SEMI ANNUAL REPORT
February 28, 1998
TEMPLETON GLOBAL
SMALLER COMPANIES FUND, INC.
[LOGO] FRANKLIN TEMPLETON
PAGE
[LOGO] CELEBRATING OVER 50 YEARS
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
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 the
Templeton funds, which are managed by many of the investment professionals he
selected and trained.
[PHOTO]
Peter A. Nori
Portfolio Manager
Templeton Global Smaller
Companies Fund, Inc.
PAGE
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Global Smaller Companies Fund seeks to achieve
long-term capital growth by investing primarily in the equity securities of
smaller companies of any nation.
Dear Shareholder:
We are pleased to bring you the semi-annual report of Templeton Global Smaller
Companies Fund for the six months ended February 28, 1998. During this period,
global stock markets provided mixed returns. Investors in U.S. and European
shares were generally rewarded, but many holders of Asian and Latin American
stocks had to contend with disappointing results. As a whole, large cap equities
outperformed their small cap counterparts, and Templeton Global Smaller
Companies Fund Class I shares delivered a six-month cumulative total return of -
1.54%, as discussed in the Performance Summary on page 6.
The U.S. stock market demonstrated resilience, as many investors shrugged off
Asian currency crises and cheered
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 16 of this report.
CONTENTS
Shareholder Letter ............ 1
Performance Summaries
Class I .................... 6
Class II ................... 8
Advisor Class .............. 10
Financial Highlights &
Statement of Investments ...... 13
Financial Statements .......... 24
Notes to the Financial
Statements .................... 27
FUND CATEGORY
[PYRAMID GRAPH]
PAGE
GEOGRAPHIC DISTRIBUTION
BASED ON TOTAL NET ASSETS
2/28/98
[PIE CHART]
European Stocks
43.3%
North American
Stocks 21.4%
Asian Stocks 11.9%
Latin American
Stocks 6.0%
Australian &
New Zealand Stocks
3.7%
Middle-Eastern &
African Stocks 2.4%
Short-Term
Investments &
Other Net Assets
11.3%
economic growth and low interest rates at home. By the end of the period,
healthy corporate profits, subdued inflation, and investor optimism had helped
push the Standard & Poor's(R) 500 Stock Index to record levels. Our holdings of
Crompton & Knowles Corp. rose significantly in value, and we took profits by
selling our shares of Conseco Inc. and American Bankers Insurance Group Inc.
Although high valuations of U.S. equities made finding investment bargains a
challenge, we were able to discover some small cap companies whose shares were
selling below our assessment of their fair value. For example, we established a
position in Scholastic Corp., a leading global publisher of children's books,
which we believe has long-term growth potential.
In Europe, economies continued to recover, as government attempts to meet
European Monetary Union criteria generally led to lower interest rates and
benign inflation. In addition, many European companies responded to global
competition by restructuring, cost reduction, and consolidation. These factors
helped contribute to the advance of many share prices there, and our holdings of
Somerfield Plc. and Sylea SA performed well. During the period, we sold our
shares of Adecco SA at a gain.
Asian stock markets, however, dropped considerably due to slowing economies and
currency crises in the region. For example, Indonesia's market declined 66.3%,
South Korea's 57.0%, and Hong Kong's 17.6% during the six months under
review.(1) Seeking to take
1. Source: Bloomberg. Market return is measured in U.S. dollars and includes
reinvested dividends.
2
PAGE
advantage of these declines, we added to our position in Giordano International
Ltd., a casual apparel retailer based in Hong Kong, which, in our opinion, has
strong earnings growth potential. In Japan, the Nikkei 225 Index fell 11.1% from
August 31, 1997 to February 28, 1998.(2) Fortunately, we had viewed Asian
markets as relatively expensive based on standard measures such as
price-to-earnings ratios prior to these crises and had a modest exposure there.
During the latter part of 1997, Latin American stock markets plunged in response
to Asia's financial problems. However, they generally rebounded in early 1998
because the high debt problems that plagued Asian companies were less prevalent
in Latin America. During the reporting period, we purchased shares of
Fertilizantes Fosfatados SA, a Brazilian fertilizer producer, and Madeco
Manufacturera de Cobre SA, ADR, a large Chilean producer of copper and aluminum
products. In our opinion, these companies' stocks were selling at attractive
valuations relative to their long-term prospects.
Looking forward, we will continue to assess the Asian economy and its impact on
companies around the world. We are confident that recent market corrections
present opportunities, but shall remain cautious in our global search for
high-quality companies whose stock prices do not adequately reflect the firms'
long-term intrinsic value. Although no one can reliably predict the direction of
markets
TOP 10 EQUITY HOLDINGS
2/28/98
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------
<S> <C>
GAS Y ELECTRIDAD SA
UTILITIES ELECTRICAL & GAS, SPAIN 1.3%
BANCO DE ANDALUCIA SA
BANKING, SPAIN 1.2%
INTERNATIO-MUELLER NV
HEALTH & PERSONAL CARE,
NETHERLANDS 1.2%
LAIRD GROUP PLC
MACHINERY & ENGINEERING,
UNITED KINGDOM 1.1%
WEIR GROUP PLC
INDUSTRIAL COMPONENTS,
UNITED KINGDOM 1.1%
HAZLEWOOD FOODS PLC
FOOD & HOUSEHOLD PRODUCTS,
UNITED KINGDOM 1.1%
SYLEA SA
INDUSTRIAL COMPONENTS,
FRANCE 1.0%
NEWS CORPORATION LTD., PFD
BROADCASTING & PUBLISHING,
AUSTRALIA 1.0%
GENCORP INC
INDUSTRIAL COMPONENTS, U.S. 1.0%
CMAC INVESTMENT CORP
INSURANCE, U.S. 0.9%
</TABLE>
2. Source: Bloomberg. Market return is measured in U.S. dollars and includes
reinvested dividends.
3
PAGE
TOP 10 INDUSTRIES
2/28/98
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- ----------------------------------------
<S> <C>
FOOD & HOUSEHOLD PRODUCTS 6.8%
BANKING 6.4%
INDUSTRIAL COMPONENTS 5.8%
MERCHANDISING 5.0%
BUILDING MATERIALS &
COMPONENTS 5.0%
METALS & MINING 4.8%
TRANSPORTATION 4.3%
FOREST PRODUCTS & PAPER 3.9%
MACHINERY & ENGINEERING 3.8%
HEALTH & PERSONAL CARE 3.6%
</TABLE>
in the near term, we are confident that our disciplined approach to identifying
undervalued small cap stocks should reward long-term investors.
