[Picture of map and abacus]
TEMPLETON GLOBAL
SMALLER COMPANIES FUND, INC.
ANNUAL REPORT
AUGUST 31, 1999
[LOGO] FRANKLIN TEMPLETON
PAGE
[SEAL] FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS
[PHOTO OF PETER A. NORI, CFA APPEARS HERE]
PETER A. NORI, CFA
Portfolio Manager
Templeton Global Smaller
Companies Fund, Inc.
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.
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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 annual report covers the 12 months ended August 31, 1999, a difficult
period for Templeton Global Smaller Companies Fund. The fiscal year began with
the devaluation of the ruble, a pronounced decline in Latin American markets,
and the near-collapse of the U.S. hedge fund, Long Term Capital Management. Many
investors reacted by selling economically sensitive stocks, sending some sectors
to the lowest levels in many years. However, a series of interest rate cuts by
the U.S. Federal Reserve and European central banks contributed to a dramatic
resurgence in many equities, especially
CONTENTS
Shareholder Letter ........................ 1
Performance Summary ....................... 6
Financial Highlights &
Statement of Investments .................. 11
Financial Statements ...................... 21
Notes to Financial
Statements ................................ 24
Independent Auditors' Report .............. 28
Tax Designation ........................... 29
Change In Independent
Auditor ................................... 31
[PYRAMID GRAPHIC OF FUND CATEGORIES]
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 15 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/99
European Stocks 49.6%
North American Stocks 24.1%
Asian Stocks 17.1%
Latin American Stocks 6.7%
Mid-East & African Stocks 2.4%
New Zealand Stocks 1.0%
*Short-term investments and other assets represented -0.9% of total net assets.
stocks of large-cap, growth companies. Within this environment, Templeton Global
Smaller Companies Fund - Class A delivered a one-year cumulative total return of
11.96%, as shown in the Performance Summary on page 6. The Fund's benchmark, the
Morgan Stanley Capital International (MSCI) World Index(R), posted a total
return of 33.51%.(1)
The Fund's performance was negatively impacted by our relatively low exposure to
the United States, where equities posted strong gains over the reporting period,
and the fact that we were underweight in consumer growth companies and
overweight in basic materials and machinery stocks. Throughout the period, we
continued to search for stocks trading at what we believed to be a discount to
future earnings streams or asset values and initiated positions in a number of
disparate sectors, from computer hardware (Smart Modular Technologies Inc.) and
software (Complete Business Solutions Inc., Computer Horizons Corp.) to metals
(LTV Corp.) to energy (Fletcher Challenge Energy Ltd.) to food (Geest PLC).
Although these companies are in sectors that are currently unpopular with many
investors, we believe that global economies are generally recovering and that
economically-sensitive shares such as these have significant appreciation
potential.
(1) Source: Standard & Poor's Micropal(R). The MSCI World Index includes
approximately 1,450 companies representing the stock markets of 22 countries and
is designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is the index
representative of the Fund's portfolio.
2
PAGE
The most significant portfolio change during the reporting period was the
increase in our Asian and Latin American holdings. The increase in Asia was due
to strong performance in a number of stocks such as Li & Fung Ltd. and Giordano
International Ltd., as well as the addition of shares in Varitronix
International Ltd., a leading manufacturer of liquid crystal displays. The
increase in our Latin American exposure was due primarily to the strong
performance of our Mexican holdings and companies, such as Argentine real estate
developer Inversiones y Representacion SA and Brazilian telecom operator Tele
Sudeste Celular Participacoes SA.
Our exposure to Europe and North America remained relatively unchanged during
the period under review. Activity in these regions was primarily on the sell
side. For example, we sold Playtex Products Inc., a company that had performed
well and, in our opinion, appeared expensive from a long-term earnings view.
Looking forward, we believe the Fund could do well if global economies continue
to improve, and cyclical companies can command higher prices for their products.
But if the market continues to be led by large-cap, growth companies, the Fund's
performance may suffer. But whatever happens in the near term, value remains an
integral part of our stock picking process, and we will continue to search for
companies we consider to be trading at a discount to future expected earnings.
This time-
TOP 10 HOLDINGS
8/31/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -----------------------------------------------------------------
Li & Fung Ltd.
Merchandising, Hong Kong* 3.0%
Giordano International Ltd.
Merchandising,
Hong Kong* 2.1%
Weir Group PLC
Industrial Components,
United Kingdom 2.0%
US Foodservice
Food & Household
Products, U.S. 1.4%
Gujarat Ambuja Cements Ltd.
Building Materials
& Components, India 1.4%
Endesa SA, Br.
Utilities Electrical & Gas, Spain 1.3%
Fritz Companies Inc.
Transportation, U.S. 1.3%
Sylea SA
Industrial Components, France 1.3%
Laird Group PLC
Machinery & Engineering, U.K. 1.3%
Internatio-Muller NV
Health & Personal Care,
Netherlands 1.3%
* Hong Kong reverted to the sovereignty of China on July 1, 1997.
3
PAGE
tested strategy has been successful in the past, and we believe it could benefit
the Fund's shareholders over the long term.
Of course, there are special risks associated with foreign investments in
smaller companies, and these risks 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. Investing in any emerging market means accepting a
certain amount of volatility and, in some cases, the consequences of severe
market corrections. For example, Mexico's equity market has increased 3,760% in
the last 15 years, but has suffered eight declines of more than 15% during that
time.(2) The short-term price volatility of smaller companies and emerging
markets can be disconcerting, and declines in excess of 50% are not unusual in
emerging markets. These special risks and other considerations are discussed in
the Fund's prospectus.
(2) Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 1999. Market return is measured in U.S. dollar terms and
does not include reinvested dividends.
4
PAGE
This discussion reflects our views, opinions and portfolio holdings as of August
31, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
investment strategies and the Fund's portfolio composition. Although historical
performance is no guarantee 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. MORI
Peter A. Nori, CFA
Portfolio Manager
Templeton Global Smaller Companies Fund, Inc.
5
PAGE
PERFORMANCE SUMMARY AS OF 8/31/99
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's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
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.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 8/31/99 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.50 $7.40 $6.90
DISTRIBUTIONS (9/1/98 - 8/31/99)
------------------------------------------------
Dividend Income $0.1100
Long-term Capital Gain $0.1750
TOTAL $0.2850
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 8/31/99 1/1/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.34 $7.36 $7.02
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 8/31/99 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.49 $7.27 $6.78
<CAPTION>
DISTRIBUTIONS (9/1/98-8/31/99)
------------------------------------------------
Dividend Income $0.0670
Long-term Capital Gain $0.1750
TOTAL $0.2420
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 8/31/99 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.51 $7.42 $6.91
DISTRIBUTIONS (9/1/98-8/31/99)
------------------------------------------------
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 17.5 cents ($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 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 11.96% 32.90% 111.87% 765.25%
Average Annual Total Return(2) 5.53% 4.61% 7.16% 12.18%
Value of $10,000 Investment(3) $10,553 $12,526 $19,968 $81,553
</TABLE>
<TABLE>
<CAPTION>
8/31/95 8/31/96 8/31/97 8/31/98 8/31/99
- ---------------------------------------------------------------------------------
One-Year
<S> <C> <C> <C> <C> <C>
Total Return(4) 9.20% 11.69% 24.20% -21.64% 11.96%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- -------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) 4.84%
Aggregate Total Return(2) 0.84%
Value of $10,000 Investment(3) $10,084
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 11.28% 6.52% 31.15%
Average Annual Total Return(2) 9.15% 1.77% 6.23%
Value of $10,000 Investment(3) $10,915 $10,546 $12,985
</TABLE>
<TABLE>
<CAPTION>
8/31/96 8/31/97 8/31/98 8/31/99
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 10.74% 23.42% -22.44% 11.28%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 12.33% 33.84% 113.36% 771.40%
Average Annual Total Return(2) 12.33% 6.00% 7.87% 12.59%
Value of $10,000 Investment(3) $11,233 $13,384 $21,336 $87,140
</TABLE>
<TABLE>
<CAPTION>
8/31/95 8/31/96 8/31/97 8/31/98 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year
Total Return(4) 9.20% 11.69% 24.46% -21.51% 12.33%
</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 current, applicable,
maximum sales charge(s) for that class. 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 return is 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 1.09% and 0.41%, 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.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
7
PAGE
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the Fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, Fund expenses, account fees, and reinvested distributions.
