<PAGE>
Templeton Smaller
Companies Growth Fund
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Smaller Companies Growth Fund 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
companies of various nations throughout the world. The Fund seeks to achieve its
objectives by investing primarily in securities of smaller companies globally.
- --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
We are pleased to bring you the annual report of the Templeton Smaller Companies
Growth Fund for the fiscal year ended August 31, 1995. During this period,
strong stock markets in many countries helped the Fund's performance, and, as
shown in the Performance Summary on page 6, the Fund's Class I shares provided a
total return of 9.20% for the year under review.
Throughout the spring and summer, U.S. stocks, which made up 34.1% of the Fund's
total net assets on August 31, 1995 achieved record high price levels, as
measured by most major stock indices. U.S. technology stocks were particularly
strong in the first half of 1995, and the Fund benefited from its holdings in
stocks such as Picturetel Corp. (a videoconferencing hardware company) and
Cirrus Logic (a semiconductor company). One has to wonder, however, whether
technology stocks have now been over-glamorized by the market. Generally, we are
now finding small-cap bargains outside of the technology
1
<PAGE>
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund
Top 10 Industries on 8/31/95
As a Percentage of Total Net Assets
<TABLE>
<CAPTION>
% of Total
Industry Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Banking 8.1%
- --------------------------------------------------------------------------------
Telecommunications 5.9%
- --------------------------------------------------------------------------------
Insurance 5.9%
- --------------------------------------------------------------------------------
Transportation 5.4%
- --------------------------------------------------------------------------------
Health & Personal Care 4.9%
- --------------------------------------------------------------------------------
Broadcasting & Publishing 4.7%
- --------------------------------------------------------------------------------
Forest Products & Paper 4.2%
- --------------------------------------------------------------------------------
Data Processing & Reproduction 4.0%
- --------------------------------------------------------------------------------
Financial Services 3.7%
- --------------------------------------------------------------------------------
Metals & Mining 3.4%
- --------------------------------------------------------------------------------
</TABLE>
sector and more generally outside of the U.S. -- not surprising given the recent
strong performance of the U.S. market, both large and small cap.
The performance of the Fund was also helped by our lack of holdings in Japan.
The Nikkei index posted a total return of -10.1%, measured in U.S. dollars,
during the Fund's fiscal year. Although Japan is the world's second-largest
equity market (only the U.S. is larger), we have been unable to find
attractively valued stocks there. We believe that, over the long term, the
Fund's strict discipline of buying only value stocks will continue to provide
attractive returns for shareholders.
Emerging markets are one area where we're spending more time looking for
bargain, small cap stocks. Many of the emerging markets have been poor
performers over the past year, with investors somewhat disillusioned after the
Mexican economic and stock market crisis. Falling markets attract the attention
of value investors like us -- we want to be buying stocks other investors don't
like. The Russian market is a good example of the work we're doing in these
markets, although continuing regulatory issues (primarily the lack of proper
share custody services) have kept us from investing in Russian stocks.
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
United States Stocks 32.9%
Australian Stocks 4.1%
Latin American Stocks 6.2%
Asian Stocks 8.3%
Canadian Stocks 2.0%
European Stocks 24.6%
Fixed-Income Securities 2.1%
Short-Term Obligations &
Other Net Assets 19.8%
</TABLE>
2
<PAGE>
We continue to believe that many investors should have a portion of their assets
in global, small capitalization stocks in order to reap the benefits of
diversification. Owning some international stocks is less risky than owning only
U.S. stocks, and holding small cap stocks can help an investor reduce some of
the risk of holding only larger company stocks. Studies have shown that, in the
long run, stocks of small companies have tended to outperform those of larger
companies. This is because small companies often have higher growth rates and
are usually less-scrutinized and understood by the investment community./1/
Although past performance cannot guarantee future results, we believe small
company stocks, particularly on a global basis, offer tremendous opportunities
for investors.
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. Although the short-term price volatility of
smaller companies and developing markets 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 763% in the last 15 years, but has suffered six
declines of more than 20%
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund
Top 10 Holdings on 8/31/95
As a Percentage of Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
News International PLC; Broadcasting &
Publishing, Australia 2.8%
- --------------------------------------------------------------------------------
Telebras-Telecomunicacoes Brasilerias
SA, pfd., ADR; Telecommunications, Brazil 1.8%
- --------------------------------------------------------------------------------
Gesa-Gas Y Electricidad SA; Utilities -
Electrical & Gas, Spain 1.3%
- --------------------------------------------------------------------------------
Telefonos de Mexico SA, L, ADR;
Telecommunications, Mexico 1.2%
- --------------------------------------------------------------------------------
LCI International; Telecommunications,
United States 1.2%
- --------------------------------------------------------------------------------
Ecco SA; Business & Public Services,
France 1.1%
- --------------------------------------------------------------------------------
Eckerd Corp.; Merchandising,
United States 1.1%
- --------------------------------------------------------------------------------
Comair Holdings Inc.; Transportation,
United States 1.0%
- --------------------------------------------------------------------------------
Banco de Andalucia; Banking,
Spain 1.0%
- --------------------------------------------------------------------------------
Quantum Corp.; Data Processing &
Reproduction, United States 1.0%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, see page 10 of this report.
during that time./2/ 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.
