<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
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.
April 16, 1996
Dear Shareholder:
The past 12 months were generally very rewarding for investors in the world's
stock markets. Owners of U.S. stocks did extremely well during the past year,
and investors in European stocks did very well. Only shareholders of Japanese
and emerging market stocks were disappointed. Investors in Templeton Smaller
Companies Growth Fund Class I Shares received a total return of 25.28% for the
twelve months ended February 29, 1996, and a total return of 5.42% for the six
months ended on the same date, as shown in the Performance Summary on page 6.
We continued utilizing our disciplined approach of detailed research into
individual companies as we searched for undervalued stocks. With over 24
analysts around the world, we worked to uncover value in a wide range of places,
buying or selling stocks in 31 different countries.
We are very much long-term value investors -- we like to buy stocks that are out
of favor and unpopular with other investors. The stocks we bought this year
reflect our
1
<PAGE>
contrarian bent. For example, we initiated a position in Stena Line, a Swedish
sea ferry company whose shares the market punished because of a capsized ferry
and worries about competition from the new Chunnel linking England with the
European continent. We also bought stock in International Mueller, a Dutch
engineering, contracting, and pharmaceutical wholesaling company which was
unpopular because of concerns over government-mandated drug price reductions.
These concerns were real, but International Mueller stock was selling for only
eight times 1996 estimated earnings.
The most significant overall change in the Fund's portfolio during the past year
was the reduction in U.S. stocks. The percentage of the Fund invested in the
U.S. declined during the year from 36.5%, to 23.4% of total net assets. As
disciplined value investors, we believe our reduction in U.S. holdings was a
rational reaction to the booming U.S. stock market. Rather than attempting to
allocate assets to various countries, we buy stocks wherever we find companies
at attractive valuations. Although there are still attractive small
capitalization stocks in the U.S., we are finding fewer than we were a year ago.
Looking forward, we reiterate our usual agnosticism about what the markets will
do. In the short run, no one can
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Templeton Smaller Companies Growth Fund
Top 10 Holdings on 2/29/96
As a Percentage of Total Net Assets
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
News International PLC; Broadcasting
& Publishing, Australia 2.5%
- --------------------------------------------------------------------------------
Ecco SA; Business & Public Services,
France 1.4%
- --------------------------------------------------------------------------------
Gesa-Gas Y Electricidad SA; Utilities -
Electrical & Gas, Spain 1.4%
- --------------------------------------------------------------------------------
Banco de Andalucia; Banking, Spain 1.1%
- --------------------------------------------------------------------------------
Wing Hang Bank; Banking, Hong Kong 1.0%
- --------------------------------------------------------------------------------
Schweizerische Industrie Gesellschaft
Holdings AG; Metals & Mining, Switzerland 1.0%
- --------------------------------------------------------------------------------
International Mueller NV; Health & Personal
Care, Netherlands 0.9%
- --------------------------------------------------------------------------------
Fives-Lille; Machinery & Engineering,
France 0.9%
- --------------------------------------------------------------------------------
Hollandsche Beton Groep, NV; Construction
& Housing, Netherlands 0.9%
- --------------------------------------------------------------------------------
Telebras-Telecomunicacoes Brasilerias SA,
pfd., ADR; Telecommunications, Brazil 0.8%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, see page 11 of this report.
reliably predict how much stock prices will move, nor even whether they will go
up or down. A year ago, for instance, virtually no market commentators forecast
that the U.S. market would be up 34.68%, as measured by the Standard & Poor's
500 Stock Index(R), for the twelve months ended February 29, 1996. Still, we are
cautious -- today's relatively high market valuation levels make identifying
investment bargains a particular challenge.
2
<PAGE>
In Japan, notwithstanding the market's recent weak results, we continued to find
virtually no bargain stocks. At the end of 1995, the average Japanese stock
sold for about 60 times 1996 projected earnings; stocks in most other major
markets in the world sold for between 10 and 18 times earnings. The average
Swedish stock, for instance, sold for 10 times earnings, the average Hong Kong
stock for 11 times, and the average U.S. stock for 15 times. Even granted that
Japanese corporate earnings are cyclically depressed, to invest in Japan today
one must be willing to pay much more than for an equivalent company located
elsewhere in the world. Because of these high valuation levels, the Fund held
less than 1% of its total net assets in Japanese stocks on February 29, 1996.