CLASS A
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Class A shares to that of the Morgan Stanley Capital
International World Index and the Consumer Price Index, based on a $10,000
investment from 9/1/89 to 8/31/99.
Templeton MSCI World CPI
Global Smaller Index
Companies Fund
- Class A
- --------------------------------------------------------
09/01/1989 $9,420 $10,000 $10,000
09/30/1989 $9,347 $10,284 $10,032
10/31/1989 $8,926 $9,943 $10,081
11/30/1989 $8,959 $10,341 $10,104
12/31/1989 $9,053 $10,675 $10,119
01/31/1990 $8,488 $10,179 $10,224
02/28/1990 $8,748 $9,744 $10,272
03/31/1990 $8,963 $9,157 $10,328
04/30/1990 $8,748 $9,027 $10,345
05/31/1990 $9,392 $9,979 $10,369
06/30/1990 $9,381 $9,909 $10,425
07/31/1990 $9,245 $10,001 $10,464
08/31/1990 $8,149 $9,067 $10,560
09/30/1990 $7,381 $8,113 $10,649
10/31/1990 $7,216 $8,872 $10,713
11/30/1990 $7,412 $8,728 $10,737
12/31/1990 $7,635 $8,912 $10,737
01/31/1991 $8,183 $9,240 $10,801
02/28/1991 $9,037 $10,097 $10,817
03/31/1991 $9,483 $9,801 $10,833
04/30/1991 $9,598 $9,879 $10,849
05/31/1991 $9,980 $10,104 $10,880
06/30/1991 $9,687 $9,482 $10,914
07/31/1991 $10,133 $9,932 $10,929
08/31/1991 $10,324 $9,902 $10,961
09/30/1991 $10,299 $10,163 $11,010
10/31/1991 $10,295 $10,330 $11,026
11/30/1991 $10,049 $9,881 $11,057
12/31/1991 $10,652 $10,603 $11,066
01/31/1992 $11,091 $10,408 $11,082
02/29/1992 $11,374 $10,230 $11,122
03/31/1992 $11,020 $9,750 $11,178
04/30/1992 $11,176 $9,887 $11,194
05/31/1992 $11,516 $10,282 $11,210
06/30/1992 $11,261 $9,940 $11,250
07/31/1992 $11,133 $9,967 $11,275
08/31/1992 $10,907 $10,211 $11,306
09/30/1992 $10,737 $10,119 $11,338
10/31/1992 $10,693 $9,848 $11,378
11/30/1992 $10,763 $10,025 $11,394
12/31/1992 $11,045 $10,109 $11,387
01/31/1993 $11,513 $10,144 $11,443
02/28/1993 $11,746 $10,386 $11,483
03/31/1993 $12,250 $10,991 $11,524
04/30/1993 $12,412 $11,501 $11,555
05/31/1993 $12,646 $11,769 $11,571
06/30/1993 $12,484 $11,671 $11,587
07/31/1993 $12,574 $11,914 $11,587
08/31/1993 $13,383 $12,462 $11,619
09/30/1993 $13,437 $12,234 $11,643
10/31/1993 $13,907 $12,573 $11,692
11/30/1993 $13,816 $11,864 $11,700
12/31/1993 $14,562 $12,446 $11,699
01/31/1994 $15,346 $13,270 $11,732
02/28/1994 $15,073 $13,100 $11,773
03/31/1994 $14,544 $12,537 $11,813
04/30/1994 $14,672 $12,927 $11,829
05/31/1994 $14,617 $12,962 $11,836
06/30/1994 $14,016 $12,929 $11,876
07/31/1994 $14,471 $13,177 $11,908
08/31/1994 $15,018 $13,576 $11,957
09/30/1994 $14,872 $13,222 $11,988
10/31/1994 $14,719 $13,600 $11,997
11/30/1994 $14,057 $13,013 $12,013
12/31/1994 $13,894 $13,141 $12,013
01/31/1995 $13,520 $12,946 $12,060
02/28/1995 $13,801 $13,138 $12,108
03/31/1995 $14,100 $13,773 $12,149
04/30/1995 $14,717 $14,256 $12,189
05/31/1995 $15,166 $14,381 $12,213
06/30/1995 $15,577 $14,379 $12,237
07/31/1995 $16,344 $15,102 $12,237
08/31/1995 $16,400 $14,768 $12,270
09/30/1995 $16,606 $15,201 $12,293
10/31/1995 $16,037 $14,964 $12,333
11/30/1995 $16,158 $15,487 $12,324
12/31/1995 $16,347 $15,943 $12,316
01/31/1996 $16,797 $16,233 $12,389
02/29/1996 $17,289 $16,335 $12,429
03/31/1996 $17,546 $16,610 $12,493
04/30/1996 $17,975 $17,003 $12,541
05/31/1996 $18,318 $17,021 $12,565
06/30/1996 $18,446 $17,111 $12,573
07/31/1996 $17,696 $16,509 $12,597
08/31/1996 $18,318 $16,702 $12,621
09/30/1996 $18,618 $17,359 $12,661
10/31/1996 $18,885 $17,483 $12,701
11/30/1996 $19,415 $18,466 $12,725
12/31/1996 $19,957 $18,174 $12,725
01/31/1997 $20,315 $18,395 $12,765
02/28/1997 $20,554 $18,610 $12,803
03/31/1997 $20,435 $18,246 $12,835
04/30/1997 $20,411 $18,845 $12,851
05/31/1997 $21,366 $20,012 $12,843
06/30/1997 $22,225 $21,013 $12,858
07/31/1997 $22,822 $21,984 $12,874
08/31/1997 $22,750 $20,517 $12,898
09/30/1997 $23,681 $21,634 $12,931
10/31/1997 $21,904 $20,499 $12,963
11/30/1997 $21,401 $20,865 $12,955
12/31/1997 $21,367 $21,122 $12,940
01/31/1998 $20,669 $21,715 $12,963
02/28/1998 $22,401 $23,187 $12,989
03/31/1998 $23,486 $24,170 $13,015
04/30/1998 $23,667 $24,409 $13,038
05/31/1998 $23,150 $24,107 $13,062
06/30/1998 $22,142 $24,683 $13,077
07/31/1998 $21,341 $24,646 $13,093
08/31/1998 $17,827 $21,363 $13,109
09/30/1998 $17,647 $21,745 $13,124
10/31/1998 $18,044 $23,715 $13,156
11/30/1998 $18,745 $25,129 $13,156
12/31/1998 $18,934 $26,360 $13,148
01/31/1999 $18,152 $26,941 $13,180
02/28/1999 $17,531 $26,228 $13,193
03/31/1999 $18,017 $27,324 $13,233
04/30/1999 $19,716 $28,405 $13,330
05/31/1999 $19,446 $27,371 $13,330
06/30/1999 $19,986 $28,651 $13,330
07/31/1999 $20,175 $28,569 $13,370
08/31/1999 $19,959 $28,523 $13,402
AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS A
- --------------------------------
1-Year 5.53%
5-Year 4.61%
10-Year 7.16%
Since Inception (6/1/81) 12.18%
CLASS C
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/99)
The following line graph compares the performance of Templeton Global Smaller
Companies Funds Class C shares to that of the Morgan Stanley Capital
International World Index, based on a $10,000 investment from 5/1/95 to 8/31/99.
