ANNUAL REPORT
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
AUGUST 31, 2000
[FRANKLIN(R) TEMPLETON(R) INVESTMENTS LOGO]
<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 Trust 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.
This report of Templeton Global Governments Income Trust covers the fiscal year
ended August 31, 2000. During the first half of the reporting period, upward
revisions in global economic growth forecasts, and inflationary fears stemming
from higher oil prices led many investors to be cautious about the possibility
of rising interest rates. Continuing U.S. economic growth, European economic
recovery, better-than-expected growth in Japan, and the possibility of a tighter
monetary policy stance by central banks all appeared to justify this cautious
approach. Most European countries experienced rising interest rates, the U.S.
Federal Reserve Board increased interest rates by 125 basis points, and
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Trust's Statement of Investments
(SOI). The SOI begins on page 9.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter............ 1
Performance Summary........... 6
Important Notice to
Shareholders.................. 7
Financial Highlights &
Statement of Investments...... 8
Financial Statements......... 12
Notes to Financial
Statements................... 15
Report of Independent
Accountants.................. 18
</TABLE>
[PYRAMID GRAPHIC]
<PAGE>
[PIE CHART]
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
<S> <C>
Europe 42.7%
Latin America 21.3%
Asia 10.5%
United States 10.1%
Canada 6.1%
Australia & New Zealand 5.6%
Short-Term Investments &
Other Net Assets 3.7%
</TABLE>
many analysts believed that with the possible exception of Japan, industrial
economies had reached the bottom of their interest rate cycles.
However, during the second half of the period, a bond buyback program
implemented by the U.S. Treasury reduced the supply of U.S. bonds, and concerns
about inflation seemed to diminish due to the release of economic data showing
growth rates converging toward more sustainable levels. Bonds began to appear
more attractive to many investors who put money back into the global fixed
income markets.
European bond markets offered positive returns in local currency terms. The U.K.
and EMU bond indexes rose 4.33% and 2.45%, respectively. Although the Swedish
bond market outperformed the EMU countries, Denmark did not do as well. The
Japanese debt market performed well despite a 25 basis point increase in
short-term interest rates by the Bank of Japan in August 2000. And
Australia/Canada/New Zealand dollar-bloc bond markets, where rising commodity
prices supported the local currency and helped contain inflation, outperformed
the global bond markets in general, but underperformed that of the U.S. in local
currency terms.(1)
(1) Source: J.P. Morgan Securities, Inc.
2
<PAGE>
Due largely to higher commodity prices, the J.P. Morgan Emerging Markets Bond
Index Global (EMBI Global) increased 30.23% during the 12-month period.(2) These
higher commodity prices contributed to improved export revenues of emerging
market countries, and coupled with continued strength in the U.S. equity market,
helped to increase investor appetite for emerging market bonds. Most countries
covered by the index experienced rising bond prices, with the exceptions of
Nigeria and Cote d'Ivoire (the "Ivory Coast"). Russian bonds were among the best
performers, increasing 127.20%, followed by those of Ecuador, Algeria and
Brazil, up 55.45%, 42.70% and 38.86%, respectively.
Within this environment, Templeton Global Governments Income Trust posted
cumulative total returns (in U.S. dollar terms) of 4.90% in market-price terms
and 2.82% in net asset value terms for the 12 months ended August 31, 2000, as
shown in the Performance Summary on page 6. The J.P. Morgan Global Government
Bond Index, which measures and tracks bonds from around the world, delivered a
4.40% return in local currency terms for the same 12-month period. However, a
stronger dollar versus the euro and the Japanese yen resulted in a lower return
of - 2.04% in U.S. dollar terms for the index. The J.P. Morgan U.S. Government
Bond Index, which measures and tracks U.S. Treasury securities, was up 8.28%.(2)
Throughout the reporting period, we attempted to meet the Trust's objective by
allocating approximately 60% - 65% of total
(2) Sources for all indexes: J.P. Morgan Securities, Inc. The J.P. Morgan
Emerging Markets Bond Index Global tracks total returns for U.S.-dollar
denominated debt instruments issued by emerging market sovereign and
quasi-sovereign entities. The J.P. Morgan Global Government Bond Index measures
and tracks bonds from around the world. The J.P. Morgan U.S. Government Bond
Index measures and tracks U.S. Treasury securities. Indexes are measured in U.S.