Many stocks in emerging markets, on the other hand, are beginning to look
attractive to us. Both Latin American and Asian markets have generally been
very weak for the past two years, while prospects for long-term economic growth
appear to be quite strong. For instance, we recently bought shares in Steady
Safe, which operates a fleet of taxis and buses in Indonesia, and which, in our
opinion, could see strong long-term growth due to increased demand for
transportation services. We bought the shares at what we expect to be only six
times this year's earnings and four times next year's earnings.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Templeton Smaller Companies
Growth Fund
Top 10 Industries on 2/29/96
As a Percentage of Total Net Assets
% of Total
Industry Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Banking 5.9%
- --------------------------------------------------------------------------------
Transportation 5.5%
- --------------------------------------------------------------------------------
Health & Personal Care 5.4%
- --------------------------------------------------------------------------------
Broadcasting & Publishing 5.1%
- --------------------------------------------------------------------------------
Insurance 4.5%
- --------------------------------------------------------------------------------
Food & Household Products 3.7%
- --------------------------------------------------------------------------------
Business & Public Services 3.6%
- --------------------------------------------------------------------------------
Merchandising 3.5%
- --------------------------------------------------------------------------------
Metals & Mining 3.4%
- --------------------------------------------------------------------------------
Forest Products & Paper 3.2%
- --------------------------------------------------------------------------------
</TABLE>
The world currency markets worked in the Fund's favor, as the U.S. dollar
weakened against most other major currencies during the period. This meant that
our holdings of international stocks (denominated in foreign currencies) were
worth more in U.S. dollars at the end of the year because of the stronger
foreign currency values. In some years, currency changes will benefit the
Fund; in other years, the dollar will strengthen and hurt the Fund. Unlike
some other mutual fund managers, we generally do not hedge our foreign currency
exposure because hedging incurs expenses for Fund shareholders and tends to
diminish one of the primary reasons for owning a global fund: diversification.
3
<PAGE>
Of course, there are special risks associated with foreign investments in
smaller companies, including political uncertainty, illiquidity, currency
fluctuation and limited product lines, markets, or financial and management
resources and price volatility. Although the short-term price volatility of
smaller companies, especially in 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 700% in the last 15 years, but has
suffered six declines of more than 20% during that time./1/ Developing markets
involve heightened risks related to the same factors that affect all foreign
investing, 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.
This discussion reflects the strategies we employed for the fund during the
reporting period, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings, may
change as new circumstances arise. Although past performance of a specific
- -----------------------------------------
Templeton Smaller Companies
Growth Fund
Geographic Distribution on 2/29/96
Based on Total Net Assets
[PIE GRAPH APPEARS HERE]
<TABLE>
<S> <C>
European Stocks 29.6%
United States Stocks 23.4%
Asian Stocks 10.9%
Australian & New
Zealand Stocks 4.4%
Latin American Stocks 3.9%
Other Stocks 2.9%
Fixed-Income Securities 2.1%
Short-Term Obligations &
Other Net Assets 23.2%
</TABLE>
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the fund.
Finally, a note of no particular consequence, but perhaps of some interest. On
May 15, 1996, the name of the Fund will be changed to Templeton Global Smaller
Companies Fund, from Templeton Smaller Companies Growth Fund. As a better
description of how we invest, we're dropping "Growth" from the Fund's name to be
sure we're thought of as "value" rather than "growth" investors. We're
1. Source: Bloomberg. Based on quarterly percentage change over the 15 years
ended March 31, 1996.
4
<PAGE>
adding "Global" because we've always been "global" investors -- we buy what we
believe to be the best valued small cap stocks from anywhere in the world and
now own stocks in over 35 different countries. Certainly, the objective of the
fund remains long-term growth -- but we have always believed that the best way
to achieve growth is to buy "value" stocks: unpopular, unloved stocks, stocks
selling at low valuations in terms of earnings potential and asset values. So, a
new name, but no change in how we're investing the Fund. We will continue to be
long-term investors, diligently doing our homework on individual stocks and
buying those that we believe offer exceptional potential value.
Thank you for your continued support of the Templeton Smaller Companies Growth
Fund. We appreciate your trust, welcome your comments, and look forward to
serving you in the future. If you have any questions or comments about the
Fund, please write.
Sincerely,
/s/ Marc S. Joseph
Marc S. Joseph
Portfolio Manager
Templeton Smaller Companies
Growth Fund, Inc.
5
<PAGE>
- --------------------------------------------------------------------------------
Performance Summary --Class I Shares
The Templeton Smaller Companies Growth Fund Class I Shares provided a total
return of 5.42% for the six-month period ended February 29, 1996, and a total
return of 25.28% for the one-year period ended on the same date. Total return
measures the change in value of an investment, assumes reinvestment of
dividends and capital gains distributions, and does not include the initial
sales charge. As you can see from the chart below, the Fund's Class I Shares
delivered a cumulative total return of more than 179% for the 10-year period
ended February 29, 1996.
During the reporting period, holders of Class I Shares received distributions
totaling 12.0 cents ($0.12) per share in dividend income, 83.5 cents ($0.835) in
long-term capital gains, and 14.5 cents ($0.145) in short-term capital gains.
As measured by net asset value, the price of the Fund's Class I Shares decreased
from $8.77 on August 31, 1995, to $8.07 on February 29, 1996. 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Templeton Smaller Companies Growth Fund--Class I Shares
Periods Ended 2/29/96
Since
Inception
One-Year Five-Year Ten-Year (6/01/81)
<S> <C> <C> <C> <C>
Average Annual Total Return1 18.08% 12.52% 10.15% 14.18%
Cumulative Total Return2 25.28% 91.32% 179.05% 649.83%
</TABLE>
1. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures reflect the current,
maximum 5.75% initial sales charge for Class I Shares. See Note below.
