SEMI ANNUAL REPORT
FEBRUARY 29, 2000
TEMPLETON GLOBAL
GOVERNMENTS INCOME TRUST
[FRANKLIN TEMPLETON LOGO]
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.
- --------------------------------------------------------------------------------
Dear Shareholder:
This report of Templeton Global Governments Income Trust covers the six months
ended February 29, 2000. During this period, many European economies grew
significantly, growth in Japan was better than expected, and the U.S. economy
continued to expand at a blistering pace. This economic growth increased global
inflationary pressures and led to a tighter monetary policy by many central
banks. In the U.S., the Federal Reserve Board (the Fed) increased interest rates
by 75 basis points, and most European countries also experienced rising interest
rates. Believing that most industrial economies might experience further
interest
CONTENTS
Shareholder Letter .................................................... 1
Important Notice to
Shareholders .......................................................... 5
Performance Summary ................................................... 6
Financial Highlights &
Statement of Investments .............................................. 7
Financial Statements .................................................. 11
Notes to Financial
Statements ............................................................ 14
[PYRAMID GRAPHIC]
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the Trust's Statement of Investments (SOI), a complete listing
of the Trust's portfolio holdings, including dollar value and number of shares
or principal amount. The SOI begins on page 8.
[PIE CHART GRAPHIC]
Europe 40.2%
Latin America 20.4%
Asia 9.6%
United States 9.2%
Canada 9.1%
Australia &
New Zealand 5.6%
Short-Termn Investments &
Other Net Assets 5.9%
rate increases, many investors deserted bond markets of developed countries, and
bond prices in these countries, especially the U.S., dropped in value.
However, many emerging market bond prices rose during the period, largely as a
result of increasing commodity prices, which improved export revenues and, thus,
the repayment capacity of issuer countries. Despite uncertainty stemming from
the implementation of Venezuela's new constitution, the value of Venezuelan debt
rose largely due to the recovery in oil prices. Brazilian bonds rebounded
following that nation's currency crisis in January 1999, as a result of official
external financial support from the International Monetary Fund and foreign
governments, as well as implementation of economic measures designed to
stabilize Brazil's fiscal situation.
During the six months under review, the U.S. dollar strengthened against most
major currencies, rising 1.56% against the British pound and 9.58% versus the
euro. Other dollar-bloc countries' currencies posted mixed results against the
U.S. dollar, with the Canadian dollar falling 2.88% and the Australian and New
Zealand dollars increasing 3.71% and 5.93%, respectively. Among major emerging
market currencies, the Brazilian real and South Korean won strengthened against
the U.S. dollar, appreciating 7.95% and 4.18%, while the Mexican peso fell 0.15%
versus the U.S. dollar.
Within this environment, Templeton Global Governments Income Trust posted a
0.85% cumulative total return based on market value, and a 2.30% cumulative
total return based on net asset value, for the six months ended February 29,
2000, as shown in the Performance Summary on page 6. The
2
J.P. Morgan U.S. Government Bond Index and the J.P. Morgan Global Government
Bond Index posted returns of 1.85% and -2.63%, respectively, for the same
period.(1)
During the reporting period, we attempted to maximize the Trust's return by
allocating approximately 64% of total 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 opportunity for higher
long-term returns at the cost of modestly higher short-term volatility. The
Trust's allocation to emerging market debt added positively to its performance
during the period, as emerging market bonds generally outperformed higher
quality industrial market securities.
The Trust's geographic allocation remained relatively stable during the period.
Exposure to European and dollar-bloc countries fell slightly to 40.2% and 5.6%
at the end of the period, down from 41.9% and 7.7%, respectively. The Trust's
allocation to North America was decreased by 3.6%, and Asian exposure increased
3.7%. At the end of the period, emerging market debt represented 30.0% of the
Trust's total net assets, up from 26.3% at the beginning.
