<PAGE>
Templeton Smaller
Companies Growth Fund, Inc.
[PHOTO APPEARS HERE]
Daniel L. Jacobs, CFA
President
Templeton Smaller
Companies Growth Fund, Inc.
- -----------------------------
Your Fund's Objective
The Templeton Smaller Companies Growth Fund, Inc. seeks to achieve long-term
growth through a flexible policy of investing primarily in common stocks and
all types of common stock equivalents, including rights, warrants, and
preferred stock, of emerging growth companies of various nations throughout
the world.
April 14, 1995
Dear Shareholder:
This report for the Templeton Smaller Companies Growth Fund, Inc. covers the
six months ended February 28, 1995. Market conditions worldwide were
difficult for equities, especially for small cap stocks, which underperformed
larger-capitalized stocks during this time. In this environment, your Fund
produced disappointing short-term returns. These results and the more
favorable long-term results are detailed in the Performance Summary on page 5.
Templeton's long-term perspective enables us to view the recent decline in
stock prices as an opportunity to search for strong, growing companies that
we feel are temporarily undervalued. As you can see from the pie chart on
page 2, we are looking in markets all over the world for such stocks.
In the U.S., where we continue to have our largest investment concentration
of stocks, we found value in certain semi-conductor stocks. As new uses are
discovered for semi-conductor chips, these companies should become
1
<PAGE>
less subject to large, cyclical swings in earnings. This would enhance the
valuation of their stocks. Cirrus Logic, Inc., maker of multi-media
components for personal computers, was chosen from this group because we felt
that it was a bargain compared with its peers.
Banking is another sector of the U.S. market that has been recently out of
favor. Rising interest rates throughout 1994 caused price declines in many
U.S. financial stocks. Although we believe that interest rates have not
peaked, they may be closer to the peak than the trough. Since investors
normally discount interest-rate movements in advance, we have chosen to
increase our holdings in this sector. Two new holdings include Colonial
Bancgroup, Inc. in the southeastern U.S., and Glendale Federal Bank, FSB,
headquartered in California.
In Europe, many small cap stocks have also lagged their larger counterparts,
which has helped create excellent buying opportunities for the Fund. For
example, we found value in Metsa Serla OY, a relatively small, Finnish
company in the forest products industry, whose stock had fallen from previous
high levels.
We also added three Dutch stocks during this period. Two of them,
International Mueller and Apothekers Cooperatie
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund, Inc.
Geographic Distribution on 2/28/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
United States Stocks 36.5%
Australia/
New Zealand Stocks 4.2%
Latin America Stocks 5.7%
Asian Stocks 8.7%
European Stocks 25.0%
Fixed Income
Securities 2.5%
Short-Term Obligations
& Other Net Assets 14.5%
Other Stocks 2.9%
OPG, are distributors of pharmaceuticals. They became bargains when their prices
fell after recent public debate concerning possible reform of the European drug
industry. The third company is Madge NV, a maker of computer network equipment,
which presented value as well.
The Mexican stock market experienced a sell-off in December due to the
devaluation of the Mexican peso. This decline affected other Latin American
markets, as investors became concerned that more countries might also devalue
their currencies. Under these circumstances, we remain cautious and are not
actively seeking out addi-
2
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Templeton Smaller Companies
Growth Fund, inc.
Top 10 Holdings on 2/28/95
As a Percentage of Total Net Assets
% of Total
Company, Industry, Country Net Assets
- ---------------------------------------------------------
<S> <C>
News International PLC; Broadcasting
& Publishing, Australia 2.4%
- ---------------------------------------------------------
Hollandsche Beton Groep NV; Construction
& Housing, Netherlands 1.5%
- ---------------------------------------------------------
Telebras-Telecomunicacoes Brasileiras
SA, ADR; Telecommunications, Brazil 1.4%
- ---------------------------------------------------------
Telmex-Telefonos de Mexico SA, L, ADR;
Telecommunications, Mexico 1.3%
- ---------------------------------------------------------
Gesa-Gas Y Electricidad SA; Utilities -
Electrical & Gas, Spain 1.3%
- ---------------------------------------------------------
First U.S.A., Inc.; Financial Services,
United States 1.2%
- ---------------------------------------------------------
Mercantile Bancorporation, Inc.; Banking,
United States 1.1%
- ---------------------------------------------------------
SIG-Schweizerische Industrie Gesellschaft
Holdings AG; Metals & Mining, Switzerland 1.0%
- ---------------------------------------------------------
Sime Darby Hongkong, Ltd.; Wholesale &
International Trade, Hong Kong 1.0%
- ---------------------------------------------------------
Banco de Andalucia; Banking, Spain 1.0%
- ---------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, see page 8 of this report.
tional investments in Latin America. However, we will continue to monitor
the situation carefully with the expectation of increasing our exposure to
these growing economies in the future.