Templeton MSCI World CPI
Global Smaller Index
Companies Fund
- Class C
- ---------------------------------------------------------
05/01/1995 $9,899 $10,000 $10,000
05/31/1995 $10,202 $10,088 $10,020
06/30/1995 $10,479 $10,086 $10,040
07/31/1995 $10,982 $10,593 $10,040
08/31/1995 $11,020 $10,359 $10,067
09/30/1995 $11,146 $10,663 $10,086
10/31/1995 $10,747 $10,497 $10,119
11/30/1995 $10,829 $10,863 $10,112
12/31/1995 $10,936 $11,183 $10,105
01/31/1996 $11,238 $11,387 $10,164
02/29/1996 $11,570 $11,458 $10,197
03/31/1996 $11,728 $11,651 $10,250
04/30/1996 $12,002 $11,927 $10,289
05/31/1996 $12,232 $11,940 $10,309
06/30/1996 $12,319 $12,002 $10,316
07/31/1996 $11,800 $11,581 $10,335
08/31/1996 $12,203 $11,716 $10,355
09/30/1996 $12,405 $12,177 $10,388
10/31/1996 $12,565 $12,264 $10,421
11/30/1996 $12,920 $12,953 $10,441
12/31/1996 $13,271 $12,748 $10,441
01/31/1997 $13,510 $12,904 $10,473
02/28/1997 $13,654 $13,054 $10,505
03/31/1997 $13,558 $12,799 $10,531
04/30/1997 $13,542 $13,219 $10,544
05/31/1997 $14,166 $14,038 $10,537
06/30/1997 $14,726 $14,739 $10,550
07/31/1997 $15,109 $15,421 $10,563
08/31/1997 $15,061 $14,392 $10,583
09/30/1997 $15,669 $15,175 $10,609
10/31/1997 $14,471 $14,379 $10,636
11/30/1997 $14,135 $14,636 $10,629
12/31/1997 $14,111 $14,816 $10,617
01/31/1998 $13,629 $15,232 $10,636
02/28/1998 $14,766 $16,265 $10,657
03/31/1998 $15,455 $16,954 $10,678
04/30/1998 $15,558 $17,122 $10,697
05/31/1998 $15,197 $16,910 $10,717
06/30/1998 $14,525 $17,314 $10,730
07/31/1998 $13,990 $17,288 $10,742
08/31/1998 $11,682 $14,985 $10,755
09/30/1998 $11,561 $15,253 $10,768
10/31/1998 $11,819 $16,635 $10,794
11/30/1998 $12,284 $17,627 $10,794
12/31/1998 $12,391 $18,491 $10,788
01/31/1999 $11,872 $18,898 $10,814
02/28/1999 $11,443 $18,398 $10,825
03/31/1999 $11,765 $19,167 $10,858
04/30/1999 $12,874 $19,925 $10,937
05/31/1999 $12,695 $19,199 $10,937
06/30/1999 $13,017 $20,098 $10,937
07/31/1999 $13,142 $20,040 $10,969
08/31/1999 $12,999 $20,007 $10,996
AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS C
- --------------------------------
1-Year 9.15%
3-Year 1.77%
Since Inception (5/1/95) 6.23%
Past performance is not predictive of future results.
8
PAGE
ADVISOR CLASS***
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Advisor Class shares to that of the Morgan Stanley Capital
International World Index, based on a $10,000 investment from 9/1/89 to 8/31/99.
Templeton MSCI World CPI
Global Smaller Index
Companies Fund
- Advisor Class
- ---------------------------------------------------------
09/01/1989 $10,000 $10,000 $10,000
09/30/1989 $9,922 $10,284 $10,032
10/31/1989 $9,476 $9,943 $10,081
11/30/1989 $9,510 $10,341 $10,104
12/31/1989 $9,610 $10,675 $10,119
01/31/1990 $9,010 $10,179 $10,224
02/28/1990 $9,286 $9,744 $10,272
03/31/1990 $9,514 $9,157 $10,328
04/30/1990 $9,286 $9,027 $10,345
05/31/1990 $9,970 $9,979 $10,369
06/30/1990 $9,958 $9,909 $10,425
07/31/1990 $9,814 $10,001 $10,464
08/31/1990 $8,650 $9,067 $10,560
09/30/1990 $7,835 $8,113 $10,649
10/31/1990 $7,660 $8,872 $10,713
11/30/1990 $7,869 $8,728 $10,737
12/31/1990 $8,105 $8,912 $10,737
01/31/1991 $8,686 $9,240 $10,801
02/28/1991 $9,593 $10,097 $10,817
03/31/1991 $10,066 $9,801 $10,833
04/30/1991 $10,188 $9,879 $10,849
05/31/1991 $10,594 $10,104 $10,880
06/30/1991 $10,283 $9,482 $10,914
07/31/1991 $10,756 $9,932 $10,929
08/31/1991 $10,959 $9,902 $10,961
09/30/1991 $10,932 $10,163 $11,010
10/31/1991 $10,929 $10,330 $11,026
11/30/1991 $10,667 $9,881 $11,057
12/31/1991 $11,307 $10,603 $11,066
01/31/1992 $11,773 $10,408 $11,082
02/29/1992 $12,074 $10,230 $11,122
03/31/1992 $11,698 $9,750 $11,178
04/30/1992 $11,863 $9,887 $11,194
05/31/1992 $12,224 $10,282 $11,210
06/30/1992 $11,954 $9,940 $11,250
07/31/1992 $11,818 $9,967 $11,275
08/31/1992 $11,578 $10,211 $11,306
09/30/1992 $11,397 $10,119 $11,338
10/31/1992 $11,351 $9,848 $11,378
11/30/1992 $11,425 $10,025 $11,394
12/31/1992 $11,724 $10,109 $11,387
01/31/1993 $12,221 $10,144 $11,443
02/28/1993 $12,469 $10,386 $11,483
03/31/1993 $13,004 $10,991 $11,524
04/30/1993 $13,176 $11,501 $11,555
05/31/1993 $13,424 $11,769 $11,571
06/30/1993 $13,252 $11,671 $11,587
07/31/1993 $13,347 $11,914 $11,587
08/31/1993 $14,207 $12,462 $11,619
09/30/1993 $14,264 $12,234 $11,643
10/31/1993 $14,762 $12,573 $11,692
11/30/1993 $14,666 $11,864 $11,700
12/31/1993 $15,458 $12,446 $11,699
01/31/1994 $16,290 $13,270 $11,732
02/28/1994 $16,000 $13,100 $11,773
03/31/1994 $15,439 $12,537 $11,813
04/30/1994 $15,574 $12,927 $11,829
05/31/1994 $15,516 $12,962 $11,836
06/30/1994 $14,878 $12,929 $11,876
07/31/1994 $15,362 $13,177 $11,908
08/31/1994 $15,942 $13,576 $11,957
09/30/1994 $15,787 $13,222 $11,988
10/31/1994 $15,625 $13,600 $11,997
11/30/1994 $14,922 $13,013 $12,013
12/31/1994 $14,749 $13,141 $12,013
01/31/1995 $14,352 $12,946 $12,060
02/28/1995 $14,650 $13,138 $12,108
03/31/1995 $14,968 $13,773 $12,149
04/30/1995 $15,623 $14,256 $12,189
05/31/1995 $16,099 $14,381 $12,213
06/30/1995 $16,536 $14,379 $12,237
07/31/1995 $17,350 $15,102 $12,237
08/31/1995 $17,409 $14,768 $12,270
09/30/1995 $17,628 $15,201 $12,293
10/31/1995 $17,023 $14,964 $12,333
11/30/1995 $17,153 $15,487 $12,324
12/31/1995 $17,352 $15,943 $12,316
01/31/1996 $17,830 $16,233 $12,389
02/29/1996 $18,353 $16,335 $12,429
03/31/1996 $18,626 $16,610 $12,493
04/30/1996 $19,081 $17,003 $12,541
05/31/1996 $19,445 $17,021 $12,565
06/30/1996 $19,581 $17,111 $12,573
07/31/1996 $18,785 $16,509 $12,597
08/31/1996 $19,445 $16,702 $12,621
09/30/1996 $19,763 $17,359 $12,661
10/31/1996 $20,047 $17,483 $12,701
11/30/1996 $20,609 $18,466 $12,725
12/31/1996 $21,185 $18,174 $12,725
01/31/1997 $21,591 $18,395 $12,765
02/28/1997 $21,819 $18,610 $12,803
03/31/1997 $21,717 $18,246 $12,835
04/30/1997 $21,692 $18,845 $12,851
05/31/1997 $22,731 $20,012 $12,843
06/30/1997 $23,618 $21,013 $12,858
07/31/1997 $24,277 $21,984 $12,874
08/31/1997 $24,201 $20,517 $12,898
09/30/1997 $25,214 $21,634 $12,931
10/31/1997 $23,339 $20,499 $12,963
11/30/1997 $22,804 $20,865 $12,955