Looking forward, we are optimistic about prospects for global bond markets and
Templeton Global Governments Income Trust. Because we expect slowing growth in
the U.S. economy, our long-term outlook for the euro, relative to the U.S.
dollar,
PORTFOLIO BREAKDOWN
Based on Total Net Assets
2/29/00
- -----------------------------------------
Government Bonds 91.6%
Corporate Bonds 2.5%
Short-Term Investments
& Other Net Assets 5.9%
1. Sources for all indices: J.P. Morgan Securities, Inc. The J.P. Morgan U.S.
Government Bond Index measures and tracks U.S. Treasury securities. The J.P.
Morgan Global Government Bond Index measures and tracks bonds from around the
world. Indexes are measured in U.S. dollars and include reinvested interest. One
cannot invest directly in an index, nor is an index representative of the
Trust's portfolio.
3
remains positive. In our opinion, such a slowdown could coincide with
Euroland economic recovery, potentially leading to a stronger euro versus the
U.S. dollar. On the other hand, our outlook for the Japanese yen is slightly
negative. We believe the Japanese economy cannot afford a strong yen over the
medium to long term because a strong currency translates into a loss of export
competitiveness, which would weaken Japan's export-driven economy. As always, we
will monitor global markets closely and manage the Trust's portfolio in an
effort to take advantage of potential opportunities as they arise.
It is important to note that special risks are 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 look forward to continuing to serve your investment needs, and we welcome
your comments or suggestions.
Portfolio Management Team
Templeton Global Governments Income Trust
This discussion reflects our views, opinions and portfolio holdings as
of February 29, 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.
4
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 the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of each of the participating countries, however, has
retained the authority to set its own tax and spending policies and public debt
levels.
The change to the euro as a single currency is new and untested. It is uncertain
how eleven different economies will adjust to a unified monetary system and the
loss of exchange rate flexibility. In the first six months 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.
It is not possible to predict the 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 Trust may hold, or the impact, if
any, on Trust performance. The transition and the elimination of currency risk
among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. The Trust's non-U.S. dollar (euro
or other) denominated investments will still be exposed to currency risk due to
fluctuations among those currencies and versus the U.S. dollar.
While the implementation of the euro could have a negative effect on the Trust,
the Trust's manager and its affiliated service providers are taking steps they
believe are reasonably designed to address the euro issue.
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.
5
SIX-MONTH PERFORMANCE SUMMARY AS OF 2/29/00
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.
PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C>
Six-Month Total Return 2.30% (Based on change
in Net Asset Value)
0.85% (Based on change
in Market Price)
Net Asset Value (NAV) $6.85 (2/29/00) $7.04 (8/31/99)
Change in NAV -$0.19
Market Price (NYSE) $5.875 (2/29/00) $6.125 (8/31/99)
Change in Market Price -$0.25
Distributions (9/1/99 - 2/29/00) Dividend Income $0.30
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<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
net asset value 1.44% 37.15% 90.14% 102.34%
Based on change in
market price -2.28% 33.88% 67.02% 65.89%
Average Annual Total Return(2)
Based on change in
net asset value 1.44% 6.52% 6.64% 6.40%
Based on change in
market price -2.28% 6.01% 5.26% 4.56%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
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.
For updated performance figures, please call Franklin Templeton at
1-800/342-5236. Past performance does not guarantee future results.
