SEMI ANNUAL REPORT
[PICTURE OF ABACUS]
FEBRUARY 28, 1999
TEMPLETON GLOBAL
SMALLER COMPANIES FUND, INC.
[FRANKLINTEMPLETON LOGO]
PAGE
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and 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.
[FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS LOGO]
[PICTURE OF PETER A. NORI, CFA]
PETER A. NORI, CFA
Portfolio Manager
Templeton Global Smaller
Companies Fund, Inc.
PAGE
CONTENTS
Shareholder Letter .............. 1
Performance Summary ............. 6
Financial Highlights &
Statement of Investments ........ 9
Financial Statements ............ 20
Notes to Financial
Statements ...................... 23
SHAREHOLDER LETTER
- -------------------------------------------------------------------------------
Your Fund's Goal: Templeton Global Smaller Companies Fund seeks to achieve
long-term capital growth. Under normal market conditions, the Fund invests
primarily in the equity securities of smaller companies located anywhere in the
world, including emerging markets.
- -------------------------------------------------------------------------------
Dear Shareholder:
This semiannual report of Templeton Global Smaller Companies Fund covers the six
months ended February 28, 1999. Although economic difficulties in Russia, Latin
America and Asia sparked severe corrections in many global stock markets at the
beginning of the reporting period, U.S. and European markets rebounded, reaching
record highs after the U.S. Federal Reserve lowered interest rates in September,
October and November, 1998. While small-cap shares generally recovered from
their October lows, the lion's share of market gains centered on "blue chip,"
liquid stocks whose earnings growth appealed to investors seeking a safe haven
from Latin American and Asian economic woes. Within this environment, Templeton
Global Smaller
FUND CATEGORY
GLOBAL
GROWTH
GROWTH & INCOME
INCOME
TAX-FREE INCOME
[FUND CATEGORY PYRAMID]
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 13 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/28/99
[THIS CHART SHOWS IN PIE FORMAT THE GEOGRAPHIC DISTRIBUTION BREAKDOWN OF
SECURITIES IN TEMPLETON GLOBAL SMALLER COMPANIES FUND ON FEBRUARY 28, 1999,
BASED ON TOTAL NET ASSETS.]
European Stocks 49.1%
Asian Stocks 10.8%
North American Stocks 24.6%
Latin American Stocks 5.05%
Middle-Eastern &
African Stocks 4.4%
Australian &
New Zealand Stocks 3.6%
Short-Term Investments &
Other Net Assets 2.5%
Companies Fund - Class A posted a six-month cumulative total return of - 1.66%,
as shown in the Performance Summary on page 7. The Fund's disappointing
performance was largely due to the weak performance of the small-cap sector as a
whole, and its exposure to Asian and Latin American equities, whose returns
generally lagged those of U.S. shares.
EUROPE
On February 28, 1999, the Fund's largest regional weighting was Europe (49.1% of
total net assets). During the reporting period, attempts by many European
governments to meet criteria for membership in the European Monetary Union
contributed to declining interest rates, relatively low inflation and increased
management focus on shareholder value in the region. We found particular value
in the U.K., where we purchased shares of Skyepharma PLC at a significant
discount to our assessment of its fair value. We believe this small drug
delivery company has the potential to develop a strong product network. Among
the Fund's existing U.K. holdings, Lucas Varity PLC ADR, an industrial
components company, agreed to a merger proposal from TRW Inc. at a 23% premium
to its average January share price.
ASIA
During the reporting period, equity markets in Hong Kong, South Korea and
Singapore recovered strongly from their October 1998 lows. Although the region's
economic outlook remained unsettled, we maintained or increased the Fund's
holdings of companies we considered fundamentally sound. For example, we added
to the Fund's positions in Varitronix International Ltd., the world leader in
high-end, liquid crystal displays.
2
PAGE
In our opinion, this Hong Kong company possesses excellent management, a strong
balance sheet, healthy cash flow and solid earnings prospects.
LATIN AMERICA
Latin American equity markets were especially hard hit during the reporting
period, as declining commodity prices, the threat of Brazil's currency
devaluation and Asia's financial crisis contributed to extreme volatility in
Latin American shares. Although this could present buying opportunities in the
future, we remained cautious in our approach to the region and made only limited
purchases there during the period.
UNITED STATES
The U.S. economy continued to expand rapidly during the period under review as
the nation enjoyed relatively low unemployment and benign inflation. This
contributed to substantial returns among large-cap and growth stocks, but most
small-cap shares generally achieved lesser gains. However, we found better
opportunities to purchase small-cap stocks at what we consider bargain prices
outside the U.S. Overall, shares in U.S. small-cap companies sold for 18 times
their 1999 earnings estimates (as of December 31, 1998), versus 12 times
earnings in Europe and less than 10 times earnings for smaller companies in Asia
(excluding Japan) and Latin America.(1)
OUR LONG-TERM STRATEGY
Looking forward, we are optimistic about prospects for the Fund. In the near
future, we expect to continue to focus on Europe, where many firms are planning
to cut costs, increase
(1.) Source: Salomon Smith Barney Inc., aggregated from IBES company-level data.
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
2/28/99
[THIS TABLE LISTS THE TOP 10 COUNTRIES REPRESENTED IN THE FUND* OF TEMPLETON
GLOBAL SMALLER COMPANIES FUND AS OF FEBRUARY 28, 1999, BASED ON TOTAL NET
ASSETS.]
% OF TOTAL
COUNTRY NET ASSETS
- ----------------------------------
United States 22.6%
United Kingdom 13.0%
Netherlands 8.6%
Hong Kong** 6.1%
Spain 6.0%
Switzerland 5.6%
Sweden 3.8%
Australia 2.5%
South Africa 2.5%
Norway 2.5%
* Does not include investments in U.S. government securities and short-term
investments and other net assets.