2. 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. See Note below.
Note: Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge. Thus, actual total return to purchasers of shares during that period
would have been somewhat lower than noted above.
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.
6
<PAGE>
- --------------------------------------------------------------------------------
Performance Summary --Class II Shares
Templeton Smaller Companies Growth Fund Class II Shares provided a total return
of 4.99% for the six-month period ended February 29, 1996, and a total return of
16.87% since inception on May 1, 1995. Total return measures the change in
value of an investment, assumes reinvestment of dividends and capital gains
distributions, and does not include sales charges.
During the reporting period, holders of Class II Shares received distributions
totaling 10.43 cents ($0.1043) per share in dividend income, 83.5 cents ($0.835)
in long-term capital gains, and 14.5 cents ($0.145) in short-term capital gains.
As measured by net asset value, the price of the Fund's Class II Shares
decreased from $8.75 on August 31, 1995, to $8.03 on February 29, 1996. 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Templeton Smaller Companies Growth Fund--Class II Shares
Periods Ended 2/29/96
Since
Inception
Six-Month (5/01/95)
<S> <C> <C>
Aggregate Total Return/1/.......... 3.01% 14.71%
Cumulative Total Return/2/......... 4.99% 16.87%
</TABLE>
1. Aggregate total return represents the change in value of an investment over
the period indicated and reflects the deduction of the 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.
2. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the 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: 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.
7
<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 $70,000 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 29, 1996./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 $70,630 ON
2/29/96]
1 The amount of capital gains distributions accepted in shares was $42,361. The
amount of dividends reinvested was $11,650.
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.
8
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--CLASS I
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 29, 1996 ------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $ 8.77 $ 8.24 $ 7.44 $ 7.70 $ 8.10 $ 7.21
---------- ---------- ---------- ---------- -------- --------
Income from investment
operations:
Net investment income .06 .11 .09 .10 .15 .17
Net realized and
unrealized gain .34 .62 .81 1.23 .25 1.47
---------- ---------- ---------- ---------- -------- --------
Total from investment
operations .40 .73 .90 1.33 .40 1.64
---------- ---------- ---------- ---------- -------- --------
Distributions:
Dividends from net in-
vestment income (.12) (.11) (.07) (.15) (.15) (.17)
Distributions from net
realized gains (.98) (.09) (.03) (1.41) (.65) (.58)
Distributions in excess
of realized gains -- -- -- (.03) -- --
---------- ---------- ---------- ---------- -------- --------
Total distributions (1.10) (.20) (.10) (1.59) (.80) (.75)
---------- ---------- ---------- ---------- -------- --------
Change in net asset
value (.70) .53 .80 (.26) (.40) .89
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of
period $ 8.07 $ 8.77 $ 8.24 $ 7.44 $ 7.70 $ 8.10
========== ========== ========== ========== ======== ========
TOTAL RETURN* 5.42% 9.20% 12.22% 22.71% 5.64% 26.69%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of pe-
riod (000) $1,469,637 $1,447,155 $1,409,494 $1,129,848 $950,409 $898,364
Ratio of expenses to av-
erage net assets 1.25%** 1.36% 1.36% 1.29% 1.33% .97%
Ratio of net investment
income to average
net assets 1.53%** 1.32% 1.17% 1.70% 1.96% 2.33%
Portfolio turnover rate 16.27% 18.79% 28.06% 28.73% 48.97% 34.01%
Average commission rate
paid (per share) $.0100
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR PERIODS
OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--CLASS II
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED MAY 1, 1995++
FEBRUARY 29, 1996 THROUGH
