ncsrs_tit0212.htm - Generated by SEC Publisher for SEC Filing

Semiannual Report

Templeton Global Bond Fund

Your Fund’s Goal and Main Investments: Templeton Global Bond Fund seeks current

income with capital appreciation and growth of income. Under normal market conditions, the Fund

invests at least 80% of its net assets in “bonds.” Bonds include debt securities of any maturity, such as

bonds, notes, bills and debentures.

We are pleased to bring you Templeton Global Bond Fund’s semiannual report
for the period ended February 29, 2012.

Performance Overview

For the six months under review, Templeton Global Bond Fund – Class A
delivered a +0.71% cumulative total return. In comparison, the Fund’s bench-
mark, the Citigroup World Government Bond Index (WGBI), had cumulative
total returns of +2.66% in local currency terms and -1.56% in U.S. dollar
terms for the same period.¹You can find the Fund’s long-term performance
data in the Performance Summary beginning on page 8.

Economic and Market Overview

The global economic recovery strengthened during the period under review.
Emerging markets continued to lead the recovery as several emerging
economies returned to or exceeded their respective pre-crisis activity levels.
Positive economic reports, including real gross domestic product (GDP)
growth in 2011 of 1.7% in the U.S. and 9.2% in China helped dampen fears
of severe global economic slowdown.²Geographically, non-Japan Asia had
the most encouraging results, and in the fourth quarter of 2011, real GDP
grew at year-over-year rates of 8.9% in China, 5.2% in Malaysia and 3.4%
in South Korea.³Although some developed economies, such as those of

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of
this information. The index is unmanaged and includes reinvested interest. One cannot invest directly in an index, and
an index is not representative of the Fund’s portfolio.
2. Source: Bureau of Economic Analysis (U.S.); National Bureau of Statistics (China).
3. Source: National Bureau of Statistics (China); Department of Statistics (Malaysia); Bank of Korea (South Korea).

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s
Statement of Investments (SOI). The SOI begins on page 17.

Semiannual Report | 3

Australia and some Scandinavian nations, enjoyed relatively strong recover-
ies, growth in the G-3 (U.S., eurozone and Japan) was slow by the standards
of previous recoveries.

Globally, central bankers pursued divergent policies. Interest rates remained
at historically low levels in the U.S. and Japan, while the European Central
Bank (ECB) implemented a 50 basis point (bps; 100 bps equal one percentage
point) rate reduction. In non-Japan Asia, policymakers reduced interest rates
50 bps in Australia, 50 bps in the Philippines and 100 bps in Indonesia. In
contrast, policymakers in India and Sri Lanka increased rates 50 bps, while
the State Bank of Vietnam increased rates 100 bps. In addition to rate adjust-
ments, central bankers employed a variety of tools. The ECB’s Long-Term
Refinancing Operation helped reduce fears of a disorderly sovereign credit
event and its potential fallout. The U.S. Federal Reserve Board increased the
average maturity of its Treasury holdings in an effort to put downward pres-
sure on longer term rates, while the Bank of England and Bank of Japan
expanded their respective asset purchase programs. Similarly, Chinese offi-
cials signaled a desire to pursue “fine tuning,” which included two 50 bps
reductions in the reserve requirement ratio. Despite these positive develop-
ments, fears of sovereign debt default in Europe, the possibility of another
recession in the U.S., and a potential “hard landing” in China dominated
financial market headlines. As investor fears waxed and waned, risk appetite
and aversion, and correspondingly, investor demand for risk assets and per-
ceived safe-haven assets, also alternated.

Investment Strategy

We invest selectively in bonds around the world based upon our assessment of
changing market, political and economic conditions. While seeking opportuni-
ties, we monitor various factors including changes in interest rates, currency
exchange rates and credit risks. We seek to manage the Fund’s exposure to vari-
ous currencies and may use currency forward contracts.

Manager’s Discussion

Several factors, including interest rate developments, currency movements
and exposure to sovereign debt markets, affected the Fund’s total return.
During the period under review, interest rate strategies and sovereign credit
exposures contributed to absolute results, while currency positions detracted.

4 | Semiannual Report

Interest Rate Strategy

During the period under review, we maintained the portfolio’s defensive
duration positioning as policymakers in the G-3, the U.K. and Switzerland
continued to pursue historically accommodative monetary policies. With
interest rates in the U.S. and Japan at historically low levels, central banks
supplying significant liquidity to the financial sector and fiscal deficits that
drove record funding needs, we saw what we viewed as limited value in those
government bond markets. Our underweighted duration exposure in the U.S.
and Japan, however, detracted from performance relative to the benchmark
as yields did not increase significantly during the review period. Generally,
investors demand higher yields to compensate for the greater interest rate risk
associated with holding longer term bonds. The Fund maintained little dura-
tion exposure in emerging markets, except in select countries where rates were
relatively high. As central banks in some countries lowered their policy rates
over the period, yields on some longer term local currency-denominated bonds
fell, and the corresponding increase in the market value of our holdings of
these bonds contributed to performance.

Currency Strategy

The Fund’s diversified currency exposure added to relative performance dur-
ing the period. As part of its investment strategy, the Fund used currency
forward contracts to limit or add exposure to various currencies. Despite
relatively slow growth in the U.S., the U.S. dollar was broadly stronger, and
gained 4.78% over the period versus its major trading partners.⁴Dollar
strength was particularly pronounced early in the period as elevated market
risk aversion contributed to the depreciation of several Latin American cur-
rencies against the U.S. dollar. Although risk aversion subsided later in the
period, several Latin American currencies failed to regain their strength, lead-
ing our currency exposures in the region to hurt performance overall. Over
the period, the Brazilian real depreciated 7.50%, the Chilean peso fell 3.87%,
and the Mexican peso declined 3.43% against the U.S. dollar.⁵

In Asia, our large net-negative exposure to the Japanese yen against the U.S.
dollar, achieved via currency forward contracts, benefited performance as the
yen depreciated 5.52% against the dollar during the period.⁵Nonetheless,
currency positions in non-Japan Asia offset the effects of yen depreciation,
and our exposures to Asian currencies hurt absolute performance overall.
Although the Reserve Bank of Australia instituted two 25 bps rate cuts,

4. Source: Federal Reserve H10 Report.
5. Source: IDC/Exshare.

Semiannual Report | 5

strong Chinese demand for Australian exports and domestic strength con-
tributed to the Australian dollar’s resiliency. Central banks in South Korea
and Malaysia held policy rates steady, while central banks in the Philippines
and Indonesia reduced rates because of concerns about the potential effect of
a deterioration in the global outlook and its impact on domestic activity. The
South Korean won, Malaysian ringgit, Philippine peso and Indonesian rupiah
each depreciated against the U.S. dollar.