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 emerging markets. For example, Hong Kong's equity market has
increased 1,268% in the last 15 years, but has suffered five quarterly declines
of more than 20% during that time.(3) 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 six
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies
and our evaluations, conclusions
3. Source: Bloomberg. Based on quarterly percentage price over 15 years ended
December 31, 1997.
4
PAGE
and decisions regarding portfolio holdings may change as new circumstances
arise. All figures shown are as of February 28, 1998, and the Fund's holdings
can be expected to change with market developments and management of the
portfolio. Although past performance of a specific investment or sector cannot
guarantee future performance, such information can be useful in analyzing the
securities we purchase or sell for the Fund.
We appreciate your support, welcome your comments and look forward to serving
you in the future.
Sincerely,
/s/Peter A. Nori, CFA
- ---------------------
Peter A. Nori, CFA
Portfolio Manager
Templeton Global Smaller Companies Fund, Inc.
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
EQUITY INVESTMENTS
(88.7% OF TOTAL NET ASSETS)
2/28/98
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
- ------------------------------
<S> <C>
UNITED STATES 18.4%
UNITED KINGDOM 9.3%
NETHERLANDS 7.4%
HONG KONG 7.1%
SPAIN 5.9%
SWITZERLAND 4.8%
SWEDEN 3.5%
FRANCE 3.0%
CANADA 3.0%
NORWAY 2.4%
</TABLE>
*Does not include investments in U.S. government securities and short-term
investments and other net assets.
5
PAGE
PERFORMANCE SUMMARY
CLASS I
Templeton Global Smaller Companies Fund - Class I produced a -1.54% cumulative
total return for the six-month period ended February 28, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include the sales charge. 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 page 7, the Fund's Class I shares delivered a cumulative
total return of more than 871% since inception on June 1, 1981.
The Fund's share price, as measured by net asset value, decreased 86 cents
($0.86), from $9.53 on August 31, 1997, to $8.67 on February 28, 1998. During
the reporting period, shareholders received per-share distributions of 12.5
cents ($0.125) in income dividends, 9 cents ($0.09) in short-term capital gains,
and 50.5 cents ($0.505) in long-term capital gains. Distributions will vary
depending on income earned by the Fund and any profits realized from the sale of
securities in the portfolio, as well as the level of the Fund's operating
expenses.
Past performance is not predictive of future results.
6
PAGE
CLASS I
PERIODS ENDED 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (6/1/81)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN(1) 8.98% 90.70% 227.07% 871.10%
AVERAGE ANNUAL TOTAL RETURN(2) 2.66% 12.44% 11.92% 14.14%
VALUE OF $10,000 INVESTMENT(3) $10,266 $17,969 $30,826 $91,511
</TABLE>
<TABLE>
<CAPTION>
2/28/94 2/28/95 2/28/96 2/28/97 2/28/98
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE-YEAR TOTAL RETURN(4) 28.32% -8.44% 25.28% 18.88% 8.98%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, 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 periods indicated and include the current, maximum 5.75% initial
sales charge. See Note below.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include the sales
charge.
Note: Total returns have been restated to reflect the current, maximum 5.75%
initial sales charge. Prior to July 1, 1992, Fund shares were offered at a
higher initial sales charge. Thus, actual total returns would have been lower.
On January 1, 1993, the Fund's Class I shares implemented a Rule 12b-1 plan,
which affects subsequent performance.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, and political climates
in countries where investments are made. Emerging markets involve heightened
risks related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
7
PAGE
CLASS II
Templeton Global Smaller Companies Fund - Class II produced a -1.96% cumulative
total return for the six-month period ended February 28, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased 85 cents
($0.85), from $9.42 on August 31, 1997, to $8.57 on February 28, 1998. During
the reporting period, shareholders received per-share distributions of 7.78
cents ($0.0778) in income dividends, 9 cents ($0.09) in short-term capital
gains, and 50.5 cents ($0.505) in long-term capital gains. Distributions will
vary depending on income earned by the Fund and any profits realized from the
sale of securities in the portfolio, as well as the level of the Fund's
operating expenses.
Past performance is not predictive of future results.
8
PAGE
CLASS II
PERIODS ENDED 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (5/1/95)
- -----------------------------------------------------------------------
<S> <C> <C>
CUMULATIVE TOTAL RETURN(1) 8.14% 49.16%
AVERAGE ANNUAL TOTAL RETURN(2) 6.02% 14.76%
VALUE OF $10,000 INVESTMENT(3) $10,602 $14,766
</TABLE>
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 periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include all sales charges.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, and political climates
in countries where investments are made. Emerging markets involve heightened
risks related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
9
PAGE
ADVISOR CLASS
Templeton Global Smaller Companies Fund - Advisor Class produced a -1.29%
cumulative total return for the six-month period ended February 28, 1998.
Cumulative total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains, if any.
The Fund's share price, as measured by net asset value, decreased 86 cents
($0.86), from $9.55 on August 31, 1997, to $8.69 on February 28, 1998. During
the reporting period, shareholders received per-share distributions of 14.69
cents ($0.1469) in income dividends, 9 cents ($0.09) in short-term capital
gains, and 50.5 cents ($0.505) in long-term capital gains. Distributions will
vary depending on income earned by the Fund and any profits realized from the
sale of securities in the portfolio, as well as the level of the Fund's
operating expenses.
Past performance is not predictive of future results.
10
PAGE
ADVISOR CLASS
PERIODS ENDED 2/28/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (6/1/81)*
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN(1) 9.49% 91.58% 228.58% 875.58%
AVERAGE ANNUAL TOTAL RETURN(1) 9.49% 13.89% 12.63% 14.57%
VALUE OF $10,000 INVESTMENT(2) $10,949 $19,158 $32,858 $97,558
</TABLE>
<TABLE>
<CAPTION>
2/28/94 2/28/95 2/28/96 2/28/97 2/28/98
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE-YEAR TOTAL RETURN(3),* 28.32% -8.44% 25.28% 18.88% 9.49%
</TABLE>
*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Class I expenses, including Rule 12b-1 fees;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Since January 2, 1997 (commencement of sales), the cumulative total
return of Advisor Class shares was 13.17%.
