Annual Report
August 31, 2000
TEMPLETON GLOBAL
SMALLER COMPANIES FUND, INC.
[FRANKLIN TEMPLETON 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.
[PHOTO OF TUCKER SCOTT]
TUCKER SCOTT
[PHOTO OF SIMON RUDOLPH]
SIMON RUDOLPH
[PHOTO OF CYNTHIA SWEETING]
CYNTHIA SWEETING
Portfolio Managers
Templeton Global Smaller Companies Fund, Inc.
WE'RE ON THE WEB --
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resource for Fund literature, prices and performance, investor information and
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<PAGE>
SHAREHOLDER LETTER
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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.
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Dear Shareholder:
This annual report for Templeton Global Smaller Companies Fund covers the 12
months ended August 31, 2000. During this period, foreign small capitalization
value stocks generally provided disappointing returns, failing to achieve the
incredible heights reached by U.S. growth stocks. The strength of the U.S.
dollar relative to most foreign currencies contributed to this weakness, and the
advent of a single European currency exacerbated this effect. Because European
portfolio managers are now able to invest in any Euroland country without
incurring currency risk, many investors appear to have switched from stocks of
smaller domestic companies to those of larger capitalization European firms.
However, we believe this reallocation was largely completed by the end of 1999,
and that small
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 16.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ...................................................... 1
Performance Summary ..................................................... 7
Financial Highlights & Statement of Investments ......................... 12
Financial Statements .................................................... 22
Notes to Financial Statements ........................................... 25
Report of Independent Accountants ....................................... 29
Tax Designation ......................................................... 30
</TABLE>
[PYRAMID GRAPH]
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
[PIE CHART]
European Stocks
35.6%
North American
Stocks 23.6%
Asian Stocks 19.7%
Latin American
Stocks 4.5%
Australian &
New Zealand Stocks
1.5%
Short-Term
Investments &
Other Net Assets
15.5%
cap stocks are now undervalued relative to large cap stocks. For example, global
stocks with market capitalizations under $2 billion traded at a weighted average
price-to-earnings (P/E) ratio of 24.9, while stocks over $2 billion traded at a
weighted average P/E ratio of 32.0 on August 31, 2000.
Value stocks in general performed appreciably worse than growth stocks during
the reporting period. During the fiscal year, the Morgan Stanley Capital
International (MSCI) World Value Index increased by 5.3%, less than the 17.6%
advance recorded by the MSCI World Growth Index, and at period's end, the "hot"
growth sectors of telecommunications, media, and technology accounted for 42% of
the world's equity value. However, since March 1, 2000, global value stocks have
actually outperformed global growth stocks. The period from March through August
was an exceptionally brutal period for many speculative stocks. For example, the
Goldman Sachs Technology Industry Internet Index fell 32% from March 1, 2000
through August 31, 2000. Within this environment, Templeton Global Smaller
Companies Fund - Class A shares provided a one-year cumulative total return of
7.09%, while the MSCI World Index, the Fund's benchmark, rose 13.46% as shown in
the Performance Summary beginning on page 7.(1)
(1.) Sources: MSCI and Goldman Sachs. For each security in the Standard MSCI
indexes, two data items are collected: Price/Book Value (P/BV) and market
capitalization (MC). The securities within each country are then sorted in
ascending order by P/BV, and market caps are summed (starting from the top)
until approximately 50% of the market capitalization of the country has been
reached. This is where the line is drawn between Value and Growth. All stocks
above the line are designated value stocks, all stocks below the line are growth
stocks. The stocks on each side of the line are then market-cap weighted to
create the Value and Growth indexes for each country.
The Goldman Sachs Technology Industry Internet Index is a
capitalization-weighted index of selected Internet companies. The index was
developed with a base value of 100 as of April 30, 1996.
The MSCI World Index measures the performance of approximately 1,450 securities
listed on the stock exchanges of 22 countries, including the U.S., Europe,
Canada, Australia, New Zealand, and the Far East. The average company in the
index has a market capitalization of about $3.5 billion.
The indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
2
<PAGE>
Although the investment climate described above did not allow us to provide the
returns we sought to achieve, we did uncover what we believed to be some
promising value opportunities during the year under review. For example, we
recently added a position in Stagecoach, a U.K.-based bus and rail company. We
purchased this stock when it was trading at just over four times free cash flow,
or net income plus depreciation and amortization minus capital spending. In our
opinion, free cash flow is one of the purest measures of return and earnings
power, and we believe, under favorable circumstances, this company has the
potential to grow its free cash flow.