dollars (unless otherwise specified) and include reinvested interest. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
<TABLE>
<CAPTION>
PORTFOLIO BREAKDOWN
Based on Total Net Assets
8/31/00
<S> <C>
Government Bonds 93.3%
Corporate Bonds 3.0%
Short-Term Investments
& Other Net Assets 3.7%
</TABLE>
3
<PAGE>
net assets to intermediate- and long-term bonds in developed markets, with the
remaining assets invested in what we believed were the highest-quality and
most-liquid bonds in emerging markets. In our opinion, this combination of
investments offered the potential for higher long-term returns at the cost of
modestly higher short-term volatility. Because emerging market bonds generally
outperformed higher-quality industrial market debt during this period, our
allocation to emerging market debt added positively to the Trust's performance.
The Trust's geographic allocation changed slightly during the period. Our
allocation to North America decreased from 21.9% to 16.2% of total net assets,
with U.S. and Canadian exposure decreasing by 3.0% and 2.7%, respectively. We
increased our European allocation slightly from 41.9% to 42.7%, adjusting the
underlying country mix to reduce our exposure to Germany, add a position in
Spain, and initiate new positions in Belgium, France and the Netherlands. The
Trust's New Zealand allocation decreased by 2%, while we added to our position
in Turkey and initiated a position in South Korea. We also increased our
holdings in Latin America by approximately 1%, leaving our exposure to that
region at 21.3% on August 31, 2000.
4
<PAGE>
Looking forward, we are optimistic about prospects for global bond markets and
Templeton Global Governments Income Trust. In our opinion, global economic
growth should remain strong in the short term, and inflation could be relatively
tame. This could prove to be an attractive environment for high-quality bonds
and contributes to our positive outlook for the Trust. We also believe that the
Trust's emerging market positions may continue to offer attractive return
opportunities for its portfolio.
It is important to note 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. These special risks and
other considerations are discussed in the Trust's prospectus.
We look forward to serving your future investment needs, and welcome your
comments or suggestions.
Portfolio Management Team
Templeton Global Governments Income Trust
This discussion reflects our views, opinions and portfolio holdings as of August
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Trust. Our strategies and the Trust's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
5
<PAGE>
(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.
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 risk of loss with
respect to its portfolio securities. You may have a gain or loss when you sell
your shares.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 8/31/00
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.
<TABLE>
<S> <C>
One-Year Total Return 2.82% Based on change in Net Asset Value
4.90% Based on change in Market Price on
the New York Stock Exchange (NYSE)
</TABLE>
<TABLE>
<S> <C> <C>
Net Asset Value (NAV) $6.54 (8/31/00) $7.04 (8/31/99)
Change in NAV -$0.50
Market Price (NYSE) $5.8125 (8/31/00) $6.1250 (8/31/99)
Change in Market Price -$0.3125
Distributions (9/1/99-8/31/00) Dividend Income $0.6000
</TABLE>
ADDITIONAL PERFORMANCE AS OF 9/30/00
<TABLE>
<CAPTION>
Inception
1-Year 5-Year 10-Year (11/22/88)
<S> <C> <C> <C> <C>
Cumulative Total Return(1)
Based on change in
NAV -1.02% 22.83% 71.06% 99.39%
Based on change in
market price* -0.94% 22.97% 72.67% 71.03%
Average Annual Total Return(2)
Based on change in
NAV -1.02% 4.20% 5.51% 5.99%
Based on change in
market price* -0.94% 4.22% 5.61% 4.63%
</TABLE>
*Market price returns assume reinvestment of dividends as of the 9/30/00 closing
market price. Your actual returns may differ.
For updated performance figures, please call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
6
<PAGE>
IMPORTANT NOTICE TO SHAREHOLDERS
EURO RISK. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of most of the member countries.
It is not possible to predict the long-term impact of the euro on currency
values or on the business or financial condition of European countries and
issuers, and issuers in other regions, whose securities the Fund may hold, or
the impact, if any, on Fund performance. In the first year and a half of the
euro's existence, the exchange rates of the euro versus many of the world's
major currencies steadily declined. In this environment, U.S. and other foreign
investors experienced erosion of their investment returns on their
euro-denominated securities. The transition and the elimination of currency risk
among EMU countries may change the economic environment and behavior of
investors, particularly in European markets, but the full impact of those
changes cannot be assessed at this time.