1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
3. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the economic, social, 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 their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
11
PAGE
TEMPLETON GLOBAL SMALLER
COMPANIES FUND
CLASS I
If you had invested $10,000 in Templeton Global Smaller Companies Fund - Class I
at inception, it would be worth more than $91,000 today. The chart below
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
reinvested through February 28, 1998.*
[GRAPH]
<TABLE>
<CAPTION>
DATE INITIAL INCOME INITIAL + CAP GAINS INITIAL + TOTAL VALUE
DIVIDENDS CAP GAINS
<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
12/31/97 $17,030 $14,197 $31,228 $56,061 $73,091 $87,289
2/28/98 $17,854 $14,884 $32,738 $58,773 $76,627 $91,511
</TABLE>
*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the maximum
5.75% initial sales charge; thus actual total return for purchasers of shares
during the periods shown may differ. Prior to July 1, 1992, these shares were
offered at a higher initial sales charge. On January 1, 1993, the Fund's Class I
shares implemented a plan of distribution under Rule 12b-1, which will affect
subsequent performance.
All figures assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. This was a period of generally rising securities prices.
The historical data shown above pertain only to Class I shares of the Fund. The
Fund offers other share classes, subject to different sales charges, fees and
expenses, which will affect their performance. Please see the prospectus for
more details.
Past performance is not predictive of future results.
12
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1998 ------------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE - CLASS I
(For a share outstanding throughout
the period)
Net asset value, beginning of
period............................. $9.53 $8.55 $8.77 $8.24 $7.44 $7.70
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income............. .04 .13 .16 .11 .09 .10
Net realized and unrealized gain
(loss).......................... (.18) 1.77 .72 .62 .81 1.23
---------------------------------------------------------------------------------------
Total from investment operations... (.14) 1.90 .88 .73 .90 1.33
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income............. (.13) (.13) (.12) (.11) (.07) (.15)
Net realized gains................ (.59) (.79) (.98) (.09) (.03) (1.41)
In excess of net realized gains... -- -- -- -- -- (.03)
---------------------------------------------------------------------------------------
Total distributions................ (.72) (.92) (1.10) (.20) (.10) (1.59)
---------------------------------------------------------------------------------------
Net asset value, end of period..... $8.67 $9.53 $8.55 $8.77 $8.24 $7.44
=======================================================================================
Total Return*...................... (1.54)% 24.20% 11.69% 9.20% 12.22% 22.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's).......................... $1,777,516 $1,881,547 $1,544,214 $1,447,155 $1,409,494 $1,129,848
Ratios to average net assets:
Expenses.......................... 1.28%** 1.30% 1.27% 1.36% 1.36% 1.29%
Net investment income............. 0.93%** 1.43% 1.93% 1.32% 1.17% 1.70%
Portfolio turnover rate............ 14.23% 25.60% 32.71% 18.79% 28.06% 28.73%
Average commission rate paid***.... $.0006 $.0009 $.0068 -- -- --
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
13
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1998 -------------------------------
(UNAUDITED) 1997 1996 1995+
----------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS II
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $9.42 $8.47 $8.75 $7.87
----------------------------------------------------
Income from investment operations:
Net investment income...................................... .01 .07 .13 --
Net realized and unrealized gain (loss).................... (.19) 1.75 .67 .88
----------------------------------------------------
Total from investment operations............................ (.18) 1.82 .80 .88
----------------------------------------------------
Less distributions from:
Net investment income...................................... (.08) (.08) (.10) --
Net realized gains......................................... (.59) (.79) (.98) --
----------------------------------------------------
Total distributions......................................... (.67) (.87) (1.08) --
----------------------------------------------------
Net asset value, end of period.............................. $8.57 $9.42 $8.47 $8.75
====================================================
Total Return*............................................... (1.96)% 23.42% 10.74% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $48,719 $43,071 $15,483 $2,569
Ratios to average net assets:
Expenses................................................... 2.04%** 2.05% 2.07% 2.11%**
Net investment income...................................... 0.14%** 0.75% 1.23% 0.16%**
Portfolio turnover rate..................................... 14.23% 25.60% 32.71% 18.79%
Average commission rate paid***............................. $.0006 $.0009 $.0068 --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year
1996 disclosure of average commission rate was not required.
+For the period May 1, 1995 (effective date) to August 31, 1995.