Samsung Corporation is another holding we believe to be undervalued. In our
opinion, the sum of the company's parts, including the world's largest copper
mine, in addition to its successful construction, trading and Internet
interests, represents a solid premium over its $1.4 billion market valuation at
the end of August, 2000.
We also found what we consider to be opportunities in Internet companies which
fell 80%-90% from their recent highs. Preview Systems is one such example. At
the end of the reporting period, this U.S. company had $6.00 per share in net
cash on its balance sheet, compared to a stock price of only $8.50 per share --
a market valuation of only $2.50 per share for its ongoing business. The firm is
one of two leaders in providing software companies, record companies and movie
studios with the necessary tools to securely sell their material over the
Internet.
TOP 10 HOLDINGS
8/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Li & Fung Ltd.
Textiles & Apparel,
Hong Kong 2.9%
Giordano International Ltd.
Specialty Retail, Hong Kong 2.8%
Draka Holding NV
Machinery, Netherlands 2.2%
Mutual Risk Management Ltd.
Insurance, Bermuda 2.1%
Weir Group PLC
Machinery, United Kingdom 1.7%
Radian Group Inc.
Insurance, U.S. 1.6%
Fletcher Challenge Energy Ltd.
Oil & Gas, New Zealand 1.5%
National Bank of Canada
Banks, Canada 1.4%
VTech Holdings Ltd.
Communications Equipment,
Hong Kong 1.4%
Hugo Boss AG, pfd.
Textiles & Apparel, Germany 1.4%
</TABLE>
3
<PAGE>
Looking forward, we are optimistic about long-term prospects for the Fund. We do
not expect U.S. stock market indexes to outperform global indexes over the next
few years. We also believe we are at the beginning of a period where the
extremes evident in the recent markets will begin to converge and return value
investing to the forefront. At the end of July, the stocks in our portfolio had
average P/E ratios of about 12.6 while the broader market, as measured by the
MSCI World Index, sold at a P/E ratio of approximately 29. We anticipate greater
earnings growth for our portfolio overall than for the market as a whole, and
believe that our ability to purchase these stocks at less than half the market's
recent P/E ratio may help to increase the Fund's potential to provide attractive
returns. We also expect the recent change in the Fund's definition of "small
cap" from $1 billion to $2 billion in market capitalization to more closely
track market realities and provide us with added investment opportunities.
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, the MSCI Mexico Free Index has increased 974%
in the last 12 years, but has suffered 5 quarterly declines of more than 15%
during that time.(2) The short-term price volatility of smaller
(2.) Source: Morgan Stanley Capital International. Based on quarterly percentage
price change over 12 years ended June 30, 2000. Market return is measured in
U.S. dollar terms and does not include reinvested dividends. The MSCI Mexico
Free Index reflects actual buyable opportunities for global investors by taking
into account local market restrictions on share ownership by foreigners. The
MSCI Mexico Free Index is a capitalization weighted index, including 34
companies as of 6/30/00.
4
<PAGE>
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.
Sincerely,
/s/ Tucker Scott
------------------------------
Tucker Scott
/s/ Simon Rudolph
------------------------------
Simon Rudolph
/s/ Cynthia Sweeting
------------------------------
Cynthia Sweeting
Portfolio Management Team
Templeton Global Smaller Companies Fund, Inc.
5
<PAGE>
In April 2000, Tucker Scott and Simon Rudolph assumed primary responsibility for
investments in Templeton Global Smaller Companies Fund. Subsequently, in July
2000, Cynthia Sweeting joined the Portfolio Management Team.
TUCKER SCOTT joined the Templeton organization in 1996. He is currently a
portfolio manager with responsibility for institutional and retail accounts.
Before joining Templeton, Mr. Scott worked for Aeltus Investment Management,
where his industry coverage included telecommunication equipment and financial
services.
Mr. Scott holds a bachelor of arts degree from the University of Virginia and a
master of business administration degree from the Amos Tuck School of Business
at Dartmouth College. He is a Chartered Financial Analyst (CFA) and a member of
the Association for Investment Management and Research (AIMR).
SIMON RUDOLPH joined Templeton Investment Council, Inc. in 1997 as a portfolio
manager and research analyst. Mr. Rudolph has been a securities analyst since
1986. Prior to joining Templeton, he was an Executive Director with Morgan
Stanley and was responsible for analysis of continental European insurance
companies.
Mr. Rudolph holds a bachelor of arts degree in economic history from Durham
University, England. He is a Chartered Accountant (ACA) and a member of the
Institute of Chartered Accountants of England and Wales.
CYNTHIA SWEETING joined the Nassau office of Templeton Global Advisors Limited
in 1997 as a portfolio manager and research analyst. Subsequently, in July 2000,
she joined the Fort Lauderdale office of Templeton Investment Council, Inc. as a
member of the Fund's portfolio management team. Prior to joining the Templeton
organization, Ms. Sweeting was the vice president of investments with McDermott
International Investments Co., Inc. in Nassau, Bahamas.
