<PAGE> 1
TEMPLETON GLOBAL SMALLER
COMPANIES FUND, INC.
YOUR FUND'S OBJECTIVE:
The Templeton Global Smaller Companies 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 15, 1997
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Templeton Global
Smaller Companies Fund for the six months ended February 28, 1997. During this
extraordinary period for equity investors, the Standard & Poor's 500(R) Stock
Index (S&P 500(R)) and the Toronto Stock Exchange 300 Index rose more than 20%,
and most European shares posted substantial gains.(1) Although some Asian stock
prices declined significantly, Hong Kong's equity market continued to defy
skeptics and soared to record levels throughout the period. Within this
environment, Templeton Global Smaller Companies Fund Class I shares provided a
six-month cumulative total return of 12.21%, as discussed in the Performance
Summary on page 6, outperforming the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index, which delivered a
1. SOURCES: FOR S&P 500, MICROPAL; FOR TORONTO INDEX, BLOOMBERG. PRICE
APPRECIATION IS MEASURED IN U.S. DOLLARS, AND BOTH INDICES INCLUDE REINVESTED
DIVIDENDS.
1
<PAGE> 2
total return of 11.43% for the period.(2) The Fund's performance is especially
gratifying because many small cap stocks underperformed large cap stocks during
this time.
TEMPLETON GLOBAL SMALLER COMPANIES FUND
Geographic Distribution on 2/28/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<S> <C>
European Stocks 41.4%
United States Stocks 19.9%
Asian Stocks 14.4%
Latin American Stocks 5.1%
Canadian Stocks 2.6%
Australian &
New Zealand Stocks 1.9%
Middle East &
African Stocks 0.7%
Short-term Obligations &
Other Net Assets 14.0%
</TABLE>
During the reporting period, the U.S. economy experienced moderate growth and
subdued inflation, as stocks rose to high levels when measured by conventional
standards. For example, on February 28, 1997, the price-to-earnings (P/E) ratio
average of the S&P 500 was 20, and the dividend yield average was 1.9%. The P/E
average of the S&P 500 for the ten years ended February 28, 1997 was 18 and the
dividend yield average was 3.0% during the same period. Higher share prices
prompted us to take profits in a number of domestic securities, which reduced
our U.S exposure from 22.5% of total net assets on August 31, 1996, to 19.9% on
February 28, 1997.
Most European economies experienced sluggish growth during the six months under
review. For example, in January 1997, 160,000 German citizens became jobless,
the country's largest monthly increase in unemployment since World War II. The
day after Germany announced its employment statistics, the U.S. reported a gain
of 271,000 people in the work force. These reports illustrated a significant
difference between European and American economic conditions. Many restructured
American corporations have raised their profitability to high levels and have
hired new employees in an effort to increase sales, while many European
companies, saddled with large operating costs, may continue to downsize as they
focus on increasing their productivity. In our opinion, the potential for
productivity gains, coupled with typically
2. THE MSCI WORLD INDEX INCLUDES APPROXIMATELY 1,500 COMPANIES REPRESENTING THE
STOCK MARKETS OF 22 COUNTRIES INCLUDING THE U.S., GERMANY, CANADA, AUSTRALIA,
NEW ZEALAND, AND JAPAN. THE INDEX IS NOT MANAGED ACCORDING TO ANY INVESTMENT
STRATEGY, INCLUDES NO SALES CHARGES OR MANAGEMENT EXPENSES, AND DOES NOT CONTAIN
CASH (THE FUND GENERALLY CARRIES A CERTAIN PERCENTAGE OF CASH AT ANY GIVEN
TIME). OF COURSE, ONE CANNOT INVEST DIRECTLY IN AN INDEX, AND THE INDEX IS NOT
REPRESENTATIVE OF THE FUND'S PORTFOLIO. TOTAL RETURN INCLUDES REINVESTED
DIVIDENDS.
2
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lower stock valuations, makes some European shares particularly attractive.
TEMPLETON GLOBAL SMALLER
COMPANIES FUND
Top 10 Industries on 2/28/97
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Industry Net Assets
<S> <C>
Health & Personal Care 5.8%
Transportation 5.2%
Insurance 5.0%
Metals & Mining 5.0%
Food & Household Products 4.9%
Banking 4.8%
Broadcasting & Publishing 4.4%
Forest Products & Paper 4.1%
Merchandising 3.9%
Business & Public Services 3.6%
</TABLE>
The Fund increased its European holdings from 37.4% of total net assets on
August 31, 1996, to 41.4% on February 28, 1997, with the largest additions made
in the United Kingdom, Scandinavia, and the Netherlands. Believing them to be
undervalued, we purchased shares of Nagron National Grondbezit NV, a
multi-industry company operating within the heavily regulated Dutch apartment
rental market. Because of constraints on rent increases, many owners of rental
properties in the Netherlands have become interested in selling their buildings.
Nagron takes a long-term view, buying occupied apartment buildings and then
waiting for tenants to vacate. Once an apartment opens, Nagron sells the
individual unit, usually at a profit.
The performance of Asian stock markets was mixed, with solid gains in Hong Kong,
China, Malaysia, and Indonesia, and disappointing returns in Thailand, South
Korea, and Japan. The Nikkei 225 Index fell 7.71%, making Japan the world's only
major industrialized nation whose equity market posted a negative return
(measured in local currency terms) during the six months under review.3 In
contrast, Hong Kong's stock market surged to all-time highs, despite the death
of Deng Xiaoping (China's patriarch leader) and investor concerns about the
colony's reversion to Chinese control in 1997.
During the reporting period, we augmented our exposure to Asia, especially
China. For example, we initiated a position in Inner Mongolia Erdos Cashmere
Products, the world's largest manufacturer of cashmere.
3. SOURCE: BLOOMBERG. PRICE DEPRECIATION IS MEASURED IN LOCAL CURRENCY TERMS,
AND INCLUDES REINVESTED DIVIDENDS.
3
<PAGE> 4
TEMPLETON GLOBAL SMALLER
COMPANIES FUND
Top 10 Holdings on 2/28/97
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
<S> <C>
News Corporation Ltd.
Broadcasting & Publishing, Australia 2.1%
Conseco Inc.
Insurance, U.S. 1.4%
Internatio-Mueller NV
Health & Personal Care, Netherlands 1.3%
Gesa-Gas Y Electridad SA
Utilities - Electrical & Gas, Spain 1.1%
Hollandsche Beton Groep NV
Construction & Housing, Netherlands 1.1%
Medeva PLC
Health & Personal Care, United Kingdom 1.0%
Koninklijke Airend NV
Business & Public Services, Netherlands 0.9%
SIG Schweizerische Industrie-Gesellschaft Holdin
Metals & Mining, Switzerland 0.9%
Wing Hang Bank
Banking, Hong Kong 0.9%
Fairfax Financial Holdings Ltd.
Insurance, Canada 0.8%
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 16 OF THIS REPORT.
