No, this does not preserve the history of the repo, just gives a single commit with the existing files. You might also think of this as cloning, then squashing down the entire history (well, everything in master anyways) to a single (root) commit.
Maybe I remember incorrectly, but I thought the template came from the default branch?
Oh I get it now, thanks!
Templates are a copy of a non empty word document
Cloning is a word document with versions turned on that copied all the previous versioning information