She is a summa cum laude graduate of Georgetown University, where she earned a
bachelor of science degree in business administration with a concentration in
finance. Ms. Sweeting has served as vice president of the Board of Directors of
the International Society of Financial Analysts (ISFA), which recently merged
with the Association for Investment Management and Research (AIMR).
-------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
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6
<PAGE>
ONE-YEAR PERFORMANCE
as of 8/31/00
One-year cumulative total return represents the change in value of an investment
for the period indicated and does not include sales charges. 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 operating expenses
for each class. Past distributions are not indicative of future trends. All
total returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
One-Year Cumulative Total Return 7.09%
Net Asset Value (NAV) $7.30 (8/31/00) $7.40 (8/31/99)
Change in NAV -$0.10
Distributions (9/1/99 - 8/31/00) Dividend Income $0.1716
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
----------------------------------------
TOTAL $0.5638
CLASS B
One-Year Cumulative Total Return 6.01%
Net Asset Value (NAV) $7.20 (8/31/00) $7.36 (8/31/99)
Change in NAV -$0.16
Distributions (9/1/99 - 8/31/00) Dividend Income $0.1560
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
----------------------------------------
TOTAL $0.5482
CLASS C
One-Year Cumulative Total Return 6.15%
Net Asset Value (NAV) $7.19 (8/31/00) $7.27 (8/31/99)
Change in NAV -$0.08
Distributions (9/1/99 - 8/31/00) Dividend Income $0.0869
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
----------------------------------------
TOTAL $0.4791
ADVISOR CLASS
One-Year Cumulative Total Return 7.34%
Net Asset Value (NAV) $7.31 (8/31/00) $7.42 (8/31/99)
Change in NAV -$0.11
Distributions (9/1/99 - 8/31/00) Dividend Income $0.1982
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
----------------------------------------
TOTAL $0.5904
</TABLE>
CLASS A:
Subject to the current, maximum 5.75% initial sales charge. Prior to 7/1/92,
Fund shares were offered at a higher initial sales charge. Thus, actual total
returns would have been lower. On 1/1/93, 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:
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.
Templeton Global Smaller Companies Fund paid distributions derived from
long-term capital gains of 38.91 cents ($0.3891) per share in October and
December 1999. The Fund hereby designates such distributions as capital gain
dividends in accordance with Internal Revenue Code Section 852 (b)(3).
Please see standardized SEC performance as of 8/31/00 and Index Comparison,
beginning on page 9.
Past performance does not guarantee future results.
7
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (6/1/81)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 5.37% 22.54% 175.72% 782.18%
Average Annual Total Return(2) -0.73% 2.93% 10.02% 11.58%
Value of $10,000 Investment(3) $ 9,927 $ 11,552 $ 25,980 $ 83,131
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 4.41% 5.90%
Average Annual Total Return(2) 0.55% 1.13%
Value of $10,000 Investment(3) $10,055 $10,199
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 4.58% 17.94% 32.79%
Average Annual Total Return(2) 2.58% 3.15% 5.18%
Value of $10,000 Investment(3) $10,258 $11,675 $13,145
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (6/1/81)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 5.62% 24.33% 179.75% 795.08%
Average Annual Total Return(2) 5.62% 4.45% 10.83% 12.00%
Value of $10,000 Investment(3) $ 10,562 $ 12,433 $ 27,975 $ 89,508
</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.
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. Effective 1/1/97, the Fund began offering Advisor Class shares, which do not
have sales charges or Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/1/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class. Since 1/2/97 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were 3.46% and 0.91%.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
8
<PAGE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Average annual 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. 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.
Templeton Global Smaller Companies Fund, Inc.
Annual Report
August 31, 2000
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Class A shares to that of the Lehman Brothers Municipal Bond
Index, and to the Consumer Price Index based on a $10,000 investment from 9/1/90
to 8/31/00.