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Net asset value, beginning of period $ 8.75 $ 7.87
------ ------
Income from investment operations:
Net investment income .07 --
Net realized and unrealized gain .29 .88
------ ------
Total from investment operations .36 .88
------ ------
Distributions:
Dividends from net investment income (.10) --
Distributions from net realized gains (.98) --
------ ------
Total distributions (1.08) --
------ ------
Change in net asset value (.72) .88
------ ------
Net asset value, end of period $ 8.03 $ 8.75
====== ======
TOTAL RETURN* 4.99% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $8,548 $2,569
Ratio of expenses to average net assets 2.05%** 2.11%**
Ratio of net investment income to average
net assets .68%** .16%**
Portfolio turnover rate 16.27% 18.79%
Average commission rate paid (per share) $.0100
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
++COMMENCEMENT OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 72.7%
- -------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
0.7%
British Aerospace PLC U.K. 750,000 $ 9,998,314
- -------------------------------------------------------------------------------
Appliances & Household Durables: 0.8%
Chofu Seisaku Co. Ltd. Jpn. 86,000 2,160,434
Fisher & Paykel Ltd. N.Z. 2,132,800 6,460,637
*Mohawk Industries U.S. 200,000 2,875,000
--------------
11,496,071
- -------------------------------------------------------------------------------
Automobiles: 1.0%
+Capco Automotive Products Corp. U.S. 700,000 4,637,500
Jardine International Motor
Holdings Ltd. H.K. 2,057,000 2,847,004
Qing Ling Motors Co. Ltd., H Chn. 10,525,000 3,267,407
Tofas Turk Otomobil Fabrikasi
AS, GDR Tur. 6,444,300 3,415,479
*Weifu Fuel Injection Co. Ltd. Chn. 2,202,850 755,094
--------------
14,922,484
- -------------------------------------------------------------------------------
Banking: 5.5%
Banco de Andalucia Sp. 110,000 16,262,067
Banco Ganadero SA, ADR C U.S. 76,307 1,049,221
Banco Popular Espanol Sp. 42,000 7,651,169
Banco Portugues do Investimento
SA, new Port. 106,864 1,287,577
Bancorp Hawaii Inc. U.S. 174,067 6,048,828
*BPI Socieda de Gestora de
Participacoes Socias SA Port. 194,752 2,474,115
*Fokus Bank AS Nor. 223,400 1,273,561
*Fokus Bank AS Nor. 501,400 2,858,386
*Glendale Federal Bank FSB U.S. 330,000 5,156,250
Mercantile Bancorporation U.S. 192,000 8,640,000
National Bank of Canada Can. 893,200 7,243,394
Whitney Holding Corp. U.S. 208,865 6,631,464
*Wing Hang Bank H.K. 3,500,000 14,577,863
--------------
81,153,895
- -------------------------------------------------------------------------------
Beverages & Tobacco: 0.5%
Sinocan Holdings Ltd. H.K. 19,056,000 7,579,609
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 5.1%
*Century Communications Corp., A U.S. 743,182 7,385,371
*Cordiant PLC U.K. 1,096,480 1,831,359
Grupo Radio Centro SA, ADR Mex. 100,000 825,000
Hollinger International Inc., A U.S. 180,000 1,890,000
Marieberg Tidnings AB, A Swe. 253,700 6,765,333
News International PLC Aus. 7,888,000 36,864,896
Oriental Press Group Limited H.K. 6,003,000 2,659,493
</TABLE>
11
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Broadcasting & Publishing (cont.)
Sing Tao Holdings Ltd. H.K. 1,881,140 $ 979,393
South China Morning Post
(Holdings) Ltd. H.K. 12,150,000 8,565,303
*United International Holdings U.S. 341,740 5,766,863
Wace Group PLC U.K. 328,500 1,343,980
--------------
74,876,991
- -------------------------------------------------------------------------------
Building Materials & Components: 1.9%
Comercial Ind. Fin. Inmobiliari
Agropecuaria, ADR, 144A U.S. 431,000 1,077,500
*Cristaleria Espanola SA Sp. 82,550 5,295,044
Keumkang Co. Ltd. Kor. 13,610 958,726
Pioneer International Ltd. Aus. 3,000,000 8,898,198
Sarna Kunststoff Holding AG Swtz. 4,720 5,196,330
Uralita SA Sp. 700,000 6,729,410
--------------
28,155,208
- -------------------------------------------------------------------------------
Business & Public Services: 3.6%
Adia SA, ADR Swtz. 21,950 524,036
Ahrend Groep NV Neth. 285,360 10,781,384
Ecco SA Fr. 102,000 20,800,428
*Lex Service PLC U.K. 1,460,000 7,315,548
*Magellan Health Services Inc. U.S. 250,000 5,968,750
*Novacare Inc. U.S. 220,000 1,567,500