The Hong Kong stock market proved worrisome to investors, primarily for two
reasons. First, higher U.S. interest rates were translated into higher
interest rates in Hong Kong because of the link between the local currency
and the U.S. dollar. Second, many feared that the Mexican devaluation might
be imitated in Hong Kong and the smaller Asian countries as well, thereby
causing large losses to foreign investors. At this time, we are not
aggressively adding to our positions in these countries. We also do not
expect to make significant purchases in the Japanese market, which we
continue to think is expensive relative to other foreign markets, even after
the declines in early 1995. However, we anticipate making additional
purchases in Hong Kong and China in the future, because we still believe in
the favorable long-term growth prospects of these markets. While short-term
volatility can be disconcerting, declines of as much as 40% to 50% are not
unusual in emerging markets. For example, the Hong Kong market has increased
1000% in the last 15 years, but has suffered nine declines of more than 20%
during that time.
While it has been a difficult six months for small cap stocks worldwide, we
believe this group has superior growth potential. Recent price declines have
created relatively inexpensive valuations versus the larger-capitalized
companies. We also believe the Fund is well-positioned to take advantage of
the values taking shape in the Hong Kong/Chinese and Latin American markets.
3
<PAGE>
Of course, there are special risks associated with foreign investments in
smaller companies, including political uncertainty, price volatility,
illiquidity, currency fluctuation and limited product lines, markets, or
financial and management resources. Developing markets involve heightened risks
related to the same factors, in addition to risks associated with the relatively
small size and lesser liquidity of these markets. These special risks and other
considerations are discussed in the Fund's prospectus.
We thank you for your participation in the Templeton Smaller Companies Growth
Fund, Inc. and welcome your comments and suggestions.
Sincerely,
/s/ Daniel L. Jacobs, CFA
Daniel L. Jacobs, CFA
President
Templeton Smaller Companies
Growth Fund, Inc.
4
<PAGE>
Performance Summary
The Templeton Smaller Companies Growth Fund reported a total return of -8.11%
for the six-month period ended February 28, 1995. Total return measures the
change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include the maximum initial sales
charge. While we expect market volatility in the short-term, we have always
maintained a long-term perspective when managing the Fund, and as always we
encourage shareholders to view their investments in a similar manner. As you
can see from the chart to the right, the Fund has delivered a cumulative
total return of more than 184% for the 10-year period ended February 28, 1995.
During the reporting period, the Fund's share price, as measured by net asset
value, decreased from $8.24 on August 31, 1994 to $7.38 on February 28, 1995.
During this time, shareholders received distributions of 10.5 cents ($0.105) in
dividend income and $0.09 per share in capital gains, of which 8.5 cents
($0.085) represented long-term capital gains and 0.5 cents ($0.005) represented
short-term capital gains. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
Fund, as well as any profits realized from the sale of securities in the
portfolio.
- --------------------------------------------------------------------------------
TEMPLETON SMALLER COMPANIES
GROWTH FUND, INC.
Periods Ended 2/28/95
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year Ten-Year (6/1/81)
<S> <C> <C> <C> <C>
Average Annual
Total Return* -13.66% 8.26% 10.35% 13.41%
Cumulative
Total Return** - 8.44% 57.76% 184.08% 498.29%
</TABLE>
* Average annual total return represents the average annual increase in value
of an investment over the indicated periods, and includes the maximum 5.75%
initial sales charge.
** Cumulative total return represents the change in value of an investment
over the specified periods. It does not include the maximum 5.75% initial
sales charge.
All total returns assume reinvestment of dividends and capital gains when paid.
Prior to July 1, 1992, Fund shares were offered at a higher sales charge. Thus,
actual total return to purchasers of shares during that period would have been
somewhat lower than noted above. Investment return and principal value will
fluctuate with market conditions, currencies and the economic and political
climates where investments are made, so that your shares, when redeemed, may be
worth more or less than their initial cost. Past performance is not predictive
of future results.
5
<PAGE>
HOW $10,000 TURNED INTO
$56,000 IN 13 YEARS
If you had invested $10,000 in the Templeton Smaller Companies Growth Fund at
its inception, your investment would be worth more than $56,000 today. This
chart illustrates the cumulative total return of an assumed $10,000
investment in the Fund on June 1, 1981 (inception), with income dividends and
capital gains distributions reinvested through February 28, 1995/1/.
AVERAGE ANNUAL TOTAL RETURNS
as of 2/28/95/2/
10 Years 5 Years 1 Year
10.35% 8.26% -13.66%
Since Inception (6/1/81)
13.41%
[MOUNTAIN CHART APPEARS HERE SHOWING AN INITIAL INVESTMENT OF $10,000 MADE ON
06/01/81 (INITIAL NET ASSET VALUE OF $9,425) WOULD BE VALUED AT $56,388 ON
02/28/95]
/1/ The amount of capital gains distributions accepted in shares was $28,071.
The amount of dividends reinvested was $9,219.