12/31/1997 $22,761 $21,122 $12,940
01/31/1998 $22,019 $21,715 $12,963
02/28/1998 $23,888 $23,187 $12,989
03/31/1998 $25,015 $24,170 $13,015
04/30/1998 $25,235 $24,409 $13,038
05/31/1998 $24,686 $24,107 $13,062
06/30/1998 $23,614 $24,683 $13,077
07/31/1998 $22,734 $24,646 $13,093
08/31/1998 $18,995 $21,363 $13,109
09/30/1998 $18,830 $21,745 $13,124
10/31/1998 $19,267 $23,715 $13,156
11/30/1998 $20,015 $25,129 $13,156
12/31/1998 $20,216 $26,360 $13,148
01/31/1999 $19,382 $26,941 $13,180
02/28/1999 $18,721 $26,228 $13,193
03/31/1999 $19,239 $27,324 $13,233
04/30/1999 $21,050 $28,405 $13,330
05/31/1999 $20,792 $27,371 $13,330
06/30/1999 $21,367 $28,651 $13,330
07/31/1999 $21,568 $28,569 $13,370
08/31/1999 $21,415 $28,523 $13,402
AVERAGE ANNUAL TOTAL RETURN
8/31/99
ADVISOR CLASS***
- --------------------------------
1-Year 12.33%
5-Year 6.00%
10-Year 7.87%
Since Inception (6/1/81) 12.59%
*Source: Standard and Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1,450 securities in 22 countries and is
designed to measure world stock market performance. It includes reinvested
dividends.
**Source: Consumer Price Index, U.S. Bureau of Labor Statistics (8/31/99). The
Consumer Price Index is a commonly used measure of inflation.
***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 Advisor Class
shares.
One cannot invest directly in an index, nor is an index representative
of the Fund's portfolio.
Past performance is not predictive of future results.
9
PAGE
TEMPLETON GLOBAL SMALLER
COMPANIES FUND, INC.
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 $81,000 on August 31, 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 August 31, 1999.*
This chart shows in a logarithmic format the growth of a $10,000 investment in
Templeton Global Smaller Companies Fund's Class A shares from 6/1/81 to 8/31/99.
Templeton Global Smaller Companies Fund -
CLASS A
<TABLE>
<CAPTION>
Principal + Principal + Cap Total Value Principal Income Cap Gains
Dividends Gains
<S> <C> <C> <C> <C> <C> <C>
6/ 1/81 $9,423 $9,423 $9,423 $9,423 $0 $0
12/31/1981 $9,352 $9,155 $9,356 $9,151 $201 $4
12/31/1982 $12,214 $12,014 $12,720 $11,508 $706 $506
12/30/1983 $15,332 $16,408 $17,674 $14,066 $1,266 $2,342
12/31/1984 $14,603 $16,158 $17,746 $13,015 $1,588 $3,143
12/31/1985 $17,722 $20,781 $23,186 $15,317 $2,405 $5,464
12/31/1986 $20,149 $24,221 $27,562 $16,808 $3,341 $7,413
12/31/1987 $16,905 $20,912 $24,362 $13,455 $3,450 $7,457
12/30/1988 $19,693 $26,700 $31,381 $15,012 $4,681 $11,688
12/29/1989 $22,533 $30,945 $36,984 $16,494 $6,039 $14,451
12/31/1990 $17,661 $25,865 $31,190 $12,336 $5,325 $13,529
12/31/1991 $22,989 $36,012 $43,515 $15,486 $7,503 $20,526
12/31/1992 $19,720 $38,044 $45,120 $12,644 $7,076 $25,400
12/31/1993 $26,204 $49,740 $59,490 $16,454 $9,750 $33,286
12/30/1994 $25,125 $46,936 $56,761 $15,300 $9,825 $31,636
12/29/1995 $26,728 $55,765 $66,780 $15,713 $11,015 $40,052
12/31/1996 $30,417 $68,327 $81,529 $17,215 $13,202 $51,112
12/31/1997 $31,228 $73,092 $87,289 $17,031 $14,197 $56,061
12/31/1998 $27,764 $64,042 $77,349 $14,457 $13,307 $49,585
08/31/1999 $29,266 $67,509 $81,536 $15,239 $14,027 $52,270
</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 plan of distribution under Rule 12b-1, 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.
10
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1999+ 1998 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
year)
Net asset value, beginning of year.......... $6.90 $9.53 $8.55 $8.77 $8.24
--------------------------------------------------------------------------
Income from investment operations:
Net investment income...................... .13 .16 .13 .16 .11
Net realized and unrealized gains
(losses)................................. .66 (2.07) 1.77 .72 .62
--------------------------------------------------------------------------
Total from investment operations............ .79 (1.91) 1.90 .88 .73
--------------------------------------------------------------------------
Less distributions from:
Net investment income...................... (.11) (.13) (.13) (.12) (.11)
Net realized gains......................... (.18) (.59) (.79) (.98) (.09)
--------------------------------------------------------------------------
Total distributions......................... (.29) (.72) (.92) (1.10) (.20)
--------------------------------------------------------------------------
Net asset value, end of year................ $7.40 $6.90 $9.53 $8.55 $8.77
==========================================================================
Total Return*............................... 11.96% (21.64)% 24.20% 11.69% 9.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............. $1,059,988 $1,275,313 $1,881,547 $1,544,214 $1,447,155
Ratios to average net assets:
Expenses................................... 1.39% 1.27% 1.30% 1.27% 1.36%
Net investment income...................... 1.90% 1.69% 1.43% 1.93% 1.32%
Portfolio turnover rate..................... 14.04% 23.52% 25.60% 32.71% 18.79%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding.
11
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
----------------
PERIOD ENDED
AUGUST 31, 1999+
----------------
<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 income...................................... .07
Net realized and unrealized gains.......................... .27
----------------
Total from investment operations............................ .34
----------------
Net asset value, end of period.............................. $7.36
================
Total Return*............................................... 4.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $220
Ratios to average net assets:
Expenses................................................... 2.21%**
Net investment income...................................... 1.38%**
Portfolio turnover rate..................................... 14.04%
</TABLE>
*Total return does not reflect the contingent deferred sales charge and is not
annualized.