** Hong Kong reverted to the sovereignty of China on July 1, 1997.
3
PAGE
TOP 10 INDUSTRIES
2/28/99
[THIS TABLE LISTS THE TOP 10 INDUSTRIES REPRESENTED IN TEMPLETON GLOBAL SMALLER
COMPANIES FUND ON FEBRUARY 28, 1999.]
% OF TOTAL
INDUSTRY NET ASSETS
- ---------------------------------------------------
Merchandising 7.4%
Building Materials &
Components 6.7%
Industrial Components 6.6%
Food & Household Products 6.2%
Banking 6.0%
Metals & Mining 5.4%
Forest Products & Paper 4.8%
Broadcasting & Publishing 4.6%
Textiles & Apparel 4.2%
Machinery & Engineering 4.1%
productivity, reduce debt burdens, and repurchase shares. These firms seem to be
experiencing a transformation not unlike the transition many American companies
underwent in the early part of this decade. We remain cautious in our approach
to Asia, because the financial systems in countries such as Indonesia and
Thailand may take years to recover from the turmoil of 1997 and 1998. However,
fundamentally stronger systems such as Hong Kong's may offer us the opportunity
to purchase holdings in companies at a fraction of what we believe is their fair
value. And though a slump in commodity prices and Brazil's January devaluation
of the real may continue to afflict Latin American equity markets, we will
search for opportunities among undervalued companies that we believe may be less
affected by such problems.
We take very seriously the trust you have placed in us to invest your money. We,
therefore, go to great lengths in our efforts to assess each company's true
worth before we buy its shares for the Fund's portfolio. Our analysts reach
their determination of a company's value by evaluating a number of factors,
including its possible future earnings. By focusing on the long term, we are
often able to buy undervalued stocks when others may be selling because of
shorter-term considerations. We believe that this approach, while requiring
patience, has the potential to reward our investors over the long haul.
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.
4
PAGE
In addition, emerging markets are relatively small and less liquid. Investing in
any emerging market means accepting a certain amount of volatility and, in some
cases, severe market corrections. For example, Taiwan's equity market has
increased 951% in the last 15 years, but has suffered 6 declines of more than
20% during that time.(2) While the short-term price volatility of smaller
companies and emerging markets can be disconcerting, declines in excess of 50%
are not unusual in emerging markets. The special risks associated with these
types of investments, as well as other considerations, are discussed in the
Fund's prospectus.
This discussion reflects our views, opinions and portfolio holdings as of
February 28, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and the Fund's portfolio composition. Although past performance is
not predictive of future results, these insights may help you better understand
our investment and management philosophy.
We appreciate your support, welcome your comments and look forward to serving
you in the future.
Sincerely,
/s/ Peter A. Nori
Peter A. Nori, CFA
Portfolio Manager
Templeton Global Smaller Companies Fund, Inc.
2. Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market returns are measured in U.S. dollars and do not
include reinvested dividends.
TOP 10 HOLDINGS*
2/28/99
[THIS TABLE LISTS THE TOP 10 HOLDINGS*, INCLUDING INDUSTRY AND COUNTRY OF
ORIGIN, OF TEMPLETON GLOBAL SMALLER COMPANIES FUND AS OF FEBRUARY 28, 1999,
BASED ON TOTAL NET ASSETS.]
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------- ----------
Gas y Electricidad SA, Br.
Utilities Electrical & Gas, Spain 2.8%
US Foodservice
Food & Household Products,
United States 2.1%
Impala Platinum Holdings Ltd.
Metals & Mining, South Africa 2.1%
News Corp. Ltd., pfd.
Broadcasting & Publishing,
Australia 1.9%
Weir Group PLC
Industrial Components,
United Kingdom 1.7%
Li & Fung Ltd.
Merchandising, Hong Kong** 1.7%
Scholastic Corp.
Broadcasting & Publishing,
United States 1.5%
Banco de Andalucia SA
Banking, Spain 1.3%
VTech Holdings Ltd.
Electronic Components &
Instruments, Hong Kong** 1.2%
Shorewood Packaging Corp.
Forest Products & Paper,
United States 1.2%
* Does not include short-term investments and other net assets.
** Hong Kong reverted to the sovereignty of China on July 1, 1997.
5
PAGE
CLASS A (formerly Class I):
Subject to 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 implemented a
Rule 12b-1 plan, which affects subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class' operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION (9/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 8/31/98
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.40 $6.50 $6.90
DISTRIBUTIONS
---------------------------------------------
Dividend Income $0.1100
Long-Term Capital Gain $0.1750
TOTAL $0.2850
CLASS B CHANGE 2/28/99 1/1/99
- ----------------------------------------------------------------------------------
Net Asset Value -$0.53 $6.49 $7.02
CLASS C CHANGE 2/28/99 8/31/98
- ----------------------------------------------------------------------------------
Net Asset Value -$0.38 $6.40 $6.78
DISTRIBUTIONS
---------------------------------------------
Dividend Income $0.0670
Long-Term Capital Gain $0.1750
TOTAL $0.2420
ADVISOR CLASS CHANGE 2/28/99 8/31/98
- ----------------------------------------------------------------------------------
Net Asset Value -$0.40 $6.51 $6.91
DISTRIBUTIONS
---------------------------------------------
Dividend Income $0.1243
Long-Term Capital Gain $0.1750
TOTAL $0.2993
</TABLE>
Templeton Global Smaller Companies Fund paid distributions derived from
long-term capital gains of $0.1750 per share in October 1998. The Fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
Past performance is not predictive of future results.
