SEMIANNUAL REPORT
February 28, 1999
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
[LOGO]FRANKLIN TEMPLETON
PAGE
[LOGO] CELEBRATING 50 YEARS
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do investment company 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 Trust's Goal: Templeton Global Governments Income Trust seeks a high level
of current income consistent with preservation of capital. Under normal market
conditions, the Fund invests primarily in a portfolio of debt securities issued
or guaranteed by governments, government agencies, and other government entities
of various nations throughout the world, including emerging markets.
- -------------------------------------------------------------------------------
Dear Shareholder:
This report of Templeton Global Governments Income Trust covers the six months
ended February 28, 1999. During this period, the U.S. economy remained strong,
as healthy consumer spending offset reduced exports and business spending.
Inflation remained subdued, despite strong economic growth, partly because of
productivity gains, low commodity prices, and a relatively strong dollar. In
Europe, inflation reached historic lows and many economies there began to show
signs of slower economic growth. Many European central banks reduced official
interest rates during the fourth quarter of
CONTENTS
Shareholder Letter ................. 1
Important Notice
to Shareholders .................... 5
Performance Summary ................ 8
Financial Highlights &
Statement of Investments ........... 9
Financial Statements ............... 13
Notes to Financial
Statements ......................... 16
You will find a complete listing of the Trust's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 10 of
this report.
FUND CATEGORY
[GRAPH]PYRAMID
GLOBAL
GROWTH
GROWTH & INCOME
INCOME
TAX-FREE INCOME
PAGE
GEOGRAPHIC DISTRIBUTION
BASED ON TOTAL NET ASSETS
2/28/99
[THIS CHART SHOWS IN PIE FORMAT THE GEOGRAPHIC DISTRIBUTION OF TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST, BASED ON TOTAL NET ASSETS AS OF 2/28/99.]
[PIE CHART]
Europe 43.5%
Latin America 21.3%
United States 14.0%
Canada 8.6%
Australia & New Zealand 8.0%
Asia 3.0%
Short-Term Investments & Other Net Assets 1.6%
1998, due largely to concerns that the region could experience deflation if
economic growth continued to stagnate. In Asia, Japanese banks continued to be
hamstrung by bad debt. Although the Japanese government struggled to restructure
the economy, its efforts failed and the country remained in a recession.
Responding to these conditions, global bond investors reduced their holdings of
emerging market debt securities and increased their exposure to higher-quality,
developed market government bonds. Within this environment, Templeton Global
Governments Income Trust produced a six-month cumulative total return of 16.33%
in market-price terms and a 5.01% six-month cumulative total return in net asset
value terms for the period ended February 28, 1999, as shown in the Performance
Summary on page 8.
During the six months under review, we allocated approximately 80% of the
Trust's total net assets to intermediate- and long-term bonds from developed
countries, with the remaining assets invested in what we believed to be the
highest quality, most liquid bonds we could find in emerging markets. We
believed this strategy offered the potential for more attractive long-term
returns at the cost of modestly higher, short-term volatility. However, even
though volatility did increase in many emerging markets, our allocation to these
assets helped the Fund's performance, as emerging market debt in general
returned 17.86% during the period under review, as measured by the J.P. Morgan
Emerging Market Bond Index Plus.(1)
1. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
Performance includes reinvested interest. An index is an unmanaged group of
securities used to measure market performance. One cannot invest directly in an
index.
2
PAGE
The Fund's allocation to North American countries decreased during the period,
and its European exposure slightly increased. Its emerging markets exposure
increased. During the period, we undertook hedging activities in an effort to
minimize the possible loss of value arising from changes in exchange rates for
the Trust's European currency-denominated bonds. Believing the U.S. dollar could
depreciate further in early 1999, we decreased our hedging activities, and at
the end of the reporting period, the Trust's net U.S. dollar exposure was 41.0%,
down from 82.8% at the beginning of the period.
Our long-term outlook for the Trust remains positive. In addition to continued
uncertainty about emerging markets, we believe the critical issue for future
interest rates will be the balance struck between global growth and inflation.