Scribona AB, A Swe. 225,400 2,270,696
Scribona AB, B Swe. 406,800 4,098,133
--------------
53,326,475
- -------------------------------------------------------------------------------
Chemicals: 1.4%
European Vinyls Corp. EVC
International NV Neth. 116,081 3,758,196
Gurit Heberlein AG Wattwil SG,
br. Swtz. 4,000 9,007,506
Tessenderlo Chemie Bel. 20,000 8,137,612
--------------
20,903,314
- -------------------------------------------------------------------------------
Construction & Housing: 2.6%
Dragados y Construcciones SA Sp. 208,000 2,923,779
Halla Engineering & Construction
Corp. Kor. 79,200 3,086,831
Hollandsche Beton Groep NV Neth. 81,689 12,801,896
+Huarte SA Sp. 900,000 3,206,366
Kaufman & Broad Home Corp. U.S. 625,000 9,609,375
*Schuler Homes Inc. U.S. 867,000 6,719,250
--------------
38,347,497
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Data Processing & Reproduction: 1.0%
*Cirrus Logic Inc. U.S. 102,000 $ 1,918,875
*Quantum Corp. U.S. 360,000 6,165,000
Sligos SA Fr. 72,011 6,528,209
--------------
14,612,084
- -------------------------------------------------------------------------------
Electrical & Electronics: 0.3%
G.P. Batteries International
Ltd. Sing. 1,346,000 3,324,620
*G.P. Batteries International
Ltd., wts. Sing. 336,500 242,280
Plantronics Inc. U.S. 4,355 151,336
Techtronic Industries Co. Ltd. H.K. 6,808,621 713,369
--------------
4,431,605
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 1.4%
Draka Holding NV Neth. 333,485 9,480,106
Swisslog Holding AG Swtz. 24,500 7,764,804
Twentsche Kabel Holdings NV Neth. 102,525 3,923,389
--------------
21,168,299
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.5%
Helikopter Service AS Nor. 492,000 5,455,909
Koninklijke Pakhoed NV Neth. 98,000 2,523,963
--------------
7,979,872
- -------------------------------------------------------------------------------
Energy Sources: 0.1%
*Transportadora de Gas del Sur
SA, ADR B U.S. 113,100 1,399,613
- -------------------------------------------------------------------------------
Financial Services: 2.5%
A.G. Edwards Inc. U.S. 83,900 2,034,575
Alex Brown Inc. U.S. 95,300 4,741,175
Dah Sing Financial Holdings Ltd. H.K. 1,766,000 5,253,981
Invesco PLC U.K. 1,400,000 5,749,222
London Pacific Group Ltd. U.K. 292,952 1,045,920
Manhattan Card Co. Ltd. H.K. 20,130,639 10,415,677
Om Gruppen AB Swe. 195,000 4,160,000
Onbancorp Inc. U.S. 102,170 3,448,237
--------------
36,848,787
- -------------------------------------------------------------------------------
Food & Household Products: 3.7%
C.P. Pokphand Co. Ltd. H.K. 2,342,000 1,234,481
Cafe de Coral Holdings Ltd. H.K. 11,536,885 3,432,309
Chareon Pokphand Feedmill Public
Co. Ltd., fgn. Thai. 30,800 174,708
*Consorcio de Alimentos Fabril
Pacifico, 144A U.S. 2,212,000 7,511,036
+Ekco Group Inc. U.S. 886,600 5,430,425
</TABLE>
13
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Food & Household Products (cont.)
*Grupo Embotellador de Mexico SA
de CV, GDR Mex. 19,300 $ 166,462
*Herdez SA de CV, A Mex. 2,962,000 831,084
*Herdez SA de CV, B Mex. 2,833,400 811,719
*JP Foodservice Inc. U.S. 511,500 9,718,500
Lam Soon Foods Inc. H.K. 596,000 71,697
Lindt & Spruengli, partn. ctf. Swtz. 4,380 7,013,845
National Foods Ltd. Aus. 8,000,000 9,173,400
Panamerican Beverages Inc., A Pan. 117,200 4,746,600
PT Japfa Comfeed Indonesia, fgn. Indo. 2,685,000 1,448,845
Vetropack AG Swtz. 713 2,319,183
--------------
54,084,294
- -------------------------------------------------------------------------------
Forest Products & Paper: 3.1%
Boise Cascade Corp. U.S. 178,115 6,278,554
Cartiere Burgo SPA Itl. 515,000 2,777,712
+Crown-Van Gelder Papier SA Neth. 74,720 6,989,540
Hansol Paper Co. Ltd. Kor. 113,844 4,393,443
Mayr-Melnhof Karton AG Aust. 10,400 519,975
Metsa Serla OY, B Fin. 237,092 7,354,844
Munksjo AB Swe. 1,300,000 8,666,667
Primex Forest Products Ltd. Can. 300,000 1,694,792
*Shorewood Packaging Corp. U.S. 495,800 7,065,150
--------------
45,740,677
- -------------------------------------------------------------------------------
Health & Personal Care: 5.4%
Apothekers Cooperatie OPG VA,
partn. ctf. Neth. 180,000 5,073,194
*Coventry Corp. U.S. 250,000 4,437,500
