<PAGE>
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Templeton Quarterly Shareholder Update May 31, 1995
Smaller
Companies The Templeton Smaller Companies Growth Fund seeks long-term
Growth Fund capital growth by investing primarily in common stocks issued by
emerging growth companies in various nations throughout the
world.
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Performance The chart to the right illustrates the cumulative total return
of an assumed $10,000 investment in Class I shares of Templeton
Smaller Companies Growth Fund at its inception on June 1, 1981,
with income dividends and capital gains reinvested through May
31, 1995./1/
Templeton Smaller Companies Growth
Fund Class I Total Returns on 5/31/95
[MOUNTAIN CHART APPEARS HERE SHOWING AN INITIAL INVESTMENT OF
$10,000 MADE ON 6/1/81 (INITIAL NET ASSET VALUE OF $9,425) WOULD
BE VALUED AT $61,956 ON 5/31/95
Cumulative/1/
One- Five-
Year Year
-2.22% 52.14%
Ten- Since
Year Inception (6/1/81)
186.11% 519.56%
Average Annual/2/
One- Five-
Year Year
-2.22% 8.76%
Ten- Since
Year Inception (6/1/81)
11.09% 13.92%
1. Cumulative total return shows the change in value of an
investment over the periods indicated.
2. Average annual total return represents the average annual
change in value of an investment over the stated periods.
All total return quotations and performance results reflect the
deduction of the maximum 5.75% initial sales charge and a
proportional share of the fund's 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 returns for purchasers of shares during that period would
have been somewhat lower than noted above.
The performance shown represents past performance and is not an
indication of future results. This was a period of generally
rising securities prices.
The historical performance data shown above pertain only to
Class I shares of the fund. Class II shares, which the fund
began offering on May 1, 1995, are subject to different fees and
expenses, which will affect their performance. Please see the
prospectus for more details regarding Class I and Class II
shares.
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Portfolio The Templeton Smaller Companies Growth Fund portfolio is
diversified across 30 industries and over two dozen countries.
The chart to the right shows how the fund's assets were invested
globally on May 31, 1995.
For current information about the fund's holdings, call Franklin
Templeton Fund Information, toll free, at 1-800/DIAL BEN
(1-800/342-5236).
Geographic Distribution on 5/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
-------------------- --------------
<S> <C>
U. S. & Canadian Stocks 41.2%
European Stocks 26.2%
Short - Term & Cash Equivalents 10.7%
Asian Stocks 9.0%
Latin American Stocks 6.3%
Australian Stocks 4.3%
Fixed Income Securities 2.3%
</TABLE>
<PAGE>
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Why Invest The Templeton Smaller Companies Growth Fund differs from other
In Smaller Templeton funds in that most of its portfolio is invested in
Companies companies whose outstanding stock has, at the time of purchase
by the fund, a market value of not more than $1 billion. The
chart to the right compares the cumulative total return of the
fund's Class I shares with the return for the unmanaged Morgan
Stanley Capital International World Index for the five-year
period ended May 31, 1995./3,4/
MSCI World Index /3/ 44.12%
Templeton Smaller Companies/4/ 52.14%
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Top Ten Percentage of
Equity Total Net Assets
Holdings ----------------------------------------------------------------
News International PLC 2.8%
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Telebras-Telecomunicacoes Brasileiras SA,
pfd. ADR 1.5%
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First USA, Inc. 1.4%
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Gesa-Gas y Electricidad SA 1.4%
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Hollandsche Beton Groep NV 1.4%
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Banco de Andalucia 1.1%
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ECCO SA 1.1%
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Mercantile Bancorporation Inc. 1.1%
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SIG-Schweizerische Ind. HG AG 1.1%
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Sime Darby Hong Kong, LTD 1.1%
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A Few Words There are special risks associated with foreign investments in
About Risk smaller companies, including political uncertainty, price
volatility, illiquidity, currency fluctuation and limited
product lines, markets, or financial and management resources.
The fund's share price and returns will fluctuate with market
conditions, currencies, and the economic and political climates
where investments are made, and you may have a gain or loss when
you sell your shares. These special considerations are discussed
in the prospectus.
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Questions -------------------------------------------------------
About Upcoming Communications Mailing Date
Your -------------------------------------------------------
Account Annual Report October 1995
Quarterly Shareholder Update January 1996
Franklin Semi-Annual Report April 1996
Templeton -------------------------------------------------------
Account
Services
1-800/393-3001
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Principal 3. The MSCI World Index, a benchmark for the performance of
Underwriter medium to large companies throughout the world, does not contain
cash (the fund generally carries a certain percentage of cash at
Franklin any given time), and does not include sales charges or
Templeton management fees. One cannot invest directly in an index. Total
Distributors, return includes reinvested dividends.
Inc.
700 Central 4. Cumulative total return shows the change in value of an
Avenue investment over the specified period. These calculations include
St. Petersburg, the deduction of the fund's 5.75% maximum initial sales charge
Florida and assume reinvestment of dividends and capital gains at net
33701-3628 asset value. Prior to July 1, 1992, fund shares were offered at
a higher sales charge. Thus, actual total returns for purchasers
of shares during that period would have been somewhat lower than
noted above.
The historical performance data shown above pertain only to
Class I shares of the fund. Class II shares, which the fund
began offering on May 1, 1995, are subject to different fees and
expenses, which will affect their performance. Please see the
prospectus for more details regarding Class I and Class II
shares.
This report must be preceded or accompanied by a prospectus of
Templeton Smaller Companies Growth Fund, which contains more
information about the sales charge and expenses. For information
about the other Templeton funds, request a prospectus from your
securities dealer or from Franklin Templeton Distributors, Inc.
Please read the prospectus carefully before investing or sending
money.
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Mutual funds, annuities, and other investment products:
. are not FDIC insured;
. are not deposits or obligations of, or guaranteed by, any
financial institution;
. are subject to investment risks, including possible loss of
the principal amount invested.
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NASDAQ: TEMGX Templeton Fund #103
CUSIP: 880 22L 102 TL103 QU 7/95