We also purchased shares of China International Marine Containers (CIMC), one of
the world's low-cost producers of shipping containers. In our opinion, the
expansion of trade in Asia may offer CIMC strong growth potential.
We take very seriously the trust you have placed in us, and go to great lengths
in our efforts to assess a corporation's true value before we buy its stock.
Since no one can reliably predict the direction of financial markets in the near
term, our analysts determine a company's worth by estimating what it is likely
to earn well into the future. By focusing on the long term, we are often able to
buy shares when others may be selling because of short-term considerations. We
feel that this disciplined approach, while requiring patience, has the potential
to reward investors over the long haul.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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
investment or sector cannot guarantee future performance, such information can
4
<PAGE> 5
be useful in analyzing securities we purchase or sell for the Fund.
Of course, there are special risks associated with foreign investments in
smaller companies, which are heightened in emerging markets. These include
political, social and economic uncertainties, price volatility, illiquidity,
currency fluctuation and limited product lines, markets, or financial and
management resources. In addition, emerging markets are relatively small and
less liquid. Although the short-term price volatility of smaller companies and
emerging markets can be disconcerting, declines of as much as 40% to 50% are not
unusual in these markets. For example, the Hong Kong market has increased 857%
in the last 15 years, but has suffered five declines of more than 20% during
that time.(4) These special risks and other considerations are discussed in the
Fund's prospectus.
Thank you for your continued support of the Templeton Global Smaller Companies
Fund. We welcome your comments and look forward to serving you in the future.
Sincerely,
/s/ Marc S. Joseph
Marc S. Joseph
Portfolio Manager
Templeton Global Smaller Companies Fund, Inc.
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
4. SOURCE: BLOOMBERG. BASED ON QUARTERLY PERCENTAGE PRICE CHANGE OVER 15 YEARS
ENDED DECEMBER 31, 1996.
5
<PAGE> 6
PERFORMANCE SUMMARY
CLASS I
The Templeton Global Smaller Companies Fund Class I produced a cumulative total
return of 12.21% for the six-month period ended February 28, 1997. Cumulative
total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains distributions, and does not include
the initial sales charge. While we expect market volatility in the short term,
we have always maintained a long-term perspective when managing the Fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the table on the following page, the Fund delivered a cumulative total
return of more than 167% for the 10-year period ended February 28, 1997.
The price of the Fund's shares, as measured by net asset value, increased by 6
cents ($0.06), from $8.55 on August 31, 1996, to $8.61 on February 28, 1997.
During the reporting period, shareholders received distributions of 12.5 cents
($0.125) per share in dividend income and 79 cents ($0.79) per share in capital
gains, of which 78 cents ($0.78) represented long-term gains and 1 cent ($0.01)
represented short-term gains. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
Fund, as well as any profits realized from the sale of securities in the
portfolio.
6
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TEMPLETON GLOBAL SMALLER COMPANIES FUND - CLASS I
Periods Ended February 28, 1997
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year Ten-Year (6/1/81)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 18.88% 80.71% 167.89% 791.05%
Average Annual Total Return(2) 12.08% 11.24% 9.70% 14.47%
Value of $10,000 Investment(3) $11,208 $17,032 $25,249 $83,967
<CAPTION>
2/28/93 2/28/94 2/28/95 2/29/96 2/28/97
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 3.27% 28.32% -8.44% 25.28% 18.88%
</TABLE>
1. CUMULATIVE TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE PERIODS INDICATED AND DOES NOT INCLUDE THE INITIAL SALES CHARGE. SEE NOTE
BELOW.
2. AVERAGE ANNUAL TOTAL RETURN REPRESENTS THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE SPECIFIED PERIODS, AND INCLUDES THE MAXIMUM 5.75% INITIAL
SALES CHARGE. SEE NOTE BELOW.
3. THESE FIGURES REPRESENT THE VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE
FUND OVER THE SPECIFIED PERIODS AND INCLUDE THE MAXIMUM 5.75% INITIAL SALES
CHARGE.
4. ONE-YEAR TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE ONE-YEAR PERIODS ENDED ON THE SPECIFIED DATES AND DOES NOT INCLUDE THE
INITIAL SALES CHARGE.
NOTE: ALL CALCULATIONS ASSUME REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS AT NET ASSET VALUE. PRIOR TO JULY 1, 1992, THE FUND'S SHARES WERE
OFFERED AT A HIGHER INITIAL SALES CHARGE. THUS, ACTUAL TOTAL RETURN TO
PURCHASERS OF SHARES DURING THAT PERIOD WOULD HAVE BEEN LOWER THAN NOTED ABOVE.
ON JANUARY 1, 1993, THE FUND IMPLEMENTED A RULE 12b-1 PLAN, WHICH AFFECTS
SUBSEQUENT PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
WITH MARKET CONDITIONS, CURRENCIES AND THE ECONOMIC AND POLITICAL CLIMATES OF
COUNTRIES WHERE INVESTMENTS ARE MADE. EMERGING 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. YOU MAY HAVE A GAIN OR LOSS
WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
7
<PAGE> 8
PERFORMANCE SUMMARY
CLASS II
The Templeton Global Smaller Companies Fund Class II provided a cumulative total
return of 11.89% for the six-month period ended February 28, 1997. Cumulative
total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains distributions, and does not include
sales charges.
The price of the Fund's shares, as measured by net asset value, increased by 7
cents ($0.07), from $8.47 on August 31, 1996, to $8.54 on February 28, 1997.
During the reporting period, shareholders received distributions of 8.25 cents
($0.0825) per share in dividend income and 79 cents ($0.79) per share in capital
gains, of which 78 cents ($0.78) represented long-term gains and 1 cent ($0.01)
represented short-term gains. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
Fund, as well as any profits realized from the sale of securities in the
portfolio.
TEMPLETON GLOBAL SMALLER COMPANIES FUND - CLASS II
Periods Ended February 28, 1997
Since
Inception
One-Year (5/1/95)
Cumulative Total Return(1) 18.02% 36.38%
Average Annual Total Return(2) 15.87% 18.42%
Value of $10,000 Investment(3) $ 11,587 $ 13,638
1. CUMULATIVE TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER
THE PERIODS INDICATED AND DOES NOT INCLUDE SALES CHARGES.
2. AVERAGE ANNUAL TOTAL RETURN REPRESENTS THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE SPECIFIED PERIODS, AND INCLUDES THE 1.0% INITIAL SALES
CHARGE AND THE 1.0% CONTINGENT DEFERRED SALES CHARGE, APPLICABLE TO SHARES
REDEEMED WITHIN THE FIRST 18 MONTHS OF INVESTMENT.
3. THESE FIGURES REPRESENT THE VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE
FUND OVER THE SPECIFIED PERIODS AND INCLUDE ALL SALES CHARGES.
ALL CALCULATIONS ASSUME REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS AT NET ASSET VALUE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE WITH MARKET CONDITIONS, CURRENCIES AND THE ECONOMIC AND POLITICAL
CLIMATES OF COUNTRIES WHERE INVESTMENTS ARE MADE. EMERGING 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. YOU MAY
HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.