/2/ Average annual total return represents the average annual change in value
of the investment over the periods indicated.
All total return quotations and performance results reflect the deduction of
the maximum 5.75% initial sales charge, and a proportional share of fund
expenses on an annual basis; they also assume that all dividends and capital
gains distributions were reinvested when paid. Prior to July 1, 1992, fund
shares were offered at a higher sales charge. Thus, actual total return for
purchasers of shares during that period would have been somewhat lower than
noted above. Investment return and principal value will fluctuate so that
your shares, when redeemed, may be worth more or less than their initial cost.
The performance information shown represents past performance and is not
predictive of future results. This was a period of generally rising
securities prices. For standardized performance figures, please refer to the
Performance Summary on page 5.
6
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 28, 1995 -----------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------- ---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.24 $ 7.44 $ 7.70 $ 8.10 $ 7.21 $ 8.94
---------- ---------- ---------- -------- -------- ---------
Income from investment
operations:
Net investment income .04 .09 .10 .15 .17 .17
Net realized and
unrealized gain (loss) (.70) .81 1.23 .25 1.47 (1.31)
---------- ---------- ---------- -------- -------- ---------
Total from investment
operations (.66) .90 1.33 .40 1.64 (1.14)
---------- ---------- ---------- -------- -------- ---------
Distributions:
Dividends from net
investment income (.11) (.07) (.15) (.15) (.17) (.21)
Distributions from net
realized gains (.09) (.03) (1.41) (.65) (.58) (.38)
Distributions in excess
of realized gains -- -- (.03) -- -- --
---------- ---------- ---------- -------- -------- ---------
Total distributions (.20) (.10) (1.59) (.80) (.75) (.59)
---------- ---------- ---------- -------- -------- ---------
Change in net asset
value (.86) .80 (.26) (.40) .89 (1.73)
---------- ---------- ---------- -------- -------- ---------
Net asset value, end of
period $ 7.38 $ 8.24 $ 7.44 $ 7.70 $ 8.10 $ 7.21
========== ========== ========== ======== ======== =========
TOTAL RETURN * (8.11)% 12.22% 22.71% 5.64% 26.69% (13.50)%
RATIO/SUPPLEMENTAL DATA:
Net assets, end of
period (000) $1,252,962 $1,409,494 $1,129,848 $950,409 $898,364 $ 756,478
Ratio of expenses to
average net assets 1.36%** 1.36% 1.29% 1.33% 0.97% 0.96%
Ratio of net investment
income to average net
assets 1.00%** 1.17% 1.70% 1.96% 2.33% 2.13%
Portfolio turnover rate 11.16% 28.06% 28.73% 48.97% 34.01% 26.90%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED IN PERIODS OF
LESS THAN ONE YEAR.
**ANNUALIZED.
7
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS: 80.8%
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace & Military Technical Systems:
0.6%
British Aerospace PLC U.K. 1,000,000 $ 7,459,495
- -------------------------------------------------------------------------------
Appliances & Household Durables: 0.3%
Chofu Seisaku Co. Ltd. Jpn. 38,000 794,823
*Mohawk Industries U.S. 200,000 2,700,000
--------------
3,494,823
- -------------------------------------------------------------------------------
Automobiles: 0.6%
+Capco Automotive Products
Corp. U.S. 600,000 5,100,000
*Qing Ling Motors Chn. 8,925,000 2,366,455
--------------
7,466,455
- -------------------------------------------------------------------------------
Banking: 7.8%
Banco de Andalucia Sp. 110,000 12,133,777
Banco Ganadero SA, ADR Col. 76,307 1,254,296
Banco Popular Espanol Sp. 90,000 11,441,424
Banco Portugues de
Investimento SA Port. 194,752 3,256,593
Bancorp Hawaii Inc. U.S. 174,067 4,873,876