ECB rate cuts contributed to the euro’s 7.09% depreciation against the U.S.
dollar over the period, and our net negative position in this currency, through
the use of forward currency contracts, contributed significantly to perform-
ance relative to the benchmark.⁵However, this effect was partially offset by
positioning in peripheral European currencies, which depreciated against the
U.S. dollar.

Global Sovereign Debt Strategy

The Fund purchased investment grade and sub-investment grade hard currency-
denominated sovereign debt that typically compensates for greater credit risk
by offering higher yields relative to U.S. Treasury and European benchmark
bonds. Early in the period, heightened risk aversion led spreads to widen
between high yielding sovereign credits and their underlying “risk-free assets,”
such as U.S. Treasuries, but these spreads narrowed toward the end of the
period. As financial markets began reflecting the underlying strength of emerg-
ing economies, governments of some countries traditionally considered
emerging markets could borrow more cheaply than some eurozone members
and, in several cases, U.S. states. U.S. dollar-denominated emerging market
debt posted a +5.51% total return during the period, as measured by the JPM
Emerging Markets Bond Index (EMBI) Global.⁶Sovereign interest rate credit
spreads narrowed 3 bps during the period.⁶Regionally, Latin American sover-
eign debt posted a +9.24% total return, Asian debt a +4.52% total return, and
central and eastern European debt a +1.61% total return, as measured by
subindexes of the JPM EMBI Global.⁶

6. Source: J.P. Morgan.

6 | Semiannual Report

The foregoing information reflects our analysis, opinions and portfolio holdings as of February 29, 2012, the end of
the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings
may change depending on factors such as market and economic conditions. These opinions may not be relied upon
as investment advice or an offer for a particular security. The information is not a complete analysis of every
aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reli-
able, but the investment manager makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these insights may help you understand our
investment management philosophy.

Semiannual Report | 7

Performance Summary (continued)

Performance

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include
maximum sales charges. Class A: 4.25% maximum initial sales charge; Class C: 1% contingent deferred sales charge in
first year only; Class R/Advisor Class: no sales charges.

Semiannual Report | 9

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctu-
ations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size and lesser liquidity. Changes in interest rates will affect the value of the
Fund’s portfolio and its share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in
the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund’s use of derivatives and foreign currency techniques
involves special risks as such may not achieve the anticipated benefits and/or may result in losses to the Fund. The Fund is also nondiversified,
which involves the risk of greater price fluctuation than a more diversified portfolio. Changes in the financial strength of a bond issuer or in a
bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will
produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

1. Price and total return information is based on net asset values calculated for shareholder transactions. Certain adjustments were made to the net
assets of the Fund at 8/31/11 for financial reporting purposes, and as a result, the net asset values for shareholder transactions and the total
returns based on those net asset values differ from the adjusted net asset values and total returns reported in the Financial Highlights.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. 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.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures shown.

10 | Semiannual Report

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs.

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The first line (Actual) for each share class listed in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.

Semiannual Report | 11

Your Fund’s Expenses (continued)

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect
any transaction costs, such as sales charges. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of owning different
funds. In addition, if transaction costs were included, your total costs would have been higher.
Please refer to the Fund prospectus for additional information on operating expenses.

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.88%; C: 1.28%; R: 1.13%; and
Advisor: 0.63%), multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period.

12 | Semiannual Report

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 13

14 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^aFor the period February 2, 2009 (effective date) to August 31, 2009.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^†Rounds to less than 0.1% of net assets.
^*The principal amount is stated in U.S. dollars unless otherwise indicated.
^aThe coupon rate shown represents the rate at period end.
^bThe principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.
^cPrincipal amount is stated in 1,000 Brazilian Real Units.
^dRedemption price at maturity is adjusted for inflation. See Note 1(g).
^eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in
a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29,
2012, the aggregate value of these securities was $3,275,164,545, representing 5.31% of net assets.
^fSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a
security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from regis-
tration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29, 2012, the aggregate value of these securities was
$211,307,942, representing 0.34% of net assets.
^gA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
^hPrincipal amount is stated in 100 Mexican Peso Units.
ⁱA supranational organization is an entity formed by two or more central governments through international treaties.
^jThe security is traded on a discount basis with no stated coupon rate.
^kNon-income producing.
^lSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

24 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited)

Templeton Global Bond Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Income Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of three separate funds. The Templeton Global Bond Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers four classes of shares: Class A, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Derivative financial instruments (derivatives) listed on an exchange are valued at the official closing price of the day. Investments in open-end mutual funds are valued at the closing net asset value.

Certain derivatives trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

44 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

Semiannual Report | 45

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)

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 on the Statement of Operations.

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 denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

46 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Derivative Financial Instruments (continued)

The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An
interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows
based on the difference between two interest rates, applied to a notional principal amount. Over
the term of the contract, contractually required payments to be paid and to be received are
accrued daily and recorded as unrealized depreciation and appreciation until the payments are
made, at which time they are realized. Pursuant to the terms of the interest rate swap contract,
cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested
according to the Fund’s investment objectives.

At February 29, 2012, the Fund holds $938,527,302 in Government of France Bonds, Treasury
Bills, and Index Linked Notes; United Kingdom Treasury Index Linked Notes; United States
Treasury Bonds, Notes and Treasury Bills; and $34,645,000 in unrestricted cash as collateral for
derivatives.