*Haemonetics Corp. U.S. 254,900 4,333,300
Internatio-Mueller NV Neth. 180,452 13,153,277
Medeva PLC U.K. 3,118,210 11,658,467
Pacific Chemical Co. Ltd. Kor. 110,000 2,024,152
*Physician Corp. of America U.S. 485,000 8,002,500
*Playtex Products Inc. U.S. 1,047,800 8,775,325
*Quorum Health Group Inc. U.S. 232,500 5,725,313
*Revco DS Inc. U.S. 81,500 2,261,625
Schwarz Pharma AG Ord Ger. 90,500 5,264,850
*Sunrise Medical Inc. U.S. 381,100 5,907,050
Swank International
Manufacturing Co. Ltd. H.K. 14,994,000 2,637,706
--------------
79,254,259
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Industrial Components: 1.1%
*Banner Aerospace Inc. U.S. 370,200 $ 2,267,475
BW/IP Inc. U.S. 2,000 31,000
Gencorp Inc. U.S. 458,100 5,955,300
Hoeganaes AB, B free Swe. 238,000 6,593,481
Walbro Corp. U.S. 102,000 1,836,000
--------------
16,683,256
- -------------------------------------------------------------------------------
Insurance: 4.5%
Allied Group U.S. 221,000 9,447,750
American Bankers Insurance Group
Inc. U.S. 198,615 7,150,140
*American Travelers Corp. U.S. 250,000 7,531,250
Capital RE Corp. U.S. 120,000 4,140,000
CMAC Investment Corp. U.S. 130,000 7,133,750
Enhance Financial Services Group
Inc. U.S. 145,000 3,534,375
*Fairfax Financial Holdings Ltd. Can. 70,000 6,888,508
Ing Groep NV Neth. 100,000 6,639,130
Life Partners Group Inc. U.S. 340,100 5,229,037
London Insurance Group Inc. Can. 200,000 4,082,079
*Mid-Atlantic Medical Services U.S. 250,000 5,281,250
--------------
67,057,269
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.3%
Kuoni Reisen Holding AG, B Swtz. 2,598 4,766,972
- -------------------------------------------------------------------------------
Machinery & Engineering: 3.0%
Bucher Holding AG Swtz. 4,226 2,934,233
Fives-Lille Fr. 132,750 13,140,566
IHC Caland NV Neth. 240,000 9,111,341
*Saurer AG Swtz. 11,660 4,911,009
Valmet (OY) Fin. 190,800 5,163,224
*Varity Corp. U.S. 240,000 9,060,000
--------------
44,320,373
- -------------------------------------------------------------------------------
Merchandising: 3.5%
Deb Shops Inc. U.S. 286,100 965,588
*Eckerd Corp. U.S. 231,485 10,387,889
Giordano International Ltd. H.K. 3,069,674 3,275,791
+Hechinger Co., A U.S. 1,700,000 6,375,000
Hudsons Bay Co. Can. 579,000 7,438,769
Kwik Save Group PLC U.K. 175,000 1,246,916
*LiIi & Fung Ltd. H.K. 2,065,000 1,949,902
Macintosh NV Neth. 5,700 143,686
*Naf Naf SA Fr. 250 2,976
</TABLE>
15
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Merchandising (cont.)
*Naf Naf SA, wts. Fr. 5,625 $ 3,236
Sports Authority Inc. U.S. 164,300 3,573,525
Strawbridge & Clothier, A U.S. 240,225 6,365,963
United Stationers Inc. U.S. 28,538 642,105
Ventures Stores Inc. U.S. 351,000 1,974,375
Wo Kee Hong Holdings Ltd. H.K. 35,876,000 6,821,679
--------------
51,167,400
- ------------------------------------------------------------------------------
Metals & Mining: 3.4%
AK Steel Holding Corp. U.S. 270,000 9,753,750
Antofagasta Holdings PLC Chil. 1,188,400 6,792,314
*Arbed SA Lux. 2,195 244,696
*Bohler Uddeholm AG, 144A U.S. 73,150 5,631,004
Capral Aluminium Ltd. Aus. 1,500,000 3,841,361
*Grupo Simec SA de CV, ADR U.S. 142,300 729,287
Quanex Corp. U.S. 150,000 2,981,250
*Russell Metals Inc., conv., A Can. 833,509 2,339,184
SIG (Schweizerische Industrie
Gesellschaft) Holdings AG Swtz. 6,325 14,243,119
*Vallourec Fr. 90,000 3,874,193
--------------
50,430,158
- ------------------------------------------------------------------------------
Miscellaneous Materials & Commodities:
0.5%
Korea Chemical Co. Ltd. Kor. 8,000 892,032
Vigoro Corp. U.S. 100,000 6,625,000
--------------
7,517,032
- ------------------------------------------------------------------------------
Multi-Industry: 1.1%
Amer Group Ltd., A Fin. 220,000 3,726,927
*DESC SA, B Mex. 694,700 2,696,095
*Gedeon Richter Ltd., GDR 144A U.S. 86,480 2,810,600
+Zehnder Holding AG Swtz. 14,125 6,597,164
--------------
15,830,786
- ------------------------------------------------------------------------------
Real Estate: 1.4%
Asean Resources Holdings Ltd. H.K. 7,256,730 2,229,331
*Asean Resources Holdings Ltd.,
wts. H.K. 725,673 38,485
*Catellus Development Corp. U.S. 550,000 4,193,750
New Asia Realty and Trust Co.