Colonial Bancgroup Inc., B U.S. 180,000 4,230,000
Crestar Financial Corp. U.S. 100,000 4,312,500
*Glendale Federal Bank FSB U.S. 600,000 5,625,000
Grupo Financiero Serfin SA,
ADR Mex. 37,500 112,500
Grupo Financiero Serfin SA,
B Mex. 1,086,500 963,757
Hibernia Corp., A U.S. 469,700 3,640,175
Mercantile Bancorporation
Inc. U.S. 375,000 13,828,125
Midlantic Corp. U.S. 340,000 10,455,000
National Bank of Canada Can. 1,449,200 10,140,084
Whitney Holding Corp. U.S. 298,865 6,873,895
Wing Hang Bank H.K. 3,000,000 5,238,311
--------------
98,379,313
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 4.6%
American Publishing Co. U.S. 180,000 2,070,000
Century Communications
Corp., A U.S. 743,182 6,409,945
Grupo Radio Centro SA, ADR Mex. 100,000 725,000
Grupo Televisa SA Mex. 7,000 115,500
Marieberg Tidnings AB, A Swe. 1,700 40,597
News International PLC Aus. 7,888,000 30,607,054
Oriental Press Group
Limited H.K. 5,679,000 2,809,568
*Saatchi & Saatchi Co. PLC U.K. 1,096,480 1,597,633
Sing Tao Holdings Ltd. H.K. 1,881,140 1,216,543
South China Morning Post
Holdings Ltd. H.K. 12,150,000 6,718,133
*United International
Holdings, inc., A U.S. 341,740 5,382,405
--------------
57,692,378
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Building Materials & Components: 1.4%
Cristaleria Espanola SA Sp. 72,000 $ 3,616,194
Pioneer International
Ltd. Aus. 3,000,000 7,221,070
*Uralita SA Sp. 700,000 6,927,440
--------------
17,764,704
- -----------------------------------------------------------------------------
Business & Public Services: 2.9%
Adia SA, ADR Swtz. 222,950 5,126,585
Ahrend Groep NV Neth. 57,072 7,058,436
*Charter Medical Corp. U.S. 120,000 2,205,000
Ecco SA Fr. 102,000 11,992,980
*Health Management
Associates Inc., A U.S. 57,525 1,531,603
*Healthsource Inc. U.S. 80,000 3,480,000
*Novacare Inc. U.S. 220,000 1,897,500
Scribona AB, A Swe. 132,200 992,215
Scribona AB, B Swe. 250,000 1,876,352
--------------
36,160,671
- -----------------------------------------------------------------------------
Chemicals: 2.1%
*European Vinyls Corp.
EVC International NV Neth. 116,081 5,166,894
+Gurit Heberlein AG
Wattwil SG Swtz. 4,000 8,330,632
Tessenderlo Chemie Bel. 20,000 6,367,496
Vigoro Corp. U.S. 200,000 7,050,000
--------------
26,915,022
- -----------------------------------------------------------------------------
Construction & Housing: 2.4%
Hollandsche Beton Groep
NV Neth. 117,400 18,329,150
Hsin Chong Construction
Group Ltd. H.K. 5,138,000 598,099
Kaufman & Broad Home
Corp. U.S. 500,000 7,312,500
Raine PLC U.K. 2,000,000 1,520,407
*Schuler Homes Inc. U.S. 202,000 2,095,750
--------------
29,855,906
- -----------------------------------------------------------------------------
Data Processing & Reproduction: 5.0%
*Cirrus Logic Inc. U.S. 300,000 10,087,500
*Dallas Semiconductor
Corp. U.S. 368,600 6,035,825
*Electronic Arts Inc. U.S. 210,000 4,515,000
*+Inacom Corp. U.S. 520,000 4,680,000
*LSI Logic Corp. U.S. 60,000 3,270,000
*Madge NV, ADR Neth. 113,000 1,695,000
*Newbridge Networks
Corp. Can. 235,871 7,990,130
*Picturetel Corp. U.S. 240,000 6,570,000
*Quantum Corp. U.S. 700,000 10,325,000
</TABLE>
9
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<C> <C> <C> <C>
Data Processing & Reproduction (cont.)
Sligos SA Fr. 72,011 $ 5,602,494
*Verifone Inc. U.S. 72,700 1,853,850
--------------
62,624,799
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.4%
G.P. Batteries
International Ltd. Sing. 1,617,000 4,673,130
*Gold Peak Industries
Holdings Ltd., wts. H.K. 135,500 5,258
*Plantronics Inc. U.S. 4,355 124,117
Varitronix International
Ltd. H.K. 451,000 659,160
--------------
5,461,665
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 1.5%
Draka Holding NV Neth. 333,485 8,963,443
Tai Han Electric Wire Co.