14
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997+
-------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE - ADVISOR CLASS
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $9.55 $8.33
-------------------------------------
Income from investment operations:
Net investment income...................................... .05 .10
Net realized and unrealized gain (loss).................... (.17) 1.12
-------------------------------------
Total from investment operations............................ (.12) 1.22
-------------------------------------
Less distributions from:
Net investment income...................................... (.15) --
Net realized gains......................................... (.59) --
-------------------------------------
Total distributions......................................... (.74) --
-------------------------------------
Net asset value, end of period.............................. $8.69 $9.55
=====================================
Total Return*............................................... (1.29)% 14.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $9,909 $7,895
Ratios to average net assets:
Expenses................................................... 1.04%** 1.05%**
Net investment income...................................... 1.14%** 2.18%**
Portfolio turnover rate..................................... 14.23% 25.60%
Average commission rate paid***............................. $.0006 $.0009
</TABLE>
*Total return is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
15
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 83.8%
AEROSPACE & MILITARY TECHNOLOGY .8%
*Banner Aerospace Inc....................................... United States 325,000 $ 3,818,750
Celsius AB, B............................................... Sweden 450,000 8,326,561
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 848,600 1,813,927
--------------
13,959,238
--------------
APPLIANCES & HOUSEHOLD DURABLES 1.6%
Chofu Seisaku Co. Ltd. ..................................... Japan 78,500 1,126,764
Fisher & Paykel Ltd......................................... New Zealand 2,267,709 7,358,258
Guangdong Kelon Electrical Hldgs Ltd., H, 144A.............. China 11,152,000 12,459,128
+Rival Co................................................... United States 642,500 9,316,250
--------------
30,260,400
--------------
AUTOMOBILES .6%
Bilia AB.................................................... Sweden 320,000 4,500,844
Jardine International Motor Holdings Ltd.................... Hong Kong 2,057,000 1,149,051
Qingling Motors Co. Ltd., H................................. China 10,525,000 4,214,078
Weifu Fuel Injection Co. Ltd. .............................. China 4,745,850 1,514,014
--------------
11,377,987
--------------
BANKING 6.4%
Banco de Andalucia SA....................................... Spain 110,000 22,895,798
Banco de Valencia SA........................................ Spain 101,828 3,073,253
Banco Pastor SA............................................. Spain 51,000 6,634,578
*Bank Handlowy W Warszawie SA, GDR, 144A.................... Poland 722,000 11,281,250
BPI Socieda de Gestora de Participacoes Socias SA........... Portugal 301,230 10,813,800
Commercial International Bank Ltd., GDR, 144A............... Egypt 450,000 7,447,500
Fokus Bank AS............................................... Norway 662,900 5,774,085
Fokus Bank AS, 144A......................................... Norway 191,400 1,667,159
*Korea Long Term Credit Bank................................ South Korea 13,394 81,198
National Bank of Canada..................................... Canada 893,200 14,873,592
Singapore Finance Ltd., fgn................................. Singapore 1,428,000 1,031,015
Unibanco Uniao de Bamncos Brasileiros SA, unit.............. Brazil 137,190,844 9,347,162
Union Bank of Norway, Primary Capital Cert.................. Norway 314,000 10,484,348
Wing Hang Bank.............................................. Hong Kong 4,200,000 11,391,669
--------------
116,796,407
--------------
BEVERAGES & TOBACCO .2%
Sinocan Holdings Ltd. ...................................... Hong Kong 21,764,000 3,991,589
--------------
BROADCASTING & PUBLISHING 2.0%
Cordiant Communications Group Plc........................... United Kingdom 548,240 939,355
Hollinger International Inc., A............................. United States 180,000 2,891,250
Marieberg Tidnings AB, A.................................... Sweden 370,700 8,574,045
*Saatchi & Saatchi Plc. .................................... United Kingdom 548,240 1,052,258
*Scholastic Corp............................................ United States 335,000 13,274,375
Sing Tao Holdings Ltd....................................... Hong Kong 1,881,140 388,741
</TABLE>
16
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING (CONT.)
South China Morning Post Ltd................................ Hong Kong 12,150,000 $ 8,787,859
+Wace Group Plc............................................. United Kingdom 4,831,400 1,790,940
--------------
37,698,823
--------------
BUILDING MATERIALS & COMPONENTS 5.0%
Anglian Group Plc. ......................................... United Kingdom 283,730 934,891
Cementos Diamante SA, ADR, 144A............................. Colombia 540,000 5,705,100
*Congoleum Corp., A......................................... United States 320,000 3,200,000
Cristaleria Espanola SA..................................... Spain 82,550 6,631,277
Det Danske Traelastkompagni AS.............................. Denmark 107,000 9,997,975
Gujarat Ambuja Cements Ltd. ................................ India 709,800 4,554,625
Gujarat Ambuja Cements Ltd., GDR............................ India 489,600 3,574,080
Hepworth Plc. .............................................. United Kingdom 1,680,600 6,229,777
*Mirgor SA Comercial Industrial Financiera Inmobi ADR C..... Argentina 359,000 718,000
*Mirgor SA Comercial Industrial Financiera Inmobi ADR C,
144A...................................................... Argentina 431,000 862,000
Okumura Corp. .............................................. Japan 772,000 3,434,512
Pioneer International Ltd. ................................. Australia 3,000,000 8,655,334
Sarna Kunststoff Holding AG................................. Switzerland 6,570 9,627,637
Schuttersveld NV............................................ Netherlands 220,694 5,235,727
Siam City Cement Public Co. Ltd., fgn. ..................... Thailand 1,184,600 3,439,605
Suez Cement Co., GDR, 144A.................................. Egypt 470,000 9,282,500
Uralita SA.................................................. Spain 814,000 9,662,742
--------------
91,745,782
--------------
BUSINESS & PUBLIC SERVICES 2.8%
*Healthcare Services Group Inc.............................. United States 365,100 5,111,400
*ISS International Service System AS, B..................... Denmark 331,500 13,617,508
Kardex AG, br............................................... Switzerland 940 264,085
Lex Service Plc. ........................................... United Kingdom 1,681,000 13,237,965
*Magellan Health Services Inc............................... United States 250,000 5,625,000
*Novacare Inc............................................... United States 296,300 4,148,200
Scribona AB, A.............................................. Sweden 225,400 2,761,668
Scribona AB, B.............................................. Sweden 480,400 5,916,034
--------------
50,681,860
--------------
CHEMICALS 2.2%
Crompton & Knowles Corp..................................... United States 163,383 4,921,913
Energia e Industrias Aragonesas Eia SA...................... Spain 1,641,000 13,342,331
European Vinyls Corporation Evc International NV............ Netherlands 42,381 783,624
Gurit Heberlein AG, br. .................................... Switzerland 4,000 13,365,155
Tessenderlo Chemie.......................................... Belgium 150,000 8,736,308
--------------
41,149,331
--------------
CONSTRUCTION & HOUSING 2.1%
Dragados y Construcciones SA................................ Spain 208,000 5,682,321
Hollandsche Beton Groep NV.................................. Netherlands 850,920 17,315,172
Kumagai Gumi Hong Kong Ltd. ................................ Hong Kong 6,889,000 4,626,774
</TABLE>
17
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CONSTRUCTION & HOUSING (CONT.)