[LINE CHART CLASS A(9/1/90 - 8/31/00)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL MSCI WORLD CPI TEMPLETON PERFORMANCE S&P MICROPAL
SMALLER COMPANIES INDEX
FUND - CLASS A
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
09/01/90 $9,425 $10,000 $10,000 MSCI World % CPI % MSCI CPI
World
09/30/90 $8,536 $8,947 $10,084 -10.53% 0.84% -10.53% 0.84%
10/31/90 $8,346 $9,785 $10,145 9.36% 0.60% 9.36% 0.60%
11/30/90 $8,573 $9,626 $10,167 -1.62% 0.22% -1.62% 0.22%
12/31/90 $8,830 $9,829 $10,167 2.11% 0.00% 2.11% 0.00%
01/31/91 $9,464 $10,190 $10,228 3.68% 0.60% 3.68% 0.60%
02/28/91 $10,452 $11,136 $10,243 9.27% 0.15% 9.27% 0.15%
03/31/91 $10,968 $10,809 $10,258 -2.93% 0.15% -2.93% 0.15%
04/30/91 $11,100 $10,896 $10,273 0.80% 0.15% 0.80% 0.15%
05/31/91 $11,542 $11,144 $10,303 2.28% 0.29% 2.28% 0.30%
06/30/91 $11,203 $10,458 $10,334 -6.16% 0.30% -6.16% 0.29%
07/31/91 $11,719 $10,954 $10,349 4.74% 0.14% 4.74% 0.15%
08/31/91 $11,940 $10,921 $10,379 -0.30% 0.29% -0.30% 0.29%
09/30/91 $11,911 $11,209 $10,426 2.64% 0.45% 2.64% 0.44%
10/31/91 $11,907 $11,393 $10,441 1.64% 0.14% 1.64% 0.15%
11/30/91 $11,622 $10,898 $10,471 -4.34% 0.29% -4.34% 0.29%
12/31/91 $12,319 $11,694 $10,479 7.30% 0.08% 7.30% 0.07%
01/31/92 $12,827 $11,479 $10,494 -1.84% 0.14% -1.83% 0.15%
02/29/92 $13,155 $11,283 $10,532 -1.71% 0.36% -1.71% 0.36%
03/31/92 $12,745 $10,753 $10,585 -4.69% 0.50% -4.69% 0.51%
04/30/92 $12,925 $10,905 $10,600 1.41% 0.14% 1.41% 0.14%
05/31/92 $13,319 $11,340 $10,615 3.99% 0.14% 4.00% 0.14%
06/30/92 $13,024 $10,962 $10,653 -3.33% 0.36% -3.33% 0.36%
07/31/92 $12,876 $10,993 $10,676 0.28% 0.22% 0.27% 0.21%
08/31/92 $12,614 $11,262 $10,706 2.45% 0.28% 2.45% 0.28%
09/30/92 $12,418 $11,161 $10,736 -0.90% 0.28% -0.90% 0.28%
10/31/92 $12,367 $10,861 $10,774 -2.69% 0.36% -2.69% 0.35%
11/30/92 $12,448 $11,057 $10,789 1.81% 0.14% 1.81% 0.14%
12/31/92 $12,774 $11,149 $10,783 0.83% -0.06% 0.83% -0.07%
01/31/93 $13,315 $11,188 $10,836 0.35% 0.49% 0.35% 0.49%
02/28/93 $13,585 $11,455 $10,874 2.38% 0.35% 2.39% 0.35%
03/31/93 $14,168 $12,122 $10,912 5.82% 0.35% 5.82% 0.35%
04/30/93 $14,355 $12,685 $10,942 4.65% 0.27% 4.65% 0.28%
05/31/93 $14,626 $12,980 $10,957 2.32% 0.14% 2.32% 0.14%
06/30/93 $14,438 $12,872 $10,972 -0.83% 0.14% -0.82% 0.14%
07/31/93 $14,542 $13,140 $10,972 2.08% 0.00% 2.08% 0.00%
08/31/93 $15,479 $13,745 $11,003 4.60% 0.28% 4.60% 0.28%
09/30/93 $15,541 $13,493 $11,025 -1.83% 0.20% -1.83% 0.21%
10/31/93 $16,084 $13,867 $11,072 2.77% 0.42% 2.77% 0.41%
11/30/93 $15,979 $13,084 $11,079 -5.64% 0.07% -5.64% 0.07%