In our opinion, economic growth for the remainder of 1999 probably will be
weaker than in the past several years. The extent of this weakness may largely
depend on economic developments in the U.S. The U.S. economy is dependent, to
some extent, on economic stability in Latin America, and problems there could
depress U.S. exports, which could in turn have a negative effect on European
economic performance. If combined with benign inflation, this could be an
attractive environment for high quality bonds.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
PORTFOLIO BREAKDOWN
BASED ON TOTAL NET ASSETS
2/28/99
[THIS CHART LISTS THE PORTFOLIO BREAKDOWN OF TEMPLETON GLOBAL GOVERNMENTS INCOME
TRUST, BASED ON TOTAL NET ASSETS AS OF 2/28/99.]
Government Bonds 80.3%
Corporate Bonds 18.1%
Short-Term Investments &
Other Net Assets 1.6%
3
PAGE
affect our strategies and the Trust's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.
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 emerging markets.
We thank you for your participation in Templeton Global Governments Income Trust
and welcome any comments or suggestions you may have.
Sincerely,
Portfolio Management Team
Templeton Global Governments Income Trust
4
PAGE
IMPORTANT NOTICE TO SHAREHOLDERS
- -------------------------------------------------------------------------------
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.
Because this change to a single currency is new and untested, it is not possible
to predict the impact of the euro on the business or financial condition of
European issuers which the Trust may hold in its portfolio, and their impact on
Trust performance. To the extent the Trust holds non-U.S. dollar (euro or other)
denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.
YEAR 2000 ISSUE. The Trust's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, the Trust's operations could be adversely affected
if the computer systems used by the investment manager, its service providers
and other third parties it does business with are not Year 2000 ready. For
example, the Trust's portfolio and operational areas could be impacted,
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions
and others. The Trust could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
5
PAGE
When evaluating current and potential portfolio positions, Year 2000 is one of
the factors the Trust's investment manager considers.
The investment manager will rely upon public filings and other statements made
by companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may be more susceptible to Year 2000
risks and may not be required to make the same level of disclosure about Year
2000 readiness as is required in the U.S. The investment manager, of course,
cannot audit each company and its major suppliers to verify their Year 2000
readiness. Of course, the Trust's ability to reduce the effects of the Year 2000
problem is also very much dependent upon the efforts of third parties over which
the Trust and its investment manager may have no control.
If a company in which the Trust is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be adversely
affected. A decrease in the value of one or more of the Trust's portfolio
holdings will have a similar impact on the Trust's performance.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has already
begun making necessary software changes to help the computer systems that
service the Trust and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues to
seek reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis. Resources is
also beginning to develop a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and
6
PAGE
geographically distributed as Resources' business, the alternatives to use of
normal systems, especially mission critical systems, or supplies of electricity
or long distance voice and data lines are limited.
PORTFOLIO MANAGEMENT. Templeton Investment Counsel, Inc. (Investment Counsel),
through its Templeton Global Bond Managers division (Global Bond Managers) is
the Trust's investment manager. Together, Investment Counsel and its affiliates
manage over $211 billion in assets. Since January 1999, a team from Global Bond
Managers is responsible for the day-to-day management of the Trust.
SHARE REPURCHASE PROGRAM. 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.
- -------------------------------------------------------------------------------
7
PAGE
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the Trust's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of the Trust's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions according
to the terms specified in the Trust's dividend reinvestment plan, and do not
reflect any sales charges paid at inception or brokerage commissions paid on
secondary market purchases.
PRICE AND DISTRIBUTION INFORMATION (9/1/98 - 2/28/99)
<TABLE>
<CAPTION>
Change 2/28/99 8/31/98
- --------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.04 $ 7.29 $ 7.25
Market Price (NYSE) +$0.6875 $6.7500 $6.0625
</TABLE>
Distributions
------------------------------
Dividend Income $0.3000
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. Six-month return has not been
annualized.
