
Liabilities:
Payables to affiliates..................................... 111,561
Distributions to shareholders.............................. 1,142,141
Unrealized loss on forward exchange contracts (Note 6)..... 303,162
Other liabilities.......................................... 258,070
------------
Total liabilities..................................... 1,814,934
------------
Net assets, at value........................................ $181,455,696
============
Net assets consist of:
Distributions in excess of net investment income........... $ (1,918,459)
Net unrealized depreciation................................ (3,375,077)
Accumulated net realized loss.............................. (561,202)
Beneficial shares.......................................... 187,310,434
------------
Net assets, at value........................................ $181,455,696
============
Net asset value per share ($181,455,696 / 22,842,821 shares
outstanding).............................................. $7.94
============
</TABLE>
See Notes to Financial Statements.
11
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
Dividends.................................................. $ 1,435
Interest................................................... 7,105,761
-----------
Total investment income............................... $7,107,196
Expenses:
Management fees (Note 3)................................... 496,520
Administrative fees (Note 3)............................... 225,691
Transfer agent fees........................................ 9,000
Custodian fees............................................. 18,966
Reports to shareholders.................................... 78,500
Registration and filing fees............................... 16,000
Professional fees (Note 3)................................. 180,578
Trustees' fees and expenses................................ 4,700
Other...................................................... 712
-----------
Total expenses........................................ 1,030,667
----------
Net investment income........................... 6,076,529
----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... (1,492,106)
Foreign currency transactions............................. 1,365,816
-----------
Net realized loss...................................... (126,290)
Net unrealized appreciation (depreciation) on:
Investments............................................... 633,069
Translation of assets and liabilities denominated in
foreign currencies...................................... (497,430)
-----------
Net unrealized appreciation............................ 135,639
----------
Net realized and unrealized gain............................ 9,349
----------
Net increase in net assets resulting from operations........ $6,085,878
==========
</TABLE>
See Notes to Financial Statements.
12
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,076,529 $ 12,858,682
Net realized gain (loss) from investments and foreign
currency transactions................................... (126,290) 2,717,335
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 135,639 (2,658,312)
---------------------------------------
Net increase in net assets resulting from operations.... 6,085,878 12,917,705
Distributions to shareholders from:
Net investment income..................................... (6,852,846) (12,858,682)
Net realized gains........................................ -- (190,349)
In excess of net realized gains........................... -- (434,912)
Tax return of capital..................................... -- (221,749)
---------------------------------------
Net decrease in net assets.............................. (766,968) (787,987)
Net assets:
Beginning of period........................................ 182,222,664 183,010,651
---------------------------------------
End of period.............................................. $181,455,696 $182,222,664
=======================================
Distributions in excess of net investment income included in
net assets:
End of period.............................................. $ (1,918,459) $ (1,142,142)
=======================================
</TABLE>
See Notes to Financial Statements.
13
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Governments Income Trust (the Fund) is registered under the
Investment Company Act of 1940 as a closed-end, non-diversified investment
company. 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. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as
14
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
e. FORWARD EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
At February 28, 1998, there were an unlimited number of shares authorized ($0.01
par value). During the six months ended February 28, 1998 and the year ended
August 31, 1997, there were no share transactions; all reinvested distributions
were satisfied with previously issued shares purchased on the open market.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ---------------------------------------
<S> <C>
0.55% First $200 million
0.50% Over $200 million
</TABLE>
The Fund pays an administrative fee to FT Services of 0.25% per year of the
Fund's average daily net assets. FT Services 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. FT Services pays DWR InterCapital a fee equal,
on an annual basis, to 0.15% of the Fund's average daily net assets.
15
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Included in professional fees are legal fees of $75,044 that were paid to a law
firm in which a partner is an officer of the Fund.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At February 28, 1998, the net unrealized depreciation
based on cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 2,313,882
Unrealized depreciation..................................... (5,526,281)
-----------
Net unrealized depreciation................................. $(3,212,399)
===========
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1998 aggregated $63,764,241 and $62,032,924,
respectively.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values and interest rates and contract positions
that are not exact offsets. The contract amount indicates the extent of the
Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At February
28, 1998, the Fund had outstanding forward exchange contracts for the purchase
and sale of currencies as set out below. The contracts are reported in the
financial statements at the Fund's net equity, as measured by the difference
between the forward exchange rates at the reporting date and the forward
exchange rates at the date of entry into the contract.