1. Source: Ibbotson Associates.
2. Source: Bloomberg. Based on quarterly percentage change over 15 years, ended
June 30, 1995.
3
<PAGE>
In closing, we would like to mention that, although Sir John Templeton has not
been involved in investment management of the Templeton funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
has elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
Thank you for your continued support of the Templeton Smaller Companies Growth
Fund. We appreciate your support, welcome your comments and look forward to
serving you in the future.
Sincerely,
/s/ Marc Joseph
Marc Joseph
Portfolio Manager
Templeton Smaller Companies Growth Fund, Inc.
- --------------------------------------------------------------------------------
Marc Joseph became the lead portfolio manager of Templeton Smaller Companies
Growth Fund on July 27, 1995. Mr. Joseph has been a member of the Fund's
portfolio management team since 1993. Prior to joining the Templeton
organization, he served as vice president of Pacific Financial Research and as a
management consultant for McKinsey & Co. He holds a B.S. in Computer Science
from the College of William & Mary and an MBA from Harvard Business School. Mr.
Joseph is also a magna cum laude graduate of the Harvard Law School.
- --------------------------------------------------------------------------------
4
<PAGE>
Performance Summary
Templeton Smaller Companies Growth Fund Class I shares provided a total return
of 9.20% for the one-year period ended August 31, 1995. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include the current maximum 5.75%
initial sales charge for Class I shares.
We have always maintained a long-term perspective when managing the Fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the chart on the next page, the Fund's Class I shares delivered a
cumulative total return of more than 218% for the ten-year period ended
August 31, 1995.
As measured by net asset value, the price of the Fund's Class I shares increased
from $8.24 on August 31, 1994 to $8.77 on August 31, 1995, while the price of
the Fund's Class II shares increased from $7.87 on May 1, 1995 (the inception
date for these shares) to $8.75 on August 31, 1995. Please note that Class I
share prices reflect performance for an entire year, whereas Class II prices
reflect performance for the four-month period these shares have been in
existence.
During the reporting period, Class I shareholders received distributions
totaling 10.5 cents ($0.105) per share in dividend income, 8.5 cents ($0.085) in
long-term capital gains, and 0.5 cents ($0.005) in short-term capital gains.
Class II shareholders did not receive distributions because Class II shares did
not exist when distributions were paid. 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.
5
<PAGE>
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund - Class I
[LINE CHART APPEARS HERE]
1. Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment of dividends
and capital gains. Past performance is not predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source: U.S. Bureau of Labor Statistics
[Graph appears here showing comparison between Templeton Smaller Companies
Growth Fund, MSCI World Index and the CPI]
<TABLE>
<CAPTION>
8/85 8/95
<S> <C> <C>
Templeton Smaller Companies Growth Fund/1/ $10,000 30,059
MSCI World Index/2/ 10,000 39,400
CPI/3/ 10,000 14,184
</TABLE>
The graph above shows how a $10,000 investment in the Fund's Class I shares,
over the past ten years, has kept your purchasing power well-ahead of inflation,
as measured by the Consumer Price Index (CPI). It also compares the Class I
shares' performance over the same period with the performance of the unmanaged
Morgan Stanley Capital International World Index, which tracks 22 equity markets
worldwide. Class II shares are not represented, as they have not been available
for a sufficient period of time. Please remember that the Fund's performance
differs from that of the index because the index does not contain cash (the Fund
generally carries a certain percentage of cash at any
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund
Periods ended August 31, 1995
<TABLE>
<CAPTION>
Since Since
Inception Inception
One-Year Five-Year Ten-Year (06/01/81) (05/01/95)
<S> <C> <C> <C> <C> <C>
Average Annual
Total Return/1/
Class I Shares 2.92% 13.66% 11.63% 14.28% --
Aggregate
Total Return/2/
Class II Shares -- -- -- -- 9.07%
Cumulative Total
Return/3/
Class I Shares 9.20% 101.25% 218.91% 610.98% --
Class II Shares -- -- -- -- 11.18%
</TABLE>
1. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 5.75% initial sales charge for Class I shares.
See note below.