SHARE REPURCHASE PROGRAM. In May 2000, the Board of Trustees of the Trust
approved expansion of the Trust's open-market share repurchase program. Under
the Trust's previously announced open-market share repurchase program, the Trust
was authorized to purchase, from time to time, up to a maximum of 2 million
shares of the Trust's shares of beneficial interest in open-market transactions,
at the discretion of management (approximately 10% of the shares outstanding at
the time the program was initially implemented).
The Board's action removed the 10% limitation on share repurchases in order to
give management greater flexibility to engage in an aggressive share repurchase
program in efforts to address the Trust's discount to net asset value. The
amount and timing of additional purchases, and the extent to which they may
exceed the previous limitation, will be at the discretion of the Trust's
management, taking into account various factors, including market conditions,
cash on hand and the availability of other attractive investments.
7
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $7.04 $7.25 $7.98 $8.01 $7.71
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .55 .56 .55 .56 .60
Net realized and unrealized gains (losses)................ (.46) (.17) (.69) .01 .30
--------------------------------------------------------
Total from investment operations........................... .09 .39 (.14) .57 .90
--------------------------------------------------------
Capital share repurchases.................................. .01 -- .01 -- --
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.55) (.60) (.45) (.56) (.35)
Net realized gains........................................ -- -- (.02) (.01) --
In excess of net realized gains........................... -- -- -- (.02) --
Tax return of capital..................................... (.05) -- (.13) (.01) (.25)
--------------------------------------------------------
Total distributions........................................ (.60) (.60) (.60) (.60) (.60)
--------------------------------------------------------
Net asset value, end of year............................... $6.54 $7.04 $7.25 $7.98 $8.01
========================================================
Total Return
Based on market value per share........................... 4.90% 10.49% (13.02)% 15.01% 10.66%
Based on net asset value per share........................ 2.82% 6.19% (1.41)% 7.95% 12.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $145,628 $159,448 $164,196 $182,223 $183,011
Ratios to average net assets:
Expenses.................................................. .98% 1.02% 1.02% .97% .96%
Net investment income..................................... 7.96% 7.51% 6.98% 6.90% 7.50%
Portfolio turnover rate.................................... 95.04% 55.00% 52.28% 197.82% 116.55%
</TABLE>
+Based on average weighted shares outstanding effective year ended August 31,
1999.
See Notes to Financial Statements.
8
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.3%
ARGENTINA 3.5%
Republic of Argentina:
11.00%, 10/09/06.......................................... $ 3,500,000 $ 3,325,000
11.75%, 4/07/09........................................... 475,000 444,006
9.75%, 9/19/27............................................ 1,650,000 1,274,109
------------
5,043,115
------------
AUSTRALIA 3.9%
Government of Australia, 10.00%, 10/15/07................... 4,044,000 AUD 2,827,903
Queensland Treasury Corp., 6.50%, 6/14/05................... 4,943,000 AUD 2,847,159
------------
5,675,062
------------
BELGIUM 3.0%
Kingdom of Belgium, 8.50%, 10/01/07......................... 4,214,000 EUR 4,359,362
------------
BRAZIL 7.5%
Government of Brazil:
FRN, 7.4375%, 4/15/09..................................... 4,085,000 3,612,672
14.50%, 10/15/09.......................................... 1,940,000 2,154,855
Series L, cvt., FRN, 7.4375%, 4/15/12..................... 4,275,000 3,310,475
12.75%, 1/15/20........................................... 1,000,000 978,750
10.125%, 5/15/27.......................................... 1,100,000 874,775
------------
10,931,527
------------
CANADA 6.1%
Government of Canada:
10.50%, 3/01/01........................................... 8,324,000 CAD 5,772,046
10.00%, 5/01/02........................................... 4,310,000 CAD 3,109,636
------------
8,881,682
------------
DENMARK 1.6%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 4,815,000 DKK 577,413
8.00%, 3/15/06............................................ 13,331,000 DKK 1,756,177
------------
2,333,590
------------
FRANCE 5.9%
Government of France:
8.25%, 2/27/04............................................ 7,400,000 EUR 7,179,605
8.50%, 10/25/08........................................... 1,304,000 EUR 1,389,442
------------
8,569,047
------------
GERMANY 5.9%
Federal Republic of Germany, 8.00%, 7/22/02................. 9,162,351 EUR 8,531,869
------------
INDIA .1%
+*Essar Steel Ltd., 144A, FRN, 7.635%, 7/20/99.............. 255,000 133,875
------------
</TABLE>
9
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ITALY 6.6%
Buoni Poliennali del Tesoro:
8.75%, 7/01/06............................................ 2,140,000 EUR $ 2,200,121
6.75%, 7/01/07............................................ 1,142,000 EUR 1,081,286
Government of Italy:
10.50%, 11/01/00.......................................... 1,497,722 EUR 1,341,532
10.50%, 4/01/05........................................... 1,228,000 EUR 1,305,187
10.50%, 9/01/05........................................... 3,395,000 EUR 3,658,499
------------
9,586,625
------------
MEXICO 4.2%
United Mexican States:
9.875%, 1/15/07........................................... 1,925,000 2,040,981
8.625%, 3/12/08........................................... 1,065,000 1,061,273
11.375%, 9/15/16.......................................... 2,610,000 3,066,750
------------
6,169,004
------------
NETHERLANDS 3.7%
Cellco Finance NV, 15.00%, 8/01/05.......................... 2,375,000 2,591,719
Government of Netherlands, 7.75%, 3/01/05................... 2,900,000 EUR 2,814,918
------------
5,406,637
------------
NEW ZEALAND 1.7%
Government of New Zealand, 8.00%, 11/15/06.................. 5,420,000 NZD 2,460,968
------------
PANAMA .6%
Republic of Panama, 8.875%, 9/30/27......................... 960,000 843,600
------------
SOUTH KOREA 2.9%
Hanvit Bank, 144A, 12.75%, 3/01/10.......................... 1,650,000 1,693,395
Republic of Korea, 8.875%, 4/15/08.......................... 2,360,000 2,491,216
------------
4,184,611
------------
SPAIN 4.9%
Bonos y Oblig del Estado, 8.80%, 4/30/06.................... 2,113,000 EUR 2,168,793
Government of Spain:
10.10%, 2/28/01........................................... 2,738,211 EUR 2,489,781
10.15%, 1/31/06........................................... 2,320,000 EUR 2,492,742
------------
7,151,316
------------
SWEDEN 4.0%
Kingdom of Sweden:
13.00%, 6/15/01........................................... 5,000,000 SEK 564,817
10.25%, 5/05/03........................................... 44,500,000 SEK 5,329,360
------------
5,894,177
------------
</TABLE>
10
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TURKEY 7.5%
Republic of Turkey:
Reg S, 9.875%, 2/23/05.................................... $ 825,000 $ 831,188
Reg S, 10.00%, 9/19/07.................................... 5,280,000 5,273,400
12.375%, 6/15/09.......................................... 4,410,000 4,789,260
------------
10,893,848
------------
UNITED KINGDOM 7.1%
United Kingdom:
8.00%, 12/07/00........................................... 5,115,000 GBP 7,480,383
8.50%, 7/16/07............................................ 1,714,000 GBP 2,891,289
------------
10,371,672
------------
UNITED STATES 10.1%
Fannie Mae, 5.25%, 1/15/09.................................. 5,435,000 4,880,744
U.S. Treasury Bonds:
5.25%, 11/15/28........................................... 4,438,000 4,085,734
5.25%, 2/15/29............................................ 2,420,000 2,230,938
U.S. Treasury Notes:
6.125%, 8/31/02........................................... 2,700,000 2,698,313
7.25%, 8/15/04............................................ 850,000 885,329
------------
14,781,058
------------
VENEZUELA 5.5%
Republic of Venezuela, 9.25%, 9/15/27....................... 11,615,000 7,880,052
Venezuela Front Load Interest Reduction Bond, A, FRN,
7.4375%, 3/31/07.......................................... 166,665 144,478
------------
8,024,530
------------
TOTAL LONG TERM INVESTMENTS (COST $161,347,344)............. 140,227,175
------------
SHORT TERM INVESTMENTS (COST $2,195,000) 1.5%
Den Danske Bank, 6.625%, 9/01/00, Time Deposit.............. 2,195,000 2,195,000
------------
TOTAL INVESTMENTS (COST $163,542,344) 97.8%................. 142,422,175
OTHER ASSETS, LESS LIABILITIES 2.2%......................... 3,205,385
------------
TOTAL NET ASSETS 100.0%..................................... $145,627,560
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C> <C>
AUD -- Australian Dollar
CAD -- Canadian Dollar
DKK -- Danish Krone
EUR -- European Unit
GBP -- British Pound
NZD -- New Zealand Dollar
SEK -- Swedish Krona
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Represents defaulted bonds.