Ltd. Kor. 260,386 7,056,621
Twentsche Kabel Holdings NV Neth. 20,505 2,881,221
--------------
18,901,285
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.2%
Koninklijke Pakhoed NV Neth. 98,000 2,790,057
- -------------------------------------------------------------------------------
Energy Sources: 0.1%
*Anderson Exploration Ltd. Can. 200,000 1,883,814
- -------------------------------------------------------------------------------
Financial Services: 4.4%
Alex Brown Inc. U.S. 200,000 7,600,000
Dah Sing Financial Holdings
Ltd. H.K. 1,366,000 2,738,537
First Financial Management
Corp. U.S. 37,800 2,612,925
First USA Inc. U.S. 400,000 14,750,000
Firstfed Michigan Corp. U.S. 312,500 7,578,125
Govett & Co. Ltd. U.K. 292,952 1,387,255
Invesco PLC U.K. 1,400,000 3,702,824
*Leader Financial Corp. U.S. 65,015 1,755,405
Manhattan Card Co. Ltd. H.K. 20,130,639 6,964,943
Onbancorp Inc. U.S. 248,370 5,619,371
--------------
54,709,385
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Food & Household Products: 3.2%
C.P. Pokphand Co. Ltd. H.K. 2,342,000 $ 578,571
Cafe de Coral Holdings Ltd. H.K. 11,536,885 2,879,931
Embotelladora Andina SA,
ADR Chil. 298,400 7,161,600
Grupo Embotellador de
Mexico SA, B Mex. 230,000 758,326
Grupo Embotellador de
Mexico SA de CV, GDR Mex. 61,100 412,425
*JP Foodservice Inc. U.S. 538,000 7,061,250
Lam Soon Foods Inc. H.K. 2,400,000 415,961
Lindt & Spruengli, AG,
partn. ctf. Swtz. 4,380 5,750,081
National Foods Ltd. Aus. 8,000,000 9,155,548
Panamerican Beverages Inc.,
A Pan. 77,200 1,881,750
PT Japfa Comfeed Indonesia,
fgn. Indo. 2,685,000 2,453,023
*Vetropack AG, br. Swtz. 713 1,820,057
--------------
40,328,523
- -------------------------------------------------------------------------------
Forest Products & Paper: 4.2%
Boise Cascade Corp. U.S. 182,615 5,866,507
*Cartiere Burgo SPA, wts. Itl. 67,600 10,138
+Crown-Van Gelder Papier SA Neth. 70,000 6,972,999
Hansol Paper Co. Ltd. Kor. 99,253 4,399,234
Kimberly Clark de Mexico
SA, A Mex. 500,000 3,916,318
Metsa Serla (OY), B Fin. 200,042 8,077,574
Munksjo AB Swe. 1,200,000 9,825,260
Primex Forest Products Ltd. Can. 300,000 2,179,841
*Shorewood Packaging Corp. U.S. 495,800 9,079,338
Union Planters Corp. U.S. 92,432 2,218,368
--------------
52,545,577
- -------------------------------------------------------------------------------
Health & Personal Care: 4.8%
Apothekers Cooperatie OPG
VA, partn. ctf. Neth. 60,000 1,627,380
*Coventry Corp. U.S. 200,000 5,400,000
*Haemonetics Corp. U.S. 254,900 4,046,538
International-Mueller NV Neth. 146,482 9,022,280
Medeva PLC U.K. 3,118,210 8,790,507
*Mitek Surgical Products
Inc. U.S. 151,745 4,495,446
*Nellcor Inc. U.S. 100,000 3,400,000
*Playtex Products Inc. U.S. 500,000 3,812,500
*Quorum Health Group Inc. U.S. 200,000 3,800,000
*Revco DS Inc. U.S. 431,500 7,928,813
*Sunrise Medical Inc. U.S. 80,000 2,760,000
Swank International
Manufacturing Co. Ltd. H.K. 12,494,000 1,615,987
*Swank International
Manufacturing Co. Ltd.,
wts. H.K. 2,038,800 13,185
*Tecnol Medical Products
Inc. U.S. 150,000 2,512,500
--------------
59,225,136
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Components: 0.5%
*Banner Aerospace Inc. U.S. 446,500 $ 1,841,813
BW/IP Inc. U.S. 2,000 32,000
*Hi-Lo Automotive Inc. U.S. 241,000 2,530,500
Hoeganaes AB, B free Swe. 100,000 1,582,959
--------------
5,987,272
- ------------------------------------------------------------------------------
Insurance: 6.6%
Allied Group U.S. 177,000 4,911,750
American Bankers Insurance
Group Inc. U.S. 437,615 11,870,307
*American Travelers Corp. U.S. 250,000 4,468,750
Capital RE Corp. U.S. 120,000 2,805,000
CCP Insurance Inc. U.S. 242,500 5,153,125
CMAC Investment Corp. U.S. 237,000 8,087,625
Enhance Financial Services
Group Inc. U.S. 145,000 2,573,750
*Fairfax Financial Holdings
Ltd. Can. 95,000 4,670,064
International Nederlanden
Group Neth. 200,000 9,808,363
Kemper Corp. U.S. 200,000 8,050,000
Life Partners Group Inc. U.S. 340,100 7,312,150
London Insurance Group Inc. Can. 217,700 3,827,658
Reliastar Financial Corp. U.S. 215,145 7,341,823
W.R. Berkley Corp. U.S. 41,000 1,465,750
--------------
82,346,115
- ------------------------------------------------------------------------------
Leisure & Tourism: 0.1%
Grand Hotel Holdings Ltd. H.K. 255,000 85,753
Reisebuero Kuoni AG, partn.