*Kumagai Gumi Hong Kong Ltd., wts........................... Hong Kong 155,200 $ 4,290
+*Schuler Homes Inc......................................... United States 1,032,000 7,869,000
*Sociedade Construcoes Soares da Costa SA................... Portugal 115,000 852,287
Wai Kee Holdings Ltd........................................ Hong Kong 17,848,000 2,835,394
*Wai Kee Holdings Ltd., wts................................. Hong Kong 2,677,200 117,565
--------------
39,302,803
--------------
DATA PROCESSING & REPRODUCTION .6%
*Quantum Corp............................................... United States 410,000 10,301,250
--------------
ELECTRICAL & ELECTRONICS .7%
Dongfang Electrical Machinery Co. Ltd., H................... China 4,648,000 720,387
GP Batteries International Ltd.............................. Singapore 1,346,000 4,360,691
*GP Batteries International Ltd., wts....................... Singapore 336,500 373,774
+Techtronic Industries Co. Ltd.............................. Hong Kong 29,104,621 7,706,099
--------------
13,160,951
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.6%
Draka Holding NV............................................ Netherlands 333,485 13,653,579
Solid Group Inc............................................. Philippines 63,000,000 2,439,221
Swisslog Holding AG......................................... Switzerland 132,500 11,384,248
Twentsche Kabel Holdings NV................................. Netherlands 102,525 4,222,665
VTech Holdings Ltd.......................................... Hong Kong 4,533,000 15,807,685
--------------
47,507,398
--------------
ENERGY SOURCES .8%
*Northstar Energy Corp. .................................... Canada 1,390,500 10,014,140
*Ranger Oil Ltd. ........................................... Canada 415,400 2,674,138
Transportadora de Gas del Sur SA, ADR, B.................... Argentina 119,104 1,399,472
--------------
14,087,750
--------------
FINANCIAL SERVICES 1.0%
A.G. Edwards Inc. .......................................... United States 125,850 5,293,566
Dah Sing Financial Holdings Ltd. ........................... Hong Kong 1,766,000 4,835,544
Industrial Credit & Inv. Corp. of India, GDR, 144A.......... India 59,700 932,813
London Pacific Group Ltd. .................................. United Kingdom 292,952 878,402
Om Gruppen AB............................................... Sweden 139,000 6,290,930
--------------
18,231,255
--------------
FOOD & HOUSEHOLD PRODUCTS 6.6%
Albert Fisher Group Plc..................................... United Kingdom 2,508,924 1,167,701
*Alicorp SA, 144A........................................... Peru 2,212,000 1,455,004
C P Pokphand Co. Ltd. ...................................... Hong Kong 23,241,100 4,502,635
Cafe de Coral Holdings Ltd.................................. Hong Kong 11,536,885 2,577,825
Hazlewood Foods Plc. ....................................... United Kingdom 6,452,423 19,772,491
Herdez SA de CV, new........................................ Mexico 5,795,400 4,201,487
Illovo Sugar Limited........................................ South Africa 5,150,000 8,858,646
</TABLE>
18
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS (CONT.)
*JP Foodservice Inc......................................... United States 511,500 $ 16,911,469
Lindt & Spruengli Chocolate Works Ltd., partn. ctf. ........ Switzerland 4,380 8,019,298
McBride Plc. ............................................... United Kingdom 3,800,000 11,957,560
National Foods Ltd.......................................... Australia 8,172,661 15,312,505
Oshawa Group Ltd. (The)..................................... Canada 844,700 14,867,195
Panamerican Beverages Inc., A............................... Mexico 234,400 8,540,950
Perkins Foods Plc. ......................................... United Kingdom 473,500 979,015
PT Japfa Comfeed Indonesia.................................. Indonesia 2,685,000 105,000
Vetropack AG................................................ Switzerland 7,130 1,327,303
--------------
120,556,084
--------------
FOREST PRODUCTS & PAPER 3.9%
Boise Cascade Corp. ........................................ United States 122,615 4,084,612
Cartiere Burgo SpA.......................................... Italy 1,045,835 7,205,493
+Crown-Van Gelder Papier SA................................. Netherlands 373,600 5,939,296
*Empaques Ponderosa SA de CV, B............................. Mexico 4,018,800 3,130,369
Fletcher Challenge Ltd. Forestry Division................... New Zealand 4,211,532 3,127,077
Hung Hing Printing Group Ltd................................ Hong Kong 17,271,508 7,751,823
Mayr-Melnhof Karton AG...................................... Austria 61,800 3,598,253
Metsa Serla OY, B........................................... Finland 1,185,460 10,593,404
Munksjo AB.................................................. Sweden 1,300,000 12,027,255
Norske Skogindustrier AS, A................................. Norway 11,000 335,348
Primex Forest Products Ltd. ................................ Canada 300,000 1,528,193
*Shorewood Packaging Corp. ................................. United States 495,800 12,147,100
--------------
71,468,223
--------------
HEALTH & PERSONAL CARE 3.6%
Apothekers Cooperatie OPG VA, partn. ctf.................... Netherlands 180,000 5,635,043
Esaote Biomedica SpA, ADR, 144A............................. Italy 34,975 938,824
*Haemonetics Corp........................................... United States 254,900 4,253,644
Internatio-Mueller NV....................................... Netherlands 628,092 22,397,293
Medeva Plc.................................................. United Kingdom 3,237,911 8,375,103
*Playtex Products Inc....................................... United States 1,047,800 14,800,175
*Quorum Health Group Inc.................................... United States 175,500 4,864,660
*Sunrise Medical Inc........................................ United States 384,100 5,737,494
--------------
67,002,236
--------------
INDUSTRIAL COMPONENTS 5.8%
Charter Plc................................................. United Kingdom 189,913 1,928,916
Exide Corp.................................................. United States 420,000 9,318,750
Gencorp Inc. ............................................... United States 641,000 17,467,250
Hoganas AB, B............................................... Sweden 238,000 7,885,228
Lucas Varity Plc., ADR...................................... United Kingdom 248,200 9,338,525
Madeco Manufacturera de Cobre SA, ADR....................... Chile 405,000 6,480,000
Otra NV..................................................... Netherlands 353,808 6,264,998
Sylea SA.................................................... France 158,871 18,782,907
Walbro Corp................................................. United States 305,000 3,965,000
</TABLE>
19
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL COMPONENTS (CONT.)