12/31/93 $16,842 $13,727 $11,078 4.91% 0.00% 4.91% 0.00%
01/31/94 $17,749 $14,635 $11,109 6.62% 0.28% 6.61% 0.27%
02/28/94 $17,432 $14,448 $11,148 -1.28% 0.35% -1.28% 0.34%
03/31/94 $16,821 $13,828 $11,186 -4.29% 0.34% -4.29% 0.34%
04/30/94 $16,969 $14,257 $11,201 3.11% 0.13% 3.11% 0.14%
05/31/94 $16,906 $14,296 $11,208 0.27% 0.06% 0.27% 0.07%
06/30/94 $16,210 $14,259 $11,246 -0.26% 0.34% -0.26% 0.34%
07/31/94 $16,737 $14,533 $11,276 1.92% 0.27% 1.92% 0.27%
08/31/94 $17,369 $14,973 $11,322 3.03% 0.41% 3.03% 0.40%
09/30/94 $17,201 $14,582 $11,352 -2.61% 0.26% -2.61% 0.27%
10/31/94 $17,024 $14,999 $11,361 2.86% 0.07% 2.86% 0.07%
11/30/94 $16,258 $14,352 $11,376 -4.32% 0.13% -4.32% 0.13%
12/31/94 $16,070 $14,493 $11,376 0.99% 0.00% 0.99% 0.00%
01/31/95 $15,637 $14,279 $11,420 -1.48% 0.39% -1.48% 0.40%
02/28/95 $15,961 $14,490 $11,466 1.48% 0.40% 1.48% 0.40%
03/31/95 $16,307 $15,191 $11,504 4.84% 0.33% 4.84% 0.33%
04/30/95 $17,021 $15,723 $11,542 3.50% 0.33% 3.50% 0.33%
05/31/95 $17,540 $15,861 $11,565 0.88% 0.20% 0.87% 0.20%
06/30/95 $18,016 $15,859 $11,587 -0.01% 0.20% -0.01% 0.20%
07/31/95 $18,903 $16,656 $11,587 5.02% 0.00% 5.02% 0.00%
08/31/95 $18,968 $16,287 $11,619 -2.21% 0.27% -2.21% 0.26%
09/30/95 $19,206 $16,765 $11,640 2.93% 0.19% 2.93% 0.20%
10/31/95 $18,547 $16,504 $11,679 -1.56% 0.33% -1.56% 0.33%
11/30/95 $18,688 $17,080 $11,670 3.49% -0.07% 3.49% -0.07%
12/31/95 $18,906 $17,583 $11,663 2.94% -0.07% 2.94% -0.07%
01/31/96 $19,426 $17,903 $11,731 1.82% 0.59% 1.83% 0.59%
02/29/96 $19,996 $18,016 $11,769 0.63% 0.32% 0.63% 0.32%
03/31/96 $20,293 $18,319 $11,830 1.69% 0.52% 1.68% 0.52%
04/30/96 $20,789 $18,753 $11,875 2.37% 0.38% 2.37% 0.39%
05/31/96 $21,185 $18,773 $11,898 0.10% 0.19% 0.10% 0.19%
06/30/96 $21,334 $18,871 $11,906 0.53% 0.06% 0.52% 0.06%
07/31/96 $20,467 $18,208 $11,928 -3.51% 0.19% -3.52% 0.19%
08/31/96 $21,185 $18,421 $11,951 1.17% 0.19% 1.17% 0.19%
09/30/96 $21,532 $19,146 $11,989 3.93% 0.32% 3.93% 0.32%
10/31/96 $21,841 $19,282 $12,027 0.71% 0.32% 0.72% 0.32%
11/30/96 $22,454 $20,366 $12,050 5.62% 0.19% 5.62% 0.19%
12/31/96 $23,082 $20,044 $12,050 -1.58% 0.00% -1.58% 0.00%
01/31/97 $23,496 $20,288 $12,088 1.22% 0.31% 1.22% 0.32%
02/28/97 $23,772 $20,525 $12,124 1.17% 0.30% 1.17% 0.31%
03/31/97 $23,634 $20,123 $12,154 -1.96% 0.25% -1.96% 0.25%
04/30/97 $23,606 $20,784 $12,169 3.29% 0.12% 3.29% 0.12%
05/31/97 $24,711 $22,071 $12,162 6.19% -0.06% 6.19% -0.06%
06/30/97 $25,705 $23,175 $12,176 5.00% 0.12% 5.00% 0.12%
07/31/97 $26,395 $24,246 $12,191 4.62% 0.12% 4.62% 0.12%