6
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- ------- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) -1.66% -21.74% 16.31% 118.91% 660.02%
Average Annual
Total Return(2) -7.30% -26.25% 1.87% 7.52% 11.73%
Value of $10,000
Investment(3) $9,270 $7,375 $10,968 $20,642 $71,619
2/28/95 2/28/96 2/28/97 2/28/98 2/28/99
------- ------- ------- ------- -------
One-Year
Total Return(4) -8.44% 25.28% 18.88% 8.98% -21.74%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- ------- --------
<S> <C>
Cumulative Total Return(1) -7.55%
Aggregate Annual Total Return(2) -11.25%
Value of $10,000 Investment(3) $8,875
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (5/1/95)
- ------- ------- ------ ------ --------
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) -2.04% -22.50% -1.09% 15.60%
Average Annual
Total Return(2) -3.98% -24.05% -0.69% 3.58%
Value of $10,000
Investment(3) $9,602 $7,595 $9,793 $11,443
2/28/97 2/28/98 2/28/99
------- ------- -------
One-Year
Total Return(4) 18.02% 8.14% -22.50%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- ---------------- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) -1.44% -21.63% 17.01% 120.22% 664.55%
Average Annual
Total Return(2) -1.44% -21.63% 3.19% 8.21% 12.15%
Value of $10,000
Investment(3) $9,856 $7,837 $11,701 $22,022 $76,455
2/28/95 2/28/96 2/28/97 2/28/98 2/28/99
------- ------- ------- ------- -------
One-Year
Total Return(4) -8.44% 25.28% 18.88% 9.49% -21.63%
</TABLE>
Past performance is not predictive of future results.
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 current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized. Since Class B shares have existed for less than one year, the
figures for that class represent aggregate total return from inception;
therefore, average annual total returns are not provided.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
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 sales
charges.
5. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class. Since
January 2, 1997 (commencement of sales), the cumulative and average annual total
returns of Advisor Class shares were - 11.31% and - 5.42% respectively.
- -------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. 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.
- -------------------------------------------------------------------------------
7
PAGE
TEMPLETON GLOBAL
SMALLER COMPANIES FUND
CLASS A
If you had invested $10,000 in Templeton Global Smaller Companies Fund - Class A
at inception, it would have been worth more than $71,000 on February 28, 1999.
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 as shown through February 28, 1999.*
[THE FOLLOWING MOUNTAIN CHART ILLISTRATES TEH CUMULATIVE TOTAL RETURN OF A
$10,000 INVESTMENT IN THE FUND ON JUNE 1, 1981 (INCEPTION).]
[GRAPH APPEARS HERE]
$71,619
Total value of investment
2/28/99
<TABLE>
<CAPTION>
PRINCIPAL INCOME PRINCIPAL + CAP GAINS PRINCIPAL + TOTAL VALUE
DIVIDENDS CAP GAINS
<S> <C> <C> <C> <C> <C> <C>
06/01/81 $9,423 $0 $9,423 $0 $9,423 $9,423
12/31/81 $9,151 $201 $9,352 $4 $9,155 $9,356
12/31/82 $11,508 $706 $12,214 $506 $12,014 $12,720
12/31/83 $14,066 $1,266 $15,332 $2,342 $16,408 $17,674
12/31/84 $13,015 $1,588 $14,603 $3,143 $16,158 $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 $13,455 $3,450 $16,905 $7,457 $20,912 $24,362
12/31/88 $15,012 $4,681 $19,693 $11,688 $26,700 $31,381
12/31/89 $16,494 $6,039 $22,533 $14,451 $30,945 $36,984
12/31/90 $12,336 $5,325 $17,661 $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
12/31/94 $15,300 $9,825 $25,125 $31,636 $46,936 $56,761
12/31/95 $15,713 $11,015 $26,728 $40,052 $55,765 $66,780
12/31/96 $17,215 $13,202 $30,417 $51,112 $68,327 $81,529
12/31/97 $17,031 $14,197 $31,228 $56,061 $73,092 $87,289
12/31/98 $14,457 $13,307 $27,764 $49,585 $64,042 $77,349
2/28/99 $13,386 $12,321 $25,707 $45,912 $59,298 $71,619
</TABLE>
Total Value of Investment with Capital Gains and Dividends Reinvested
Value of Investment with Capital Gains Reinvested
Value of Investment with Dividends Reinvested
** Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current,
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 A shares implemented a Rule 12b-1 plan, which will affect subsequent
performance.
Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
The historical data shown above pertain only to Class A shares of the Fund. The
Fund offers other share classes, subject to different fees and expenses, which
will affect their performance. Please see the prospectus for more details.
Past performance is not predictive of future results.
8
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period................................ $6.90 $9.53 $8.55 $8.77 $8.24 $7.44
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income................ .03 .16 .13 .16 .11 .09
Net realized and unrealized gains
(losses)........................... (.15) (2.07) 1.77 .72 .62 .81
----------------------------------------------------------------------------------
Total from investment operations...... (.12) (1.91) 1.90 .88 .73 .90
----------------------------------------------------------------------------------
Less distributions from:
Net investment income................ (.11) (.13) (.13) (.12) (.11) (.07)
Net realized gains................... (.17) (.59) (.79) (.98) (.09) (.03)
----------------------------------------------------------------------------------
Total distributions................... (.28) (.72) (.92) (1.10) (.20) (.10)
----------------------------------------------------------------------------------
Net asset value, end of period........ $6.50 $6.90 $9.53 $8.55 $8.77 $8.24
==================================================================================
Total Return*......................... (1.66)% (21.64)% 24.20% 11.69% 9.20% 12.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..... $1,095,046 $1,275,313 $1,881,547 $1,544,214 $1,447,155 $1,409,494
Ratios to average net assets:
Expenses............................. 1.37%** 1.27% 1.30% 1.27% 1.36% 1.36%
Net investment income................ .92%** 1.69% 1.43% 1.93% 1.32% 1.17%
Portfolio turnover rate............... 7.13% 23.52% 25.60% 32.71% 18.79% 28.06%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
9
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
-----------------
PERIOD ENDED
FEBRUARY 28, 1999
(UNAUDITED)+
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $7.02
--------
Income from investment operations:
Net investment loss........................................ (.01)
Net realized and unrealized losses......................... (.52)
-----------------
Total from investment operations............................ (.53)
-----------------
Net asset value, end of period.............................. $6.49
=================
Total Return*............................................... (7.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $39
Ratios to average net assets:
Expenses................................................... 2.23%**
Net investment loss........................................ (.71)%**
Portfolio turnover rate..................................... 7.13%
</TABLE>
*Total return does not reflect the contingent deferred sales charge and is not
annualized.