Weir Group Plc.............................................. United Kingdom 4,523,412 $ 20,121,276
Yamato Kogyo Co. Ltd. ...................................... Japan 618,000 4,998,890
--------------
106,551,740
--------------
INSURANCE 2.7%
Allied Group Inc............................................ United States 497,250 15,663,375
Capital RE Corp. ........................................... United States 120,000 7,432,500
CMAC Investment Corp........................................ United States 260,000 17,420,000
Enhance Financial Services Group Inc. ...................... United States 145,000 8,999,063
--------------
49,514,938
--------------
LEISURE & TOURISM .6%
Kuoni Reisen Holding AG, B.................................. Switzerland 2,598 10,611,674
+Tourism Holdings Ltd. ..................................... New Zealand 2,340,000 1,409,119
--------------
12,020,793
--------------
MACHINERY & ENGINEERING 3.8%
Arcadis NV.................................................. Netherlands 275,655 2,885,522
Bucher Holding AG, br....................................... Switzerland 4,226 3,976,734
China International Marine Containers Inc., B............... China 2,197,853 2,129,015
Fives-Lille................................................. France 132,750 8,120,201
IHC Caland NV............................................... Netherlands 118,000 6,851,371
Laird Group Plc............................................. United Kingdom 2,900,000 20,878,777
Saurer AG................................................... Switzerland 6,000 6,047,051
SIG Schweizerische Industre-Gesell, br...................... Switzerland 4,950 13,974,088
Valmet (OY)................................................. Finland 381,600 5,731,884
--------------
70,594,643
--------------
MERCHANDISING 4.8%
Best Denki Co. Ltd.......................................... Japan 15,000 90,999
David Jones Ltd. ........................................... Australia 2,502,120 2,802,630
De Boer Unigro NV........................................... Netherlands 387,500 15,429,110
Giordano International Ltd. ................................ Hong Kong 25,248,674 7,989,571
*Gymboree Inc............................................... United States 395,000 10,615,625
Hudsons Bay Co.............................................. Canada 596,900 11,533,286
LI & Fung Ltd............................................... Hong Kong 10,017,000 15,137,088
Matsuzakaya Co. Ltd......................................... Japan 103,000 490,087
Moebel Walther AG........................................... Germany 148,410 5,318,035
Sa des Galeries Lafayette................................... France 5,540 3,593,735
Samas-Groep NV.............................................. Netherlands 37,800 2,216,949
Somerfield Plc.............................................. United Kingdom 2,501,700 12,426,481
--------------
87,643,596
--------------
METALS & MINING 4.8%
AK Steel Holding Corp....................................... United States 540,000 10,091,250
+*Angang New Steel Company Ltd., H, 144A.................... China 46,154,000 7,570,627
Antofagasta Holdings Plc. .................................. Chile 174,450 886,649
</TABLE>
20
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING (CONT.)
Birmingham Steel Corp....................................... United States 932,500 $ 16,377,031
Boehler Uddeholm AG......................................... Austria 41,950 2,696,326
Boehler Uddeholm AG, 144A................................... Austria 8,120 521,911
Boehler Uddeholm AG, 144A, seasoned......................... Austria 71,200 4,576,363
Century Aluminum Co......................................... United States 214,000 3,557,750
Elkem AS.................................................... Norway 630,000 8,064,984
Eramet SA................................................... France 29,011 1,220,737
Impala Platinum Holdings Ltd................................ South Africa 1,322,000 13,108,975
PT Tambang Timah (Persero).................................. Indonesia 5,282,000 4,455,765
Quanex Corp................................................. United States 150,000 4,968,750
Vallourec................................................... France 154,855 10,684,397
--------------
88,781,515
--------------
MISCELLANEOUS MATERIALS & COMMODITIES .8%
IMC Global Inc.............................................. United States 160,000 6,110,000
*Korea Chemical Co. Ltd. ................................... South Korea 89,580 1,925,449
Thai Glass Industries Public Co. Ltd., fgn.................. Thailand 1,089,700 1,012,497
Unitor ASA.................................................. Norway 470,000 5,861,664
--------------
14,909,610
--------------
MULTI-INDUSTRY 3.2%
*Amer Group Ltd., A......................................... Finland 397,000 7,931,708
DESC SA de CV DESC, B....................................... Mexico 694,700 4,971,172
Hogg Robinson Plc........................................... United Kingdom 2,350,000 10,666,332
La Cemento Nacional CA, GDR, 144A........................... Ecuador 27,575 5,542,575
Marine Wendel SA............................................ France 89,189 12,685,766
Nagron Nationaal Grondbezit NV.............................. Netherlands 292,000 6,955,952
Pioneer Industries International Ltd........................ Hong Kong 7,099,400 1,265,376
Wagon Industrial Holdings Plc............................... United Kingdom 1,827,400 9,363,099
--------------
59,381,980
--------------
REAL ESTATE .5%
Asean Resources Holdings Ltd................................ Hong Kong 7,393,649 1,327,371
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 3,583,000 7,219,219
Tai Cheung Holdings Ltd..................................... Hong Kong 3,630,000 1,230,707
--------------
9,777,297
--------------
RECREATION & OTHER CONSUMER GOODS .2%
Fila Holding SpA, ADR....................................... Italy 131,300 2,872,188
--------------
TELECOMMUNICATIONS 1.4%
*Digital Telecommunications Philippines Inc................. Philippines 62,440,000 3,610,610
*Millicom International Cellular SA......................... Luxembourg 100,000 4,412,500
Tadiran Telecommunications Ltd. ............................ Israel 408,000 5,610,000
Telefonos de Mexico SA (Telmex), L.......................... Mexico 4,592,972 11,530,248
--------------
25,163,358
--------------
</TABLE>
21
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TEXTILES & APPAREL 2.1%