See Note 10 regarding other derivative information.

e. Restricted Cash

At February 29, 2012, the Fund held restricted cash in connection with investments in certain
derivative securities. Restricted cash is held in a segregated account with the counterparty bro-
ker and is reflected in the Statement of Assets and Liabilities.

f. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue
Code. The Fund intends to distribute to shareholders substantially all of its taxable income and
net realized gains to relieve it from federal income and excise taxes. As a result, no provision for
U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale
of securities and certain foreign currency transactions in the foreign jurisdictions in which it
invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in
the foreign markets in which the Fund invests. When a capital gain tax is determined to apply
the Fund records an estimated deferred tax liability in an amount that would be payable if the
securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more
likely than not” to be sustained upon examination by the tax authorities based on the technical
merits of the tax position. As of February 29, 2012, and for all open tax years, the Fund has
determined that no liability for unrecognized tax benefits is required in the Fund’s financial
statements related to uncertain tax positions taken on a tax return (or expected to be taken on
future tax returns). Open tax years are those that remain subject to examination and are based
on each tax jurisdiction statute of limitation.
Semiannual Report | 47

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
g.	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. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as interest income on the Statement of Operations.

h. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those estimates.

i. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

48 | Semiannual Report

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the
exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the
Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs
incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the
maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent periods.

In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays
Distributors for costs incurred in connection with the servicing, sale and distribution of the
Fund’s shares up to the maximum annual plan rate for each class.

The maximum annual plan rates, based on the average daily net assets, for each class, are as
follows:

50 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses
of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to
investment or from redemption proceeds prior to remittance, as applicable. Distributors has
advised the Fund of the following commission transactions related to the sales and redemptions
of the Fund’s shares for the period:

e. Transfer Agent Fees

For the period ended February 29, 2012, the Fund paid transfer agent fees of $26,843,126, of
which $12,526,865 was retained by Investor Services.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of
uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the
period ended February 29, 2012, there were no credits earned.

Differences between income and/or capital gains as determined on a book basis and a tax basis
are primarily due to differing treatments of foreign currency transactions, bond discounts and
premiums, and tax straddles.

Semiannual Report | 51

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended February 29, 2012, aggregated $8,788,761,960 and $10,847,175,399, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT RISK

At February 29, 2012, the Fund had 11.17% of its portfolio invested in high yield or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

9. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities.

10. OTHER DERIVATIVE INFORMATION

At February 29, 2012, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

52 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

10. OTHER DERIVATIVE INFORMATION (continued)

For the period ended February 29, 2012, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

For the period ended February 29, 2012, the average month end market value of derivatives represented 4.71% of average month end net assets. The average month end number of open derivative contracts was 726.

See Note 1(d) regarding derivative financial instruments.

11. SPECIAL SERVICING AGREEMENT

The Fund, which is an eligible underlying investment of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the Fund and the Allocator Funds. Under the SSA, the Fund may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Fund by the Allocator Funds. The Allocator Funds are either managed by Advisers or administered by FT Services. For the period ended February 29, 2012, the Fund was held by one or more of the Allocator Funds and the amount of expenses borne by the Fund is noted in the Statement of Operations. At February 29, 2012, 0.78% of the Fund’s outstanding shares was held by one or more of the Allocator Funds.

Semiannual Report | 53

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

12. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which matures on January 18, 2013. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the period ended February 29, 2012, the Fund did not use the Global Credit Facility.

13. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

54 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Bond Fund

13. FAIR VALUE MEASUREMENTS (continued)

The following is a summary of the inputs used as of February 29, 2012, in valuing the Fund’s assets and liabilities carried at fair value:

14. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

15. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.

Semiannual Report | 55

Templeton Income Trust

Shareholder Information

Templeton Global Bond Fund

Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Semiannual Report | 57

Semiannual Report

Templeton Global Total Return Fund

Your Fund’s Goal and Main Investments: Templeton Global Total Return Fund seeks

total investment return consisting of a combination of interest income, capital appreciation and currency

gains. Under normal market conditions, the Fund invests primarily in fixed and floating rate debt securi-

ties and debt obligations (including convertible bonds) of governments, or government-related or

corporate issuers worldwide (collectively, “bonds”). Bonds include debt securities of any maturity, such

as bonds, notes, bills and debentures.

We are pleased to bring you Templeton Global Total Return Fund’s semi-
annual report for the period ended February 29, 2012.

Performance Overview

For the six months under review, Templeton Global Total Return Fund –
Class A delivered a +1.73% cumulative total return. The Fund outperformed
the global fixed income bond market as measured by its benchmark, the
Barclays Capital (BC) Multiverse Index, which posted a -0.25% cumulative
total return for the same period.¹You can find other performance data in
the Performance Summary beginning on page 8.

Economic and Market Overview

The global economic recovery strengthened during the period under review.
Emerging markets continued to lead the recovery as several emerging
economies returned to or exceeded their respective pre-crisis activity levels.
Positive economic reports, including real gross domestic product (GDP)
growth in 2011 of 1.7% in the U.S. and 9.2% in China helped dampen fears
of severe global economic slowdown.²Geographically, non-Japan Asia had
the most encouraging results, and in the fourth quarter of 2011, real GDP
grew at year-over-year rates of 8.9% in China, 5.2% in Malaysia and 3.4%

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of
this information. The index is unmanaged and includes reinvested interest. One cannot invest directly in an index, and
an index is not representative of the Fund’s portfolio.
2. Bureau of Economic Analysis (U.S.); National Bureau of Statistics (China).

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s
Statement of Investments (SOI). The SOI begins on page 17.

Semiannual Report | 3

in South Korea.³Although some developed economies, such as those of
Australia and some Scandinavian nations, enjoyed relatively strong recover-
ies, growth in the G-3 (U.S., eurozone and Japan) was slow by the standards
of previous recoveries.