**Annualized.
+For the period January 1, 1999 (effective date) to February 28, 1999. Based on
average weighted shares outstanding.
10
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 -----------------------------------------------
(UNAUDITED)++ 1998 1997 1996 1995+
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........... $6.78 $9.42 $8.47 $8.75 $7.87
-----------------------------------------------------------------------
Income from investment operations:
Net investment income......................... .01 .08 .07 .13 --
Net realized and unrealized gains (losses).... (.15) (2.05) 1.75 .67 .88
-----------------------------------------------------------------------
Total from investment operations............... (.14) (1.97) 1.82 .80 .88
-----------------------------------------------------------------------
Less distributions from:
Net investment income......................... (.07) (.08) (.08) (.10) --
Net realized gains............................ (.17) (.59) (.79) (.98) --
-----------------------------------------------------------------------
Total distributions............................ (.24) (.67) (.87) (1.08) --
-----------------------------------------------------------------------
Net asset value, end of period................. $6.40 $6.78 $9.42 $8.47 $8.75
=======================================================================
Total Return*.................................. (2.04)% (22.44)% 23.42% 10.74% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).............. $31,983 $38,287 $43,071 $15,483 $2,569
Ratios to average net assets:
Expenses...................................... 2.12%** 2.03% 2.05% 2.07% 2.11%**
Net investment income......................... .17%** .96% .75% 1.23% .16%**
Portfolio turnover rate........................ 7.13% 23.52% 25.60% 32.71% 18.79%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
++Based on average weighted shares outstanding.
11
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 -----------------------
(UNAUDITED) 1998 1997+
----------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $6.91 $9.55 $8.33
----------------------------------------------
Income from investment operations:
Net investment income...................................... .06 .16 .10
Net realized and unrealized gains (losses)................. (.16) (2.06) 1.12
----------------------------------------------
Total from investment operations............................ (.10) (1.90) 1.22
----------------------------------------------
Less distributions from:
Net investment income...................................... (.12) (.15) --
Net realized gains......................................... (.18) (.59) --
----------------------------------------------
Total distributions......................................... (.30) (.74) --
----------------------------------------------
Net asset value, end of period.............................. $6.51 $6.91 $9.55
==============================================
Total Return*............................................... (1.44)% (21.51)% 14.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $5,652 $7,185 $7,895
Ratios to average net assets:
Expenses................................................... 1.12%** 1.03% 1.05%**
Net investment income...................................... 1.19%** 1.97% 2.18%**
Portfolio turnover rate..................................... 7.13% 23.52% 25.60%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
12
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 91.8%
AEROSPACE & MILITARY TECHNOLOGY .8%
Celsius AB, B............................................... Sweden 450,000 $ 7,042,426
*Fairchild Corp., A......................................... United States 196,493 2,370,197
--------------
9,412,623
--------------
APPLIANCES & HOUSEHOLD DURABLES 1.4%
Fisher & Paykel Ltd......................................... New Zealand 2,267,709 8,319,556
Guangdong Kelon Electrical Holdings Ltd., H, 144A........... China 11,152,000 7,484,805
--------------
15,804,361
--------------
AUTOMOBILES .3%
Bilia AB, A................................................. Sweden 320,000 2,230,101
Weifu Fuel Injection Co. Ltd., B............................ China 4,745,850 1,035,202
--------------
3,265,303
--------------
BANKING 6.0%
Banco de Andalucia SA....................................... Spain 377,335 14,584,736
Bank Handlowy W Warszawie SA, GDR, 144A..................... Poland 722,000 6,822,900
BPI Socieda de Gestora de Participacoes Socias SA........... Portugal 301,230 10,455,999
Commercial International Bank Ltd., GDR, 144A............... Egypt 450,700 4,799,955
Fokus Bank AS............................................... Norway 202,032 1,939,548
Fokus Bank AS, 144A......................................... Norway 91,505 878,466
*Hambrecht & Quist Group Inc. .............................. United States 315,000 8,386,875
National Bank of Canada..................................... Canada 893,200 12,426,101
Singapore Finance Ltd., fgn. ............................... Singapore 1,428,000 1,210,732
Union Bank of Norway, Primary Capital Cert. ................ Norway 314,000 6,524,727
--------------
68,030,039
--------------
BROADCASTING & PUBLISHING 2.7%
Hollinger International Inc., A............................. United States 694,280 8,591,715
*Scholastic Corp. .......................................... United States 335,000 16,498,750
South China Morning Post Ltd. .............................. Hong Kong 12,150,000 5,214,256
--------------
30,304,721
--------------
BUILDING MATERIALS & COMPONENTS 6.7%
Anglian Group PLC........................................... United Kingdom 283,730 1,047,704
Cementos Diamante SA, ADR, 144A............................. Colombia 540,000 810,000
Cristaleria Espanola SA, Br. ............................... Spain 82,550 4,311,685
Det Danske Traelastkompagni AS.............................. Denmark 107,000 7,030,639
Gujarat Ambuja Cements Ltd. ................................ India 709,800 4,241,336
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 489,600 2,876,400
Hepworth PLC................................................ United Kingdom 1,680,600 4,132,711
Mirgor SA Comercial Industrial Financiera Inmobi, C, ADR.... Argentina 269,000 188,300
Mirgor SA Comercial Industrial Financiera Inmobi, C, ADR,
144A...................................................... Argentina 321,000 224,700
Okumura Corp. .............................................. Japan 2,180,000 8,433,375
Pioneer International Ltd. ................................. Australia 3,000,000 6,044,932
Plettac AG.................................................. Germany 75,500 4,177,178
</TABLE>
13
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUILDING MATERIALS & COMPONENTS (CONT.)