Performance
<TABLE>
<CAPTION>
Inception
6-Month 1-Year 5-Year 10-Year (11/22/88)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1)
Based on change
in net asset value 5.01% 0.02% 32.05% 96.70% 99.35%
Based on change
in market price 16.33% -1.96% 37.78% 77.58% 74.67%
Average Annual
Total Return(2)
Based on change
in net asset value 5.01% 0.02% 5.72% 7.00% 6.95%
Based on change
in market price 16.33% -1.96% 6.62% 5.91% 5.58%
</TABLE>
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 the Trust invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. Also, as
a non-diversified investment company, the Trust may invest in a relatively small
number of issuers and, as a result, be subject to greater risks of loss with
respect to its portfolio securities. You may have a gain or loss when you sell
your shares.
Past performance is not predictive of future results.
8
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 --------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994+
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $7.25 $7.98 $8.01 $7.71 $7.56 $8.37
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .28 .55 .56 .60 .64 .64
Net realized and unrealized gains .06
(losses)............................... (.68) .01 .30 .15 (.81)
-----------------------------------------------------------------------------
Total from investment operations.......... .34 (.13) .57 .90 .79 (.17)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.30) (.45) (.56) (.35) (.59) --
In excess of net investment income....... -- -- -- -- (.05) (.05)
Net realized gains....................... -- (.02) (.01) -- -- (.07)
In excess of net realized gains.......... -- -- (.02) -- -- --
Tax return of capital.................... -- (.13) (.01) (.25) -- (.52)
-----------------------------------------------------------------------------
Total distributions....................... (.30) (.60) (.60) (.60) (.64) (.64)
-----------------------------------------------------------------------------
Net asset value, end of period............ $7.29 $7.25 $7.98 $8.01 $7.71 $7.56
==============================================================================
Total Return*
Based on market value per share.......... 16.33% (13.02)% 15.01% 10.66% 15.87% (16.41)%
Based on net asset value per share....... 5.01% (1.41)% 7.95% 12.95% 11.92% (1.71)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $164,958 $164,196 $182,223 $183,011 $176,212 $172,586
Ratios to average net assets:
Expenses................................. 1.06%** 1.02% .97% .96% 1.03% 1.06%
Net investment income.................... 7.40%** 6.98% 6.90% 7.50% 8.43% 8.04%
Portfolio turnover rate................... 41.63% 52.28% 197.82% 116.55% 111.03% 134.83%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on weighted average shares outstanding.
See Notes to Financial Statements.
9
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 98.4%
ARGENTINA 6.8%
Republic of Argentina:
10.95%, 11/01/99.......................................... $ 1,615,000 $ 1,643,263
8.75%, 5/09/02............................................ 1,810,000 1,594,610
8.375%, 12/20/03.......................................... 3,330,000 2,922,075
11.00%, 10/09/06.......................................... 3,500,000 3,178,438
11.375%, 1/30/17.......................................... 480,000 435,900
9.75%, 9/19/27............................................ 1,841,000 1,486,608
------------
11,260,894
------------
AUSTRALIA 4.2%
Government of Australia, 7.50%, 7/15/05..................... 10,042,000AUD 6,922,410
------------
BRAZIL 3.5%
Government of Brazil:
8.875%, 11/05/01.......................................... 485,000 444,988
FRN, 6.563%, 4/15/09...................................... 4,085,000 2,152,284
FRN, L, 6.75%, 4/15/12.................................... 4,275,000 2,078,719
8.00%, 4/15/14............................................ 588,810 340,486
10.125%, 5/15/27.......................................... 1,100,000 706,750
------------
5,723,227
------------
CANADA 8.6%
Government of Canada:
10.50%, 7/01/00........................................... 7,000,000CAD 4,942,756
10.50%, 3/01/01........................................... 8,324,000CAD 6,041,145
10.00%, 5/01/02........................................... 4,310,000CAD 3,230,773
------------
14,214,674
------------
DENMARK 1.9%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 4,815,000DKK 772,817
8.00%, 3/15/06............................................ 13,331,000DKK 2,406,174
------------
3,178,991
------------
GERMANY 14.9%
Europe Economic Community, 6.50%, 3/10/00................... 22,450,000DEM 13,010,104
Federal Republic of Germany, 8.00%, 7/22/02................. 9,162,351EUR 11,527,493
------------
24,537,597