Globally, central bankers pursued divergent policies. Interest rates remained
at historically low levels in the U.S. and Japan, while the European Central
Bank (ECB) implemented a 50 basis point (bps; 100 bps equal one percentage
point) rate reduction. In non-Japan Asia, policymakers reduced interest rates
50 bps in Australia, 50 bps in the Philippines and 100 bps in Indonesia. In
contrast, policymakers in India and Sri Lanka increased rates 50 bps, while
the State Bank of Vietnam increased rates 100 bps. In addition to rate adjust-
ments, central bankers employed a variety of tools. The ECB’s Long-Term
Refinancing Operation helped reduce fears of a disorderly sovereign credit
event and its potential fallout. The U.S. Federal Reserve Board increased the
average maturity of its Treasury holdings in an effort to put downward pres-
sure on longer-term rates, while the Bank of England and Bank of Japan
expanded their respective asset purchase programs. Similarly, Chinese officials
signaled a desire to pursue “fine tuning,” which included two 50 bps reduc-
tions in the reserve requirement ratio. Despite these positive developments,
fears of sovereign debt default in Europe, the possibility of another recession
in the U.S., and a potential “hard landing” in China dominated financial mar-
ket headlines. As investor fears waxed and waned, risk appetite and aversion,
and correspondingly, investor demand for risk assets and perceived safe-haven
assets, also alternated.

Investment Strategy

We invest selectively in bonds around the world based upon our assessment of
changing market, political and economic conditions. While seeking opportuni-
ties, we consider various factors including evaluation of interest and currency
exchange rates and credit risks. We seek to manage the Fund’s exposure to var-
ious currencies and may use currency forward contracts.

Manager’s Discussion

The Fund’s total return was influenced by various factors, including interest rate
developments, currency movements and exposure to sovereign debt markets.
Each of these areas contributed to the Fund’s performance during the period.

3. Source: National Bureau of Statistics (China); Department of Statistics (Malaysia); Bank of Korea (South Korea).

4 | Semiannual Report

Interest Rate Strategy

During the period under review, we maintained the portfolio’s defensive
duration positioning as policymakers in the G-3, the U.K. and Switzerland
continued to pursue historically accommodative monetary policies. With
interest rates in the U.S. and Japan at historically low levels, central banks
supplying significant liquidity to the financial sector and fiscal deficits that
drove record funding needs, we saw what we viewed as limited value in
government bond markets in these countries. Our underweighted duration
exposure in the U.S. and Japan, however, detracted from performance rela-
tive to the benchmark as yields did not increase significantly during the
review period. Generally, investors demand higher yields to compensate for
the greater interest rate risk associated with holding longer term bonds. The
Fund maintained little duration exposure in emerging markets, except in select
countries where rates were relatively high. As central banks in some countries
lowered their policy rates over the period, yields on some longer term local
currency-denominated bonds fell, and the corresponding increase in the market
value of our holdings of these bonds contributed to performance.

Currency Strategy

The Fund’s diversified currency exposure added to relative performance during
the period. As part of its investment strategy, the Fund used currency forward
contracts to limit or add exposure to various currencies. Despite relatively slow
growth in the U.S., the U.S. dollar was broadly stronger and gained 4.78% over
the period versus its major trading partners.⁴Dollar strength was particularly
pronounced early in the period as elevated market risk aversion contributed to
the depreciation of several Latin American currencies against the U.S. dollar.
Although risk aversion subsided later in the period, several Latin American
currencies failed to regain their strength, leading our currency exposures in the
region to hurt performance overall. Over the period, the Brazilian real depreci-
ated 7.50%, the Chilean peso fell 3.87%, and the Mexican peso declined 3.43%
against the U.S. dollar.⁵

In Asia, our large net-negative exposure to the Japanese yen, achieved via cur-
rency forward contracts, benefited performance as the yen depreciated 5.52%
against the U.S. dollar during the period.⁵Nonetheless, certain other currency
positions in non-Japan Asia offset the effects of yen depreciation, and our
exposures to Asian currencies hurt absolute performance overall. Although the

4. Source: Federal Reserve H10 Report.
5. Source: IDC/Exshare.

*Holding is a negative percentage because of the
Fund’s holdings of currency forward contracts.

Semiannual Report | 5

Reserve Bank of Australia instituted two 25 bps rate cuts, strong Chinese
demand for Australian exports and domestic strength contributed to the
Australian dollar’s resiliency. Central banks in South Korea and Malaysia held
policy rates steady, while central banks in the Philippines and Indonesia
reduced rates because of concerns about the potential effect of a deterioration
in the global outlook and its impact on domestic activity. The South Korean
won, Malaysian ringgit, Philippine peso and Indonesian rupiah each depreci-
ated against the U.S. dollar.

ECB rate cuts contributed to the euro’s 7.09% depreciation against the U.S.
dollar over the period, and our net negative position in this currency, through
the use of forward currency contracts, contributed significantly to perform-
ance relative to the benchmark.⁵However, this effect was partially offset by
positioning in peripheral European currencies, which depreciated against the
U.S. dollar.

Global Credit Strategy

In addition to purchasing global government bonds, as discussed earlier, the
Fund also invested in the credit sector. As an asset class, such investments
may compensate for greater credit risk by offering higher yields relative to
U.S. Treasury and European benchmark bonds. Relative to the benchmark
BC Multiverse Index, the Fund’s overall credit positioning during the period
aided relative performance. Specifically, the Fund benefited from its over-
weighted high yield corporate credit positions. Although risk aversion toward
the beginning of the period led spreads to widen between yields on sub-
investment grade sovereign credits and the underlying “risk-free assets,” such
as U.S. Treasuries, declining yields on U.S. Treasuries and the correspondingly
high returns on these positions helped credit exposures to benefit perform-
ance overall.

6 | Semiannual Report

Thank you for your continued participation in Templeton Global Total
Return Fund. We look forward to serving your future investment needs.

Semiannual Report | 7

Performance Summary (continued)

Performance¹

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include
maximum sales charges. Class A: 4.25% maximum initial sales charge; Class C: 1% contingent deferred sales charge in
first year only; Class R/Advisor Class: no sales charges.