Ltd., A H.K. 3,583,000 10,520,651
Tai Cheung Holdings Ltd. H.K. 3,630,000 3,239,856
--------------
20,222,073
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Telecommunications: 1.9%
*Comcast U.K. Cable Partners
Ltd. U.K. 56,500 $ 706,250
*International Cabletel U.S. 378,153 9,453,825
*LCI International U.S. 335,800 7,639,450
*Millicom International Cellular
SA Lux. 100,000 3,787,500
Telmex-Telefonos de Mexico SA, L Mex. 4,592,972 6,997,553
--------------
28,584,578
- -------------------------------------------------------------------------------
Textiles & Apparel: 1.7%
Fountain Set Holdings Ltd. H.K. 35,262,000 6,659,318
*Fruit of the Loom Inc., A U.S. 102,000 2,588,250
Gamma Holdings NV Neth. 120,000 5,291,867
Kellwood Co. U.S. 271,600 4,107,950
+Tungtex (Holdings) Co. Ltd. H.K. 35,573,000 3,589,096
Winsor Industrial Corp. Ltd. H.K. 3,328,000 3,164,030
Yizheng Chemical Fibre Co. Ltd.,
H Chn. 1,596,000 443,855
--------------
25,844,366
- -------------------------------------------------------------------------------
Transportation: 5.5%
Airborne Freight Corp. U.S. 309,900 8,638,463
American President Cos. Ltd. U.S. 100,000 2,100,000
+Anangel-American Shipholdings
Ltd., ADR U.S. 399,800 4,597,700
Atlantic Southeast Airlines Inc. U.S. 113,900 2,989,875
Comair Holdings Inc. U.S. 175,000 5,446,875
IMC Holdings Ltd. H.K. 6,654,000 3,442,807
Koninklijke Nedlloyd NV Neth. 40,000 872,259
Malaysian International Shipping
Corp. Bhd., fgn. Mal. 1,233,333 3,502,100
*OMI Corp. U.S. 1,400,500 10,853,875
Orient Overseas International
Ltd. H.K. 3,218,000 2,393,447
PT Steady Safe Indo. 4,630,000 5,796,244
PT Steady Safe, 144A U.S. 2,035,000 2,547,593
Sea Containers Ltd., A Bmu. 424,600 6,899,750
Singapore Bus Service (1978)
Ltd., fgn. Sing. 300,100 2,528,813
Stena Line AB, B free Swe. 1,086,500 5,826,859
Stolt Nielsen SA U.S. 200,000 3,525,000
*Stolt Nielsen SA, ADR U.S. 100,000 1,800,000
Unitor AS Nor. 470,000 7,340,768
--------------
81,102,428
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 2.4%
Central Costanera SA, ADR, 144A U.S. 21,500 666,500
Electricas Reunidas de Zaragoza Sp. 419,869 10,616,714
Electricidad de Caracas Venz. 4,294,786 2,703,704
</TABLE>
17
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Utilities Electrical & Gas (cont.)
Gesa-Gas y Electricidad SA Sp. 381,700 $ 20,320,742
Shandong Huaneng Power Chn. 105,300 1,013,513
--------------
35,321,173
- -------------------------------------------------------------------------------
Wholesale & International Trade: 1.3%
Bergen Brunswig Corp., A U.S. 210,000 5,066,250
Computer 2000 AG Ger. 9,499 2,934,304
Sime Darby Hongkong Ltd. H.K. 11,067,000 11,452,224
--------------
19,452,778
--------------
TOTAL COMMON STOCKS (cost
$813,095,640) 1,074,579,990
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 2.0%
- -------------------------------------------------------------------------------
Ballast Nedam NV, ctf.,
conv., pfd. Neth. 12,650 571,682
Coteminas Cia Tecidos Norte
de Minas, pfd. Braz. 1,620,000 641,568
Herlitz AG, pfd. Ger. 12,000 1,600,327
Hugo Boss AG, pfd. Ger. 9,100 9,411,444
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR U.S. 237,342 12,460,455
Unibanco-Uniao de Bancos
Brasileiros SA, pfd. Braz. 137,190,844 5,572,616
--------------
TOTAL PREFERRED STOCKS (cost
$16,761,126) 30,258,092
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.1%
- -------------------------------------------------------------------------------
U.S. Treasury Notes:
7.375%, 5/15/96 U.S. 10,000,000 10,043,700
7.75%, 3/31/96 U.S. 10,000,000 10,018,700
8.50%, 7/15/97 U.S. 10,000,000 10,407,800
--------------
TOTAL BONDS (cost $31,331,250) 30,470,200
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 20.2% (cost
$298,566,825)
- -------------------------------------------------------------------------------
U.S. Treasury Bills, 4.54%
to 4.98% with
maturities to 5/02/96 U.S. 300,021,000 298,558,365
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 97.0% (cost
$1,159,754,841) 1,433,866,647
OTHER ASSETS, LESS LIABILITIES: 3.0% 44,317,957
--------------
TOTAL NET ASSETS: 100.0% $1,478,184,604
==============
</TABLE>
*NON-INCOME PRODUCING
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$1,159,754,841) $1,433,866,647
Cash 139,353
Receivables:
Investment securities sold 47,381,591
Capital shares sold 883,813
Dividends and interest 3,227,514
--------------
Total assets 1,485,498,918
--------------
Liabilities:
Payables:
Investment securities purchased 3,548,276
Capital shares redeemed 2,002,427
Accrued expenses 1,763,611
--------------
Total liabilities 7,314,314
--------------
Net assets, at value $1,478,184,604
==============
Net assets consist of:
Undistributed net investment income $ 1,216,823
Net unrealized appreciation 274,111,806
Accumulated net realized gain 50,494,428
Net capital paid in on shares of capital stock 1,152,361,547
--------------
Net assets, at value $1,478,184,604
==============
Class I:
Net asset value per share ($1,469,636,892 / 182,117,906 shares
outstanding) $ 8.07
==============
Maximum offering price ($8.07 / 94.25%) $ 8.56
==============
Class II:
Net asset value per share ($8,547,712 / 1,064,446
shares outstanding) $ 8.03
==============
Maximum offering price ($8.03 / 99.00%) $ 8.11
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the six months ended February 29, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $406,724 foreign
taxes withheld)
Dividends $ 9,244,269