See Notes to Financial Statements.
11
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $163,542,344).... $142,422,175
Cash....................................................... 229
Receivables:
Investment securities sold................................ 2,776,717
Interest.................................................. 4,519,393
------------
Total assets.......................................... 149,718,514
------------
Liabilities:
Payables:
Investment securities purchased........................... 2,694,551
To affiliates............................................. 99,923
Distributions to shareholders.............................. 1,113,676
Accrued expenses........................................... 182,804
------------
Total liabilities..................................... 4,090,954
------------
Net assets, at value........................................ $145,627,560
============
Net assets consist of:
Distributions in excess of net investment income........... $ (1,113,676)
Net unrealized depreciation................................ (21,217,435)
Accumulated net realized loss.............................. (11,674,830)
Beneficial shares.......................................... 179,633,501
------------
Net assets, at value........................................ $145,627,560
============
Net asset value per share ($145,627,560 / 22,273,521 shares
outstanding).............................................. $6.54
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
<TABLE>
<S> <C> <C>
Interest Income (net of foreign taxes of $21,693)........... $ 13,872,879
Expenses:
Management fees (Note 3)................................... $ 852,934
Administrative fees (Note 3)............................... 387,693
Transfer agent fees........................................ 100,200
Custodian fees............................................. 29,650
Reports to shareholders.................................... 55,150
Registration and filing fees............................... 30,000
Professional fees.......................................... 33,700
Trustees' fees and expenses................................ 33,200
Other...................................................... 4,626
------------
Total expenses........................................ 1,527,153
------------
Net investment income........................... 12,345,726
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (11,213,929)
Foreign currency transactions............................. (466,417)
------------
Net realized loss..................................... (11,680,346)
Net unrealized appreciation (depreciation) on:
Investments............................................... 1,340,238
Translation of assets and liabilities denominated in
foreign currencies...................................... (95,062)
------------
Net unrealized appreciation........................... 1,245,176
------------
Net realized and unrealized loss............................ (10,435,170)
------------
Net increase in net assets resulting from operations........ $ 1,910,556
============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 12,345,726 $ 12,642,152
Net realized gain (loss) from investments and foreign
currency transactions.................................... (11,680,346) 716,186
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 1,245,176 (4,520,692)
-------------------------------
Net increase in net assets resulting from operations.... 1,910,556 8,837,646
Distributions to shareholders from:
Net investment income..................................... (12,361,808) (13,585,693)
Tax return of capital..................................... (1,182,865) --
-------------------------------
Total distributions to shareholders........................ (13,544,673) (13,585,693)
Beneficial share transactions (Note 2)..................... (2,186,240) --
Net decrease in net assets.............................. (13,820,357) (4,748,047)
Net assets:
Beginning of year.......................................... 159,447,917 164,195,964
-------------------------------
End of year................................................ $145,627,560 $159,447,917
===============================
Distributions in excess of net investment income included in
net assets:
End of year................................................ $ (1,113,676) $ (1,132,141)
===============================
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements
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 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. 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.
Distributions to shareholders are recorded on the ex-dividend date.
15
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. 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.
e. 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 Directors of the Fund authorized management
to implement an open-market share repurchase program pursuant to which the Fund
may purchase, from time to time, up to 2 million shares of the Fund's common
stock in open-market transactions, at the discretion of management
(approximately 10% of the shares outstanding at the time the program was
initially implemented). Recent action by the Board of Directors has removed the
10% limitation on share repurchases in order to give management greater
flexibility to engage in an aggressive share repurchase program.