2. Aggregate total return represents the change in value of an investment over
the period indicated and reflects the deduction of the maximum 1.00% initial
sales charge and 1.00% contingent deferred sales charge (CDSC) for Class II
shares, applicable to shares redeemed within the first 18 months of investment.
Since Class II shares have existed for less than one year, average annual total
returns are not provided. See note below.
3. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 5.75% initial sales
charge for Class I shares, or the maximum 1.00% initial sales charge and 1.00%
CDSC for Class II shares, applicable to shares redeemed within the first 18
months of investment. See note below.
Note: Prior to July 1, 1992, Class I shares were offered at a higher initial
sales charge. Thus, actual total return to purchasers of shares during that
period would have been different than noted above. 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.
All total return calculations reflect the deduction of a proportional share of
Fund expenses on an annual basis and assume that all dividends and capital gains
distributions were reinvested when paid. Investment return and principal value
will fluctuate with market conditions, currencies and the economic and political
climates of countries where investments are made. Developing markets involve
heightened risks related to the same factors, in addition to those associated
with the relatively small size and lesser liquidity of these markets. Thus, your
shares, when redeemed, may be worth more or less than their initial cost. Past
performance is not predictive of future results.
- --------------------------------------------------------------------------------
given time) and includes no sales charges or management expenses. Of course, one
cannot invest directly in an index.
6
<PAGE>
Templeton Smaller Companies
Growth Fund -- Class I
If you had invested $10,000 in the Templeton Smaller Companies Growth Fund at
its inception, your investment would be worth more than $66,000 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 August 31, 1995/1/.
[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 $66,998 on
8/31/95]
1. The amount of capital gains distributions accepted in shares was $37,342.
The amount of dividends reinvested was $11,596.
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 6.
7
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the year)
<TABLE>
<CAPTION>
CLASS I
------------------------------------------------------
YEAR ENDED AUGUST 31
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year $ 8.24 $ 7.44 $ 7.70 $ 8.10 $ 7.21
---------- ---------- ---------- -------- --------
Income from investment
operations:
Net investment income .11 .09 .10 .15 .17
Net realized and
unrealized gain .62 .81 1.23 .25 1.47
---------- ---------- ---------- -------- --------
Total from investment
operations .73 .90 1.33 .40 1.64
---------- ---------- ---------- -------- --------
Distributions:
Dividends from net in-
vestment income (.11) (.07) (.15) (.15) (.17)
Distributions from net
realized gains (.09) (.03) (1.41) (.65) (.58)
Distributions in excess
of realized gains -- -- (.03) -- --
---------- ---------- ---------- -------- --------
Total distributions (.20) (.10) (1.59) (.80) (.75)
---------- ---------- ---------- -------- --------
Change in net asset
value .53 .80 (.26) (.40) .89
---------- ---------- ---------- -------- --------
Net asset value, end of
year $ 8.77 $ 8.24 $ 7.44 $ 7.70 $ 8.10
========== ========== ========== ======== ========
TOTAL RETURN* 9.20% 12.22% 22.71% 5.64% 26.69%
RATIOS/SUPPLEMENTAL DA-
TA:
Net assets, end of year
(000) $1,447,155 $1,409,494 $1,129,848 $950,409 $898,364
Ratio of expenses to av-
erage net assets 1.36% 1.36% 1.29% 1.33% .97%
Ratio of net investment
income to average net
assets 1.32% 1.17% 1.70% 1.96% 2.33%
Portfolio turnover rate 18.79% 28.06% 28.73% 48.97% 34.01%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period $ 7.87
-------
Income from investment operations:
Net realized and unrealized gain .88
-------
Total from investment operations .88
-------
Net asset value, end of period $ 8.75
=======
TOTAL RETURN* 11.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 2,569
Ratio of expenses to average net assets 2.11%**