8
<PAGE> 9
PERFORMANCE SUMMARY
ADVISOR CLASS
The Templeton Global Smaller Companies Fund Advisor Class provided an aggregate
total return of 3.36% for the two-month period from inception on January 1,
1997, through February 28, 1997. The price of the Fund's shares, as measured by
net asset value, increased by 28 cents ($0.28), from $8.33 on January 2, 1997
(first day of commencement of sales), to $8.61 on February 28, 1997. Of course,
past performance is not predictive of future results.
TEMPLETON GLOBAL SMALLER
COMPANIES FUND - ADVISOR CLASS
Period Ended 2/28/97
Since
Inception
(1/1/97)
Aggregate Total Return* 3.36%
*AGGREGATE TOTAL RETURN REPRESENTS THE CHANGE IN VALUE OF AN INVESTMENT OVER THE
PERIOD INDICATED. SINCE ADVISOR CLASS SHARES HAVE BEEN IN EXISTENCE FOR LESS
THAN ONE YEAR, AVERAGE ANNUAL TOTAL RETURNS ARE NOT PROVIDED.
NOTE: INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET
CONDITIONS, CURRENCIES, AND THE ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES
WHERE INVESTMENTS ARE MADE. EMERGING 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. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL
YOUR SHARES. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
9
<PAGE> 10
TEMPLETON GLOBAL SMALLER COMPANIES FUND -- CLASS I
If you had invested $10,000 in the Templeton Global Smaller Companies Fund --
Class I at its inception, your investment would be worth more than $83,000
today. This chart illustrates the cumulative total return of a hypothetical
$10,000 investment in the Fund on June 1, 1981 (inception), with income
dividends and capital gains distributions reinvested through February 28, 1997.
Templeton Global Smaller Companies Growth Fund - Class I*
Growth of $10,000 Investment from Inception
(6/1/81 - 2/28/97)
<TABLE>
<CAPTION>
Date Initial Investment Income Initial + Dividends Cap Gains Initial + Cap Gains Total Value
<S> <C> <C> <C> <C> <C> <C>
6/ 1/81 $9,423 $0 $9,423 $0 $9,423 $9,423
12/31/81 $9,152 $201 $9,352 $4 $9,156 $9,356
12/31/82 $11,507 $706 $12,214 $506 $12,013 $12,720
12/30/83 $14,065 $1,266 $15,331 $2,342 $16,407 $17,674
12/31/84 $13,015 $1,588 $14,603 $3,143 $16,157 $17,746
12/31/85 $15,317 $2,405 $17,722 $5,464 $20,781 $23,186
12/31/86 $16,808 $3,341 $20,149 $7,413 $24,221 $27,562
12/31/87 $13,456 $3,450 $16,905 $7,457 $20,912 $24,362
12/30/88 $15,012 $4,681 $19,693 $11,688 $26,701 $31,381
12/29/89 $16,495 $6,039 $22,534 $14,451 $30,946 $36,984
12/31/90 $12,335 $5,325 $17,660 $13,529 $25,865 $31,190
12/31/91 $15,486 $7,503 $22,989 $20,526 $36,012 $43,515
12/31/92 $12,644 $7,076 $19,720 $25,400 $38,044 $45,120
12/31/93 $16,454 $9,750 $26,204 $33,286 $49,740 $59,490
12/30/94 $15,301 $9,825 $25,125 $31,636 $46,937 $56,761
12/29/95 $15,713 $11,015 $26,727 $40,052 $55,765 $66,780
12/31/96 $17,216 $13,202 $30,417 $51,112 $68,328 $81,529
2/28/97 $17,731 $13,596 $31,327 $52,640 $70,371 $83,967
</TABLE>
The amount of capital gains distributions accepted in shares was $52,640. The
amount of dividends reinvested was $13,596. The performance information shown
represents past performance and is not predictive of future results. The Fund
offers other classes of shares, subject to different fees and expenses, which
affect their performance. Please see the prospectus for more details regarding
share classes. For standardized performance figures, please refer to the
Performance Summary on page 7.
10
<PAGE> 11
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
BY PROFESSOR ROBERT HERRMANN
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs
11
<PAGE> 12
have been launched in various locations, with the support of generous local
donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
12
<PAGE> 13
TEMPLETON GLOBAL SMALLER COMPANIES 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 28, 1997 ----------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.55 $ 8.77 $ 8.24 $ 7.44 $ 7.70 $ 8.10
---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income .03 .16 .11 .09 .10 .15
Net realized and unrealized gain .95 .72 .62 .81 1.23 .25
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations .98 .88 .73 .90 1.33 .40
---------- ---------- ---------- ---------- ---------- --------
Distributions:
Dividends from net investment
income (.13) (.12) (.11) (.07) (.15) (.15)
Distributions from net realized
gains (.79) (.98) (.09) (.03) (1.41) (.65)
Distributions in excess of realized
gains -- -- -- -- (.03) --
---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.92) (1.10) (.20) (.10) (1.59) (.80)
---------- ---------- ---------- ---------- ---------- --------
Change in net asset value .06 (.22) .53 .80 (.26) (.40)
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 8.61 $ 8.55 $ 8.77 $ 8.24 $ 7.44 $ 7.70
========== ========== ========== ========== ========== ========
TOTAL RETURN* 12.21% 11.69% 9.20% 12.22% 22.71% 5.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $1,726,649 $1,544,214 $1,447,155 $1,409,494 $1,129,848 $950,409
Ratio of expenses to average net
assets 1.30%** 1.27% 1.36% 1.36% 1.29% 1.33%
Ratio of net investment income to
average net assets 0.68%** 1.93% 1.32% 1.17% 1.70% 1.96%
Portfolio turnover rate 14.22% 32.71% 18.79% 28.06% 28.73% 48.97%
Average commission rate paid (per
share) $ .0021 $ .0068
</TABLE>
* TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR PERIODS
OF LESS THAN ONE YEAR.
** ANNUALIZED.
13
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TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
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 28, 1997 YEAR ENDED THROUGH
(UNAUDITED) AUGUST 31, 1996 AUGUST 31, 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.47 $ 8.75 $ 7.87
------- ------- ------
Income from investment operations:
Net investment income .01 .13 --
Net realized and unrealized gain .93 .67 .88
------- ------- ------
Total from investment operations .94 .80 .88
------- ------- ------
Distributions:
Dividends from net investment income (.08) (.10) --
Distributions from net realized gains (.79) (.98) --
------- ------- ------
Total distributions (.87) (1.08) --
------- ------- ------
Change in net asset value .07 (.28) .88
------- ------- ------
Net asset value, end of period $ 8.54 $ 8.47 $ 8.75
======= ======= ======
TOTAL RETURN* 11.89% 10.74% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $25,852 $15,483 $ 2,569
Ratio of expenses to average net assets 2.04%** 2.07% 2.11%**
Ratio of net investment income (loss) to average net assets (.12)%** 1.23% .16%**
Portfolio turnover rate 14.22% 32.71% 18.79%
Average commission rate paid (per share) $ .0021 $ .0068
</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 OFFERING OF SALES.