Sarna Kunststoff Holding AG................................. Switzerland 6,570 $ 8,387,909
Schuttersveld NV............................................ Netherlands 220,694 4,506,184
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 1,184,600 3,205,911
Suez Cement Co., GDR, 144A.................................. Egypt 470,000 8,307,250
Uralita SA.................................................. Spain 814,000 8,095,768
--------------
76,021,982
--------------
BUSINESS & PUBLIC SERVICES 2.8%
*Healthcare Services Group Inc. ............................ United States 547,650 4,997,306
*Koninklijke Ahrend NV...................................... Netherlands 312,000 5,548,493
Lex Service PLC............................................. United Kingdom 1,681,000 11,296,971
*Magellan Health Services Inc. ............................. United States 250,000 1,703,125
Scribona AB, A.............................................. Sweden 225,400 1,052,730
Scribona AB, B.............................................. Sweden 480,400 2,290,696
Sifo Group AB, A............................................ Sweden 225,400 1,446,815
Sifo Group AB, B............................................ Sweden 480,400 3,112,997
--------------
31,449,133
--------------
CHEMICALS 1.9%
Crompton & Knowles Corp. ................................... United States 163,383 3,022,586
Energia e Industrias Aragonesas Eia SA...................... Spain 1,641,000 9,493,463
Gurit Heberlein AG, Br. .................................... Switzerland 4,000 8,640,144
--------------
21,156,193
--------------
CONSTRUCTION & HOUSING 1.7%
Hollandsche Beton Groep NV.................................. Netherlands 850,920 8,126,685
*Schuler Homes Inc. ........................................ United States 1,005,000 8,102,813
Wai Kee Holdings Ltd. ...................................... Hong Kong 17,848,000 2,418,818
*Wai Kee Holdings Ltd., wts. ............................... Hong Kong 2,677,200 62,198
--------------
18,710,514
--------------
DATA PROCESSING & REPRODUCTION .6%
*Quantum Corp. ............................................. United States 410,000 6,739,375
--------------
ELECTRICAL & ELECTRONICS .8%
*G.P. Batteries International Ltd., wts. ................... Singapore 336,500 119,202
+Techtronic Industries Co. Ltd. ............................ Hong Kong 29,104,621 5,484,527
Varitronix International Ltd. .............................. Hong Kong 1,639,000 2,898,170
--------------
8,501,899
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS 3.8%
*Draka Holding NV........................................... Netherlands... 333,485 8,017,258
Swisslog Holding AG......................................... Switzerland 132,500 11,338,463
Twentsche Kabel Holdings NV................................. Netherlands 388,525 9,809,622
VTech Holdings Ltd. ........................................ Hong Kong 4,533,000 14,129,515
--------------
43,294,858
--------------
</TABLE>
14
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 1.0%
Devon Energy Corp. ......................................... United States 333,700 $ 7,821,094
*Ranger Oil Ltd. ........................................... Canada 1,309,000 3,681,563
--------------
11,502,657
--------------
FINANCIAL SERVICES 1.2%
A.G. Edwards Inc. .......................................... United States 125,850 4,097,991
Industrial Credit & Inv. Corp. of India, GDR, 144A.......... India 667,000 4,252,125
Om Gruppen AB............................................... Sweden 417,000 5,455,312
--------------
13,805,428
--------------
FOOD & HOUSEHOLD PRODUCTS 6.2%
Albert Fisher Group PLC..................................... United Kingdom 609,124 56,109
*Alicorp SA, 144A........................................... Peru 4,915,980 908,231
Devro PLC................................................... United Kingdom 2,370,000 6,891,080
Hazlewood Foods PLC......................................... United Kingdom 6,452,423 12,197,397
Illovo Sugar Ltd. .......................................... South Africa 5,150,000 4,738,499
Lindt & Spruengli Chocolate Works Ltd., partn. ctf. ........ Switzerland 4,380 11,289,673
McBride PLC................................................. United Kingdom 3,800,000 7,152,927
Panamerican Beverages Inc., A............................... Mexico 234,400 3,706,450
*US Foodservice............................................. United States 511,500 23,752,781
--------------
70,693,147
--------------
FOREST PRODUCTS & PAPER 4.8%
Boise Cascade Corp. ........................................ United States 122,615 3,808,728
Cartiere Burgo SpA.......................................... Italy 780,035 4,468,108
+Crown-Van Gelder Papierfabrieken NV........................ Netherlands 373,600 6,049,289
*Empaques Ponderosa SA de CV, B............................. Mexico 613,800 326,785
Hung Hing Printing Group Ltd. .............................. Hong Kong 17,271,508 6,297,572
Mayr-Melnhof Karton AG...................................... Austria 61,800 2,943,632
Metsa Serla OY, B........................................... Finland 1,185,460 8,211,485
Munksjo AB.................................................. Sweden 1,300,000 8,265,069
*Shorewood Packaging Corp. ................................. United States 743,700 13,526,044
--------------
53,896,712
--------------
HEALTH & PERSONAL CARE 3.9%
Apothekers Cooperatie OPG VA, partn. ctf. .................. Netherlands 180,000 3,418,409
*Haemonetics Corp. ......................................... United States 254,900 4,253,644
*Internatio-Muller NV....................................... Netherlands 628,092 12,272,943
Medeva PLC.................................................. United Kingdom 1,737,911 2,937,259
*Playtex Products Inc. ..................................... United States 547,800 7,737,675
*Quorum Health Group Inc. .................................. United States 557,000 5,152,250
</TABLE>
15
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE (CONT.)