At August 31, 2000, there were an unlimited number of shares authorized ($0.01
par value). During the year ended August 31, 2000, 369,300 shares were
repurchased for $2,186,240. The weighted average discount of market price to net
asset value of shares repurchased during the year ending August 31, 2000 was
11%. During the year ended August 31, 1999, there were no share transactions;
all reinvested distributions were satisfied with previously issued shares
purchased in the open market. Through August 31, 2000 the Fund had repurchased a
total of 569,300 shares.
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>
16
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
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.
4. 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.
At August 31, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $165,865,570 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 929,204
Unrealized depreciation..................................... (24,372,599)
------------
Net unrealized depreciation................................. $(23,443,395)
============
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of wash sales,
losses realized subsequent to October 31, on sales of securities and foreign
currencies, and foreign currency gains/losses on the sale of debt instruments.
At August 31, 2000, the Fund had deferred capital and currency losses occurring
subsequent to October 31, 1999 of $2,834,006 and $6,383,463, respectively. For
tax purposes, such losses will be reflected in the year ending August 31, 2001.
At August 31, 2000, the Fund had tax basis capital losses of $134,135 which may
be carried over to offset future capital gains. Such losses expire August 31,
2008.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $140,630,255 and $146,784,562, respectively.
17
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Global Governments
Income Trust (the "Fund") at August 31, 2000, the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The financial highlights for each of the
three years ending August 31, 1998 were audited by other independent accountants
whose report dated September 29, 1998 expressed an unqualified opinion on those
financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 29, 2000
18
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Annual Meeting of Shareholders, March 7, 2000
An Annual Meeting of Shareholders of the Trust was held at the Trust's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on March 7, 2000. The purpose of
the meeting was to elect four Trustees of the Trust; to ratify the selection of
PricewaterhouseCoopers LLP, as the Trust's independent auditors for the fiscal
year ending August 31, 2000; and to authorize the proxyholders, in their
discretion, to vote upon such other matters that may properly come before the
meeting or any adjournments of the meeting. At the meeting, the following
persons were elected by the shareholders to serve as Trustees of the Trust:
Nicholas F. Brady, Edith E. Holiday, Charles B. Johnson and Betty P. Krahmer.*
Shareholders also ratified the selection of PricewaterhouseCoopers LLP, to serve
as the Trust's independent auditors for the fiscal year ending August 31, 2000.
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:
<TABLE>
<CAPTION>
% OF % OF % OF
TERM EXPIRING 2003: FOR OUTSTANDING SHARES VOTED SHARES WITHHELD OUTSTANDING SHARES
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nicholas F. Brady......... 17,067,754 75.38% 99.21% 135,893 0.60%
Edith E. Holiday.......... 17,069,698 75.39% 99.22% 133,949 0.59%
Charles B. Johnson........ 17,070,333 75.39% 99.23% 133,314 0.59%
Betty P. Krahmer.......... 17,059,322 75.34% 99.16% 144,325 0.64%
<CAPTION>
% OF
TERM EXPIRING 2003: VOTED SHARES
----------------------------------------
<S> <C>
Nicholas F. Brady......... 0.79%
Edith E. Holiday.......... 0.78%
Charles B. Johnson........ 0.77%
Betty P. Krahmer.......... 0.84%
</TABLE>
2. The ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of the Trust for the fiscal year ending August 31, 2000:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
For....................... 17,033,827 75.23% 99.01%
Against................... 47,580 0.21% 0.28%
Abstain................... 122,240 0.54% 0.71%
</TABLE>
3. The transaction of any other business that may properly come before the
meeting or any adjournments thereof:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
For....................... 16,822,021 74.30% 97.78%
Against................... 147,870 0.65% 0.86%
Abstain................... 233,756 1.03% 1.36%
</TABLE>
*Harris J. Ashton, Frank J. Crothers, S. Joseph Fortunato, John Wm. Galbraith,
Andrew H. Hines, Jr., Rupert H. Johnson, Jr., Gordon S. Macklin, Fred R.
Millsaps and Constantine D. Tseretopoulos are Trustees of the Trust who are
currently serving and whose terms of office continued after the Annual Meeting
of Shareholders.
19
<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 that 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.
20
<PAGE>
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
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.
21
<PAGE>
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
TEMPLETON GLOBAL GOVERNMENTS
INCOME TRUST
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
TRANSFER AGENT
Morgan Stanley Dean Witter Trust (FSB)
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. 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.