14
<PAGE> 15
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--ADVISOR CLASS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 2, 1997+
THROUGH
FEBRUARY 28, 1997
(UNAUDITED)
-----------------
<S> <C>
Net asset value, beginning of period $ 8.33
-------
Income from investment operations:
Net investment income --
Net realized and unrealized gain .28
-------
Total from investment operations .28
-------
Change in net asset value .28
-------
Net asset value, end of period $ 8.61
=======
TOTAL RETURN* 3.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 5,606
Ratio of expenses to average net assets 1.09%**
Ratio of net investment income to average net assets .74%**
Portfolio turnover rate 14.22%
Average commission rate paid (per share) $ .0021
</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 OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS: 82.1%
- -------------------------------------------------------------------------------------------------------------------------
AEROSPACE & MILITARY TECHNICAL SYSTEMS: 0.7%
British Aerospace PLC U.K. 116,424 $ 2,422,458
Celsius AB, B Swe. 450,000 8,675,263
Hong Kong Aircraft Engineering Co. Ltd. H.K. 144,200 457,160
Co. Ltd. ------------
11,554,881
- -------------------------------------------------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES: 1.6%
Chofu Seisaku Co. Ltd. Jpn. 151,800 2,655,210
Fisher & Paykel Ltd. N.Z. 2,223,724 8,534,299
Guangdong Kelon Electrical Hldgs Ltd., H, 144A Chn. 11,152,000 9,936,955
H, 144A
* Mohawk Industries U.S. 200,000 5,275,000
Rival Co. U.S. 58,100 1,241,888
------------
27,643,352
- -------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 1.3%
* Bertrand Faure Fr. 18,988 946,566
Catena, A Swe. 320,000 4,269,257
Jardine International Motor Holdings Ltd. H.K. 2,057,000 2,643,071
Qing Ling Motors Co. Ltd., H Chn. 10,525,000 6,388,096
* Tofas Turk Otomobil Fabrikasi AS, GDR Tur. 16,568,100 5,218,952
Weifu Fuel Injection Co. Ltd. Chn. 4,745,850 2,960,143
------------
22,426,085
- -------------------------------------------------------------------------------------------------------------------------
BANKING: 4.8%
Banco de Andalucia Sp. 110,000 14,081,412
Banco de Valencia SA Sp. 101,828 1,985,484
Banco Pastor SA Sp. 51,000 2,953,015
Banco Popular Espanol SA Sp. 13,000 2,362,482
Bancorp Hawaii Inc. U.S. 174,067 7,658,948
BPI Socieda de Gestora de Participacoes Socias SA Port. 301,616 4,491,245
* BPI Socieda de Gestora de Participacoes Socias, new Port. 114,614 1,639,081
Fokus Bank AS Nor. 774,300 5,988,577
Fokus Bank AS, 144A Nor. 223,400 1,727,816
Foreningsbanken AB, A Swe. 215,000 1,302,257
* Glendale Federal Bank FSB U.S. 187,000 4,978,875
National Bank of Canada Can. 893,200 10,324,123
Union Bank of Norway, Primary Capital Cert. Nor. 314,000 9,714,133
Wing Hang Bank H.K. 3,500,000 15,909,707
----------
85,117,155
- -------------------------------------------------------------------------------------------------------------------------
BEVERAGES & TOBACCO: 0.4%
Sinocan Holdings Ltd. H.K. 21,764,000 7,799,256
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING: 4.4%
* Century Communications Corp., A U.S. 743,182 $ 3,762,359
* Cordiant PLC U.K. 1,096,480 1,759,097
* Grupo Radio Centro SA, ADR Mex. 67,600 650,650
Hollinger International Inc., A U.S. 180,000 1,822,500
Marieberg Tidnings AB, A Swe. 370,700 10,286,987
News Corp. Ltd. Aus. 8,259,409 37,338,056
* Oriental Press Group Ltd., wts. H.K. 122,300 6,475
* Sing Tao Holdings Ltd. H.K. 1,881,140 819,873
South Chn. Morning Post (Holdings) Ltd. H.K. 12,150,000 10,983,122
* United International Holdings U.S. 341,740 3,502,835
+ Wace Group PLC U.K. 4,831,400 6,806,784
--------------
77,738,738
- -------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 2.5%
Anglian Group PLC U.K. 283,730 1,192,279
Comercial Ind. Fin. Inmobiliari Agropecuaria, Arg. 431,000 1,023,625
ADR, 144A Cristaleria Espanola SA Sp. 82,550 6,858,771
Keumkang Co. Ltd. Kor. 29,300 1,322,569
* Mirgor SA Comercial Industrial Financiera Inmobi ADR C Arg. 359,000 852,625
ADR C
* Pioneer International Ltd. Aus. 3,000,000 8,924,826
Sarna Kunststoff Holding AG Swtz. 6,570 6,262,024
Schuttersveld Holding Neth. 103,200 4,186,943
Shelter Components Corp. U.S. 379,400 4,647,650
Siam City Cement, fgn. Thai. 308,900 1,693,910
Uralita SA Sp. 814,000 6,388,433
--------------
43,353,655
- -------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 3.6%
* Adecco SA Swtz. 12,000 3,879,192
* Healthcare Services Group Inc. U.S. 365,100 3,970,463
ISS International Service System AS, B Den. 331,500 9,533,414
Kardex AG, br. Swtz. 940 264,317
* Koninklijke Ahrend NV Neth. 285,360 16,163,233
Lex Service PLC U.K. 1,681,000 9,541,647
* agellan Health Services Inc. U.S. 250,000 6,156,250
* Novacare Inc. U.S. 296,300 3,703,750
Scribona AB, A Swe. 225,400 3,067,301
Scribona AB, B Swe. 480,400 6,697,637
--------------
62,977,204
- -------------------------------------------------------------------------------------------------------------------
CHEMICALS: 2.2%
Crompton & Knowles Corp. U.S. 163,383 3,104,277
Energia e Industrias Aragonesas Eia S Sp. 1,641,000 9,879,542
</TABLE>
17
<PAGE> 18
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------
CHEMICALS (cont.)