6
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 --------------------------------------------------------
(UNAUDITED)+ 1999+ 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $7.04 $7.25 $7.98 $8.01 $7.71 $7.56
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .27 .56 .55 .56 .60 .64
Net realized and unrealized gains
(losses)................................. (.16) (.17) (.68) .01 .30 .15
-----------------------------------------------------------------------------
Total from investment operations.......... .11 .39 (.13) .57 .90 .79
-----------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.30) (.60) (.45) (.56) (.35) (.59)
In excess of net investment income....... -- -- -- -- -- (.05)
Net realized gains....................... -- -- (.02) (.01) -- --
In excess of net realized gains.......... -- -- -- (.02) -- --
Tax return of capital.................... -- -- (.13) (.01) (.25) --
-----------------------------------------------------------------------------
Total distributions....................... (.30) (.60) (.60) (.60) (.60) (.64)
-----------------------------------------------------------------------------
Net asset value, end of period............ $6.85 $7.04 $7.25 $7.98 $8.01 $7.71
=============================================================================
Total Return*
Based on market value per share.......... .85% 10.49% (13.02)% 15.01% 10.66% 15.87%
Based on net asset value per share....... 2.30% 6.19% (1.41)% 7.95% 12.95% 11.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $155,175 $159,448 $164,196 $182,223 $183,011 $176,212
Ratios to average net assets:
Expenses................................. .96%** 1.02% 1.02% .97% .96% 1.03%
Net investment income.................... 7.83%** 7.51% 6.98% 6.90% 7.50% 8.43%
Portfolio turnover rate................... 28.15% 55.00% 52.28% 197.82% 116.55% 111.03%
</TABLE>
*Total return is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
See Notes to Financial Statements.
7
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 94.1%
ARGENTINA 5.3%
Republic of Argentina:
8.375%, 12/20/03.......................................... $ 1,550,000 $ 1,439,562
11.00%, 10/09/06.......................................... 3,500,000 3,456,250
11.75%, 4/07/09........................................... 1,225,000 1,241,231
11.375%, 1/30/17.......................................... 480,000 474,300
9.75%, 9/19/27............................................ 1,791,000 1,585,035
------------
8,196,378
------------
AUSTRALIA 3.8%
Government of Australia, 10.00%, 10/15/07................... 4,044,000 AUD 2,969,339
Queensland Treasury Corp., 6.50%, 6/14/05................... 4,943,000 AUD 2,987,575
------------
5,956,914
------------
BRAZIL 6.2%
Republic of Brazil:
12.75%, 1/15/00........................................... 1,000,000 981,250
8.875%, 11/05/01.......................................... 485,000 486,212
FRN, 7.00%, 4/15/09....................................... 4,085,000 3,362,466
14.50%, 10/15/09.......................................... 640,000 691,840
Series L, cvt., FRN, 7.00%, 4/15/12....................... 4,275,000 3,182,203
10.125%, 5/15/27.......................................... 1,100,000 889,350
------------
9,593,321
------------
CANADA 9.1%
Government of Canada:
10.50%, 7/01/00........................................... 7,000,000 CAD 4,903,329
10.50%, 3/01/01........................................... 8,324,000 CAD 5,994,771
10.00%, 5/01/02........................................... 4,310,000 CAD 3,200,153
------------
14,098,253
------------
DENMARK 1.7%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 4,815,000 DKK 643,051
8.00%, 3/15/06............................................ 13,331,000 DKK 1,928,402
------------
2,571,453
------------
GERMANY 13.2%
European Economic Community, 6.50%, 3/10/00................. 11,478,503 EUR 11,053,152
Federal Republic of Germany, 8.00%, 7/22/02................. 9,162,351 EUR 9,463,678
------------
20,516,830
------------
INDIA .1%
+*Essar Steel Ltd., 144A, FRN, 7.635%, 7/20/99.............. 255,000 175,950
------------
</TABLE>
8
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
ITALY 5.8%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00........................................... 4,960,560 EUR $ 4,885,150
10.50%, 11/01/00.......................................... 1,497,722 EUR 1,502,207
10.50%, 4/01/05........................................... 1,228,000 EUR 1,449,804
6.75%, 7/01/07............................................ 1,142,000 EUR 1,176,644
------------
9,013,805
------------
MEXICO 3.0%
United Mexican States:
9.75%, 4/06/05............................................ 560,000 584,500
9.875%, 1/15/07........................................... 2,030,000 2,128,963
11.375%, 9/15/16.......................................... 1,600,000 1,902,000
------------
4,615,463
------------
NETHERLANDS 1.3%
Cellco Finance NV, 15.00%, 8/01/05.......................... 1,875,000 2,076,750
------------
NEW ZEALAND 1.8%
Government of New Zealand, 8.00%, 11/15/06.................. 5,420,000 NZD 2,754,814
------------
PANAMA .5%
Republic of Panama, 8.875%, 9/30/27......................... 960,000 826,800
------------
SOUTH KOREA 2.7%
Hanvit Bank, 144A, 12.75%, 3/01/10.......................... 1,650,000 1,695,210
Republic of Korea, 8.875%, 4/15/08.......................... 2,360,000 2,458,825
------------
4,154,035
------------
SPAIN 6.8%
Government of Spain:
12.25%, 3/25/00........................................... 5,115,394 EUR 4,948,737
10.10%, 2/28/01........................................... 2,738,211 EUR 2,785,689
10.15%, 1/31/06........................................... 2,320,000 EUR 2,759,703
------------
10,494,129
------------
SWEDEN 4.1%
Kingdom of Sweden:
13.00%, 6/15/01........................................... 5,000,000 SEK 626,667
10.25%, 5/05/03........................................... 44,500,000 SEK 5,747,061
------------
6,373,728
------------
</TABLE>
9
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
TURKEY 6.8%
Republic of Turkey:
Reg S, 9.875%, 2/23/05.................................... $ 825,000 $ 814,688
Reg S, 10.00%, 9/19/07.................................... 5,280,000 5,121,600
12.375%, 6/15/09.......................................... 4,080,000 4,365,600
11.875%, 1/15/30.......................................... 330,000 344,747
------------
10,646,635
------------
UNITED KINGDOM 7.3%
United Kingdom:
8.00%, 12/07/00........................................... 5,115,000 GBP 8,174,149
8.50%, 7/16/07............................................ 1,714,000 GBP 3,118,455
------------
11,292,604
------------
UNITED STATES 9.2%
Fannie Mae, 5.25%, 1/15/09.................................. 5,435,000 4,722,972
U.S. Treasury Bonds:
5.25%, 11/15/28........................................... 5,408,000 4,661,020
5.25%, 2/15/29............................................ 2,420,000 2,088,007
U.S. Treasury Notes:
7.25%, 8/15/04............................................ 850,000 869,391
5.875%, 11/15/04.......................................... 1,940,000 1,884,225
------------
14,225,615
------------
VENEZUELA 5.4%
Republic of Venezuela, 9.25%, 9/15/27....................... 9,850,000 6,673,375
Venezuela Front Load Interest Reduction Bond, A, FRN,
6.875%, 3/31/07........................................... 2,142,840 1,789,271
------------
8,462,646
------------
TOTAL LONG TERM SECURITIES (COST $168,036,399).............. 146,046,123
------------
SHORT TERM INVESTMENTS (COST $5,260,000) 3.4%
Deutsche Bank AG, 5.81%, 3/01/00, Time Deposit.............. 5,260,000 5,260,000
------------
TOTAL INVESTMENTS (COST $173,296,399) 97.5%................. 151,306,123
OTHER ASSETS, LESS LIABILITIES 2.5%......................... 3,869,202
------------
TOTAL NET ASSETS 100.0%..................................... $155,175,325
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <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.
10
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $173,296,399).... $151,306,123
Cash....................................................... 552
Interest receivable........................................ 5,281,676
------------
Total assets.......................................... 156,588,351
------------
Liabilities:
Payable to affiliates...................................... 120,255
Distributions to shareholders.............................. 1,132,141
Accrued expenses........................................... 160,630
------------
Total liabilities..................................... 1,413,026
------------
Net assets, at value........................................ $155,175,325
============
Net assets consist of:
Distributions in excess of net investment income........... $ (1,727,445)
Net unrealized depreciation................................ (22,170,434)
Accumulated net realized loss.............................. (3,929,402)
Beneficial shares.......................................... 183,002,606
------------
Net assets, at value........................................ $155,175,325
============
Net asset value per share ($155,175,325 / 22,642,821 shares
outstanding).............................................. $6.85
============
</TABLE>
See Notes to Financial Statements.