**Annualized.
+Effective date of Class B shares was January 1, 1999. Based on average weighted
shares outstanding.
12
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1999++ 1998 1997 1996 1995+
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................... $6.78 $9.42 $8.47 $8.75 $7.87
--------------------------------------------------------------
Income from investment operations:
Net investment income................................ .08 .08 .07 .13 --
Net realized and unrealized gains (losses)........... .65 (2.05) 1.75 .67 .88
--------------------------------------------------------------
Total from investment operations...................... .73 (1.97) 1.82 .80 .88
--------------------------------------------------------------
Less distributions from:
Net investment income................................ (.06) (.08) (.08) (.10) --
Net realized gains................................... (.18) (.59) (.79) (.98) --
--------------------------------------------------------------
Total distributions................................... (.24) (.67) (.87) (1.08) --
--------------------------------------------------------------
Net asset value, end of year.......................... $7.27 $6.78 $9.42 $8.47 $8.75
==============================================================
Total Return*......................................... 11.28% (22.44)% 23.42% 10.74% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $29,523 $38,287 $43,071 $15,483 $2,569
Ratios to average net assets:
Expenses............................................. 2.13% 2.03% 2.05% 2.07% 2.11%**
Net investment income................................ 1.11% .96% 75% 1.23% .16%**
Portfolio turnover rate............................... 14.04% 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.
13
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
--------------------------------
YEAR ENDED AUGUST 31,
--------------------------------
1999++ 1998 1997+
-------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $6.91 $9.55 $8.33
--------------------------------
Income from investment operations:
Net investment income...................................... .16 .16 .10
Net realized and unrealized gains (losses)................. .65 (2.06) 1.12
--------------------------------
Total from investment operations............................ .81 (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 year................................ $7.42 $6.91 $9.55
================================
Total Return*............................................... 12.33% (21.51)% 14.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $6,236 $7,185 $7,895
Ratios to average net assets:
Expenses................................................... 1.14% 1.03% 1.05%**
Net investment income...................................... 2.26% 1.97% 2.18%**
Portfolio turnover rate..................................... 14.04% 23.52% 25.60%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
14
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 96.8%
AEROSPACE & MILITARY TECHNOLOGY .5%
Celsius AB, B............................................... Sweden 450,000 $ 5,230,657
--------------
APPLIANCES & HOUSEHOLD DURABLES 1.0%
Guangdong Kelon Electrical Holdings Ltd., H, 144A........... China 11,152,000 11,417,474
--------------
AUTOMOBILES .5%
Bilia AB, A................................................. Sweden 320,000 2,692,820
Weifu Fuel Injection Co. Ltd., B............................ China 4,745,850 2,298,010
--------------
4,990,830
--------------
BANKING 4.7%
Banco de Andalucia SA....................................... Spain 377,335 13,949,538
Bank Handlowy W Warszawie SA, GDR, 144A..................... Poland 722,000 10,649,500
BPI Sociedad de Gestora de Participacoes Socias SA.......... Portugal 301,230 6,048,463
Commercial International Bank Ltd., GDR, 144A............... Egypt 350,700 2,928,345
National Bank of Canada..................................... Canada 893,200 10,834,285
Union Bank of Norway, Primary Capital Cert.................. Norway 314,000 6,622,109
--------------
51,032,240
--------------
BROADCASTING & PUBLISHING 3.0%
Hollinger International Inc., A............................. United States 694,280 7,463,510
*MIH Ltd., A................................................ British Virgin Islands 325,000 8,775,000
*Scholastic Corp. .......................................... United States 231,000 9,153,375
South China Morning Post Ltd. .............................. Hong Kong 12,150,000 7,706,065
--------------
33,097,950
--------------
BUILDING MATERIALS & COMPONENTS 7.0%
Anglian Group PLC........................................... United Kingdom 226,984 1,155,158
Cementos Diamante SA, ADR, 144A............................. Colombia 540,000 573,750
Cristaleria Espanola SA, Br. ............................... Spain 82,550 4,176,546
Det Danske Traelastkompagni AS.............................. Denmark 107,000 8,938,074
Gujarat Ambuja Cements Ltd. ................................ India 709,800 8,670,933
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 489,600 6,266,880
Hepworth PLC................................................ United Kingdom 1,680,600 6,161,290
Okumura Corp................................................ Japan 2,180,000 8,251,174
Plettac AG.................................................. Germany 75,500 4,481,753
Sarna Kunststoff Holding AG................................. Switzerland 6,570 6,743,020
Schuttersveld NV............................................ Netherlands 220,694 3,589,847
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 1,184,600 4,385,692
Suez Cement Co., GDR, 144A.................................. Egypt 470,000 6,544,750
Uralita SA.................................................. Spain 814,000 7,170,594
--------------
77,109,461
--------------
BUSINESS & PUBLIC SERVICES 3.5%
*Complete Business Solutions Inc. .......................... United States 532,000 8,212,750
*Healthcare Services Group Inc. ............................ United States 547,650 4,655,025
Koninklijke Ahrend NV....................................... Netherlands 312,000 4,514,814
</TABLE>
15
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUSINESS & PUBLIC SERVICES (CONT.)
Lex Service PLC............................................. United Kingdom 1,296,000 $ 12,878,519
*Magellan Health Services Inc. ............................. United States 250,000 2,281,250
Scribona AB, B.............................................. Sweden 480,400 1,384,371
Sifo Group AB, A............................................ Sweden 225,400 1,309,989
Sifo Group AB, B............................................ Sweden 480,400 2,850,176
--------------
38,086,894
--------------
CHEMICALS 2.1%
Crompton & Knowles Corp. ................................... United States 163,383 2,859,203
Energia e Industrias Aragonesas Eia SA...................... Spain 1,641,000 9,186,480
Gurit Heberlein AG, Br. .................................... Switzerland 20,000 11,220,381
--------------
23,266,064
--------------
CONSTRUCTION & HOUSING 1.9%
Hollandsche Beton Groep NV.................................. Netherlands 850,920 10,066,336
+*Schuler Homes Inc. ....................................... United States 1,005,000 6,877,969
Wai Kee Holdings Ltd. ...................................... Hong Kong 17,848,000 3,769,498
--------------
20,713,803
--------------
DATA PROCESSING & REPRODUCTION 2.5%
*Computer Horizons Corp. ................................... United States 630,000 8,190,000
*Quantum Corp-DSSG.......................................... United States 410,000 7,508,125
*Quantum Corp-HDDG.......................................... United States 205,000 1,460,625
*Smart Modular Technologies Inc............................. United States 520,000 10,822,500
--------------
27,981,250
--------------
ELECTRICAL & ELECTRONICS 1.5%
+Techtronic Industries Co. Ltd. ............................ Hong Kong 29,104,621 5,622,162
Varitronix International Ltd. .............................. Hong Kong 4,700,000 10,350,090
--------------
15,972,252
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS 4.5%
Draka Holding NV............................................ Netherlands 333,485 13,297,131
Swisslog Holding AG......................................... Switzerland 82,500 10,631,724
Twentsche Kabel Holdings NV................................. Netherlands 388,525 12,680,668
VTech Holdings Ltd. ........................................ Hong Kong 4,533,000 12,609,261
--------------
49,218,784
--------------
ENERGY SOURCES 1.3%
Fletcher Challenge Energy Ltd. ............................. New Zealand 3,324,290 8,507,339
*Ranger Oil Ltd. ........................................... Canada 1,309,000 6,054,125
--------------
14,561,464
--------------
</TABLE>
16
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 1.0%
ICICI Ltd., GDR, 144A....................................... India 667,000 $ 6,303,150