Ratio of net investment income to average net assets .16%**
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 75.3%
- -------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
0.7%
British Aerospace PLC U.K. 1,000,000 $ 10,240,814
- -------------------------------------------------------------------------------
Appliances & Household Durables: 0.3%
Chofu Seisaku Co. Ltd. Jpn. 38,000 932,754
Fisher & Paykel Ltd. N.Z. 4,300 13,151
*Mohawk Industries U.S. 200,000 3,600,000
--------------
4,545,905
- -------------------------------------------------------------------------------
Automobiles: 0.6%
+Capco Automotive Products
Corp. U.S. 700,000 5,775,000
Qing Ling Motors Co. Ltd.,
H Chn. 8,925,000 2,334,727
--------------
8,109,727
- -------------------------------------------------------------------------------
Banking: 7.8%
Banco de Andalucia Sp. 110,000 14,295,966
Banco Ganadero SA, ADR C Col. 76,307 1,177,989
Banco Popular Espanol Sp. 90,000 13,849,466
Banco Portugues de
Investimento SA Port. 194,752 2,874,333
Bancorp Hawaii Inc. U.S. 174,067 5,831,244
Colonial Bancgroup Inc., B U.S. 170,300 4,896,125
*Glendale Federal Bank FSB U.S. 500,000 7,875,000
Hibernia Corp., A U.S. 234,700 2,347,000
Mercantile Bancorporation U.S. 268,800 12,163,200
Midlantic Corp. U.S. 223,000 11,484,500
National Bank of Canada Can. 1,449,200 12,006,963
Union Planters Corp. U.S. 92,432 2,738,298
Whitney Holding Corp. U.S. 298,865 9,937,261
Wing Hang Bank H.K. 3,500,000 11,213,022
--------------
112,690,367
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 4.7%
American Publishing Co. U.S. 180,000 2,205,000
*Century Communications
Corp., A U.S. 743,182 7,338,922
Cordiant PLC U.K. 1,096,480 1,956,542
Grupo Radio Centro SA, ADR Mex. 100,000 837,500
Marieberg Tidnings AB, A Swe. 1,700 34,923
News International PLC Aus. 7,888,000 40,022,592
Oriental Press Group
Limited H.K. 6,003,000 2,423,379
Sing Tao Holdings Ltd. H.K. 1,881,140 1,117,846
South China Morning Post
Holdings Ltd. H.K. 12,150,000 6,709,889
*United International
Holdings Inc., A U.S. 341,740 6,108,603
--------------
68,755,196
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Building Materials & Components: 1.4%
Cristaleria Espanola SA Sp. 72,000 $ 4,764,790
Keumkang Co. Ltd. Kor. 5,100 390,613
Pioneer International Ltd. Aus. 3,000,000 7,802,106
*Uralita SA Sp. 700,000 7,757,933
--------------
20,715,442
- -------------------------------------------------------------------------------
Business & Public Services: 2.8%
*Adia SA, ADR Swtz. 21,950 489,569
Ahrend Groep NV Neth. 285,360 9,000,416
*Charter Medical Corp. U.S. 250,000 5,031,250
Ecco SA Fr. 102,000 16,466,440
*Health Management
Associates Inc., A, new U.S. 57,525 1,927,088
*Healthsource Inc. U.S. 80,000 3,200,000
*Novacare Inc. U.S. 220,000 1,815,000
Scribona AB, A Swe. 132,200 959,572
Scribona AB, B Swe. 250,000 1,848,859
--------------
40,738,194
- -------------------------------------------------------------------------------
Chemicals: 1.4%
European Vinyls Corp. EVC
International NV Neth. 116,081 4,931,062
+Gurit Heberlein AG
Wattwil SG, br. Swtz. 4,000 8,398,689
Tessenderlo Chemie Bel. 20,000 7,551,669
--------------
20,881,420
- -------------------------------------------------------------------------------
Construction & Housing: 1.6%
Hollandsche Beton Groep NV Neth. 81,689 13,850,642
Kaufman & Broad Home Corp. U.S. 500,000 6,687,500
*Schuler Homes Inc. U.S. 202,000 2,398,750
--------------
22,936,892
- -------------------------------------------------------------------------------
Data Processing & Reproduction: 4.0%
*Cirrus Logic Inc. U.S. 213,100 11,613,950
Dallas Semiconductor Corp. U.S. 198,600 4,716,750
*Electronic Arts Inc. U.S. 65,000 2,470,000
*Newbridge Networks Corp. Can. 141,871 4,096,525
*Picturetel Corp. U.S. 226,500 12,740,624
*Quantum Corp. U.S. 580,000 13,920,000
Sligos SA Fr. 72,011 6,361,736
*Verifone Inc. U.S. 72,700 2,062,862
--------------
57,982,447
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.3%
G.P. Batteries
International Ltd. Sing. 1,346,000 $ 3,634,200
*Plantronics Inc. U.S. 4,355 156,780
Varitronix International
Ltd. H.K. 451,000 836,048
--------------
4,627,028
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 1.8%
*Chipcom Corp Com U.S. 149,000 5,978,625
Draka Holding NV Neth. 333,485 7,944,462
Tai Han Electric Wire Co.