European Vinyls Corp. EVC International NV Neth. 116,081 $ 3,272,213
Gurit Heberlein AG Wattwil SG, br. Swtz. 4,000 8,656,129
Tessenderlo Chemie Bel. 15,000 6,829,934
* Tiszai Vegyi Kombinat RT, GDR, 144A Hun. 599,655 7,756,537
-------------
39,498,632
- -------------------------------------------------------------------------------------------------------------
CONSTRUCTION & HOUSING: 2.9%
Cubiertas y Mzov SA Sp. 23,051 2,277,039
Dragados y Construcciones SA Sp. 208,000 3,148,767
Halla Engineering & Construction Corp. Kor. 132,200 2,983,681
Hollandsche Beton Groep NV Neth. 85,092 18,731,987
Kaufman & Broad Home Corp. U.S. 625,000 8,828,125
Kumagai Gumi Hong Kong Ltd. H.K. 6,889,000 7,873,194
* Kumagai Gumi Hong Kong Ltd., wts. H.K. 155,200 61,128
+* Schuler Homes Inc. U.S. 1,032,000 5,934,000
Sociedade Construcoes Soares da Costa SA Port. 115,000 1,081,707
-------------
50,919,628
- -------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 1.2%
* Axime SA Fr. 87,942 11,272,636
* Quantum Corp. U.S. 267,000 10,613,250
-------------
21,885,886
- --------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 0.8%
Alphatec Electronics Pub. Co. Ltd., fgn. Thai. 315,500 2,461,131
Dongfang Electrical Machinery Co. Ltd., H Chn. 9,148,000 3,071,503
G.P. Batteries International Ltd. Sing. 1,346,000 4,011,080
* G.P. Batteries International Ltd., wts. Sing. 336,500 363,420
* Plantronics Inc. U.S. 4,355 190,531
+ Techtronic Industries Co. Ltd. H.K. 29,104,621 3,984,000
-------------
14,081,665
- --------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 1.4%
Draka Holding NV Neth. 333,485 11,315,893
Swisslog Holding AG Swtz. 26,500 8,359,338
Twentsche Kabel Holdings NV Neth. 102,525 4,753,780
-------------
24,429,011
- --------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES: 0.2%
* Koninklijke Pakhoed NV Neth. 101,920 3,195,237
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY SOURCES: 0.1%
Transportadora de Gas del Sur SA, ADR B Arg. 119,104 $ 1,503,688
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 2.3%
A.G. Edwards Inc. U.S. 83,900 2,978,450
Alex Brown Inc. U.S. 142,950 8,308,969
Dah Sing Financial Holdings Ltd. H.K. 1,766,000 7,389,026
Invesco PLC U.K. 1,400,000 8,140,463
London Pacific Group Ltd. U.K. 292,952 1,092,659
Manhattan Card Co. Ltd. H.K. 20,130,639 7,798,845
Om Gruppen AB Swe. 139,000 4,524,878
Peregrine Investments Holdings Ltd. H.K. 220,500 402,918
-------------
40,636,208
- ---------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD
PRODUCTS: 4.9%
Albert Fisher Group PLC U.K. 2,508,924 1,757,150
Bombril SA, Braz. 356,948,000 5,736,028
C.P. Pokphand Co. Ltd. H.K. 23,241,100 8,403,616
Cafe de Coral Holdings Ltd. H.K. 11,536,885 3,128,667
Chareon Pokphand Feedmill Public Co. Ltd., fgn. Thai. 31,300 84,611
* Consorcio de Alimentos Fabril Pacifico, 144A Per. 2,212,000 3,637,195
Hazlewood Foods PLC U.K. 5,300,000 10,358,812
Herdez SA de CV, A Mex. 2,962,000 1,327,267
Herdez SA de CV, B Mex. 2,833,400 1,298,093
* JP Foodservice Inc. U.S. 511,500 14,513,813
Lindt & Spruengli, partn. ctf. Swtz. 4,380 6,655,722
McBride PLC U.K. 3,800,000 8,695,865
National Foods Ltd. Aus. 8,000,000 9,320,968
Oshawa Group Ltd. (The) Can. 45,900 686,678
Panamerican Beverages Inc., A Mex. 117,200 6,607,150
Perkins Foods PLC U.K. 473,500 624,680
PT Japfa Comfeed Indonesia, fgn. Indo. 2,685,000 2,071,846
Vetropack AG Swtz. 713 1,765,450
-------------
86,673,611
- ---------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS &
PAPER: 4.1%
Boise Cascade Corp. U.S. 122,615 4,030,968
Cartiere Burgo SPA Itl. 1,045,835 4,782,938
+ Crown-Van Gelder Papier SA Neth. 74,720 7,086,569
* Empaques Ponderosa SA de CV, B Mex. 4,018,800 2,491,888
Fletcher Challenge Ltd. Forestry Division N.Z. 4,211,532 6,010,139
Hansol Paper Co. Ltd. Kor. 133,208 2,991,009
Hung Hing Printing Group Ltd. H.K. 18,295,508 8,269,210
* Mayr-Melnhof Karton AG Aust. 61,800 3,164,560
</TABLE>
19
<PAGE> 20
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREST PRODUCTS &
PAPER (cont.)
Metsa Serla OY, B Fin. 1,185,460 $ 9,901,524
Munksjo AB Swe. 1,300,000 11,707,102
Norske Skogindustrier AS, A Nor. 11,000 338,668
Primex Forest Products Ltd. Can. 300,000 1,766,707
* Shorewood Packaging Corp. U.S. 495,800 8,676,500
-------------
71,217,782
- ---------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL
CARE: 5.8%
Apothekers Cooperatie OPG VA, partn. ctf. Neth. 180,000 5,121,450
* Coventry Corp. U.S. 250,000 1,828,125
* Esaote Biomedica SPA, ADR 144A Itl. 34,975 1,014,793
Gedeon Richter Ltd., GDR 144A Hun. 57,480 3,937,380
* Haemonetics Corp. U.S. 254,900 4,397,025
* Internatio-Mueller NV Neth. 732,292 22,147,405
* Living Centers of America Inc. U.S. 352,000 11,220,000
Medeva PLC U.K. 3,237,911 16,744,088
Pacific Chemical Co. Ltd. Kor. 110,000 2,711,806
* Physician Corp. of America U.S. 664,000 2,905,000
* Playtex Products Inc. U.S. 1,047,800 10,478,000
* Pliva DD, GDR, 144A Crtia. 333,185 5,317,633
* Quorum Health Group Inc. U.S. 117,000 3,670,875
* Revco DS Inc. U.S. 81,500 3,331,313
* Sunrise Medical Inc. U.S. 384,100 5,185,350
Swank International Manufacturing Co. Ltd. H.K. 14,994,000 1,858,832
-------------
101,869,075
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
COMPONENTS: 1.6%
* Banner Aerospace Inc. U.S. 370,200 3,100,425
Gencorp Inc. U.S. 641,000 12,098,875
Hoeganaes AB, B free Swe. 238,000 7,620,623
* Sylea SA Fr. 870 84,021
Walbro Corp. U.S. 305,000 5,566,250
-------------
28,470,194
- ---------------------------------------------------------------------------------------------------------------------------
INSURANCE: 5.0%
Allied Group U.S. 331,500 11,105,250
American Bankers Insurance Group Inc. U.S. 198,615 10,948,652
Capital RE Corp. U.S. 120,000 5,190,000
CMAC Investment Corp. U.S. 260,000 9,100,000
Conseco Inc. U.S. 644,460 25,295,055
Enhance Financial Services Group Inc. U.S. 145,000 5,002,500
</TABLE>
20
<PAGE> 21
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE (cont.)