Fountain Set Holdings Ltd................................... Hong Kong 35,262,000 $ 6,193,906
*Fruit of the Loom Inc., A.................................. United States 102,000 3,276,750
Gamma Holding NV............................................ Netherlands 180,000 9,729,254
Inner Mongolia Erdos Cashmere Products Co. Ltd., B.......... China 6,200,000 2,418,000
Kellwood Co................................................. United States 271,600 8,810,025
+Tungtex (Holdings) Co. Ltd. ............................... Hong Kong 35,573,000 3,491,828
Yizheng Chemical Fibre Co. Ltd., H.......................... China 23,734,600 4,414,314
--------------
38,334,077
--------------
TRANSPORTATION 4.3%
Anangel-American Shipholdings Ltd., ADR..................... Greece 446,800 3,574,400
Danzas Holding AG........................................... Switzerland 42,265 9,294,553
Delgro Corp. ............................................... Singapore 600,200 740,759
*Fritz Companies Inc........................................ United States 1,013,900 14,067,863
Great Eastern Shipping Co. Ltd., GDR........................ India 69,100 452,605
Great Eastern Shipping Co. Ltd., GDR 144A................... India 107,400 703,470
Helikopter Services Group ASA............................... Norway 591,700 6,247,163
IMC Holdings Ltd............................................ Hong Kong 6,654,000 1,546,942
Malaysian International Shipping Corp., fgn................. Malaysia 1,233,333 2,269,733
*MS Carriers Inc............................................ United States 202,400 5,338,300
*OMI Corp................................................... United States 751,000 6,524,313
Orient Overseas International Ltd. ......................... Hong Kong 3,560,000 1,563,319
PT Steady Safe.............................................. Indonesia 8,800,820 172,083
*SBS Bus Service Ltd., fgn. ................................ Singapore 300,100 116,670
Sea Containers Ltd., A...................................... United Kingdom 461,000 14,694,375
Stolt Nielsen SA............................................ Norway 200,000 3,625,000
Stolt Nielsen SA, ADR....................................... Norway 100,000 1,812,500
Tranz Rail Holdings Ltd., ADR............................... New Zealand 499,480 5,556,715
--------------
78,300,763
--------------
UTILITIES ELECTRICAL & GAS 3.3%
Central Costanera SA, ADR, 144A............................. Argentina 21,500 671,142
Electricas Reunidas de Zaragoza ERZ......................... Spain 327,869 14,928,340
Electricidad de Caracas SAICA SACA.......................... Venezuela 3,665,977 3,361,883
Gas y Electricidad SA....................................... Spain 331,283 24,608,117
Guangdong Electric Power Development Co Ltd., B, 144A....... China 9,208,402 5,566,073
Public Service Co. of New Mexico............................ United States 411,000 9,581,438
Shandong Huaneng Power Development Co. Ltd., ADR............ China 160,300 1,352,531
--------------
60,069,524
--------------
WHOLESALE & INTERNATIONAL TRADE 2.0%
Bergen Brunswig Corp., A.................................... United States 262,500 11,812,500
Dahl International AB....................................... Sweden 245,000 3,951,366
Dahl International AB, 144A................................. Sweden 255,000 4,112,646
Davids Ltd. ................................................ Australia 8,500,000 6,404,947
</TABLE>
22
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
WHOLESALE & INTERNATIONAL TRADE (CONT.)
Eurodis Electron Plc........................................ United Kingdom 1,500,000 $ 4,312,333
Sime Darby Hongkong Ltd..................................... Hong Kong 11,067,000 5,503,122
--------------
36,096,914
--------------
TOTAL COMMON STOCKS (COST $1,171,394,080)................... 1,539,292,303
--------------
PREFERRED STOCKS 4.9%
Ballast Nedam NV, ctf., conv., pfd. ........................ Netherlands 188,040 9,749,916
Bombril SA, pfd. ........................................... Brazil 941,432,400 4,115,096
Cia Brasileira de Petroleo Ipiranga, pfd. .................. Brazil 550,798,000 7,213,034
Coteminas Cia Tecidos Norte de Minas (CTNM), pfd. .......... Brazil 23,829,100 6,114,621
Fertilizantes Fosfatados SA, pfd. .......................... Brazil 1,689,630,000 6,204,455
Hollinger International Inc., conv., pfd. .................. United States 559,000 7,826,000
Hugo Boss AG, pfd. ......................................... Germany 6,000 9,426,941
Moebel Walther AG, pfd. .................................... Germany 150,000 4,920,202
News Corp. Ltd., pfd. ...................................... Australia 3,247,074 17,744,417
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR....... Brazil 46,000 5,632,125
Weg SA, pfd. ............................................... Brazil 17,249,300 10,226,104
--------------
TOTAL PREFERRED STOCKS (COST $77,809,170)................... 89,172,911
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 9.2%
Federal Farm Credit Banks, 5.35% to 5.62%, with maturities
to 6/01/98................................................ United States $53,650,000 53,642,323
Federal Home Loan Mortgage Corp., 5.31% to 5.41%, with
maturities to 3/31/98..................................... United States 71,634,000 71,444,332
Federal National Mortgage Assn., 5.32% to 5.54%, with
maturities to 4/10/98..................................... United States 29,307,000 29,204,214
U.S. Treasury Bill, 5.055%, 4/30/98......................... United States 15,000,000 14,872,170
--------------
TOTAL SHORT TERM INVESTMENTS (COST $169,140,842)............ 169,163,039
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$1,418,344,092)........................................... 1,797,628,253
--------------
A REPURCHASE AGREEMENT 2.5%
Swiss Bank Corp., 5.55%, 3/02/98 (Maturity Value
$45,939,237) (COST $45,918,000) Collateralized by U.S.
Treasury Notes and Bonds.................................. United States 45,918,000 45,918,000
--------------
TOTAL INVESTMENTS (COST $1,464,262,092) 100.4%.............. 1,843,546,253
OTHER ASSETS, LESS LIABILITIES (.4%)........................ (7,402,725)
--------------
TOTAL NET ASSETS 100.0%..................................... $1,836,143,528
==============
</TABLE>
*Non-incoming producing.
**Securities traded in U.S. dollars.
a At February 28, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
+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, 1998 were $45,093,159.
See Notes to Financial Statements.