ctf. Swtz. 898 1,419,044
--------------
1,504,797
- ------------------------------------------------------------------------------
Machinery & Engineering: 3.2%
Bucher Holding AG Swtz. 4,090 2,419,530
*Bucher Holding AG, wts. Swtz. 4,090 5,800
Fives-Lille Fr. 132,750 10,470,386
IHC Caland NV Neth. 400,000 9,796,118
*Saurer AG Swtz. 7,660 2,455,049
*Tampella AB (OY) Fin. 816,000 1,973,354
Valmet (OY) Fin. 190,800 3,852,194
*Varity Corp. U.S. 250,000 9,125,000
--------------
40,097,431
- ------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Merchandising: 3.9%
Circuit City Stores Inc. U.S. 100,000 $ 2,162,500
*Clothestime Inc. U.S. 124,300 388,438
Deb Shops Inc. U.S. 288,900 1,408,388
*Eckerd Corp. U.S. 404,485 10,617,731
Giordano Holdings Ltd. H.K. 3,069,674 1,895,841
Hechinger Co., A U.S. 600,000 6,937,500
LI & Fung Ltd. H.K. 2,065,000 1,255,319
Naf Naf SA Fr. 78,875 2,629,936
*Naf Naf SA, wts. Fr. 5,375 4,716
*Sports Authority Inc. U.S. 52,300 947,938
*Staples Inc. U.S. 157,500 3,819,375
Strawbridge & Clothier, A U.S. 240,225 5,164,838
United Stationers Inc. U.S. 450,000 6,862,500
Ventures Stores Inc. U.S. 351,000 4,870,125
Wessel & Vett AS, C Den. 900 55,119
--------------
49,020,264
- -------------------------------------------------------------------------------
Metals & Mining: 3.7%
*AK Steel Holding Corp. U.S. 200,000 5,200,000
*Alcan Australia Ltd. Aus. 3,000,000 5,648,383
Antofagasta Holdings PLC Chil. 1,350,000 5,943,840
ARBED SA Lux. 2,195 343,568
Federal Industries Ltd., A Can. 843,509 3,934,701
*Grupo Simec SA de CV, ADR Mex. 142,300 569,200
Quanex Corp. U.S. 300,000 7,050,000
SIG Schweizerische Industrie
Gesellschaft Holdings AG Swtz. 6,325 12,608,995
Vallourec Fr. 90,000 4,597,836
--------------
45,896,523
- -------------------------------------------------------------------------------
Multi-Industry: 0.5%
Amer Group Ltd., A Fin. 220,000 4,051,251
CNT Group Ltd. H.K. 7,610,000 393,714
DESC Sociedad de Fomento
Industrial SA, B Mex. 694,700 1,355,682
--------------
5,800,647
- -------------------------------------------------------------------------------
Real Estate: 1.5%
American Health Properties
Inc. U.S. 200,000 4,350,000
Asean Resources Holdings
Ltd. H.K. 7,740,730 1,171,397
*Catellus Development Corp. U.S. 550,000 3,025,000
Hon Kwok Land Investment Co.
Ltd. H.K. 2,112,000 461,654
Hongkong Realty & Trust Co.
Ltd., A H.K. 3,583,000 5,769,689
Tai Cheung Holdings Ltd. H.K. 3,630,000 3,450,883
--------------
18,228,623
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications: 4.3%
*Broadband Technologies
Inc. U.S. 187,745 $ 4,505,880
*Comcast U.K. Cable
Partners Ltd. U.K. 88,300 1,407,281
Compania de Telefonos de
Chile SA, ADR Chil. 75,000 4,575,000
*International Cabletel
Inc. U.S. 298,615 9,555,680
*LCI International U.S. 482,400 10,612,800
*Millicom International
Cellular SA Lux. 100,000 2,725,000
Telefonica de Argentina SA,
B, ADR Arg. 240,000 4,470,000
Telmex-Telefonos de Mexico
SA, L Mex. 4,592,972 6,395,569
Telmex-Telefonos de Mexico
SA, L, ADR Mex. 361,220 9,978,702
--------------
54,225,912
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.7%
*Fountain Set Holdings Ltd. H.K. 35,722,000 4,851,335
*Fruit of the Loom Inc., A U.S. 102,000 2,384,250
Gamma Holdings NV Neth. 120,000 6,098,083
+Tungtex (Holdings) Co.
Ltd. H.K. 35,573,000 4,140,943
Winsor Industrial Corp.
Ltd. H.K. 3,328,000 4,110,767
--------------
21,585,378
- -------------------------------------------------------------------------------
Transportation: 4.4%
Airborne Freight Corp. U.S. 257,900 6,157,363
American President Cos.