Performance data represent past performance, which does not guarantee future results. Investment return and principal
value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from
figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

The investment manager and administrator have contractually agreed to waive or assume certain expenses so that common
expenses (excluding Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Fund do not exceed
0.84% (other than certain nonroutine expenses) until 12/31/12.

Semiannual Report | 9

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. The risks associated with higher yielding, lower rated securities include higher risk of default and loss of principal. Changes in interest rates will affect the value of the Fund’s portfolio and its share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Investing in derivative securities, such as financial futures, option contracts, currency forwards and swaps, and the use of foreign currency techniques involve special risks as such may not achieve the anticipated benefits and/or may result in losses to the Fund. The Fund is nondiversified, which involves the risk of greater price fluctuation than a more diversified portfolio. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

1. If the manager and administrator had not waived fees, the Fund’s total returns would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. 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.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures shown.

10 | Semiannual Report

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 11

Your Fund’s Expenses (continued)

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect
any transaction costs, such as sales charges. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of owning different funds.
In addition, if transaction costs were included, your total costs would have been higher. Please refer
to the Fund prospectus for additional information on operating expenses.

*Expenses are calculated using the most recent six-month expense ratio annualized for each class (A: 1.02%; C: 1.42%; R: 1.27%; and
Advisor: 0.77%), multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period.

12 | Semiannual Report

^aFor the period September 30, 2008 (commencement of operations) to August 31, 2009.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 13

14 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15

^aFor the period September 30, 2008 (commencement of operations) to August 31, 2009.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.

16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^†Rounds to less than 0.1% of net assets.
^*The principal amount is stated in U.S. dollars unless otherwise indicated.
^aNon-income producing.
^bSecurity has been deemed illiquid because it may not be able to be sold within seven days. At February 29, 2012, the aggregate value of these securities was $201,403, representing
0.01% of net assets.
^cAt February 29, 2012, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading this security for a limited or
extended period of time due to ownership limits and/or potential possession of material non-public information.
^dSecurity is linked to the Argentine GDP and does not pay principal over the life of the security or at expiration. The holder is entitled to receive only variable payments, subject to
certain conditions, which are based on growth of the Argentine GDP and the principal or “notional” value of this GDP linked security.
^eThe coupon rate shown represents the rate at period end.
^fThe principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.
^gPrincipal amount is stated in 1,000 Brazilian Real Units.
^hRedemption price at maturity is adjusted for inflation. See Note 1(i).
ⁱSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in
a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29,
2012, the aggregate value of these securities was $585,808,373, representing 16.18% of net assets.
^jA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
^kPrincipal amount is stated in 100 Mexican Peso Units.
^lSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a
security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from regis-
tration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29, 2012, the aggregate value of these securities was
$16,098,362, representing 0.44% of net assets.
^mA supranational organization is an entity formed by two or more central governments through international treaties.
ⁿIncome may be received in additional securities and/or cash.
^oSee Note 8 regarding defaulted securities.
^pPerpetual security with no stated maturity date.
^qSee Note 1(f) regarding credit-linked notes.
^rSee Note 1(g) regarding senior floating rate interests.
^sThe security is traded on a discount basis with no stated coupon rate.
^tSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

At February 29, 2012, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Templeton Income Trust

Notes to Financial Statements (unaudited)

Templeton Global Total Return Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Income Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of three separate funds. The Templeton Global Total Return Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers four classes of shares: Class A, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

Equity securities and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Semiannual Report | 53

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined. Derivatives listed on an exchange are valued at the official closing price of the day.

54 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation

c. Securities Purchased on a Delayed Delivery Basis

d. Derivative Financial Instruments

Semiannual Report | 55

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.	Derivative Financial Instruments (continued)

of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional principal amount. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized. Pursuant to the terms of the interest rate swap contract, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

At February 29, 2012, the Fund holds $19,989,966 in United Kingdom Treasury Notes and United States Treasury Bills and Notes, and $690,000 in unrestricted cash as collateral for derivatives.

See Note 10 regarding other derivative information.

e. Restricted Cash

At February 29, 2012, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s counterparty broker and is reflected in the Statement of Assets and Liabilities.

f. Credit-Linked Notes

The Fund purchases credit-linked notes. Credit-linked notes are intended to replicate the economic effects that would apply had the Fund directly purchased the underlying reference asset. The risks of credit-linked notes include the potential default of the underlying reference asset, the potential inability of the Fund to dispose of the credit-linked note in the normal course of business, and the possible inability of the counterparties to fulfill their obligations under the contracts.

56 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
g.	Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

h. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of February 29, 2012, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

i. Security Transactions, Investment Income, Expenses and Distributions

Semiannual Report | 57

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
i.	Security Transactions, Investment Income, Expenses and Distributions (continued)

term of the loan. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

j. Accounting Estimates

k. Guarantees and Indemnifications

58 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

2. SHARES OF BENEFICIAL INTEREST

At February 29, 2012, there were an unlimited number of shares authorized (without par value).
Transactions in the Fund’s shares were as follows:

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are
referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also
officers and/or directors of the following subsidiaries:

Semiannual Report | 59

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

3.	TRANSACTIONS WITH AFFILIATES (continued)
a.	Management Fees

The Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.20% per year of the average daily net assets of the Fund.

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods.

In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

3.	TRANSACTIONS WITH AFFILIATES (continued)
e.	Transfer Agent Fees

For the period ended February 29, 2012, the Fund paid transfer agent fees of $985,017, of which $445,824 was retained by Investor Services.

f. Waiver and Expense Reimbursements

Advisers and FT Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the common expenses (i.e. a combination of management fees, administrative fees, and other expenses, but excluding distribution fees, and acquired fund fees and expenses) for each class of the Fund do not exceed 0.84% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until December 31, 2012.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended February 29, 2012, there were no credits earned.

5. INCOME TAXES

At February 29, 2012, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions and tax straddles.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended February 29, 2012, aggregated $772,586,549 and $326,122,267, respectively.