Om Gruppen AB............................................... Sweden 417,000 4,720,850
--------------
11,024,000
--------------
FOOD & HOUSEHOLD PRODUCTS 6.3%
Devro PLC................................................... United Kingdom 2,370,000 4,896,930
Geest PLC................................................... United Kingdom 1,180,000 8,993,584
Hazlewood Foods PLC......................................... United Kingdom 6,452,423 13,591,475
Illovo Sugar Ltd. .......................................... South Africa 5,150,000 4,657,185
Lindt & Spruengli Chocolate Works Ltd., prtn. ctf. ......... Switzerland 4,380 11,346,776
McBride PLC................................................. United Kingdom 3,800,000 5,804,698
Panamerican Beverages Inc., A............................... Mexico 234,400 4,409,650
*US Foodservice............................................. United States 748,000 15,567,750
--------------
69,268,048
--------------
FOREST PRODUCTS & PAPER 4.6%
Cartiere Burgo SpA.......................................... Italy 780,035 5,705,564
+Crown Van Gelder Papierfabrieken NV........................ Netherlands 373,600 5,248,355
Hung Hing Printing Group Ltd. .............................. Hong Kong 17,271,508 7,506,789
Mayr-Melnhof Karton AG...................................... Austria 61,800 2,963,528
Metsa Serla OY, B........................................... Finland 1,185,460 11,219,141
Munksjo AB.................................................. Sweden 1,300,000 10,309,965
*Shorewood Packaging Corp. ................................. United States 485,600 7,162,600
--------------
50,115,942
--------------
HEALTH & PERSONAL CARE 3.2%
Apothekers Cooperatie OPG VA, partn. ctf. .................. Netherlands 180,000 4,163,718
*Haemonetics Corp. ......................................... United States 254,900 4,986,481
Internatio-Muller NV........................................ Netherlands 628,092 14,097,655
*Quorum Health Group Inc. .................................. United States 557,000 4,908,563
*Skyepharma PLC............................................. United Kingdom 7,616,871 7,134,195
--------------
35,290,612
--------------
INDUSTRIAL COMPONENTS 6.2%
Gencorp Inc. ............................................... United States 641,000 13,781,500
Hoganas AB, B............................................... Sweden 357,000 7,218,671
Madeco Manufacturera de Cobre SA, ADR....................... Chile 405,000 4,303,125
Sylea SA.................................................... France 234,821 14,360,851
Weir Group PLC.............................................. United Kingdom 4,523,412 22,183,928
Yamato Kogyo Co. Ltd. ...................................... Japan 894,000 5,691,203
--------------
67,539,278
--------------
</TABLE>
17
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE 1.9%
Capital RE Corp. ........................................... United States 240,000 $ 2,910,000
Enhance Financial Services Group Inc. ...................... United States 290,000 5,945,000
Radian Group Inc. .......................................... United States 260,000 12,041,250
--------------
20,896,250
--------------
LEISURE & TOURISM 1.4%
Kuoni Reisen Holding AG, B.................................. Switzerland 2,598 10,382,740
*Prime Hospitality Corp. ................................... United States 492,000 4,581,750
--------------
14,964,490
--------------
MACHINERY & ENGINEERING 5.3%
Arcadis NV.................................................. Netherlands 275,655 2,285,600
Bucher Holding AG, Br. ..................................... Switzerland 4,226 3,877,064
Fives-Lille Cie De.......................................... France 103,133 8,175,476
IHC Caland NV............................................... Netherlands 256,600 12,074,497
Laird Group PLC............................................. United Kingdom 2,900,000 14,245,630
METSO OYJ................................................... Finland 381,600 4,836,757
SIG Schweizerische Industrie-Gesellschaft Holding........... Switzerland 19,800 12,271,269
--------------
57,766,293
--------------
MERCHANDISING 9.8%
Best Denki Co. Ltd. ........................................ Japan 176,000 1,685,439
Giordano International Ltd. ................................ Hong Kong 25,248,674 23,411,068
*Gymboree Corp. ............................................ United States 906,000 4,699,875
House of Fraser PLC......................................... United Kingdom 6,360,000 9,766,365
Hudsons Bay Co. ............................................ Canada 596,900 7,800,261
Li & Fung Ltd. ............................................. Hong Kong 10,367,000 33,243,183
Matsuzakaya Co. Ltd. ....................................... Japan 1,830,000 8,078,070
Moebel Walther AG........................................... Germany 148,410 2,225,954
Sa des Galeries Lafayette................................... France 55,400 8,250,753
*Samas-Groep NV............................................. Netherlands 96,985 1,536,599
Somerfield PLC.............................................. United Kingdom 1,701,700 6,348,095
--------------
107,045,662
--------------
METALS & MINING 5.3%
AK Steel Holding Corp. ..................................... United States 540,000 11,340,000
Birmingham Steel Corp. ..................................... United States 932,500 6,818,906
Boehler-Uddeholm AG......................................... Austria 41,950 2,015,638
Boehler-Uddeholm AG, 144A................................... Austria 8,120 390,155
Boehler-Uddeholm AG, 144A, seasoned......................... Austria 71,200 3,421,059
Century Aluminum Co. ....................................... United States 614,000 5,986,500
Elkem ASA, A................................................ Norway 355,000 6,333,227
Impala Platinum Holdings Ltd. .............................. South Africa 364,000 11,670,503
LTV Corp. .................................................. United States 894,000 5,140,500
</TABLE>
18
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING (CONT.)
Quanex Corp. ............................................... United States 150,000 $ 3,900,000
Vallourec Usines A Tubes de Lorraine Escaut Et R............ France 16,185 649,793
--------------
57,666,281
--------------
MISC MATERIALS & COMMODITIES .1%
Unitor ASA.................................................. Norway 209,500 1,548,391
--------------
MULTI-INDUSTRY 2.9%
DESC SA de CV DESC, B....................................... Mexico 3,473,500 3,222,038
Hogg Robinson PLC........................................... United Kingdom 2,900,000 11,750,896
La Cemento Nacional CA, GDR, 144A........................... Ecuador 27,575 1,516,625
Nagron Nationaal Grondbezit NV.............................. Netherlands 292,000 7,448,429
Wagon PLC................................................... United Kingdom 1,827,400 8,183,353
--------------
32,121,341
--------------
REAL ESTATE 1.3%
Inversiones y Representacion SA............................. Argentina 2,192,461 6,358,773
Inversiones y Representacion SA, GDR........................ Argentina 38,600 1,119,400
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 3,583,000 5,721,615
Tai Cheung Holdings Ltd. ................................... Hong Kong 3,630,000 888,199
--------------
14,087,987
--------------
TELECOMMUNICATIONS 1.6%
*Latitude Communications Inc. .............................. United States 150,000 2,090,625
*Millicom International Cellular SA......................... Luxembourg 100,000 2,537,500
Telefonos de Mexico SA (Telemex), L......................... Mexico 3,589,622 13,261,585
--------------
17,889,710
--------------
TEXTILES & APPAREL 3.3%
Fountain Set Holdings Ltd. ................................. Hong Kong 35,262,000 4,495,648
*Fruit of the Loom Inc., A.................................. United States 1,362,250 9,535,750
Gamma Holding NV............................................ Netherlands 180,000 8,270,399
*Goodys Family Clothing Inc. ............................... United States 670,000 6,176,563
Inner Mongolia Erdos Cashmere Products Co. Lts., B.......... China 6,200,000 1,426,000
Kellwood Co. ............................................... United States 271,600 6,484,450
--------------
36,388,810
--------------
TRANSPORTATION 4.4%
*Anangel-American Shipholdings Ltd., ADR.................... Greece 446,800 2,178,150
*Fritz Companies Inc. ...................................... United States 1,273,900 14,490,613
*Helikopter Services Group ASA.............................. Norway 591,700 4,486,289
*MS Carriers Inc. .......................................... United States 202,400 5,768,400
Sea Containers Ltd., A...................................... United Kingdom 461,000 14,060,500
Stolt Nielsen SA............................................ Norway 200,000 3,025,000
</TABLE>
19
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION (CONT.)