* Fairfax Financial Holdings Ltd. Can. 70,000 $ 14,645,744
London Insurance Group Inc. Can. 400,000 5,779,290
-------------
87,066,491
- ---------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.6%
Kuoni Reisen Holding AG, B Swtz. 2,598 6,838,233
+ Tourism Holdings Ltd. N.Z. 2,340,000 4,247,118
-------------
11,085,351
- ---------------------------------------------------------------------------------------------------------------------------
MACHINERY &
ENGINEERING: 3.6%
Apv Plc. U.K. 7,147,886 8,440,506
Bucher Holding AG Swtz. 4,226 3,841,558
China International Marine Containers, B Chn. 1,690,656 2,017,338
Fives-Lille Fr. 132,750 11,023,262
Howden Group PLC U.K. 7,280,000 9,782,237
IHC Caland NV Neth. 176,000 9,792,718
* Lucas Varity PLC, spon. ADR U.K. 248,200 8,128,550
* Saurer AG Swtz. 6,000 2,849,196
* Valmet (OY) Fin. 381,600 6,943,770
-------------
62,819,135
- ---------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 3.9%
De Boer Winkelbedrijven NV Neth. 155,000 11,842,036
Det Danske Traelastkompagni AS Den. 107,000 9,863,514
Giordano International Ltd. H.K. 4,569,674 3,245,633
+* Hechinger Co., A U.S. 2,125,000 3,386,719
Hudsons Bay Co. Can. 596,900 11,942,803
J.C. Penny Co. Inc. U.S. 103,476 5,096,197
LI & Fung Ltd. H.K. 10,017,000 8,149,476
Macintosh NV Neth. 5,700 118,631
Moebel Walther AG Ger. 126,640 6,683,246
Robinson Depart. Store Public Co. Ltd., fgn. Thai. 211,900 188,210
* SA Des Galeries Lafayette Fr. 5,540 2,042,845
Somerfield PLC U.K. 458,100 1,290,801
* Sports Authority Inc. U.S. 180,450 3,451,106
Strawbridge & Clothier, A U.S. 24,025 372,388
* United Stationers Inc. U.S. 24,538 509,164
* Wo Kee Hong Holdings Ltd. H.K. 4,855,000 344,829
* Wo Kee Hong Holdings Ltd., wts. H.K. 6,617,200 55,544
-------------
68,583,142
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
METALS & MINING: 5.0%
AK Steel Holding Corp. U.S. 270,000 $ 9,720,000
Antofagasta Holdings PLC Chil. 1,188,400 7,819,822
Arbed SA Lux. 2,195 239,615
Boehler Uddeholm AG Aust. 41,950 2,898,890
Boehler Uddeholm AG, 144A Aust. 8,120 561,120
Boehler Uddeholm AG, 144A, Seasoned Aust. 71,200 4,920,167
Capral Aluminium Ltd. Aus. 1,581,081 5,452,766
Century Aluminum Co. U.S. 214,000 3,531,000
Eramet SA Fr. 29,011 1,451,314
* Grupo Simec SA de CV, ADR Mex. 142,300 640,350
Impala Platinum Holdings Ltd. S.AF. 882,000 12,303,314
PT Tambang Timah (Persero), fgn. Indo. 5,282,000 9,087,904
Quanex Corp. U.S. 150,000 4,012,500
SIG Schweizerische Industrie-Gesell Swtz. 6,325 16,047,419
Vallourec Fr. 154,855 9,149,905
-------------
87,836,086
- ---------------------------------------------------------------------------------------------------------------------------
MISC MATERIALS &
COMMODITIES: 0.6%
IMC Global Inc. U.S. 160,000 5,580,000
Korea Chemical Co Ltd Kor. 67,180 5,169,322
-------------
10,749,322
- ---------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 2.5%
Amer Group Ltd., A Fin. 220,000 4,615,736
* DESC SA, B Mex. 694,700 4,420,897
* DESC SA, C Mex. 14,472 93,731
La Cemento Nacional CA, GDR, 144A Ecu. 12,175 2,788,075
Marine Wendel Fr. 89,189 9,318,254
* Nagron Nationaal Grondbezit NV Neth. 73,000 7,777,333
Pioneer Industries International Holdings Ltd. H.K. 6,414,400 3,768,937
Saha Union Public Co. Ltd., fgn. Thai. 31,000 27,085
Wagon Industrial Holdings PLC. U.K. 1,153,700 6,135,203
Zehnder Holding AG Swtz. 14,125 5,461,807
-------------
44,407,058
- ---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 1.7%
Asean Resources Holdings Ltd. H.K. 7,393,649 2,363,119
* Catellus Development Corp. U.S. 550,000 8,456,250
New Asia Realty and Trust Co. Ltd., A H.K. 3,583,000 13,024,969
Tai Cheung Holdings Ltd. H.K. 3,630,000 3,281,377
* Winsor Properties Holdings Ltd. H.K. 1,664,000 3,083,591
-------------
30,209,306
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS: 0.8%
* LCI International U.S. 96,800 $ 1,839,200
* Millicom International Cellular SA Lux. 100,000 3,850,000
Telmex-Telefonos de Mexico SA, L Mex. 4,592,972 8,912,683
-------------
14,601,883
- ---------------------------------------------------------------------------------------------------------------------------
TEXTILES &
APPAREL: 2.2%
Fountain Set Holdings Ltd. H.K. 35,262,000 8,424,229
* Fruit of the Loom Inc., A U.S. 102,000 4,169,250
Gamma Holdings NV Neth. 180,000 9,436,746
Kellwood Co. U.S. 271,600 6,416,550
+ Tungtex (Holdings) Co. Ltd. H.K. 35,573,000 3,353,473
Winsor Industrial Corp. Ltd. H.K. 3,328,000 812,263
Yizheng Chemical Fibre Co. Ltd., H Chn. 23,734,600 5,547,687
-------------
38,160,198
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 5.2%
Airborne Freight Corp. U.S. 309,900 8,483,513
Anangel-American Shipholdings Ltd., ADR Gr. 399,800 3,098,450
APL Ltd. U.S. 100,000 2,300,000
* Fritz Cos. U.S. 643,000 6,470,188
Helikopter Services Group ASA Nor. 492,000 7,025,017
IMC Holdings Ltd. H.K. 6,654,000 3,093,405
Inner Mongolia Erdos Cashmere Products, B Chn. 6,200,000 5,009,600
Malaysian International Shipping Corp. Bhd., fgn. Mal. 1,233,333 3,201,215
* OMI Corp. U.S. 1,070,000 9,630,000
Orient Overseas International Ltd. H.K. 3,218,000 1,786,924
PT Steady Safe, fgn. Indo. 8,586,166 11,281,095
Sea Containers Ltd., A U.K. 461,000 8,009,875
Singapore Bus Service (1978) Ltd., fgn. Sing. 300,100 1,610,498
Stena Line AB, B free Swe. 1,620,000 7,694,268
Stolt Nielsen SA Nor. 200,000 3,850,000
Stolt Nielsen SA, ADR Nor. 100,000 1,912,500
Tranz Rail Holdings Ltd., ADR N.Z. 77,390 1,373,673
Unitor AS Nor. 470,000 6,081,744
-------------
91,911,965
- ---------------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL
& GAS: 2.3%
Central Costanera SA, ADR, 144A Arg. 21,500 741,750
Electricas Reunidas de Zaragoza Sp. 411,782 14,219,686
Electricidad de Caracas Venz. 3,321,913 3,650,036
Gesa-Gas y Electricidad SA Sp. 356,642 19,257,101
</TABLE>
23
<PAGE> 24
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES ELECTRICAL &
GAS (cont.)