08/31/97 $26,312 $22,628 $12,214 -6.67% 0.19% -6.67% 0.19%
09/30/97 $27,389 $23,860 $12,244 5.45% 0.25% 5.45% 0.25%
10/31/97 $25,333 $22,608 $12,275 -5.25% 0.25% -5.25% 0.25%
11/30/97 $24,752 $23,012 $12,268 1.78% -0.06% 1.79% -0.06%
12/31/97 $24,712 $23,296 $12,253 1.23% -0.12% 1.23% -0.12%
01/31/98 $23,905 $23,949 $12,275 2.80% 0.18% 2.80% 0.19%
02/28/98 $25,907 $25,573 $12,300 6.78% 0.20% 6.78% 0.19%
03/31/98 $27,162 $26,657 $12,324 4.24% 0.20% 4.24% 0.19%
04/30/98 $27,372 $26,921 $12,346 0.99% 0.18% 0.99% 0.18%
05/31/98 $26,774 $26,588 $12,369 -1.24% 0.18% -1.24% 0.18%
06/30/98 $25,609 $27,222 $12,383 2.39% 0.12% 2.39% 0.12%
07/31/98 $24,682 $27,182 $12,398 -0.15% 0.12% -0.15% 0.12%
08/31/98 $20,618 $23,561 $12,413 -13.32% 0.12% -13.32% 0.12%
09/30/98 $20,409 $23,982 $12,428 1.79% 0.12% 1.79% 0.12%
10/31/98 $20,869 $26,155 $12,458 9.06% 0.24% 9.06% 0.24%
11/30/98 $21,680 $27,715 $12,458 5.96% 0.00% 5.96% 0.00%
12/31/98 $21,898 $29,073 $12,450 4.90% -0.06% 4.90% -0.06%
01/31/99 $20,993 $29,714 $12,481 2.20% 0.24% 2.20% 0.24%
02/28/99 $20,276 $28,926 $12,493 -2.65% 0.10% -2.65% 0.12%
03/31/99 $20,838 $30,135 $12,531 4.18% 0.30% 4.18% 0.30%
04/30/99 $22,803 $31,328 $12,622 3.96% 0.73% 3.96% 0.73%
05/31/99 $22,491 $30,187 $12,622 -3.64% 0.00% -3.64% 0.00%
06/30/99 $23,115 $31,599 $12,622 4.68% 0.00% 4.68% 0.00%
07/31/99 $23,333 $31,509 $12,655 -0.28% 0.26% -0.29% 0.30%
08/31/99 $23,083 $31,458 $12,693 -0.16% 0.30% -0.16% 0.24%
09/30/99 $22,335 $31,157 $12,749 -0.96% 0.44% -0.96% 0.48%
10/31/99 $22,289 $32,781 $12,774 5.21% 0.20% 5.21% 0.18%
11/30/99 $22,693 $33,706 $12,780 2.82% 0.04% 2.83% 0.06%
12/31/99 $24,111 $36,440 $12,780 8.11% 0.00% 8.11% 0.00%
01/31/00 $23,772 $34,357 $12,815 -5.72% 0.28% -5.72% 0.24%
02/29/00 $24,517 $34,454 $12,889 0.28% 0.57% 0.28% 0.59%
03/31/00 $25,296 $36,839 $12,992 6.92% 0.81% 6.92% 0.82%
04/30/00 $24,111 $35,286 $13,003 -4.22% 0.08% -4.22% 0.06%
05/31/00 $23,738 $34,397 $13,013 -2.52% 0.08% -2.52% 0.06%
06/30/00 $24,720 $35,560 $13,084 3.38% 0.55% 3.38% 0.58%
07/31/00 $24,517 $34,563 $13,112 -2.80% 0.21% -2.80% 0.17%
08/31/00 $24,720 $35,692 $13,112 3.27% 0.00% 3.27% 0.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year 0.95%
5-Year 4.19%
10-Year 9.47%
Since Inception (6/1/81) 11.91%
</TABLE>
[LINE CHART CLASS B (1/1/99-8/31/00)
GRAPHIC MATERIAL (2)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Class B shares to that of the Lehman Brothers Municipal Bond
Index, and to the Consumer Price Index based on a $10,000 investment from 9/1/99
to 8/31/00.