*Skyepharma PLC............................................. United Kingdom 6,387,600 $ 8,697,991
*Swank International Manufacturing Co. Ltd. ................ Hong Kong 14,994,000 --
--------------
44,470,171
--------------
INDUSTRIAL COMPONENTS 6.6%
Gencorp Inc. ............................................... United States 641,000 12,860,063
Hoganas AB, B............................................... Sweden 357,000 5,412,398
Lucas Varity PLC, ADR....................................... United Kingdom 248,200 11,246,563
Madeco Manufacturera de Cobre SA, ADR....................... Chile 405,000 2,784,375
Otra NV..................................................... Netherlands 573,000 7,359,460
Sylea SA.................................................... France 234,821 11,599,918
Weir Group PLC.............................................. United Kingdom 4,523,412 19,203,233
Yamato Kogyo Co. Ltd. ...................................... Japan 894,000 4,392,769
--------------
74,858,779
--------------
INSURANCE 1.9%
Capital RE Corp. ........................................... United States 240,000 4,020,000
CMAC Investment Corp. ...................................... United States 260,000 10,741,250
Enhance Financial Services Group Inc. ...................... United States 290,000 6,869,375
--------------
21,630,625
--------------
LEISURE & TOURISM .9%
Kuoni Reisen Holding AG, B.................................. Switzerland 2,598 10,578,103
--------------
MACHINERY & ENGINEERING 4.1%
Arcadis NV.................................................. Netherlands 275,655 2,012,301
Bucher Holding AG, Br. ..................................... Switzerland 4,226 3,251,779
China International Marine Containers Inc., B............... China 2,201,037 721,582
Fives-Lille Cie De.......................................... France 103,133 7,585,390
IHC Caland NV............................................... Netherlands 256,600 8,281,508
Laird Group PLC............................................. United Kingdom 2,900,000 10,360,129
SIG Schweizerische Industrie-Gesellschaft Holding........... Switzerland 19,800 10,343,742
Valmet OY................................................... Finland 381,600 3,979,582
--------------
46,536,013
--------------
MERCHANDISING 7.1%
Best Denki Co. Ltd. ........................................ Japan 176,000 1,260,851
David Jones Ltd. ........................................... Australia 1,624,529 1,533,298
Giordano International Ltd. ................................ Hong Kong 25,248,674 6,126,618
*Gymboree Inc. ............................................. United States 906,000 9,513,000
House of Fraser PLC......................................... United Kingdom 6,360,000 8,252,860
Hudsons Bay Co. ............................................ Canada 596,900 5,773,263
Li & Fung Ltd. ............................................. Hong Kong 10,367,000 18,732,922
Matsuzakaya Co. Ltd. ....................................... Japan 1,830,000 8,405,815
Moebel Walther AG........................................... Germany 148,410 3,714,527
Sa des Galeries Lafayette................................... France 5,540 5,740,996
</TABLE>
16
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING (CONT.)
*Samas-Groep NV............................................. Netherlands 96,985 $ 1,192,417
Somerfield PLC.............................................. United Kingdom 1,701,700 10,209,328
--------------
80,455,895
--------------
METALS & MINING 5.4%
AK Steel Holding Corp. ..................................... United States 540,000 11,778,750
Birmingham Steel Corp. ..................................... United States 932,500 3,846,563
Boehler Uddeholm AG......................................... Austria 41,950 2,010,579
Boehler Uddeholm AG, 144A................................... Austria 8,120 389,175
Boehler Uddeholm AG, 144A, seasoned......................... Austria 71,200 3,412,473
Century Aluminum Co. ....................................... United States 614,000 3,377,000
Elkem ASA, A................................................ Norway 630,000 8,554,917
Eramet SA................................................... France 29,011 1,098,721
Impala Platinum Holdings Ltd. .............................. South Africa 1,322,000 23,729,847
Quanex Corp. ............................................... United States 150,000 2,625,000
Vallourec Usines A Tubes De Lorraine Escaut Et R............ France 16,185 462,479
--------------
61,285,504
--------------
MISC MATERIALS & COMMODITIES .7%
IMC Global Inc. ............................................ United States 160,000 3,190,000
Unitor ASA.................................................. Norway 470,000 4,155,877
--------------
7,345,877
--------------
MULTI-INDUSTRY 3.3%
Amer Group Ltd., A.......................................... Finland 397,000 5,883,418
DESC SA de CV DESC, B....................................... Mexico 3,473,500 3,307,768
Hogg Robinson PLC........................................... United Kingdom 2,900,000 10,801,480
La Cemento Nacional CA, GDR, 144A........................... Ecuador 27,575 2,481,750
*Nagron Nationaal Grondbezit NV............................. Netherlands 292,000 7,340,469
Wagon PLC................................................... United Kingdom 1,827,400 7,216,272
--------------
37,031,157
--------------
REAL ESTATE .8%
Inversiones y Representacion SA............................. Argentina 1,873,510 4,367,025
Inversiones y Representacion SA, GDR........................ Argentina 13,500 313,031
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 3,583,000 2,959,724
Tai Cheung Holdings Ltd. ................................... Hong Kong 3,630,000 801,175
--------------
8,440,955
--------------
TELECOMMUNICATIONS 2.1%
*Millicom International Cellular SA......................... Luxembourg 100,000 2,675,000
Tadiran Telecommunications Ltd. ............................ Israel 408,000 8,236,500
Telefonos de Mexico SA (Telmex), L.......................... Mexico 4,592,972 13,010,729
--------------
23,922,229
--------------
</TABLE>
17
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TEXTILES & APPAREL 3.1%
Fountain Set Holdings Ltd. ................................. Hong Kong 35,262,000 $ 3,413,443
*Fruit of the Loom Inc., A.................................. United States 862,250 10,939,797
Gamma Holding NV............................................ Netherlands 180,000 8,348,427
*Goodys Family Clothing Inc. ............................... United States 520,000 5,248,750
Inner Mongolia Erdos Cashmere Products Co. Ltd., B.......... China 6,200,000 682,000
Kellwood Co. ............................................... United States 271,600 6,942,775
--------------
35,575,192
--------------
TRANSPORTATION 3.3%
+*Anangel-American Shipholdings Ltd., ADR................... Greece 446,800 1,787,200
*Fritz Companies Inc. ...................................... United States 1,273,900 9,474,631
Great Eastern Shipping Co. Ltd., GDR........................ India 69,100 174,478
Great Eastern Shipping Co. Ltd., GDR, 144A.................. India 489,100 1,234,978
Helikopter Services Group ASA............................... Norway 591,700 2,615,992
*MS Carriers Inc. .......................................... United States 202,400 5,464,800
Sea Containers Ltd., A...................................... United Kingdom 461,000 10,084,375