Semiannual Report | 61

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

8. CREDIT RISK AND DEFAULTED SECURITIES

At February 29, 2012, the Fund had 39.09% of its portfolio invested in high yield, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At February 29, 2012, the aggregate value of these securities was $3,606,000, representing 0.10% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments.

9. CONCENTRATION OF RISK

62 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

10. OTHER DERIVATIVE INFORMATION

At February 29, 2012, the Fund has invested in derivative contracts which are reflected on the
Statement of Assets and Liabilities as follows:

For the period ended February 29, 2012, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

For the period ended February 29, 2012, the average month end market value of derivatives
represented 4.52% of average month end net assets. The average month end number of open
derivative contracts for the period was 712.

See Note 1(d) regarding derivative financial instruments.

11. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively,
Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated
senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which matures on
January 18, 2013. This Global Credit Facility provides a source of funds to the Borrowers for
temporary and emergency purposes, including the ability to meet future unanticipated or unusu-
ally large redemption requests.

Semiannual Report | 63

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

11. CREDIT FACILITY (continued)

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on
any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees
and expenses incurred in connection with the implementation and maintenance of the Global
Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers,
including an annual commitment fee of 0.08% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statement of Operations. During the
period ended February 29, 2012, the Fund did not use the Global Credit Facility.

12. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from
independent sources (observable inputs) and the Fund’s own market assumptions (unobservable
inputs). These inputs are used in determining the value of the Fund’s investments and are
summarized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities,
interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in
determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associ-
ated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy
of recognizing the transfers as of the date of the underlying event which caused the movement.

64 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton Global Total Return Fund

12. FAIR VALUE MEASUREMENTS (continued)

The following is a summary of the inputs used as of February 29, 2012, in valuing the Fund’s
assets and liabilities carried at fair value:

13. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The
amendments in the ASU will improve the comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted
Accounting Principles) and IFRS (International Financial Reporting Standards) and include new
guidance for certain fair value measurement principles and disclosure requirements. The ASU is
effective for interim and annual periods beginning after December 15, 2011. The Fund believes
the adoption of this ASU will not have a material impact on its financial statements.

14. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and
determined that no events have occurred that require disclosure.

Semiannual Report | 65

Templeton Income Trust

Shareholder Information

Templeton Global Total Return Fund

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

Semiannual Report | 67

Semiannual Report

Templeton International Bond Fund

Your Fund’s Goal and Main Investments: Templeton International Bond Fund seeks

current income with capital appreciation and growth of income. The Fund invests predominantly in non-

U.S. securities and, under normal market conditions, invests at least 80% of its net assets in “bonds.”

Bonds include debt securities of any maturity, such as bonds, notes, bills and debentures.

This semiannual report for Templeton International Bond Fund covers the
period ended February 29, 2012.

Performance Overview

For the six months under review, Templeton International Bond Fund – Class A
had a +0.08% cumulative total return. In comparison, the Citigroup Non-USD
World Government Bond Index (WGBI), had cumulative total returns of
+2.82% in local currency terms and -2.93% in U.S. dollar terms for the same
period.¹You can find more of the Fund’s performance data in the Performance
Summary beginning on page 8.

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of
this information. The index is unmanaged and includes reinvested interest. One cannot invest directly in an index, and
an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the
Fund’s Statement of Investments (SOI). The SOI begins on page 17.

Semiannual Report | 3

Economic and Market Overview

The global economic recovery strengthened during the period under review.
Emerging markets continued to lead the recovery as several emerging
economies returned to or exceeded their respective pre-crisis activity levels.
Positive economic reports, including real gross domestic product (GDP)
growth in 2011 of 1.7% in the U.S. and 9.2% in China helped dampen fears
of severe global economic slowdown.²Geographically, non-Japan Asia had
the most encouraging results, and in the fourth quarter of 2011, real GDP
grew at year-over-year rates of 8.9% in China, 5.2% in Malaysia and 3.4%
in South Korea.³Although some developed economies, such as those of
Australia and some Scandinavian nations, enjoyed relatively strong recover-
ies, growth in the G-3 (U.S., eurozone and Japan) was slow by the standards
of previous recoveries.

Globally, central bankers pursued divergent policies. Interest rates remained
at historically low levels in the U.S. and Japan, while the European Central
Bank (ECB) implemented a 50 basis point (bps; 100 bps equal one percent-
age point) rate reduction. In non-Japan Asia, policymakers reduced interest
rates 50 bps in Australia, 50 bps in the Philippines and 100 bps in Indonesia.
In contrast, policymakers in India and Sri Lanka increased rates 50 bps,
while the State Bank of Vietnam increased rates 100 bps. In addition to rate
adjustments, central bankers employed a variety of tools. The ECB’s Long-
Term Refinancing Operation helped reduce fears of a disorderly sovereign
credit event and its potential fallout. The U.S. Federal Reserve Board
increased the average maturity of its Treasury holdings in an effort to put
downward pressure on longer term rates, while the Bank of England and
Bank of Japan expanded their respective asset purchase programs. Similarly,
Chinese officials signaled a desire to pursue “fine tuning,” which included
two 50 bps reductions in the reserve requirement ratio. Despite these posi-
tive developments, fears of sovereign debt default in Europe, the possibility
of another recession in the U.S., and a potential “hard landing” in China
dominated financial market headlines. As investor fears waxed and waned,
risk appetite and aversion, and correspondingly, investor demand for risk
assets and perceived safe-haven assets, also alternated.

Investment Strategy

We invest selectively in non-U.S. bonds around the world based upon our
assessment of changing market, political and economic conditions. While seek-
ing opportunities, we monitor various factors including changes in interest

2. Source: Bureau of Economic Analysis (U.S.); National Bureau of Statistics (China).
3. Source: National Bureau of Statistics (China); Department of Statistics (Malaysia); Bank of Korea (South Korea).

4 | Semiannual Report

rates, currency exchange rates and credit risks. We seek to manage the Fund’s
exposure to various currencies and may use currency forward contracts.