<TABLE>
<CAPTION>
TEMPLETON GLOBAL MSCI WORLD CPI TEMPLETON PERFORMANCE S&P MICROPAL
SMALLER COMPANIES INDEX
FUND - CLASS B
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000 MSCI World % CPI % MSCI World CPI
01/31/1999 $ 9,573 $10,191 $10,021 1.91% 0.21% 2.20% 0.24%
02/28/1999 $ 9,245 $ 9,921 $10,031 -2.65% 0.10% -2.65% 0.12%
03/31/1999 $ 9,487 $10,336 $10,062 4.18% 0.30% 4.18% 0.30%
04/30/1999 $10,385 $10,745 $10,135 3.96% 0.73% 3.96% 0.73%
05/31/1999 $10,242 $10,354 $10,135 -3.64% 0.00% -3.64% 0.00%
06/30/1999 $10,513 $10,838 $10,135 4.68% 0.00% 4.68% 0.00%
07/31/1999 $10,613 $10,807 $10,161 -0.28% 0.26% -0.29% 0.30%
08/31/1999 $10,484 $10,790 $10,192 -0.16% 0.30% -0.16% 0.24%
09/30/1999 $10,142 $10,686 $10,237 -0.96% 0.44% -0.96% 0.48%
10/31/1999 $10,118 $11,243 $10,257 5.21% 0.20% 5.21% 0.18%
11/30/1999 $10,287 $11,561 $10,261 2.82% 0.04% 2.83% 0.06%
12/31/1999 $10,914 $12,498 $10,261 8.11% 0.00% 8.11% 0.00%
01/31/2000 $10,759 $11,784 $10,290 -5.72% 0.28% -5.72% 0.24%
02/29/2000 $11,084 $11,817 $10,349 0.28% 0.57% 0.28% 0.59%
03/31/2000 $11,423 $12,635 $10,432 6.92% 0.81% 6.92% 0.82%
04/30/2000 $10,883 $12,103 $10,440 -4.22% 0.08% -4.22% 0.06%
05/31/2000 $10,713 $11,798 $10,448 -2.52% 0.08% -2.52% 0.06%
06/30/2000 $11,145 $12,197 $10,505 3.38% 0.55% 3.38% 0.58%
07/31/2000 $11,037 $11,855 $10,528 -2.80% 0.21% -2.80% 0.17%
08/31/2000 $10,714 $12,242 $10,528 3.27% 0.00% 3.27% 0.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
<S> <C>
1-Year 2.10%
Since Inception (1/1/99) 4.23%
</TABLE>
Past performance does not guarantee future results.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
<S> <C>
1-Year 4.16%
5-Year 4.38%
Since Inception (5/1/95) 6.22%
</TABLE>
[LINE CHART CLASS C (5/1/95 - 8/31/00)]
GRAPHIC MATERIAL (3)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Class C shares to that of the Lehman Brothers Municipal Bond
Index, and to the Consumer Price Index based on a $10,000 investment from 5/1/95
to 8/31/00.
<TABLE>
<CAPTION>
TEMPLETON MSCI CPI TEMPLETON PERFORMANCE S&P MICROPAL
GLOBAL WORLD
SMALLER INDEX
COMPANIES
FUND -
CLASS C
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,899 $10,000 $10,000 MSCI CPI % MSCI CPI
World % World
05/31/1995 $10,202 $10,088 $10,020 0.88% 0.20% 0.87% 0.20%
06/30/1995 $10,479 $10,086 $10,040 -0.01% 0.20% -0.01% 0.20%
07/31/1995 $10,982 $10,593 $10,040 5.02% 0.00% 5.02% 0.00%
08/31/1995 $11,020 $10,359 $10,067 -2.21% 0.27% -2.21% 0.26%
09/30/1995 $11,146 $10,663 $10,086 2.93% 0.19% 2.93% 0.20%
10/31/1995 $10,747 $10,497 $10,119 -1.56% 0.33% -1.56% 0.33%
11/30/1995 $10,829 $10,863 $10,112 3.49% -0.07% 3.49% -0.07%
12/31/1995 $10,936 $11,183 $10,105 2.94% -0.07% 2.94% -0.07%
01/31/1996 $11,238 $11,387 $10,164 1.82% 0.59% 1.83% 0.59%
02/29/1996 $11,570 $11,458 $10,197 0.63% 0.32% 0.63% 0.32%
03/31/1996 $11,728 $11,651 $10,250 1.69% 0.52% 1.68% 0.52%
04/30/1996 $12,002 $11,927 $10,289 2.37% 0.38% 2.37% 0.39%
05/31/1996 $12,232 $11,940 $10,309 0.10% 0.19% 0.10% 0.19%
06/30/1996 $12,319 $12,002 $10,316 0.53% 0.06% 0.52% 0.06%
07/31/1996 $11,800 $11,581 $10,335 -3.51% 0.19% -3.52% 0.19%
08/31/1996 $12,203 $11,716 $10,355 1.17% 0.19% 1.17% 0.19%
09/30/1996 $12,405 $12,177 $10,388 3.93% 0.32% 3.93% 0.32%
10/31/1996 $12,565 $12,264 $10,421 0.71% 0.32% 0.72% 0.32%