Stolt Nielsen SA, B, ADR.................................... Norway 100,000 $ 1,775,000
Tranz Rail Holdings Ltd., ADR............................... New Zealand 499,480 2,247,660
--------------
48,031,612
--------------
UTILITIES ELECTRICAL & GAS 2.7%
Endesa SA, Br. ............................................. Spain 722,413 14,497,858
Guangdong Electric Power Development Co. Ltd., B............ China 14,689,967 7,831,975
Public Service Co. of New Mexico............................ United States 411,000 7,731,938
--------------
30,061,771
--------------
WHOLESALE & INTERNATIONAL TRADE 1.5%
Bergen Brunswig Corp., A.................................... United States 525,000 8,104,688
+Eurodis Electron PLC....................................... United Kingdom 5,250,000 8,188,484
--------------
16,293,172
--------------
TOTAL COMMON STOCKS (COST $925,234,730)..................... 1,060,678,773
--------------
PREFERRED STOCKS 4.1%
Ballast Nedam NV, ctf., cvt., pfd. ......................... Netherlands 188,040 4,925,685
*Celular CRT Participacoes SA, A, pfd. ..................... Brazil 8,249,900 897,102
Cia Brasileira de Petroleo Ipiranga, pfd. .................. Brazil 619,998,000 3,545,150
Companhia Riograndense de Telecom, A, pfd. ................. Brazil 8,249,900 1,716,941
Coteminas Cia Tecidos Norte de Minas, pfd. ................. Brazil 23,829,100 1,425,903
Fertilizantes Fosfatados SA, pfd. .......................... Brazil 2,500,000,000 7,869,407
Hugo Boss AG, pfd. ......................................... Germany 66,000 7,772,907
Moebel Walther AG, pfd. .................................... Germany 150,000 2,075,522
Tele Sudeste Celular Participacoes SA, pfd.................. Brazil 268,027,000 1,267,620
Tele Sudeste Celular Participacoes SA, ADR, pfd............. Brazil 267,000 6,257,813
Weg SA, pfd................................................. Brazil 17,249,300 7,179,729
--------------
TOTAL PREFERRED STOCKS (COST $66,556,488)................... 44,933,779
--------------
TOTAL INVESTMENTS (COST $991,791,218) 100.9%................ 1,105,612,552
OTHER ASSETS, LESS LIABILITIES (.9%)........................ (9,644,879)
--------------
TOTAL NET ASSETS 100.0%..................................... $1,095,967,673
==============
</TABLE>
*Non-Income producing.
+The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at August 31,
1999, were $25,936,970.
See Notes to Financial Statements.
20
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $991,791,218).... $1,105,612,552
Receivables:
Investment securities sold................................ 764,703
Capital shares sold....................................... 2,214,790
Dividends and interest.................................... 3,227,710
--------------
Total assets.......................................... 1,111,819,755
--------------
Liabilities:
Payables:
Capital shares redeemed................................... 2,239,209
To affiliates............................................. 1,312,654
Funds advanced by custodian................................ 11,883,934
Accrued expenses........................................... 416,285
--------------
Total liabilities..................................... 15,852,082
--------------
Net assets, at value........................................ $1,095,967,673
==============
Net assets consist of:
Undistributed net investment income........................ $ 21,774,665
Net unrealized appreciation................................ 113,821,334
Accumulated net realized gain.............................. 53,040,825
Capital shares............................................. 907,330,849
--------------
Net assets, at value........................................ $1,095,967,673
==============
CLASS A:
Net asset value per share ($1,059,988,314 / 143,237,589
shares outstanding)...................................... $7.40
==============
Maximum offering price per share ($7.40 / 94.25%).......... $7.85
==============
CLASS B:
Net asset value and maximum offering price per share
($219,916 / 29,870 shares outstanding)*................... $7.36
==============
CLASS C:
Net asset value per share ($29,523,155 / 4,061,841 shares
outstanding)*............................................. $7.27
==============
Maximum offering price per share ($7.27 / 99.00%).......... $7.34
==============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($6,236,288 / 839,947 shares outstanding)................. $7.42
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
21
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $3,845,927)
Dividends.................................................. $36,782,235
Interest................................................... 3,491,150
-----------
Total investment income............................... $ 40,273,385
Expenses:
Management fees (Note 3)................................... 9,202,670
Administrative fees (Note 3)............................... 1,495,267
Distribution fees (Note 3)
Class A................................................... 2,950,091
Class B................................................... 573
Class C................................................... 339,136
Transfer agent fees (Note 3)............................... 2,179,800
Custodian fees............................................. 449,300
Reports to shareholders.................................... 373,700
Registration and filing fees............................... 72,200
Professional fees.......................................... 100,200
Directors' fees and expenses............................... 56,300
Other...................................................... 18,565
-----------
Total expenses........................................ 17,237,802
------------
Net investment income........................... 23,035,583
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 53,482,251
Foreign currency transactions............................. (296,633)
-----------
Net realized gain..................................... 53,185,618
Net unrealized appreciation on investments............ 66,279,167
------------
Net realized and unrealized gain............................ 119,464,785
------------
Net increase in net assets resulting from operations........ $142,500,368
============
</TABLE>
See Notes to Financial Statements.
22
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 23,035,583 $ 29,975,603
Net realized gain from investments and foreign currency
transactions............................................. 53,185,618 74,535,534
Net unrealized appreciation (depreciation) on
investments.............................................. 66,279,167 (477,160,612)
-----------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 142,500,368 (372,649,475)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (20,124,664) (24,864,205)
Class C.................................................. (381,690) (393,741)
Advisor Class............................................ (115,538) (137,241)
Net realized gains:
Class A.................................................. (32,018,770) (118,716,606)
Class C.................................................. (996,475) (3,094,067)
Advisor Class............................................ (162,672) (519,279)
Capital share transactions (Note 2):
Class A.................................................. (301,306,911) (103,255,384)
Class B.................................................. 216,176 --
Class C.................................................. (10,984,426) 10,093,710
Advisor Class............................................ (1,442,718) 1,808,776
-----------------------------------
Net decrease in net assets.............................. (224,817,320) (611,727,512)
Net assets:
Beginning of year.......................................... 1,320,784,993 1,932,512,505
-----------------------------------
End of year................................................ $1,095,967,673 $1,320,784,993
===================================
Undistributed net investment income included in net assets:
End of year................................................ $ 21,774,665 $ 20,510,225
===================================
</TABLE>
See Notes to Financial Statements.
23
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements
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 market
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.