Interest 10,641,870
------------
Total income $19,886,139
Expenses:
Management fees (Note 3) 5,347,145
Administrative fees (Note 3) 820,861
Distribution fees (Note 3)
Class I 1,455,087
Class II 24,474
Transfer agent fees (Note 3) 735,000
Custodian fees 185,194
Reports to shareholders 275,000
Audit fees 24,000
Legal fees (Note 3) 35,000
Registration and filing fees 25,000
Directors' fees and expenses 45,000
Other 5,200
------------
Total expenses 8,976,961
-----------
Net investment income 10,909,178
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 117,717,029
Foreign currency transactions (352,245)
------------
117,364,784
Net unrealized depreciation on investments (51,653,119)
------------
Net realized and unrealized gain 65,711,665
-----------
Net increase in net assets resulting from
operations $76,620,843
===========
</TABLE>
19
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 10,909,178 $ 17,572,179
Net realized gain on investment and for-
eign currency transactions 117,364,784 113,468,314
Net unrealized depreciation (51,653,119) (13,200,708)
-------------- --------------
Net increase in net assets resulting
from operations 76,620,843 117,839,785
Distributions to shareholders:
From net investment income
Class I (20,150,066) (17,799,526)
Class II (50,894) --
From net realized gain
Class I (164,590,513) (15,254,111)
Class II (494,046) --
Capital share transactions (Note 2)
Class I 130,967,917 (47,033,692)
Class II 6,157,590 2,477,100
-------------- --------------
Net increase in net assets 28,460,831 40,229,556
Net assets:
Beginning of period 1,449,723,773 1,409,494,217
-------------- --------------
End of period $1,478,184,604 $1,449,723,773
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<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 Fund seeks to achieve its objectives by investing primarily in
securities of smaller companies globally. The following summarizes the Fund's
significant accounting policies.
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.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
21
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
The Fund offers two classes of shares: Class I and Class II shares. Shares of
each class are identical except for their initial sales load, a contingent de-
ferred sales charge on Class II shares, distribution fees, and voting rights on
matters affecting a single class. At February 29, 1996, 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
------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, 1996 AUGUST 31, 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 9,156,404 $ 73,735,650 15,070,799 $ 120,009,656
Shares issued on
reinvestment of
distributions 20,585,967 160,464,269 3,752,881 28,274,671
Shares redeemed (12,665,330) (103,232,002) (24,757,808) (195,318,019)
----------- ------------- ----------- -------------
Net increase (decrease) 17,077,041 $ 130,967,917 (5,934,128) $ (47,033,692)
=========== ============= =========== =============
<CAPTION>
CLASS II
------------------------------------------------------
FOR THE PERIOD
SIX MONTHS MAY 1, 1995
ENDED THROUGH
FEBRUARY 28, 1996 AUGUST 31, 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 761,940 $ 6,115,711 300,812 $ 2,538,911
Shares issued on
reinvestment of
distributions 64,331 497,288 -- --
Shares redeemed (55,500) (455,409) (7,137) (61,811)
----------- ------------- ----------- -------------
Net increase 770,771 $ 6,157,590 293,675 $ 2,477,100
=========== ============= =========== =============
</TABLE>
22
<PAGE>
Templeton Smaller Companies Growth Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. 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 management 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 six months ended February 29, 1996, FTD received net commis-
sions of $295,536 from the sale of the Fund's shares and FTIS received fees of
$735,000.
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 a 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
February 29, 1996, there were no unreimbursed expenses. Class II shares re-
deemed within 18 months are subject to a contingent deferred sales charge. Con-
tingent deferred sales charges of $1,397 were paid to FTD for the period ended
February 29, 1996.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $35,000 for the six months ended Feb-
ruary 29, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 29, 1996 aggregated $175,543,051 and $268,846,119, re-
spectively. The cost of securities for federal income tax purposes is
$1,161,023,413. Realized gains and losses are reported on an identified cost
basis.
At February 29, 1996, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<CAPTION>
Unrealized appreciation $338,430,932
<S> <C>
Unrealized depreciation (65,587,698)
------------
Net unrealized appreciation $272,843,234
============
</TABLE>
5. 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 29,
1996 amounted to $41,422,791. For the six months ended February 29, 1996, divi-
dends from affiliated companies was $485,728.
23
<PAGE>
- --------------------------
TEMPLETON SMALLER
COMPANIES GROWTH
FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be
preceded or accompanied
by the 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.
- --------------------------
TL103 S96 04/96
[LOGO APPEARS HERE]
TEMPLETON
SMALLER
COMPANIES
GROWTH
FUND, INC.
Semi-Annual Report
February 29, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