Ltd. Kor. 260,386 8,654,837
Twentsche Kabel Holdings
NV Neth. 102,525 3,426,846
--------------
26,004,770
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.2%
Koninklijke Pakhoed NV Neth. 98,000 2,942,084
- -------------------------------------------------------------------------------
Financial Services: 3.7%
A.G. Edwards Inc. U.S. 157,800 3,846,375
Alex Brown Inc. U.S. 100,000 6,000,000
Dah Sing Financial
Holdings Ltd. H.K. 1,766,000 3,878,310
First Financial Management
Corp. U.S. 37,800 3,406,725
First USA Inc. U.S. 140,000 6,440,000
Firstfed Michigan Corp. U.S. 242,500 8,578,438
Govett & Co. Ltd. U.K. 292,952 1,322,757
Invesco PLC U.K. 1,400,000 4,757,324
Manhattan Card Co. H.K. 20,130,639 8,061,617
Onbancorp Inc. U.S. 248,370 7,109,591
--------------
53,401,137
- -------------------------------------------------------------------------------
Food & Household Products: 2.6%
C.P. Pokphand Co. Ltd. H.K. 2,342,000 922,762
Cafe de Coral Holdings
Ltd. H.K. 11,536,885 2,742,264
Compania Industrial Peru
Pacifico SA, 144a PER. 2,212,000 2,562,923
Grupo Embotellador de
Mexico SA de CV, GDR Mex. 66,300 812,175
Grupo Embotellador de
Mexico SA, B Mex. 230,000 1,447,809
*JP Foodservice Inc. U.S. 560,500 7,987,125
Lam Soon Foods Inc. H.K. 596,000 96,241
Lindt & Spruengli, partn.
ctf. Swtz. 4,380 6,252,210
National Foods Ltd. Aus. 8,000,000 7,817,139
Panamerican Beverages
Inc., A Pan. 117,200 3,486,700
PT Japfa Comfeed
Indonesia, fgn. Indo. 2,685,000 1,628,888
Vetropack AG Swtz. 713 2,100,627
--------------
37,856,863
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Forest Products & Paper: 4.0%
Boise Cascade Corp. U.S. 181,415 $ 7,778,168
*Cartiere Burgo SPA, wts. Itl. 46,800 5,205
+Crown-Van Gelder Papier
SA Neth. 70,000 6,891,522
Hansol Paper Co. Ltd. Kor. 99,253 3,915,179
Kimberly Clark de Mexico
SA, A Mex. 658,000 9,165,751
Metsa Serla (OY), B Fin. 237,092 9,346,348
Munksjo AB Swe. 1,300,000 10,771,317
Primex Forest Products
Ltd. Can. 300,000 1,787,377
*Shorewood Packaging Corp. U.S. 495,800 8,924,400
--------------
58,585,267
- -------------------------------------------------------------------------------
Health & Personal Care: 4.9%
Apothekers Cooperatie OPG
VA, partn. ctf. Neth. 180,000 4,550,593
*Coventry Corp. U.S. 250,000 4,968,750
*Haemonetics Corp. U.S. 254,900 5,480,350
Internatio-Mueller NV Neth. 146,792 10,009,154
Medeva PLC U.K. 3,118,210 12,676,437
Pacific Chemical Co. Ltd. Kor. 60,310 1,482,010
*Physician Corp. of
America U.S. 485,000 7,760,000
*Playtex Products Inc. U.S. 527,800 5,212,025
*Quorum Health Group Inc. U.S. 232,500 4,940,625
*Revco DS Inc. U.S. 311,500 6,152,125
Schwarz Pharma AG Ord. Ger. 90,500 3,757,476
*Sunrise Medical Inc. U.S. 80,000 2,070,000
Swank International
Manufacturing Co. Ltd. H.K. 12,494,000 1,291,203
--------------
70,350,748
- -------------------------------------------------------------------------------
Industrial Components: 0.5%
*Banner Aerospace Inc. U.S. 370,200 1,527,075
BW/IP Inc. U.S. 2,000 35,750
Hoeganaes AB, B free Swe. 238,000 5,443,315
--------------
7,006,140
- -------------------------------------------------------------------------------
Insurance: 5.9%
Allied Group U.S. 177,000 5,619,750
American Bankers Insurance
Group Inc. U.S. 347,615 12,079,621
*American Travelers Corp. U.S. 250,000 4,625,000
Capital RE Corp. U.S. 120,000 3,442,500
CMAC Investment Corp. U.S. 237,000 11,968,500
Enhance Financial Services
Group Inc. U.S. 145,000 2,936,250
*Fairfax Financial
Holdings Ltd. Can. 70,000 4,222,677
International Nederlanden
Group Neth. 150,000 8,331,814
</TABLE>
13
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Insurance (cont.)