Ltd. U.S. 12,800 291,200
+Anangel-American
Shipholdings Ltd., ADR Gr. 438,100 6,461,975
Atlantic Southeast Airlines
Inc. U.S. 423,900 8,530,987
Comair Holdings Inc. U.S. 200,000 3,350,000
IMC Holdings Ltd. H.K. 6,704,000 5,376,033
Malaysian International
Shipping Corp. Bhd. Mal. 173,333 475,350
Malaysian International
Shipping Corp. Bhd., fgn. Mal. 2,133,333 5,844,950
Nedlloyd Groep Neth. 40,000 1,244,107
OMI Corp. U.S. 1,420,000 7,455,000
Singapore Bus Service Ltd.,
fgn. Sing. 347,100 2,251,718
*Stolt Nielsen SA U.S. 400,000 7,700,000
--------------
55,138,683
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 2.2%
Electricas Reunidas de
Zaragoza Sp. 419,869 8,211,793
Electricidad de Caracas Venz. 3,054,729 2,664,275
Gesa-Gas y Electricidad SA Sp. 381,700 15,915,987
Shandong Huaneng Power Chn. 100,000 912,500
--------------
27,704,555
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale & International Trade: 1.7%
Bergen Brunswig Corp., A U.S. 210,000 $ 5,722,500
Computer 2000 AG Ger. 9,499 3,220,663
Sime Darby Hongkong Ltd. H.K. 11,067,000 12,167,044
--------------
21,110,207
--------------
TOTAL COMMON STOCKS (cost $840,247,251) 1,012,305,415
- ------------------------------------------------------------------------------------
PREFERRED STOCKS: 2.2%
- ------------------------------------------------------------------------------------
Herlitz AG, pfd. Ger. 12,000 2,075,497
Hugo Boss AG, pfd. Ger. 9,100 6,245,710
Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
ADR Braz. 594,342 17,347,357
Unibanco-Uniao de Bancos
Brasileiros SA, pfd. Braz. 48,953,844 1,340,546
--------------
TOTAL PREFERRED STOCKS (cost $19,826,238) 27,009,110
- ------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.5%
- ------------------------------------------------------------------------------------
U.S. Treasury Notes:
7.75%, 3/31/96 U.S. 10,000,000 10,123,400
7.375%, 5/15/96 U.S. 10,000,000 10,084,400
8.50%, 7/15/97 U.S. 10,000,000 10,357,800
--------------
TOTAL BONDS (cost $31,331,250) 30,565,600
- ------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 14.6% (cost $183,266,715)
- ------------------------------------------------------------------------------------
U.S. Treasury Bills,
5.28% to 5.70% with
maturities to 4/20/95 U.S. 184,268,000 183,296,620
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.1% (cost $1,074,671,454) 1,253,176,745
OTHER ASSETS, LESS LIABILITIES: (0.1%) (214,913)
--------------
TOTAL NET ASSETS: 100.0% $1,252,961,832
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 6.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$1,074,671,454) $1,253,176,745
Receivables:
Investment securities sold 1,856,261
Capital shares sold 894,863
Dividends and interest 3,382,254
--------------
Total assets 1,259,310,123
--------------
Liabilities:
Payables:
Investment securities purchased 2,149,581
Capital shares redeemed 1,831,546
Accrued expenses 2,367,164
--------------
Total liabilities 6,348,291
--------------
Net assets, at value $1,252,961,832
==============
Net assets consists of:
Undistributed net investment income $ 1,352,694
Net unrealized appreciation 178,505,291
Accumulated net realized gain 27,133,649
Net capital paid in on shares of capital stock 1,045,970,198
--------------
Net assets, at value $1,252,961,832
==============
Shares outstanding 169,766,491
==============
Net asset value per share ($1,252,961,832 / 169,766,491) $ 7.38
==============
Maximum offering price ($7.38 / 94.25%) $ 7.83
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the six months ended
February 28, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $426,666 foreign taxes withheld)
Dividends $ 10,418,378
Interest 4,944,899
-------------
Total income $ 15,363,277
-------------
Expenses:
Management fees (Note 4) 4,878,654
Administrative fees
(Note 4) 772,585
Distribution fees (Note 4) 1,626,356
Transfer agent fees
(Note 4) 818,000
Custodian fees 320,000
Reports to shareholders 308,000
Audit fees 26,000
Legal fees 40,000
Directors' fees
and expenses 25,000
Other 26,877
-------------
Total expenses 8,841,472
-------------
Net investment income 6,521,805
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 40,477,109
Foreign currency transactions (290,550)
-------------
40,186,559
Net unrealized depreciation on investments (160,460,342)
-------------
Net realized and unrealized loss (120,273,783)
-------------
Net decrease in net
assets resulting
from operations $(113,751,978)
=============
</TABLE>
16
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,521,805 $ 15,508,983
Net realized gain from security and for-
eign currency transactions 40,186,559 12,421,846
Net unrealized appreciation (depreciation) (160,460,342) 120,937,052
-------------- --------------
Net increase (decrease) in net assets re-
sulting from operations (113,751,978) 148,867,881
Distributions to shareholders:
From net investment income (17,799,525) (10,778,807)
From net realized gain (15,254,111) (4,548,680)
Capital share transactions (Notes 2 and 3) (9,726,771) 146,105,579
-------------- --------------
Net increase (decrease) in net assets (156,532,385) 279,645,973
Net assets:
Beginning of period 1,409,494,217 1,129,848,244
-------------- --------------
End of period $1,252,961,832 $1,409,494,217
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Smaller Companies Growth Fund, Inc. (the Fund) is an open-end, diver-
sified management investment company registered under the Investment Company
Act of 1940. The following summarizes the Fund's significant accounting poli-
cies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange
on which the securities are traded. Over-the-counter securities and listed se-
curities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and ap-
proved in good faith by the Board of Directors.
b. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value assets and liabilities other than investments in securities at the end of
the fiscal period, resulting from changes in the exchange rate.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income from foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
2. MERGER WITH TEMPLETON VALUE FUND, INC.
On October 22, 1993, the Fund acquired the net assets of Templeton Value Fund,
Inc. (Value Fund) pursuant to a plan of reorganization approved by the Value
Fund's shareholders. The merger was accomplished by a tax-free exchange of
14,274,720 shares of the Fund (valued at $108,202,380) for the net assets of
the Value Fund which aggregated $108,202,380, including $19,241,116 of
unrealized appreciation. The combined net assets of the Fund immediately after
the merger were $1,273,694,466.
18
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At February 28, 1995, there were 750 million shares of capital stock authorized
($0.20 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1995 AUGUST 31, 1994
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 7,465,101 $ 58,050,982 33,559,838 $ 266,647,956
Shares issued in rein-
vestment of distribu-
tions 3,753,105 28,291,634 1,761,600 13,357,355
Shares issued on merger -- -- 14,274,720 108,202,380
Shares redeemed (12,426,708) (96,069,387) (30,485,649) (242,102,112)
----------- ------------ ----------- -------------
Net increase (decrease) (1,208,502) $ (9,726,771) 19,110,509 $ 146,105,579
=========== ============ =========== =============
</TABLE>
4. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers of Templeton Investment Counsel,
Inc. (TICI), Templeton Global Investors, Inc. (TGII), Franklin Templeton Dis-
tributors, Inc. (FTD), and Franklin Templeton Investor Services, Inc. (FTIS),
the Fund's investment manager, administrative manager, principal underwriter,
and transfer agent, respectively. The Fund pays monthly an investment manage-
ment fee to TICI equal, on an annual basis, to 0.75% of the Fund's average
daily net assets. The investment management fee is subject to reduction in any
year to the extent that expenses (exclusive of certain expenses) of the Fund
exceed 2 1/2% of the first $30 million of net assets, 2% of the next $70 mil-
lion of net assets and 1 1/2% of the remainder. For the six months ended Febru-
ary 28, 1995, no reduction in fee was required as a result of this limitation.
The Fund pays TGII an administrative fee of 0.15% per annum on the first $200
million of the Fund's average daily net assets, 0.135% of the next $500 mil-
lion, 0.10% of the next $500 million, and 0.075% per annum of such average net
assets in excess of $1.2 billion. For the six months ended February 28, 1995,
FTD received net commissions of $213,834 from the sale of the Fund's shares and
FTIS received fees of $818,000.
Pursuant to a distribution plan, the Fund reimburses FTD monthly (subject to a
limit of 0.25% per annum of the Fund's average daily net assets) for FTD's
costs and expenses in connection with any activity which is primarily intended
to result in sales of Fund shares. Such distribution fees are set forth in the
Statement of Operations.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $40,000 for the six months ended Feb-
ruary 28, 1995.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1995 aggregated $129,064,943 and $181,864,513, re-
spectively. The cost of securities for federal income tax purposes is
$1,075,651,593. Realized gains and losses are reported on an identified cost
basis.
At February 28, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $254,517,961
Unrealized depreciation (76,992,809)
------------
Net unrealized appreciation $177,525,152
============
</TABLE>
6. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. Investments in "affiliated companies" at February 28,
1995 amounted to $35,686,549. For the six months ended February 28, 1995, divi-
dend and interest income from affiliated companies was $392,129 and net real-
ized gains from disposition of affiliated companies were $976,377.
19
<PAGE>
- --------------------------
TEMPLETON SMALLER
COMPANIES GROWTH
FUND, INC.
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be
preceded or accompanied
by the prospectus of
Templeton Smaller
Companies Growth Fund,
Inc.
Like any investment in
securities, the value
of the Fund's portfolio
will be subject to the
risk of loss from
market, currency,
economic, political and
other factors, as well
as investment decisions
by the investment
manager which will not
always be profitable
or wise. The Fund and
its investors are not
protected from such
losses by the
investment manager.
Therefore, investors
who cannot accept this
risk should not invest
in shares of the Fund.
To ensure the highest
quality of service,
telephone calls to or
from our service
departments may be
monitored, recorded and
accessed. These calls
can be determined by
the presence of a
regular beeping tone.
- --------------------------
[LOGO OF RECYCLED PAPER APPEARS HERE]
TL03 S95 04/95
TEMPLETON
SMALLER
COMPANIES
GROWTH
FUND, INC.
Semi-Annual Report
February 28, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