------------
INDIA .1%
Essar Steel Ltd., 144A, FRN, 8.40%, 7/20/99................. 255,000 184,875
------------
</TABLE>
10
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
ITALY 6.8%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00........................................... 4,960,560EUR $ 5,973,691
10.50%, 11/01/00.......................................... 1,497,722EUR 1,835,181
10.50%, 4/01/05........................................... 1,228,000EUR 1,824,846
6.75%, 7/01/07............................................ 1,142,000EUR 1,477,786
------------
11,111,504
------------
MEXICO 6.1%
Nacional Financiera Sociedad Nacional de Credito, 9.70%,
3/12/02................................................... 1,900,000 1,883,375
United Mexican States:
9.75%, 2/06/01............................................ 3,310,000 3,388,613
9.875%, 1/15/07........................................... 2,030,000 1,971,638
11.375%, 9/15/16.......................................... 1,600,000 1,631,600
6.25%, 12/31/19........................................... 1,675,000 1,253,633
------------
10,128,859
------------
NEW ZEALAND 3.8%
Government of New Zealand:
6.50%, 2/15/00............................................ 5,690,000NZD 3,029,543
8.00%, 11/15/06........................................... 5,420,000NZD 3,226,603
------------
6,256,146
------------
PANAMA .5%
Republic of Panama, 8.875%, 9/30/27......................... 960,000 859,500
------------
SPAIN 7.9%
Government of Spain:
12.25%, 3/25/00........................................... 5,115,394EUR 6,141,899
10.10%, 2/28/01........................................... 2,738,211EUR 3,406,570
10.15%, 1/31/06........................................... 2,320,000EUR 3,483,502
------------
13,031,971
------------
SWEDEN 4.6%
Kingdom of Sweden:
13.00%, 6/15/01........................................... 5,000,000SEK 737,309
10.25%, 5/05/03........................................... 44,500,000SEK 6,807,417
------------
7,544,726
------------
TURKEY 2.9%
Cellco Finance NV, 144A, 15.00%, 8/01/05.................... 1,875,000 1,787,109
Republic of Turkey:
Reg S, 9.875%, 2/23/05.................................... 1,565,000 1,420,587
Reg S, 10.00%, 9/19/07.................................... 1,520,000 1,375,600
144A, 10.00%, 9/19/97..................................... 260,000 235,300
------------
4,818,596
------------
</TABLE>
11
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
UNITED KINGDOM 7.4%
United Kingdom:
8.00%, 12/07/00........................................... 5,115,000GBP $ 8,595,743
stk., 7.00%, 11/06/01..................................... 95,000GBP 160,028
8.50%, 7/16/07............................................ 1,714,000GBP 3,451,504
------------
12,207,275
------------
UNITED STATES 14.0%
Fannie Mae, 5.25%, 1/15/09.................................. 5,435,000 5,211,812
U.S. Treasury Bonds:
5.25%, 11/15/28........................................... 15,108,000 14,305,388
5.25%, 2/15/29............................................ 2,420,000 2,311,100
U.S. Treasury Note, 7.25%, 8/15/04.......................... 1,150,000 1,252,418
------------
23,080,718
------------
VENEZUELA 4.4%
Republic of Venezuela, 9.25%, 9/15/27....................... 10,010,000 5,702,572
Venezuela Front Load Interest Reduction Bond, FRN, A,
3/31/07................................................... 2,428,563 1,495,084
------------
7,197,656
------------
TOTAL LONG TERM SECURITIES (COST $178,390,551).............. 162,259,619
------------
SHORT TERM INVESTMENTS (COST $390,000) .2%
Den Danske Bank, 4.813%, 3/01/99, Time Deposit.............. 390,000 390,000
------------
TOTAL INVESTMENTS (COST $178,780,551) 98.6%................. 162,649,619
NET EQUITY IN FORWARD CONTRACTS............................. (9,222)
OTHER ASSETS, LESS LIABILITIES 1.4%......................... 2,317,332
------------
TOTAL NET ASSETS 100.0%..................................... $164,957,729
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
EUR -- European Unit
GBP -- British Pound
NZD -- New Zealand Dollar
SEK -- Swedish Krona
</TABLE>
*Securities denominated in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
12
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $178,780,551).... $162,649,619
Cash....................................................... 42
Dividends and interest receivable.......................... 5,642,179
Unrealized gain on forward exchange contracts (Note 6)..... 4,883
------------
Total assets........................................... 168,296,723
------------
Liabilities:
Payables:
Investment securities purchased........................... 1,893,939
To affiliates............................................. 103,783
Distributions to shareholders.............................. 1,132,141