Guangdong Electric Power Development Co Ltd, B, 144A Chn. 250,000 $ 225,990
Shandong Huaneng Power Chn. 160,300 1,663,113
--------------
39,757,676
- ---------------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL
TRADE: 1.9%
Bergen Brunswig Corp., A U.S. 210,000 6,746,250
* Dahl International AB Swe. 245,000 5,229,839
Dahl International AB, 144A Swe. 255,000 5,443,302
Davids Ltd. Aus. 2,200,000 2,682,885
Sime Darby Hongkong Ltd. H.K. 11,067,000 12,790,998
--------------
32,893,274
--------------
TOTAL COMMON STOCK (cost $1,056,858,235) 1,443,071,830
- ---------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 3.3%
- ---------------------------------------------------------------------------------------------------------------------------
Ballast Nedam NV, ctf., conv., pfd. Neth. 90,040 4,639,819
Cia Brasileira de Petroleo Ipiranga, pfd. Braz. 117,495,000 1,755,075
Coteminas Cia Tecidos Norte de Minas, pfd. Braz. 23,829,100 10,202,267
* Herlitz AG, pfd. Ger. 12,000 1,113,582
Hollinger International Inc., conv., pfd., Pride U.S. 559,000 5,799,625
Hugo Boss AG, pfd. Ger. 9,100 10,522,103
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR Braz. 46,000 4,462,000
Unibanco-Uniao de Bancos Brasileiros SA, pfd. Braz. 274,381,688 10,964,303
Weg SA, pfd. Braz. 15,807,300 8,677,810
--------------
TOTAL PREFERRED STOCKS
(cost $38,817,247) 58,136,584
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL IN
LOCAL CURRENCY**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS: 0.6%
(cost $10,690,625)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 8.50%, 7/15/97 U.S. 10,000,000 10,118,750
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS:
13.9% (cost $244,538,416)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.82% to 5.02% with maturities to
5/15/97 U.S. 246,397,000 244,639,068
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS:
99.9% (cost $1,350,904,523) 1,755,966,232
OTHER ASSETS, LESS
LIABILITIES: 0.1% 2,140,662
--------------
TOTAL NET ASSETS: 100.0% $1,758,106,894
==============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
+ SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 25
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $1,350,904,523) $1,755,966,232
Cash 408,514
Receivables:
Investment securities sold 2,899,130
Capital shares sold 1,820,537
Dividends and interest 2,148,795
-------------
Total assets 1,763,243,208
-------------
Liabilities:
Payables:
Investment securities purchased 1,792,512
Capital shares redeemed 1,082,608
Accrued expenses and other liabilities 2,261,194
-------------
Total liabilities 5,136,314
-------------
Net assets, at value $1,758,106,894
=============
Net assets consist of:
Undistributed net investment income $ 1,179,479
Net unrealized appreciation 405,061,709
Accumulated net realized gain 26,101,720
Net capital paid in on shares of
capital stock 1,325,763,986
-------------
Net assets, at value $1,758,106,894
=============
Class I
Net asset value per share
($1,726,648,727 / 200,639,281
shares outstanding) $ 8.61
=============
Maximum offering price
($8.61 + 94.25%) $ 9.14
=============
Class II
Net asset value per share
($25,852,322 + 3,028,954
shares outstanding) $ 8.54
=============
Maximum offering price
($8.54 + 99.00%) $ 8.63
=============
Advisor Class
Net asset value per share
($5,605,845 + 650,796
shares outstanding) $ 8.61
=============
</TABLE>
Statement of Operations
for the six months ended
February 28, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $703,435
foreign taxes
withheld)
Dividends $ 10,396,772
Interest 5,842,454
------------
Total income $ 16,239,226
Expenses:
Management fees (Note 3) 6,166,097
Administrative fees
(Note 3) 901,746
Distribution fees
(Note 3)
Class I 1,951,007
Class II 99,253
Transfer agent fees
(Note 3) 839,000
Custodian fees 415,000
Reports to shareholders 177,000
Audit fees 23,000
Legal fees 10,000
Registration and filing
fees 98,500
Directors' fees and
expenses 33,500
Other 20,596
------------
Total expenses 10,734,699
------------
Net investment
income 5,504,527
Realized and unrealized
gain (loss):
Net realized gain (loss)
on:
Investments 82,656,486
Foreign currency
transactions (360,396)
------------
82,296,090
Net unrealized
appreciation on
investments 102,571,426
------------
Net realized and
unrealized gain 184,867,516
------------
Net increase in net assets
resulting from operations $190,372,043
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 26
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,504,527 $ 28,543,879
Net realized gain from security and foreign currency transactions 82,296,090 158,727,706
Net unrealized appreciation (depreciation) 102,571,426 (23,274,642)
------------ ------------
Net increase in net assets resulting from operations 190,372,043 163,996,943
Distributions to shareholders:
From net investment income
Class I (23,004,105) (20,150,116)
Class II (172,417) (50,894)
From net realized gain
Class I (146,337,033) (164,590,927)
Class II (1,714,274) (494,045)
Capital share transactions (Note 2)
Class I 163,631,105 118,750,930
Class II 10,049,309 12,511,697
Advisor Class 5,584,905 --
------------ ------------
Net increase in net assets 198,409,533 109,973,588
Net assets:
Beginning of period 1,559,697,361 1,449,723,773
------------ ------------
End of period $ 1,758,106,894 $1,559,697,361
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 27
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Summary of Accounting Policies
Templeton Global Smaller Companies Fund, Inc. (the Fund), formerly Templeton
Smaller Companies Growth Fund, Inc., is an open-end, diversified 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
securities 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 in good faith by
management and 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 currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
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
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange rate.
C. INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND EXPENSES:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income from foreign
securities 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.