24
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (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 August 31, 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>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold.......................................... 185,542,788 $ 1,308,691,167 65,137,298 $ 565,906,634
Shares issued on reinvestment of distributions....... 7,007,145 45,476,057 14,123,259 125,695,078
Shares redeemed...................................... (234,204,372) (1,655,474,135) (91,762,539) (794,857,096)
--------------------------------------------------------------------
Net decrease......................................... (41,654,439) $ (301,306,911) (12,501,982) $(103,255,384)
====================================================================
</TABLE>
25
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1999*
-------------------------------
SHARES AMOUNT
-----------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold.......................................... 29,870 $ 216,176
-------------------------------
Net increase......................................... 29,870 $ 216,176
===============================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold.......................................... 1,311,746 $ 8,857,268 2,789,801 $ 24,386,698
Shares issued on reinvestment of distributions....... 187,059 1,199,047 339,452 2,984,726
Shares redeemed...................................... (3,082,452) (21,040,741) (2,057,353) (17,277,714)
--------------------------------------------------------------------
Net increase (decrease).............................. (1,583,647) $ (10,984,426) 1,071,900 $ 10,093,710
====================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold.......................................... 2,435,651 $ 17,892,494 1,534,040 $ 13,060,800
Shares issued on reinvestment of distributions....... 41,939 272,183 71,033 631,927
Shares redeemed...................................... (2,677,179) (19,607,395) (1,392,025) (11,883,951)
--------------------------------------------------------------------
Net increase (decrease).............................. (199,589) $ (1,442,718) 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 officers or directors 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.
26
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (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 for costs incurred in marketing the Fund's
shares 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. Under the Class A
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At August 31, 1999, unreimbursed costs were $139,985. Distributors
received net commissions from sales of the Fund's shares and received contingent
deferred sales charges for the year of $78,484 and $16,747, respectively.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
statement of investments. At August 31, 1999, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 294,419,392
Unrealized depreciation..................................... (180,598,058)
-------------
Net unrealized appreciation................................. $ 113,821,334
=============
</TABLE>
At August 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1998 of $661,000. For tax purposes, such losses will be reflected
in the year ending August 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1999 aggregated $162,417,007 and $392,876,038, respectively.
27
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Global Smaller
Companies Fund, Inc. (the "Fund") at August 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1999 by correspondence with the custodian, provides a reasonable basis for
the opinion expressed above. The financial statements for the year ended August
31, 1998, including financial highlights for each of the four years in the
period then ended, were audited by other independent accountants whose report
dated September 29, 1998 expressed an unqualified opinion on those financial
statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 30, 1999
28
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $53,007,030 as a capital gain dividend for the fiscal year ended
August 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
13.83% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1999.
At August 31, 1999, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the fund on these investments. The Fund intends to make
an election under Section 853 of the Internal Revenue Code. This election will
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund to Class A, Class B, Class C, and
Advisor Class shareholders in October 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------
FOREIGN TAX FOREIGN SOURCE FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE PAID PER SHARE INCOME PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina.............................................. $0.0000 $0.0009 $0.0000 $0.0009
Australia.............................................. 0.0001 0.0031 0.0001 0.0030
Austria................................................ 0.0003 0.0014 0.0003 0.0013
Brazil................................................. 0.0018 0.0083 0.0018 0.0081
Canada................................................. 0.0007 0.0030 0.0007 0.0029
Chile.................................................. 0.0003 0.0008 0.0003 0.0007
China.................................................. 0.0000 0.0053 0.0000 0.0052
Colombia............................................... 0.0000 0.0002 0.0000 0.0002
Denmark................................................ 0.0002 0.0009 0.0002 0.0008
Ecuador................................................ 0.0000 0.0008 0.0000 0.0008
Egypt.................................................. 0.0000 0.0042 0.0000 0.0041
Finland................................................ 0.0009 0.0035 0.0009 0.0034
France................................................. 0.0007 0.0038 0.0007 0.0038
Germany................................................ 0.0004 0.0023 0.0004 0.0023
Hong Kong.............................................. 0.0000 0.0197 0.0000 0.0192
India.................................................. 0.0000 0.0027 0.0000 0.0027
Israel................................................. 0.0003 0.0007 0.0003 0.0007
Italy.................................................. 0.0002 0.0010 0.0002 0.0010
Japan.................................................. 0.0003 0.0013 0.0003 0.0013
Mexico................................................. 0.0001 0.0019 0.0001 0.0019
Netherlands............................................ 0.0051 0.0205 0.0051 0.0200
New Zealand............................................ 0.0003 0.0011 0.0003 0.0011
Norway................................................. 0.0013 0.0056 0.0013 0.0055
Poland................................................. 0.0002 0.0007 0.0002 0.0007
Portugal............................................... 0.0002 0.0007 0.0002 0.0007
Singapore.............................................. 0.0001 0.0003 0.0001 0.0003
South Africa........................................... 0.0000 0.0050 0.0000 0.0049
Spain.................................................. 0.0022 0.0097 0.0022 0.0095
Sweden................................................. 0.0015 0.0063 0.0015 0.0062
Switzerland............................................ 0.0011 0.0045 0.0011 0.0044
United Kingdom......................................... 0.0063 0.0309 0.0063 0.0300
Venezuela.............................................. 0.0000 0.0001 0.0000 0.0001
------------------------------------------------------------------------
TOTAL.................................................. $0.0246 $0.1512 $0.0246 $0.1477
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
29
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Tax Designation (continued)
<TABLE>
<CAPTION>
CLASS C ADVISOR CLASS
------------------------------------------------------------------------
FOREIGN TAX FOREIGN SOURCE FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE PAID PER SHARE INCOME PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina.............................................. $0.0000 $0.0006 $0.0000 $0.0010
Australia.............................................. 0.0001 0.0019 0.0001 0.0034
Austria................................................ 0.0003 0.0009 0.0003 0.0016
Brazil................................................. 0.0018 0.0052 0.0018 0.0092
Canada................................................. 0.0007 0.0019 0.0007 0.0033
Chile.................................................. 0.0003 0.0005 0.0003 0.0009
China.................................................. 0.0000 0.0033 0.0000 0.0059
Colombia............................................... 0.0000 0.0001 0.0000 0.0002
Denmark................................................ 0.0002 0.0005 0.0002 0.0010
Ecuador................................................ 0.0000 0.0005 0.0000 0.0008
Egypt.................................................. 0.0000 0.0026 0.0000 0.0047
Finland................................................ 0.0009 0.0022 0.0009 0.0039
France................................................. 0.0007 0.0024 0.0007 0.0043
Germany................................................ 0.0004 0.0014 0.0004 0.0026
Hong Kong.............................................. 0.0000 0.0123 0.0000 0.0219
India.................................................. 0.0000 0.0017 0.0000 0.0031
Israel................................................. 0.0003 0.0004 0.0003 0.0008
Italy.................................................. 0.0002 0.0006 0.0002 0.0011
Japan.................................................. 0.0003 0.0008 0.0003 0.0015
Mexico................................................. 0.0001 0.0012 0.0001 0.0021
Netherlands............................................ 0.0051 0.0128 0.0051 0.0228
New Zealand............................................ 0.0003 0.0007 0.0003 0.0012
Norway................................................. 0.0013 0.0035 0.0013 0.0062
Poland................................................. 0.0002 0.0005 0.0002 0.0008
Portugal............................................... 0.0002 0.0004 0.0002 0.0008
Singapore.............................................. 0.0001 0.0002 0.0001 0.0003
South Africa........................................... 0.0000 0.0031 0.0000 0.0055
Spain.................................................. 0.0022 0.0061 0.0022 0.0108
Sweden................................................. 0.0015 0.0040 0.0015 0.0070
Switzerland............................................ 0.0011 0.0028 0.0011 0.0050
United Kingdom......................................... 0.0063 0.0195 0.0063 0.0345
Venezuela.............................................. 0.0000 0.0001 0.0000 0.0001
------------------------------------------------------------------------
TOTAL.................................................. $0.0246 $0.0947 $0.0246 $0.1683
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
In January 2000, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1999. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
30
PAGE
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the August 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On August 31, 1999, the Fund, with the approval of its Board of Directors and
its Audit Committee, engaged PwC as its independent auditors.
31
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ANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
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 A99 10/99
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