11
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Interest Income............................................. $ 6,956,994
Expenses:
Management fees (Note 3)................................... 435,480
Administrative fees (Note 3)............................... 197,945
Transfer agent fees........................................ 34,700
Custodian fees............................................. 17,100
Reports to shareholders.................................... 35,000
Professional fees.......................................... 16,700
Trustees' fees and expenses................................ 20,200
Other...................................................... 2,327
-----------
Total expenses........................................ 759,452
-----------
Net investment income........................... 6,197,542
-----------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (3,928,515)
Foreign currency transactions........................... (40,950)
-----------
Net realized loss..................................... (3,969,465)
Net unrealized appreciation (depreciation) on:
Investments............................................... 470,131
Translation of assets and liabilities denominated in
foreign currencies........................................ (177,954)
-----------
Net unrealized appreciation........................... 292,177
-----------
Net realized and unrealized loss............................ (3,677,288)
-----------
Net increase in net assets resulting from operations........ $ 2,520,254
===========
</TABLE>
See Notes to Financial Statements.
12
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,197,542 $ 12,642,152
Net realized gain (loss) from investments and foreign
currency transactions................................... (3,969,465) 716,186
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies...................................... 292,177 (4,520,692)
---------------------------------------
Net increase in net assets resulting from operations.... 2,520,254 8,837,646
Distributions to shareholders from net investment income... (6,792,846) (13,585,693)
---------------------------------------
Net decrease in net assets.............................. (4,272,592) (4,748,047)
Net assets:
Beginning of period........................................ 159,447,917 164,195,964
---------------------------------------
End of period.............................................. $155,175,325 $159,447,917
=======================================
Distributions in excess of net investment income included in
net assets:
End of period.............................................. $ (1,727,445) $ (1,132,141)
=======================================
</TABLE>
See Notes to Financial Statements.
13
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 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.
14
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (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
At February 29, 2000, there were an unlimited number of shares authorized ($0.01
par value). During the six months ended February 29, 2000 and year ended August
31, 1999, there were no share transactions; all reinvested distributions were
satisfied with previously issued shares purchased in the open market. Total
shares repurchased under the repurchase program are 200,000 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.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------
<S> <C>
0.55% First $200 million
0.50% Over $200 million
</TABLE>
The Fund pays an administrative fee to FT Services of 0.25% per year of the
Fund's average daily net assets. FT Services has entered into a
Sub-Administrator Agreement with Dean Witter Reynolds, Inc. through its
InterCapital Division (DWR InterCapital), whereby DWR InterCapital provides
certain administrative services. FT Services pays DWR InterCapital a fee equal,
on an annual basis, to 0.15% of the Fund's average daily net assets.
15
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Notes to Financial Statements (unaudited) (continued)
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.
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At February 29, 2000, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 969,796
Unrealized depreciation..................................... (22,960,072)
------------
Net unrealized depreciation................................. $(21,990,276)
============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 29, 2000 aggregated $42,785,810 and $49,378,140,
respectively.
16
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
OUTSTANDING VOTED OUTSTANDING
TERM EXPIRING 2003: FOR SHARES SHARES WITHHELD 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%
</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>
% OF % OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
17,033,827.. 75.23% 99.01% 47,580 0.21% 122,240 0.54% -- --
</TABLE>
3. The transaction of any other business that may properly come before the
meeting or any adjournments thereof:
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16,822,021.. 74.30% 97.78% 147,870 0.65% 233,756 1.03% -- --
</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.
17
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST
Dividend Reinvestment Plan
The Trust offers a Dividend Reinvestment Plan (the "Plan") with the following
features:
If shares of the 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.
18
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.
19
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. 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 S00 04/00 [RECYCLE LOGO] Printed on recycled paper