2. Transactions in Shares of Capital Stock
Effective January 2, 1997, the Fund offers three classes of shares: Class I,
Class II and Advisor Class. Prior to this date, only Class I and Class II shares
were offered. Shares of each class are identical except for their initial sales
load, a contingent
27
<PAGE> 28
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
deferred sales charge on Class II shares, distribution fees, and voting rights
on matters affecting a single class. At February 28, 1997, there were 750
million Class I shares, 550 million Class II shares and 200 million Advisor
Class 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, 1997 AUGUST 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 13,233,409 $111,944,350 20,182,579 $ 165,480,309
Shares issued on reinvestment of
distributions 18,115,853 148,573,366 20,586,393 160,467,664
Shares redeemed (11,407,315) (96,886,611) (25,112,503) (207,197,043)
----------- ------------- ----------- -------------
Net increase 19,941,947 $163,631,105 15,656,469 $ 118,750,930
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
CLASS II
-----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,129,231 $ 9,513,207 1,602,914 $ 13,112,922
Shares issued on reinvestment of
distributions 214,267 1,742,295 64,332 497,295
Shares redeemed (142,430) (1,206,193) (133,035) (1,098,520)
----------- ------------- ----------- -------------
Net increase 1,201,068 $ 10,049,309 1,534,211 $ 12,511,697
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------
FOR THE PERIOD
JANUARY 2, 1997 THROUGH
FEBRUARY 28, 1997
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares sold 668,103 $ 5,733,339
Shares redeemed (17,307) (148,434)
----------- -------------
Net increase 650,796 $ 5,584,905
=========== =============
</TABLE>
3. Investment Management Fees and Other Transactions with Affiliates
Certain officers of the Fund are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FTSI),
Franklin Templeton Distributors, 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 FTSI 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
28
<PAGE> 29
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
in excess of $1.2 billion. For the six months ended February 28, 1997, FTD
received net commissions of $180,840 from the sale of the Fund's shares and FTIS
received fees of $839,000.
Under the distribution plans for Class I and Class II shares, the Fund
reimburses FTD quarterly for FTD's costs and expenses in connection with any
activity 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 February 28, 1997, unreimbursed expenses amounted to $101,823. Class
II shares redeemed within 18 months are subject to a contingent deferred sales
charge. Contingent deferred sales charges of $5,339 were paid to FTD for the six
months ended February 28, 1997.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received fees for the six months ended February 28, 1997.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1997 aggregated $205,086,149 and $220,211,128,
respectively. The cost of securities for federal income tax purposes is
$1,353,321,613. Realized gains and losses are reported on an identified cost
basis.
At February 28, 1997, the aggregate gross unrealized appreciation and
depreciation of portfolio securities, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $479,822,482
Unrealized depreciation (77,177,863)
------------
Net unrealized appreciation $402,644,619
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the Fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies" at February 28, 1997
amounted to $34,798,663. For the six months ended February 28, 1997, dividends
from affiliated companies were $376,159.
29
<PAGE> 30
NOTES
--------
<PAGE> 31
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
<TABLE>
<S> <C> <C> <C>
GLOBAL GROWTH GROWTH INCOME FRANKLIN STATE-
SPECIFIC FUNDS
Franklin Global Health Care Fund Franklin Blue Chip Fund Franklin Adjustable Rate SEEKING
Securities Fund TAX-FREE INCOME
Franklin Templeton Japan Fund Franklin California Growth Fund
Franklin Adjustable U.S. Alabama
Templeton Developing Markets Trust Franklin DynaTech Fund Government Securities Fund
Arizona*
Templeton Foreign Fund Franklin Equity Fund Franklin's AGE High Income Fund
Arkansas**
Templeton Foreign Smaller Franklin Gold Fund Franklin Investment
Companies Fund Grade Income Fund California*
Franklin Growth Fund
Templeton Global Infrastructure Fund Franklin Short-Intermediate U.S. Colorado
Franklin MidCap Growth Fund Government Securities Fund
Templeton Global Connecticut
Opportunities Trust Franklin Small Cap Growth Fund Franklin U.S. Government
Securities Fund Florida*
Templeton Global Real Estate Fund Mutual Discovery Fund
Franklin Money Fund Georgia
Templeton Global Smaller GROWTH AND INCOME
Companies Fund Franklin Federal Money Fund Hawaii**
Franklin Asset Allocation Fund
Templeton Greater European Fund FOR NON-U.S. INVESTORS: Indiana
Franklin Balance Sheet
Templeton Growth Fund Investment Fund Franklin Tax-Advantaged Kentucky
High Yield Securities Fund
Templeton Latin America Fund Franklin Convertible Securities Fund Louisiana
Franklin Tax-Advantaged
Templeton Pacific Growth Fund Franklin Equity Income Fund International Bond Fund Maryland
Templeton World Fund Franklin Income Fund Franklin Tax-Advantaged U.S. Massachusetts***
Government Securities Fund
GLOBAL GROWTH AND INCOME Franklin MicroCap Value Fund Michigan*
FOR CORPORATIONS:
Franklin Global Utilities Fund Franklin Natural Resources Fund Minnesota***
Franklin Corporate Qualified
Franklin Templeton German Franklin Real Estate Securities Fund Dividend Fund Missouri
Government Bond Fund
Franklin Rising Dividends Fund FRANKLIN FUNDS SEEKING New Jersey
Franklin Templeton TAX-FREE INCOME
Global Currency Fund Franklin Strategic Income Fund New York*
Federal Intermediate-Term
Mutual European Fund Franklin Utilities Fund Tax-Free Income Fund North Carolina
Templeton Global Bond Fund Franklin Value Fund Federal Tax-Free Income Fund Ohio***
Templeton Growth and Income Fund Mutual Beacon Fund High Yield Tax-Free Income Fund Oregon
GLOBAL INCOME Mutual Qualified Fund Insured Tax-Free Income Fund Pennsylvania
Franklin Global Government Mutual Shares Fund Puerto Rico Tax-Free Income Fund Tennessee**
Income Fund
Templeton American Trust, Inc. Tax-Exempt Money Fund Texas
Franklin Templeton Hard
Currency Fund FUND ALLOCATOR SERIES: Virginia
Franklin Templeton High Franklin Templeton Washington**
Income Currency Fund Conservative Target Fund
VARIABLE ANNUITIES+
Templeton Americas Franklin Templeton
Government Securities Fund Moderate Target Fund Franklin
Valuemark(R)
Franklin Templeton
Growth Target Fund Franklin Templeton
Valuemark Income
Plus
(an immediate
annuity)
</TABLE>
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES,
AND/OR A HIGH YIELD PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS THAT PAY INTEREST
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
***PORTFOLIO OF INSURED MUNICIPAL SECURITIES.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97
<PAGE> 32
Templeton Global Smaller
Companies Fund, Inc.
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 a current prospectus of the
Templeton Global Smaller Companies Fund, Inc., which contains more complete
information including charges and expenses.
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses 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.
[GRAPHIC]
TEMPLETON
GLOBAL
SMALLER
COMPANIES
FUND, INC.
Semi-Annual Report
February 28, 1997
[FRANKLIN TEMPLETON LOGO]