*International Nederlanden
Group, trading cpn. Neth. 150,000 $ 175,023
Kemper Corp. U.S. 200,000 9,600,000
Life Partners Group Inc. U.S. 340,100 6,079,288
London Insurance Group
Inc. Can. 200,000 3,928,505
*Mid-Atlantic Medical
Services U.S. 250,000 4,656,250
Reliastar Financial Corp. U.S. 145,145 5,515,510
W.R. Berkley Corp. U.S. 41,000 1,757,875
--------------
84,938,563
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.2%
Kuoni Reisen Holding AG, B Swtz. 1,713 2,601,593
- -------------------------------------------------------------------------------
Machinery & Engineering: 3.2%
Bucher Holding AG Swtz. 4,090 2,579,692
*Bucher Holding AG, wts. Swtz. 4,090 8,486
Fives-Lille Fr. 132,750 11,569,888
IHC Caland NV Neth. 400,000 11,643,877
*Saurer AG Swtz. 11,660 3,773,933
Valmet (OY) Fin. 190,800 5,478,074
*Varity Corp. U.S. 250,000 11,375,000
--------------
46,428,950
- -------------------------------------------------------------------------------
Merchandising: 2.7%
Deb Shops Inc. U.S. 286,100 1,037,112
*Eckerd Corp. U.S. 434,485 15,913,013
Giordano Holdings Ltd. H.K. 3,069,674 2,518,076
Hechinger Co., A U.S. 900,000 4,837,500
Kwik Save Group PLC U.K. 175,000 1,963,211
Li & Fung Ltd. H.K. 2,065,000 1,533,878
*Naf Naf SA, wts. Fr. 5,625 3,565
*Sports Authority Inc. U.S. 164,300 4,497,713
Strawbridge & Clothier, A U.S. 240,225 4,384,106
United Stationers Inc. U.S. 14,269 249,707
Ventures Stores Inc. U.S. 351,000 2,062,125
Wessel & Vett AS, C Den. 900 42,660
--------------
39,042,666
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Metals & Mining: 3.4%
*AK Steel Holding Corp. U.S. 270,000 $ 8,606,250
Alcan Australia Ltd. Aus. 1,500,000 3,777,031
Antofagasta Holdings PLC Chil. 1,188,400 5,956,014
*ARBED SA Lux. 2,195 296,985
Bohler Uddeholm AG, 144a Aust. 73,150 5,278,391
*Grupo Simec SA de CV, ADR Mex. 142,300 1,476,363
Quanex Corp. U.S. 150,000 3,581,250
*Russell Metals Inc.,
conv., A Can. 833,509 2,700,253
SIG Schweizerische
Industrie Gesellschaft
Holdings AG Swtz. 6,325 13,700,361
*Vallourec Fr. 90,000 4,526,340
--------------
49,899,238
- -------------------------------------------------------------------------------
Miscellaneous Materials & Commodities:
0.3%
Vigoro Corp. U.S. 100,000 4,400,000
- -------------------------------------------------------------------------------
Multi-Industry: 0.5%
Amer Group Ltd., A Fin. 220,000 3,749,758
DESC Sociedad de Fomento
Industrial SA, B Mex. 694,700 2,834,155
--------------
6,583,913
- -------------------------------------------------------------------------------
Real Estate: 1.0%
Asean Resources Holdings
Ltd. H.K. 7,256,730 1,968,626
*Catellus Development
Corp. U.S. 550,000 3,506,250
New Asia Realty and Trust
Co. Ltd., A H.K. 3,583,000 6,410,612
Tai Cheung Holdings Ltd. H.K. 3,630,000 3,141,842
--------------
15,027,330
- -------------------------------------------------------------------------------
Telecommunications: 4.1%
*Broadband Technologies U.S. 259,745 6,363,752
*Comcast U.K. Cable
Partners Ltd. U.K. 88,300 1,385,206
*International Cabletel
Inc. U.S. 398,153 10,750,131
*LCI International U.S. 420,700 16,775,413
*Millicom International
Cellular SA Lux. 100,000 2,950,000
Telefonica de Argentina
SA, B, ADR Arg. 163,800 4,054,050
Telefonos de Mexico SA, L Mex. 4,592,972 7,495,145
Telefonos de Mexico SA, L,
ADR Mex. 304,320 9,966,480
--------------
59,740,177
- -------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.5%
Fountain Set Holdings Ltd. H.K. 35,262,000 $ 6,104,002
*Fruit of the Loom Inc., A U.S. 102,000 2,397,000
Gamma Holdings NV Neth. 120,000 5,834,093
+Tungtex (Holdings) Co.
Ltd. H.K. 35,573,000 4,365,631
Winsor Industrial Corp.
Ltd. H.K. 3,328,000 3,654,308
--------------
22,355,034
- -------------------------------------------------------------------------------
Transportation: 5.4%
Airborne Freight Corp. U.S. 417,900 8,514,712
American President Cos.