Stolt Nielsen SA............................................ Norway 200,000 2,150,000
Stolt Nielsen SA, ADR....................................... Norway 100,000 1,168,750
Tranz Rail Holdings Ltd., ADR............................... New Zealand 499,480 3,496,360
--------------
37,651,564
--------------
UTILITIES ELECTRICAL & GAS 3.7%
Gas y Electricidad SA, Br. ................................. Spain 331,283 32,002,749
Guangdong Electric Power Development Co Ltd., B............. China 14,689,967 3,773,100
Public Service Co. of New Mexico............................ United States 411,000 6,319,125
--------------
42,094,974
--------------
WHOLESALE & INTERNATIONAL TRADE 2.2%
Bergen Brunswig Corp., A.................................... United States 525,000 12,829,688
Dahl International AB....................................... Sweden 245,000 3,489,730
Dahl International AB, 144A................................. Sweden 255,000 3,632,168
+Eurodis Electron PLC....................................... United Kingdom 5,250,000 5,508,875
--------------
25,460,461
--------------
TOTAL COMMON STOCKS (COST $990,432,931)..................... 1,039,926,444
--------------
PREFERRED STOCKS 5.7%
Ballast Nedam NV, ctf., cvt., pfd. ......................... Netherlands 188,040 5,325,684
Cia Brasileira de Petroleo Ipiranga, pfd. .................. Brazil 619,998,000 2,406,872
Companhia Riograndense de Telecom, A, pfd. ................. Brazil 8,249,900 1,885,112
Coteminas Cia Tecidos Norte de Minas, pfd. ................. Brazil 23,829,100 1,639,348
Fertilizantes Fosfatados SA, pfd. .......................... Brazil 2,500,000,000 5,282,555
Hugo Boss AG, pfd. ......................................... Germany 6,000 10,209,118
Moebel Walther AG, pfd. .................................... Germany 150,000 3,293,265
News Corp. Ltd., pfd. ...................................... Australia 3,247,074 21,251,434
Tele Sudeste Celular Participacoes SA, pfd. ................ Brazil 268,027,000 711,226
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 267,000 3,554,438
</TABLE>
18
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ...... Brazil 46,000 $ 2,969,875
Weg SA, pfd. ............................................... Brazil 17,249,300 6,102,945
--------------
TOTAL PREFERRED STOCKS (COST $85,958,385)................... 64,631,872
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$1,076,391,316)........................................... 1,104,558,316
--------------
PRINCIPAL
AMOUNT**
--------------
REPURCHASE AGREEMENT (COST $32,430,000) 2.9%
(a)Morgan Stanley Inc., 4.73%, 3/01/99 (Maturity Value
$32,442,783) Collateralized by U.S. Treasury Notes &
Bonds..................................................... United States $ 32,430,000 32,430,000
--------------
TOTAL INVESTMENTS (COST $1,108,821,316) 100.4%.............. 1,136,988,316
OTHER ASSETS, LESS LIABILITIES (.4%)........................ (4,268,449)
--------------
TOTAL NET ASSETS 100.0%..................................... $1,132,719,867
==============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
(a)At February 28, 1999, 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, 1999, were $18,829,891.
See Notes to Financial Statements.
19
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$1,076,391,316)........................................... $1,104,558,316
Repurchase agreement, at value and cost.................... 32,430,000
Cash....................................................... 880
Receivables:
Investment securities sold................................ 24,877
Capital shares sold....................................... 203,123
Dividends and interest.................................... 2,499,407
--------------
Total assets.......................................... 1,139,716,603
--------------
Liabilities:
Payables:
Investment securities purchased........................... 166,935
Capital shares redeemed................................... 5,270,804
To affiliates............................................. 1,193,448
Distributions to shareholders.............................. 535
Accrued expenses........................................... 365,014
--------------
Total liabilities..................................... 6,996,736
--------------
Net assets, at value........................................ $1,132,719,867
==============
Net assets consist of:
Undistributed net investment income........................ $ 5,590,093
Net unrealized appreciation................................ 28,167,000
Accumulated net realized loss.............................. (950,218)
Capital shares............................................. 1,099,912,992
--------------
Net assets, at value........................................ $1,132,719,867
==============
CLASS A:
Net asset value per share ($1,095,045,736 / 168,525,392
shares outstanding)...................................... $6.50
==============
Maximum offering price per share ($6.50 / 94.25%).......... $6.90
==============
CLASS B:
Net asset value per share ($38,919 / 5,999 shares
outstanding)*............................................ $6.49
==============
CLASS C:
Net asset value per share ($31,983,173 / 4,994,349 shares
outstanding)*............................................ $6.40
==============
Maximum offering price per share ($6.40 / 99.00%).......... $6.46
==============
ADVISOR CLASS:
Net asset value per share ($5,652,039 / 868,724 shares
outstanding)............................................. $6.51
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
20
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,222,851)
Dividends.................................................. $11,893,776
Interest................................................... 2,627,927
-----------
Total investment income............................... $ 14,521,703
Expenses:
Management fees (Note 3)................................... 4,757,502
Administrative fees (Note 3)............................... 760,887
Distribution fees (Note 3)
Class A................................................... 1,542,263
Class B................................................... 52
Class C................................................... 182,682
Transfer agent fees (Note 3)............................... 961,000
Custodian fees............................................. 205,000
Reports to shareholders.................................... 266,600
Registration and filing fees............................... 22,400
Professional fees.......................................... 63,700
Directors' fees and expenses............................... 36,000
Other...................................................... 18,990
-----------
Total expenses........................................ 8,817,076
------------
Net investment income........................... 5,704,627
------------
Realized and unrealized gains:
Net realized gain from:
Investments............................................... 82,605
Foreign currency transactions............................. 268,372
-----------
Net realized gain..................................... 350,977
Net unrealized depreciation on investments............ (19,375,167)
------------
Net realized and unrealized loss............................ (19,024,190)
------------
Net decrease in net assets resulting from operations........ $(13,319,563)
============
</TABLE>
See Notes to Financial Statements.