Unrealized loss on forward exchange contracts (Note 6)..... 14,105
Accrued expenses........................................... 195,026
------------
Total liabilities...................................... 3,338,994
------------
Net assets, at value........................................ $164,957,729
============
Net assets consist of:
Distributions in excess of net investment income........... $ (1,613,719)
Net unrealized depreciation................................ (16,242,483)
Accumulated net realized loss.............................. (188,675)
Beneficial shares.......................................... 183,002,606
------------
Net assets, at value........................................ $164,957,729
============
Net asset value per share ($164,957,729 / 22,642,821 shares
outstanding).............................................. $7.29
============
</TABLE>
See Notes to Financial Statements.
13
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Interest Income (net of foreign taxes of $7,184)............ $7,211,831
Expenses:
Management fees (Note 3)................................... $ 469,272
Administrative fees (Note 3)............................... 213,304
Custodian fees............................................. 19,500
Reports to shareholders.................................... 65,900
Registration and filing fees............................... 37,600
Professional fees.......................................... 81,300
Trustees' fees and expenses................................ 12,000
Other...................................................... 1,687
-----------
Total expenses........................................ 900,563
----------
Net investment income........................... 6,311,268
----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 3,351,641
Foreign currency transactions............................. (3,807,734)
-----------
Net realized loss..................................... (456,093)
Net unrealized appreciation on:
Investments............................................... 1,096,150
Translation of assets and liabilities denominated in
foreign currencies........................................ 603,286
-----------
Net unrealized appreciation........................... 1,699,436
----------
Net realized and unrealized gain............................ 1,243,343
----------
Net increase in net assets resulting from operations........ $7,554,611
==========
</TABLE>
See Notes to Financial Statements.
14
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,311,268 $ 12,570,109
Net realized loss from investments and foreign currency
transactions............................................ (456,093) (1,066,276)
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 1,699,436 (14,431,203)
---------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 7,554,611 (2,927,370)
Distributions to shareholders from:
Net investment income..................................... (6,792,846) (10,313,998)
Net realized gains........................................ -- (477,504)
Tax return of capital..................................... -- (2,898,965)
Capital share transactions (Note 2)........................ -- (1,408,863)
---------------------------------------
Net increase (decrease) in net assets................... 761,765 (18,026,700)
Net assets:
Beginning of period........................................ 164,195,964 182,222,664
---------------------------------------
End of period.............................................. $164,957,729 $164,195,964
=======================================
Distributions in excess of net investment income included in
net assets:
End of period.............................................. $ (1,613,719) $ (1,132,141)
=======================================
</TABLE>
See Notes to Financial Statements.
15
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 a high level of current income consistent with
preservation of capital. Under normal market conditions, the Fund invests
primarily in a portfolio of debt securities issued or guaranteed by governments,
government agencies, and other government entities of various nations throughout
the world, including emerging markets. The following summarizes the Fund's
significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign 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.
16
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:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
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
On February 21, 1997, the Board of Trustees of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund
from time to time at the discretion of management may purchase up to an
aggregate 2 million shares of the Fund's shares of beneficial interest.