Ltd. U.S. 100,000 2,937,500
+Anangel-American
Shipholdings Ltd., ADR Gr. 399,800 6,046,975
Atlantic Southeast
Airlines Inc. U.S. 376,300 9,407,500
Comair Holdings Inc. U.S. 585,000 14,771,250
IMC Holdings Ltd. H.K. 6,654,000 4,744,875
Koninklijke Nedlloyd NV Neth. 40,000 1,390,459
Malaysian International
Shipping Corp. Bhd. Mal. 173,333 496,726
Malaysian International
Shipping Corp. Bhd., fgn. Mal. 2,133,333 6,125,263
OMI Corp. U.S. 1,420,000 11,005,000
Singapore Bus Service
Ltd., fgn. Sing. 300,100 2,090,774
Stena Line AB, B free Swe. 105,100 525,370
Stolt Nielsen SA U.S. 200,000 5,725,000
Unitor AS Nor. 348,500 4,913,421
--------------
78,694,825
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 2.3%
Central Costanera SA, ADR,
144a Arg. 21,500 564,375
Electricas Reunidas de
Zaragoza Sp. 419,869 8,888,153
Electricidad de Caracas Venz. 3,812,302 2,938,052
Gesa-Gas y Electricidad SA Sp. 381,700 19,325,427
Shandong Huaneng Power Chn. 105,300 881,888
--------------
32,597,895
- -------------------------------------------------------------------------------
Wholesale & International Trade: 1.5%
Bergen Brunswig Corp., A U.S. 210,000 4,383,750
Computer 2000 AG Ger. 9,499 3,355,062
Sime Darby Hongkong Ltd. H.K. 11,067,000 13,438,806
--------------
21,177,618
--------------
TOTAL COMMON STOCKS (cost $783,137,202) 1,091,858,243
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
PREFERRED STOCKS: 2.8%
- ----------------------------------------------------------------------------------
Ballast Nedam NV, conv.,
pfd. Neth. 2,430 $ 109,280
Herlitz AG, pfd. Ger. 12,000 2,190,736
Hugo Boss AG, pfd. Ger. 9,100 7,190,736
Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
ADR Braz. 594,342 25,853,877
Unibanco-Uniao de Bancos
Brasileiros SA, pfd. Braz. 137,190,844 4,694,606
--------------
TOTAL PREFERRED STOCKS (cost $22,394,298) 40,039,235
- ----------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.1%
- ----------------------------------------------------------------------------------
U.S. Treasury Notes:
7.75%, 3/31/96 U.S. 10,000,000 10,114,100
7.375%, 5/15/96 U.S. 10,000,000 10,110,900
8.50%, 7/15/97 U.S. 10,000,000 10,460,900
--------------
TOTAL BONDS (cost $31,331,250) 30,685,900
- ----------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 17.2% (cost
$248,964,819)
- ----------------------------------------------------------------------------------
U.S. Treasury Bills,
5.25%, to 5.41% with
maturities to 10/26/95 U.S. 250,393,000 249,009,116
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS: 97.4% (cost $1,085,827,569) 1,411,592,494
OTHER ASSETS, LESS LIABILITIES: 2.6% 38,131,279
--------------
TOTAL NET ASSETS: 100.0% $1,449,723,773
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 6.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $1,085,827,569) $1,411,592,494
Cash 83,534
Receivables:
Investment securities sold 44,665,419
Capital shares sold 2,200,431
Dividends and interest 2,824,410
--------------
Total assets 1,461,366,288
--------------
Liabilities:
Payables:
Investment securities purchased 8,315,551
Capital shares redeemed 1,216,063
Accrued expenses 2,110,901
--------------
Total liabilities 11,642,515
--------------
Net assets, at value $1,449,723,773
==============
Net assets consist of:
Undistributed net investment income $ 10,508,605
Net unrealized appreciation 325,764,925
Accumulated net realized gain 98,214,203
Net capital paid in on shares of capital stock 1,015,236,040
--------------
Net assets, at value $1,449,723,773
==============
Class I:
Net asset value per share
($1,447,154,636 / 165,040,865 shares outstanding) $ 8.77
==============
Maximum offering price
($8.77 / 94.25%) $ 9.31
==============
Class II:
Net asset value per share
($2,569,137 / 293,675 shares outstanding) $ 8.75
==============
Maximum offering price
($8.75 / 99.00%) $ 8.84
==============
</TABLE>
STATEMENT OF OPERATIONS for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $2,049,099 foreign taxes withheld)
Dividends $ 25,004,281
Interest 10,710,720
------------
Total income $ 35,715,001
Expenses:
Management fees (Note 4) 10,004,316
Administrative fees (Note 4) 1,575,214
Distribution fees (Note 4)
Class I 3,315,877
Class II 3,952
Transfer agent fees
(Note 4) 1,863,000
Custodian fees 473,000
Reports to shareholders 613,000
Audit fees 50,000
Legal fees (Note 4) 56,000
Registration and filing fees 50,000
Directors' fees and expenses 96,000
Other 42,463
------------
Total expenses 18,142,822
------------
Net investment income 17,572,179
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 113,695,279
Foreign currency transactions (226,965)
------------
113,468,314
Net unrealized depreciation on investments (13,200,708)
------------
Net realized and unrealized gain 100,267,606
------------
Net increase in net assets resulting from
operations $117,839,785
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 17,572,179 $ 15,508,983
Net realized gain on investment and foreign
currency transactions 113,468,314 12,421,846
Net unrealized appreciation (depreciation) (13,200,708) 120,937,052
-------------- --------------
Net increase in net assets resulting from
operations 117,839,785 148,867,881
Distributions to shareholders:
From net investment income
Class I (17,799,526) (10,778,807)
From net realized gain
Class I (15,254,111) (4,548,680)
Capital share transactions (Notes 2 and 3)
Class I (47,033,692) 146,105,579
Class II 2,477,100 --
-------------- --------------
Net increase in net assets 40,229,556 279,645,973
Net assets:
Beginning of year 1,409,494,217 1,129,848,244
-------------- --------------
End of year $1,449,723,773 $1,409,494,217
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 Transactions:
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 a foreign exchange contract 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 of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
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.