16
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
As of February 28, 1998, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
NGE FOR DATE GAIN/(LOSS
CONTRACTS TO SELL: ---------------------------------------------
- -------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
19,950,000 German Marks................................................ U.S. $11,097,946 3/25/98 U.S. $ 82,163
4,850,000 German Marks................................................ 2,684,007 4/6/98 4,043
9,700,000 German Marks................................................ 5,368,607 4/7/98 8,360
----------- ---------
U.S. $19,150,560 94,566
===========
Net unrealized gain on offsetting forward exchange contracts....... 123,715
---------
Unrealized gain on forward exchange contracts.................... 218,281
---------
CONTRACTS TO SELL:
- -------------------------------------------------------------------------
1,250,000 New Zealand Dollars......................................... U.S. $ 703,750 3/12/98 U.S. $ (26,232)
2,000,000 New Zealand Dollars......................................... 1,164,200 3/17/98 (3,262)
1,645,000 Australian Dollars.......................................... 1,082,953 3/20/98 (34,217)
2,555,000 Canadian Dollars............................................ 1,791,524 3/20/98 (4,573)
625,000 New Zealand Dollars......................................... 361,313 3/23/98 (3,328)
9,700,000 German Marks................................................ 5,329,670 3/23/98 (25,712)
5,400,000 Canadian Dollars............................................ 3,714,046 4/2/98 (83,144)
3,704,000 Australian Dollars.......................................... 2,467,975 4/2/98 (48,166)
1,250,000 Canadian Dollars............................................ 863,677 4/3/98 (15,320)
----------- -----------
U.S. $17,479,108 (243,954)
============
Net unrealized loss on offsetting forward exchange contracts....... (59,208)
---------
Unrealized loss on forward exchange contracts.................... (303,162)
---------
Net unrealized loss on forward exchange contracts.............. U.S. $ (84,881)
=========
</TABLE>
17
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Annual Meeting of Shareholders, February 17, 1998
An Annual Meeting of Shareholders of the Trust was held at the Trust's offices,
500 East Broward Boulevard, Ft. Lauderdale, Florida, on February 17, 1998. The
purpose of the meeting was to elect four Trustees of the Trust, to ratify the
selection of McGladrey & Pullen, LLP, as the Trust's independent auditors for
the fiscal year ending August 31, 1998, and in their discretion, to authorize
the proxyholders to vote upon other such matters that may legally come before
the meeting or any adjournment of the meeting. At the meeting, the following
persons were elected by the shareholders to serve as Trustees of the Trust:
Harris J. Ashton, S. Joseph Fortunato, Andrew H. Hines, Jr. and Gordon S.
Macklin.* The shareholders ratified the selection of McGladrey & Pullen, LLP, to
serve as the Trust's independent auditors for the fiscal year ending August 31,
1998. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of four (4) Trustees for the term set forth below:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2001: FOR SHARES WITHHELD SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harris J. Ashton............................................ 19,267,025 84.35% 283,623 1.24%
S. Joseph Fortunato......................................... 19,269,652 84.36% 280,996 1.23%
Andrew H. Hines, Jr. ....................................... 19,268,696 84.35% 281,952 1.24%
Gordon S. Macklin........................................... 19,270,813 84.36% 279,835 1.23%
</TABLE>
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP, as
independent auditors for the Trust for the fiscal year ending August 31, 1998:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
19,195,961 84.04% 84,091 0.37% 270,596 1.18%
</TABLE>
*Nicholas F. Brady, John Wm. Galbraith, Edith E. Holiday, Betty P. Krahmer,
Charles B. Johnson, Rupert H. Johnson, Jr. and Fred R. Millsaps are Trustees of
the Trust who are currently serving and whose terms of office continued after
the Annual Meeting of Shareholders.
18
PAGE
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 Trust 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, Harborside Financial Center, Plaza Two, Jersey City, NJ 07311-3977, to
receive the Plan brochure. -- To receive dividends or distributions in cash, the
shareholder must notify Dean Witter Trust Company (the "Plan Agent") at the
address above 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, the participant 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 or if dividends and/or capital gains distributions are
payable only in cash, the participant will receive shares purchased on the New
York Stock Exchange or otherwise on the open market. -- 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
held by the Plan Agent; or, if the participant wishes, the Plan Agent will sell
the participant's shares and send the proceeds, less a service fee of $5.00 and
less trading fees. -- Whenever shares are purchased on the New York Stock
Exchange or otherwise on the open market, each participant will pay a pro rata
portion of trading fees. Trading fees will be deducted from amounts to be
invested.
19
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center, Plaza Two
Jersey City, NJ 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 each Monday in the Wall Street Journal,
weekly in Barron's and each Saturday in the New York Times and other newspapers.
Daily market prices for the Trust's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers.
For current information about dividends and shareholder accounts, call
1-800-869-NEWS (1-800-869-6397).
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 10
a.m. Eastern Time any business day at 1-800-DIAL BEN (1-800-342-5236).
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, 100 Fountain Parkway, P.O.
Box 33030, St. Petersburg, FL 33733-8033.
20
PAGE
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
Franklin Global Health Care Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
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 Financial
Services 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
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
For Corporations
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY). ***The fund may invest
up to 100% of its assets in bonds that pay interest subject to the federal
alternative minimum tax.
+ Portfolio of insured municipal securities.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
10/97.1
PAGE
TEMPLETON GLOBAL GOVERNMENTS
INCOME TRUST
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
Dean Witter Trust
Harborside Financial Center, Plaza 2
Jersey City, NJ 07311
1-800/869-NEWS
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of investments made for the Trust may
go down as well as up, and that the Investment Manager may make errors in
selecting securities for the Trust's portfolio. Like any investment in
securities, the Trust's portfolio will be subject to the risk of loss from
market, currency, economic, political, and other factors. The Trust and Trust
investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Trust.
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.
TLTGG S98 04/98 Printed on recycled paper