At February 28, 1999, there were an unlimited number of shares authorized ($0.01
par value). During the period ended February 28, 1999, there were no share
transactions; all reinvested distributions were satisfied with previously issued
shares purchased in the open market. During the year ended August 31, 1998,
200,000 shares were repurchased for $1,408,863.
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.
17
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
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.
Legal fees of $31,046 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, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 139,298
Unrealized depreciation..................................... (16,270,230)
------------
Net unrealized depreciation................................. $(16,130,932)
============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $69,377,636 and $73,337,288,
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.
18
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. 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.
As of February 28, 1999, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE GAIN/(LOSS)
- ------------------------------------------------------------------------ ------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1,537,000 European Unit............................................... U.S. $1,695,034 4/2/99 U.S. $ 4,883
========== --------
Unrealized gain on forward exchange contracts................... 4,883
--------
Net unrealized loss on offsetting forward exchange contracts.... (14,105)
--------
Net unrealized loss on forward exchange contracts............. U.S. $ (9,222)
========
</TABLE>
19
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Annual Meeting of Shareholders, February 16, 1999
An Annual Meeting of Shareholders of the Trust was held at the Trust's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on February 16, 1999. The purpose
of the meeting was to elect five 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, 1999; and in their discretion, to authorize the
proxyholders to vote upon such other 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: Frank J.
Crothers, John Wm. Galbraith, Rupert H. Johnson, Jr., Fred R. Millsaps and
Constantine D. Tseretopoulos.* Shareholders ratified the selection of McGladrey
& Pullen, LLP, to serve as the Trust's independent auditors for the fiscal year
ending August 31, 1999. No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of five (5) Trustees:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2002: FOR SHARES WITHHELD SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Crothers........................................... 19,551,817 86.35% 384,383 1.70%
John Wm. Galbraith.......................................... 19,549,946 86.34% 386,254 1.71%
Rupert H. Johnson, Jr....................................... 19,547,425 86.33% 388,775 1.72%
Fred R. Millsaps............................................ 19,548,453 86.33% 387,747 1.72%
Constantine D. Tseretopoulos................................ 19,550,570 86.34% 385,630 1.71%
</TABLE>
2. The ratification of the selection of McGladrey & Pullen, LLP, as independent
auditors of the Trust for the fiscal year ending August 31, 1999:
<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>
19,553,475 86.36% 154,281 0.68% 228,444 1.01% -- --
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, Andrew H. Hines, Jr.,
Edith E. Holiday, Charles B. Johnson, Betty P. Krahmer and Gordon S. Macklin are
Trustees of the Trust who are currently serving and whose terms of office
continued after the Annual Meeting of Shareholders.
20
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 Morgan Stanley Dean Witter Trust(FSB), 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
Morgan Stanley Dean Witter Trust(FSB) (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 shares of beneficial
interest 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 charge
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.
21
PAGE
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
TRANSFER AGENT
Morgan Stanley Dean Witter Trust(FSB)
Harborside Financial Center, Plaza Two
Jersey City, NJ 07311-3977
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 7
a.m. pacific time any business day at 1-800/DIAL BEN(R) (1-800/342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
Shareholders not receiving copies of the Reports to Shareholders because their
shares are registered in the name of a broker or a custodian can request that
they 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 33733-8030.
22
PAGE
This page intentionally left blank.
PAGE
This page intentionally left blank.
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending 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
Mutual Discovery 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
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard 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
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 Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund
Franklin Money 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**
California**
Colorado
Connecticut
Florida**
Georgia
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan+
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
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
plan 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. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
01/99
PAGE
SEMIANNUAL REPORT
TEMPLETON GLOBAL GOVERNMENTS
INCOME TRUST
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
Morgan Stanley Dean Witter Trust(FSB)
Harborside Financial Center, Plaza 2
Jersey City, New Jersey 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 value of the Trust's portfolio will be subject to the risk of
loss from market, currency, economic, political and other factors. The Trust and
its investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the 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 S99 04/99 [LOGO] Printed on recycled paper