21
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 5,704,627 $ 29,975,603
Net realized gain from investments and foreign currency
transactions............................................ 350,977 74,535,534
Net unrealized depreciation on investments................ (19,375,167) (477,160,612)
---------------------------------------
Net decrease in net assets resulting from operations.... (13,319,563) (372,649,475)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (20,125,232) (24,864,205)
Class C.................................................. (383,976) (393,741)
Advisor Class............................................ (115,551) (137,241)
Net realized gains:
Class A.................................................. (32,019,990) (118,716,606)
Class C.................................................. (1,002,388) (3,094,067)
Advisor Class............................................ (162,690) (519,279)
Capital share transactions (Note 2):
Class A.................................................. (115,289,483) (103,255,384)
Class B.................................................. 41,250 --
Class C.................................................. (4,484,892) 10,093,710
Advisor Class............................................ (1,202,611) 1,808,776
---------------------------------------
Net decrease in net assets.............................. (188,065,126) (611,727,512)
Net assets:
Beginning of period........................................ 1,320,784,993 1,932,512,505
---------------------------------------
End of period.............................................. $1,132,719,867 $1,320,784,993
=======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 5,590,093 $ 20,510,225
=======================================
</TABLE>
See Notes to Financial Statements.
22
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 long-term capital growth. Under normal
conditions, the Fund will invest primarily in the equity securities of smaller
companies located anywhere in the world, including emerging markets. 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.
23
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:
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 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 four classes of shares; Class A, Class B, Class C, and Advisor
Class shares. Effective January 1, 1999, Class I and Class II shares were
renamed Class A and Class C, respectively, and a fourth class of shares, Class
B, was established. 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, 1999, there were 1.5 billion shares authorized ($0.20 par value)
of which 750 million, 100 million, 550 million, and 100 million were designated
as Class A shares, Class B shares, Class C shares, and Advisor Class shares,
respectively. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold............................................ 63,846,657 $ 432,611,835 65,137,298 $ 565,906,634
Shares issued on reinvestment of distributions......... 7,007,307 45,477,312 14,123,259 125,695,078
Shares redeemed........................................ (87,220,600) (593,378,630) (91,762,539) (794,857,096)
-----------------------------------------------------------------
Net decrease........................................... (16,366,636) $(115,289,483) (12,501,982) $(103,255,384)
=================================================================
</TABLE>
24
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28, 1999*
--------------------------
SHARES AMOUNT
--------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold................................................ 5,999 $ 41,250
--------------------------
Net increase............................................... 5,999 $ 41,250
==========================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold................................................ 886,697 $ 5,886,058 2,789,801 $ 24,386,698
Shares issued on reinvestment of distributions............. 187,067 1,199,097 339,452 2,984,726
Shares redeemed............................................ (1,724,903) (11,570,047) (2,057,353) (17,277,714)
-------------------------------------------------------------
Net increase (decrease).................................... (651,139) $ (4,484,892) 1,071,900 $ 10,093,710
=============================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold................................................ 487,775 $ 3,371,754 1,534,040 $ 13,060,800
Shares issued on reinvestment of distributions............. 41,938 272,183 71,033 631,927
Shares redeemed............................................ (700,525) (4,846,548) (1,392,025) (11,883,951)
-------------------------------------------------------------
Net increase (decrease).................................... (170,812) $ (1,202,611) 213,048 $ 1,808,776
=============================================================
</TABLE>
*Effective date of Class B shares was January 1, 1999.
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.
25
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
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% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25%, 1.00% and 1.00% per year of the
average daily net assets of Class A, Class B and Class C shares, respectively,
for costs incurred in marketing the Fund's Class A, Class B, and Class C shares.
Under the Class A distribution plan, costs exceeding the maximum may be
reimbursed in subsequent periods. At February 28, 1999 there were no
unreimbursed costs. Distributors received net commissions from sales of the
Fund's shares, and received contingent deferred sales charges for the year of
$31,904 and $5,533, respectively.
Legal fees of $35,665 were paid to a law firm in which a partner is an officer
of the Fund.
4. INCOME TAXES
The cost of securities for federal income tax purposes is the same as that shown
in the Statement of Investments. At February 28, 1999, the net unrealized
appreciation based on the cost of investments for income tax purposes was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 268,390,449
Unrealized depreciation..................................... (240,223,449)
-------------
Net unrealized appreciation................................. $ 28,167,000
=============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $83,922,133 and $248,384,302,
respectively.
26
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 Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending 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
Mutual Discovery 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
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard 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
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 Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund
Franklin Money 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**
California**
Colorado
Connecticut
Florida**
Georgia
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan+
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
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
plan 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. The Franklin Valuemark Funds are managed by
Franklin Advisers, Inc. and its Templeton and Franklin affiliates.
01/99
PAGE
[FRANKLIN TEMPLETON LOGO] Bulk Rate
Templeton Global Smaller Companies Fund, Inc. U.S. Postage
777 Mariners Island Blvd, P.O. Box 7777 PAID
San Mateo, CA 94403-7777 So. San Francisco, CA
Permit No. 655
SEMIANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current Templeton Global
Smaller Companies Fund, Inc. prospectus, 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 S99 04/99 [Recycling Logo] Printed on recycled paper