23
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$1,418,344,092)........................................... $1,797,628,253
Repurchase agreement, at value and cost.................... 45,918,000
Receivables:
Investment securities sold................................ 167,538
Capital shares sold....................................... 12,084,942
Dividends and interest.................................... 2,188,794
--------------
Total assets.......................................... 1,857,987,527
--------------
Liabilities:
Payables:
Investment securities purchased........................... 12,836,242
Capital shares redeemed................................... 6,047,654
To affiliates............................................. 1,641,709
Funds advanced by custodian................................ 101,786
Other liabilities.......................................... 1,216,608
--------------
Total liabilities..................................... 21,843,999
--------------
Net assets, at value........................................ $1,836,143,528
==============
Net assets consist of:
Undistributed net investment income........................ $ 1,276,581
Net unrealized appreciation................................ 379,284,161
Accumulated net realized gain.............................. 60,076,900
Capital shares............................................. 1,395,505,886
--------------
Net assets, at value........................................ $1,836,143,528
==============
CLASS I:
Net asset value per share ($1,777,515,530 / 204,923,567
shares outstanding)....................................... $8.67
==============
Maximum offering price per share ($8.67 / 94.25%).......... $9.20
==============
CLASS II:
Net asset value per share ($48,718,941 / 5,685,020 shares
outstanding)*............................................. $8.57
==============
Maximum offering price per share ($8.57 / 99.00%).......... $8.66
==============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($9,909,057 / 1,140,862 shares outstanding)............... $8.69
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
24
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $995,749)
Dividends.................................................. $ 13,771,666
Interest................................................... 5,811,265
Other...................................................... 495,351
------------
Total investment income............................... $ 20,078,282
Expenses:
Management fees (Note 3)................................... 6,833,407
Administrative fees (Note 3)............................... 968,477
Distribution fees (Note 3)
Class I.............................................. 2,049,421
Class II............................................. 229,606
Transfer agent fees (Note 3)............................... 912,171
Custodian fees............................................. 412,144
Reports to shareholders.................................... 212,147
Registration and filing fees............................... 50,000
Professional fees (Note 3)................................. 45,832
Directors' fees and expenses............................... 20,000
Other...................................................... 18,158
------------
Total expenses........................................ 11,751,363
-------------
Net investment income........................... 8,326,919
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 105,294,213
Foreign currency transactions............................. (145,063)
------------
Net realized gain...................................... 105,149,150
Net unrealized depreciation on investments............. (145,418,618)
-------------
Net realized and unrealized loss............................ (40,269,468)
-------------
Net decrease in net assets resulting from operations........ $ (31,942,549)
=============
</TABLE>
See Notes to Financial Statements.
25
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 8,326,919 $ 24,788,792
Net realized gain from investments and foreign currency
transactions............................................ 105,149,150 131,178,737
Net unrealized appreciation (depreciation) on
investments............................................. (145,418,618) 222,212,496
---------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (31,942,549) 378,180,025
Distributions to shareholders from:
Net investment income:
Class I.................................................. (24,875,940) (22,987,597)
Class II................................................. (396,589) (172,517)
Advisor Class............................................ (127,517) --
Net realized gains:
Class I.................................................. (118,716,649) (146,191,211)
Class II................................................. (3,094,713) (1,716,515)
Advisor Class............................................ (519,280) --
Capital share transactions (Note 2):
Class I.................................................. 70,494,989 134,713,084
Class II................................................. 10,112,393 23,892,832
Advisor Class............................................ 2,696,878 7,097,043
---------------------------------------
Net increase (decrease) in net assets................... (96,368,977) 372,815,144
Net assets:
Beginning of period........................................ 1,932,512,505 1,559,697,361
---------------------------------------
End of period.............................................. $1,836,143,528 $1,932,512,505
=======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 1,276,581 $ 18,349,708
=======================================
</TABLE>
See Notes to Financial Statements.
26
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Smaller Companies Fund, Inc. (the Fund), is registered under
the Investment Company Act of 1940 as a diversified, open-end investment
company. 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. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
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 and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as
27
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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. CAPITAL STOCK
The Fund offers three classes of shares: Class I, Class II, and Advisor Class
shares. The shares differ by their initial sales load, distribution fees, voting
rights on matters affecting a single class and the exchange privilege of each
class.
At February 28, 1998, there were 1.50 billion shares authorized ($0.20 par
value) of which 750 million, 550 million, and 200 million were designated as
Class I, Class II, and Advisor Class shares, respectively. Transactions in the
Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold............................................ 27,309,716 $ 235,121,295 25,217,003 $ 218,613,865
Shares issued on reinvestment of distributions......... 14,121,741 125,682,691 18,115,924 148,573,941
Shares redeemed........................................ (33,901,900) (290,308,997) (26,636,251) (232,474,722)
-----------------------------------------------------------------
Net increase........................................... 7,529,557 $ 70,494,989 16,696,676 $ 134,713,084
=================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold............................................ 1,792,578 $ 15,754,930 3,007,827 $ 26,358,916
Shares issued on reinvestment of distributions......... 339,537 2,985,478 214,255 1,742,190
Shares redeemed........................................ (1,020,683) (8,628,015) (476,380) (4,208,274)
-----------------------------------------------------------------
Net increase........................................... 1,111,432 $ 10,112,393 2,745,702 $ 23,892,832
=================================================================
</TABLE>
28
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997*
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold................................................. 1,032,322 $ 8,618,270 1,052,028 $ 9,160,119
Shares issued on reinvestment of distributions.............. 71,032 631,917 -- --
Shares redeemed............................................. (788,980) (6,553,309) (225,540) (2,063,076)
---------------------------------------------------------
Net increase................................................ 314,374 $ 2,696,878 826,488 $ 7,097,043
=========================================================
</TABLE>
*Effective date of Advisor Class shares was January 2, 1997.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter, and transfer
agent, respectively.
The Fund pays monthly an investment management fee to TICI of 0.75% per year of
the average daily net assets of the Fund. The Fund pays an administrative fee to
FT Services based on the Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Next $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25% and 1.00% per year of the average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Fund's shares. Under the Class I distribution plan, costs
exceeding the maximum may be reimbursed in subsequent periods. At February 28,
1998 there were no unreimbursed costs. Distributors received net commissions
from sales of Fund shares, and received contingent deferred sales charges for
the period of $455,385 and $13,906, respectively.
Included in professional fees are legal fees of $32,541 that were paid to a law
firm in which a partner is an officer of the Fund.
29
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1998 aggregated $232,035,326 and $283,127,760,
respectively.
5. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At February 28, 1998, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 509,156,801
Unrealized depreciation..................................... (129,872,640)
-------------
Net unrealized appreciation................................. $ 379,284,161
=============
</TABLE>
30
PAGE
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PAGE
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PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. 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.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
Fund Allocator Series
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
For Corporations
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
accounts.
**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.
10/97.1
PAGE
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current prospectus of
Templeton Global Smaller Companies Fund, Inc., which contains more complete
information including risk factors, 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.
103 S98 4/98 [RECYCLE LOGO] Printed on recycled paper