Manager’s Discussion

The Fund’s total return was influenced by various factors, including interest
rate developments, currency movements and exposure to sovereign debt mar-
kets. During the period under review, interest rate strategies and sovereign
credit exposures contributed to absolute performance, while currency posi-
tions detracted.

Interest Rate Strategy

During the reporting period, we maintained the portfolio’s defensive duration
positioning as policymakers in the G-3, the U.K. and Switzerland continued
to pursue historically accommodative monetary policies. With interest rates
in the U.S. and Japan at historically low levels, central banks supplying signif-
icant liquidity to the financial sector and fiscal deficits that drove record
funding needs, we saw what we viewed as limited value in those government
bond markets. Our underweighted duration positioning in Japan and Europe
detracted from relative performance. The Fund maintained little duration
exposure in emerging markets, except in select countries where rates were
relatively high. As central banks in some countries lowered their policy rates
over the period, yields on some longer term local currency-denominated
bonds fell, and the corresponding increase in the market value of our hold-
ings of these bonds contributed to relative performance.

Currency Strategy

The Fund’s diversified currency exposure added to relative performance dur-
ing the period. As part of its investment strategy, the Fund used currency
forward contracts to limit or add exposure to various currencies. Despite rel-
atively slow growth in the U.S., the U.S. dollar was broadly stronger, and
gained 4.78% over the period versus its major trading partners.⁴Dollar
strength was particularly pronounced early in the period as elevated market
risk aversion contributed to the depreciation of several Latin American cur-
rencies against the U.S. dollar. Although risk aversion subsided later in the
period, several Latin American currencies failed to regain their strength,
leading our currency exposures in the region to hurt performance overall.
Over the period, the Brazilian real depreciated 7.50%, the Chilean peso fell
3.87%, and the Mexican peso declined 3.43% against the U.S. dollar.⁵

4. Source: Federal Reserve H10 Report.
5. Source: IDC/Exshare.

Semiannual Report | 5

In Asia, our large net-negative exposure to the Japanese yen against the U.S.
dollar, achieved via currency forward contracts, benefited performance as the
yen depreciated 5.52% against the U.S. dollar during the period.⁵Nonetheless,
currency positions in non-Japan Asia offset the effects of yen depreciation,
and our exposures to Asian currencies hurt absolute performance overall.
Although the Reserve Bank of Australia instituted two 25 bps rate cuts,
strong Chinese demand for Australian exports and domestic strength con-
tributed to the Australian dollar’s resiliency. Central banks in South Korea
and Malaysia held policy rates steady, while central banks in the Philippines
and Indonesia reduced rates because of concerns about the potential effect of
a deterioration in the global outlook and its impact on domestic activity. The
South Korean won, Malaysian ringgit, Philippine peso and Indonesian rupiah
each depreciated against the U.S. dollar.

ECB rate cuts contributed to the euro’s 7.09% depreciation against the
U.S. dollar over the period, and our net negative position in this currency,
through the use of forward currency contracts, contributed significantly to
performance relative to the benchmark.⁵However, this effect was partially
offset by positioning in peripheral European currencies, which depreciated
against the U.S. dollar.⁵

Global Sovereign Debt Strategy

The Fund purchased investment grade and sub-investment grade hard currency-
denominated sovereign debt that typically compensates for greater credit
risk by offering higher yields relative to U.S. Treasury and European bench-
mark bonds. Early in the period, heightened risk aversion led spreads to
widen between high yielding sovereign credits and their underlying “risk-free
assets,” such as U.S. Treasuries, but these spreads narrowed toward the end
of the period. As financial markets began reflecting the underlying strength
of emerging economies, governments of some countries traditionally consid-
ered emerging markets could borrow more cheaply than some eurozone
members and, in several cases, U.S. states. U.S. dollar-denominated emerging
market debt posted a +5.51% total return during the period, as measured by
the J.P. Morgan (JPM) Emerging Markets Bond Index (EMBI) Global.¹
Sovereign interest rate credit spreads narrowed 3 bps during the period.⁶
Regionally, Latin American sovereign debt posted a +9.24% total return,
Asian debt a +4.52% total return, and central and eastern European debt a
+1.61% total return, as measured by subindexes of the JPM EMBI Global.⁶

6. Source: J.P. Morgan.

6 | Semiannual Report

Thank you for your continued participation in Templeton International
Bond Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of February 29, 2012, the end of
the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may
change depending on factors such as market and economic conditions. These opinions may not be relied upon as
investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of
any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the
investment manager makes no representation or warranty as to their completeness or accuracy. Although historical
performance is no guarantee of future results, these insights may help you understand our investment management
philosophy.

Semiannual Report | 7

Performance Summary (continued)

Performance¹

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include
maximum sales charges. Class A: 4.25% maximum initial sales charge; Class C: 1% contingent deferred sales charge in
first year only; Class R/Advisor Class: no sales charges.

Performance data represent past performance, which does not guarantee future results. Investment return and principal
value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from
figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

The investment manager and administrator have contractually agreed to waive or assume certain expenses so that common
expenses (excluding Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Fund do not exceed
0.74% (other than certain nonroutine expenses) until 12/31/12.

Semiannual Report | 9

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctu-
ations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size and lesser liquidity. Changes in interest rates will affect the value of the
Fund’s portfolio and its share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in
the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The risks associated with higher yielding, lower rated securities
include higher risk of default and loss of principal. The Fund’s use of foreign currency techniques involves special risks as such techniques
may not achieve the anticipated benefits and/or may result in losses to the Fund. The Fund is also nondiversified, which involves the risk of
greater price fluctuation than a more diversified portfolio. Changes in the financial strength of a bond issuer or in a bond’s credit rating may
affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired
results. The Fund’s prospectus also includes a description of the main investment risks.