3. TRANSACTIONS IN SHARES OF CAPITAL STOCK
Effective May 1, 1995, the Fund offered two classes of shares: Class I and
Class II shares. Shares of each class are identical except for their initial
sales load, a contingent deferred sales charge on Class II shares, distribution
fees, and voting rights on
20
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
matters affecting a single class. All Fund shares outstanding before May 1,
1995 were designated as Class I shares. At August 31, 1995, there were 1.50
billion shares of capital stock authorized ($0.20 par value). Transactions in
the Fund's shares were as follows:
<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 15,070,799 $120,009,656 33,559,838 $266,647,956
Shares issued on
reinvestment of
distributions 3,752,881 28,274,671 1,761,600 13,357,355
Shares issued on merger -- -- 14,274,720 108,202,380
Shares redeemed (24,757,808) (195,318,019) (30,485,649) (242,102,112)
----------- ------------ ----------- ------------
Net increase (decrease) (5,934,128) $(47,033,692) 19,110,509 $146,105,579
=========== ============ =========== ============
<CAPTION>
CLASS II
-------------------------
FOR THE PERIOD
MAY 1, 1995
THROUGH
AUGUST 31, 1995
-------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
Shares sold 300,812 $ 2,538,911
Shares redeemed (7,137) (61,811)
----------- ------------
Net increase 293,675 $ 2,477,100
=========== ============
</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 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 million, 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 year ended August 31,
1995, FTD received net commissions of $241,160 from the sale of the Fund's
shares and FTIS received fees of $1,863,000.
Under the distribution plans for Class I and Class II shares, the Fund reim-
burses FTD quarterly for FTD's costs and expenses in connection with any activ-
ity that is primarily intended to result in sales of Fund shares, subject to a
maximum of 0.25% and 1.00% per annum of the average daily net assets of Class I
and Class II shares, respectively. Under the Class I distribution plan, costs
and expenses exceeding the maximum may be reimbursed in subsequent periods. At
August 31, 1995, there were no unreimbursed expenses. Class II shares redeemed
within 18 months are subject to a contingent deferred sales charge. Contingent
deferred sales charges of $3,521 were paid to FTD for the period ended August
31, 1995.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $56,000 for the year ended August 31,
1995.
21
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995 aggregated $219,930,614 and $400,493,398, respec-
tively. The cost of securities for federal income tax purposes is
$1,086,913,422. Realized gains and losses are reported on an identified cost
basis.
At August 31, 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 $378,186,088
Unrealized depreciation (53,507,016)
------------
Net unrealized appreciation $324,679,072
============
</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 August 31, 1995
amounted to $31,477,817. For the year ended August 31, 1995, dividend and in-
terest income from affiliated companies was $1,177,628 and net realized losses
from disposition of affiliated companies were $409,577.
22
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders Templeton Smaller Companies Growth
Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio of Templeton Smaller Companies Growth Fund, Inc. as of
August 31, 1995, and the related statement of operations for the year then end-
ed, the statement of changes in net assets for each of the two years in the pe-
riod then ended, and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Smaller Companies Growth Fund, Inc. as of August 31, 1995, the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
23
<PAGE>
TEMPLETON
SMALLER
COMPANIES
GROWTH
FUND, INC.
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TEMPLETON SMALLER COMPANIES
GROWTH FUND, INC.
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
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 a current prospectus of the
Templeton Smaller Companies Growth Fund, which contains more complete
information including charges and expenses. 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.
[RECYCLED PAPER LOGO TL103 A95 10/95
APPEARS HERE]