10 | Semiannual Report

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 11

^aFor the period December 3, 2007 (commencement of operations) to August 31, 2008.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eEffective September 1, 2008, the redemption fee was eliminated.
^fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^gRatios are annualized for periods less than one year.
^hBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 13

14 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15

^aFor the period December 3, 2007 (commencement of operations) to August 31, 2008.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eEffective September 1, 2008, the redemption fee was eliminated.
^fTotal return is not annualized for periods less than one year.
^gRatios are annualized for periods less than one year.
^hBenefit of expense reduction rounds to less than 0.01%.

16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^†Rounds to less than 0.1% of net assets.
^*The principal amount is stated in U.S. dollars unless otherwise indicated.
^aThe coupon rate shown represents the rate at period end.
^bThe principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.
^cPrincipal amount is stated in 1,000 Brazilian Real Units.
^dRedemption price at maturity is adjusted for inflation. See Note 1(g).
^eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in
a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29,
2012, the aggregate value of these securities was $5,191,253, representing 1.65% of net assets.
^fSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a
security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from regis-
tration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At February 29, 2012, the aggregate value of these securities was
$2,166,641, representing 0.69% of net assets.
^gA portion or all of the security purchased on a delayed delivery basis. See Note 1(c).
^hPrincipal amount is stated in 100 Mexican Peso Units.
ⁱA supranational organization is an entity formed by two or more central governments through international treaties.
^jThe security is traded on a discount basis with no stated coupon rate.
^kNon-income producing.
^lSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

22 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited)

Templeton International Bond Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Income Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of three separate funds. The Templeton International Bond Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers four classes of shares: Class A, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

Semiannual Report | 37

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each spe-cific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

b. Foreign Currency Translation

38 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)

c. Securities Purchased on a Delayed Delivery Basis

d. Derivative Financial Instruments

Semiannual Report | 39

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.	Derivative Financial Instruments (continued)

At February 29, 2012, the Fund holds $845,811 in United States Treasury Bills and Notes, and $270,000 in unrestricted cash as collateral for derivatives.

See Note 10 regarding other derivative information.

e. Restricted Cash

At February 29, 2012, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the counterparty broker and is reflected in the Statement of Assets and Liabilities.

f. Income and Deferred Taxes

40 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
g.	Security Transactions, Investment Income, Expenses and Distributions

h. Accounting Estimates

i. Guarantees and Indemnifications

Semiannual Report | 41

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

2. SHARES OF BENEFICIAL INTEREST

At February 29, 2012, there were an unlimited number of shares authorized (without par value).
Transactions in the Fund’s shares were as follows:

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred
to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers,
and/or directors of the following subsidiaries:

42 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.20% per year of the average daily net
assets of the Fund.

c. Distribution Fees

TheTrust’s Board of Trustees has adopted distribution plans for each share class, with the exception
of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A
reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection
with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current
plan year cannot be reimbursed in subsequent periods.

In addition, under the Fund’s Class C, and R compensation distribution plans, the Fund pays
Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s
shares up to the maximum annual plan rate for each class.

Semiannual Report | 43

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses
of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to
investment or from redemption proceeds prior to remittance, as applicable. Distributors has
advised the Fund of the following commission transactions related to the sales and redemptions
of the Fund’s shares for the period:

e. Transfer Agent Fees

For the period ended February 29, 2012, the Fund paid transfer agent fees of $98,786, of which
$56,036 was retained by Investor Services.

f. Waiver and Expense Reimbursements

Advisers and FT Services have contractually agreed in advance to waive or limit their respective
fees and to assume as their own expense certain expenses otherwise payable by the Fund so that
the common expenses (i.e. a combination of management fees, administrative fees , and other
expenses, but excluding distribution fees, and acquired fund fees and expenses, for each class of
the Fund do not exceed 0.74% (other than certain non-routine expenses or costs, including those
relating to litigation, indemnification, reorganizations, and liquidations) until December 31, 2012.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result
of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses.
During the period ended February 29, 2012, there were no credits earned.

44 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

5. INCOME TAXES (continued)

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions and bond discounts and premiums.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended February 29, 2012, aggregated $92,933,279 and $14,118,687, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

8. CREDIT RISK

At February 29, 2012, the Fund had 8.91% of its portfolio invested in high yield or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

9. CONCENTRATION OF RISK

Semiannual Report | 45

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

10. OTHER DERIVATIVE INFORMATION

At February 29, 2012, the Fund has invested in derivative contracts which are reflected on the
Statement of Assets and Liabilities as follows:

For the period ended February 29, 2012, the average month end market value of derivatives repre-
sented 2.76% of average month end net assets. The average month end number of open derivative
contracts for the period was 493.

See Note 1(d) regarding derivative financial instuments.

11. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively,
Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndi-
cated senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which
matures on January 18, 2013. This Global Credit Facility provides a source of funds to the

46 | Semiannual Report

Templeton Income Trust

Notes to Financial Statements (unaudited) (continued)

Templeton International Bond Fund

11. CREDIT FACILITY (continued)

Borrowers for temporary and emergency purposes, including the ability to meet future
unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on
any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees
and expenses incurred in connection with the implementation and maintenance of the Global
Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers,
including an annual commitment fee of 0.08% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statement of Operations. During the
period ended February 29, 2012, the Fund did not use the Global Credit Facility.

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated
with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy
of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of February 29, 2012, in valuing the Fund’s
assets and liabilities carried at fair value:

Semiannual Report | 47

14. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements and
determined that no events have occurred that require disclosure.

48 | Semiannual Report

Templeton Income Trust

Shareholder Information

Templeton International Bond Fund

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

50 | Semiannual Report

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(c) N/A

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is David W. Niemiec and he is
"independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services. N/A

Item 5. Audit Committee of Listed Registrants. N/A

Item 6. Schedule of Investments. N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A

Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A

Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. N/A

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees that would require
disclosure herein.

Item 11. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant’s filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,

processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.

(b) Changes in Internal Controls.

There have been no significant changes in

the Registrant’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.

Item 12. Exhibits.

(a)(1) Code of Ethics

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Mark H. Otani, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Mark H. Otani, Chief Financial Officer and Chief Accounting Officer