11/30/1996 $12,920 $12,953 $10,441 5.62% 0.19% 5.62% 0.19%
12/31/1996 $13,271 $12,748 $10,441 -1.58% 0.00% -1.58% 0.00%
01/31/1997 $13,510 $12,904 $10,473 1.22% 0.31% 1.22% 0.32%
02/28/1997 $13,654 $13,054 $10,505 1.17% 0.30% 1.17% 0.31%
03/31/1997 $13,558 $12,799 $10,531 -1.96% 0.25% -1.96% 0.25%
04/30/1997 $13,542 $13,219 $10,544 3.29% 0.12% 3.29% 0.12%
05/31/1997 $14,166 $14,038 $10,537 6.19% -0.06% 6.19% -0.06%
06/30/1997 $14,726 $14,739 $10,550 5.00% 0.12% 5.00% 0.12%
07/31/1997 $15,109 $15,421 $10,563 4.62% 0.12% 4.62% 0.12%
08/31/1997 $15,061 $14,392 $10,583 -6.67% 0.19% -6.67% 0.19%
09/30/1997 $15,669 $15,175 $10,609 5.45% 0.25% 5.45% 0.25%
10/31/1997 $14,471 $14,379 $10,636 -5.25% 0.25% -5.25% 0.25%
11/30/1997 $14,135 $14,636 $10,629 1.78% -0.06% 1.79% -0.06%
12/31/1997 $14,111 $14,816 $10,617 1.23% -0.12% 1.23% -0.12%
01/31/1998 $13,629 $15,232 $10,636 2.80% 0.18% 2.80% 0.19%
02/28/1998 $14,766 $16,265 $10,657 6.78% 0.20% 6.78% 0.19%
03/31/1998 $15,455 $16,954 $10,678 4.24% 0.20% 4.24% 0.19%
04/30/1998 $15,558 $17,122 $10,697 0.99% 0.18% 0.99% 0.18%
05/31/1998 $15,197 $16,910 $10,717 -1.24% 0.18% -1.24% 0.18%
06/30/1998 $14,525 $17,314 $10,730 2.39% 0.12% 2.39% 0.12%
07/31/1998 $13,990 $17,288 $10,742 -0.15% 0.12% -0.15% 0.12%
08/31/1998 $11,682 $14,985 $10,755 -13.32% 0.12% -13.32% 0.12%
09/30/1998 $11,561 $15,253 $10,768 1.79% 0.12% 1.79% 0.12%
10/31/1998 $11,819 $16,635 $10,794 9.06% 0.24% 9.06% 0.24%
11/30/1998 $12,284 $17,627 $10,794 5.96% 0.00% 5.96% 0.00%
12/31/1998 $12,391 $18,491 $10,788 4.90% -0.06% 4.90% -0.06%
01/31/1999 $11,872 $18,898 $10,814 2.20% 0.24% 2.20% 0.24%
02/28/1999 $11,443 $18,398 $10,825 -2.65% 0.10% -2.65% 0.12%
03/31/1999 $11,765 $19,167 $10,858 4.18% 0.30% 4.18% 0.30%
04/30/1999 $12,874 $19,925 $10,937 3.96% 0.73% 3.96% 0.73%
05/31/1999 $12,695 $19,199 $10,937 -3.64% 0.00% -3.64% 0.00%
06/30/1999 $13,017 $20,098 $10,937 4.68% 0.00% 4.68% 0.00%
07/31/1999 $13,142 $20,040 $10,965 -0.28% 0.26% -0.29% 0.30%
08/31/1999 $12,999 $20,007 $10,998 -0.16% 0.30% -0.16% 0.24%
09/30/1999 $12,570 $19,816 $11,046 -0.96% 0.44% -0.96% 0.48%
10/31/1999 $12,549 $20,849 $11,068 5.21% 0.20% 5.21% 0.18%
11/30/1999 $12,759 $21,438 $11,073 2.82% 0.04% 2.83% 0.06%
12/31/1999 $13,529 $23,176 $11,073 8.11% 0.00% 8.11% 0.00%
01/31/2000 $13,357 $21,851 $11,104 -5.72% 0.28% -5.72% 0.24%
02/29/2000 $13,740 $21,913 $11,167 0.28% 0.57% 0.28% 0.59%
03/31/2000 $14,182 $23,430 $11,257 6.92% 0.81% 6.92% 0.82%
04/30/2000 $13,510 $22,442 $11,266 -4.22% 0.08% -4.22% 0.06%
05/31/2000 $13,299 $21,877 $11,275 -2.52% 0.08% -2.52% 0.06%
06/30/2000 $13,836 $22,617 $11,336 3.38% 0.55% 3.38% 0.58%
07/31/2000 $13,721 $21,982 $11,360 -2.80% 0.21% -2.80% 0.17%
08/31/2000 $13,798 $22,701 $11,360 3.27% 0.00% 3.27% 0.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
ADVISOR CLASS***
--------------------------------------------------------------------------------
<S> <C>
1-Year 7.34%
5-Year 5.72%
10-Year 10.27%
Since Inception (6/1/81) 12.34%
</TABLE>
[LINE CHART ADVISOR CLASS (9/1/90 - 8/31/00)]
GRAPHIC MATERIAL (4)
The following line graph compares the performance of Templeton Global Smaller
Companies Fund's Advisor Class shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 8/31/00.
<TABLE>
<CAPTION>
TEMPLETON GLOBAL MSCI WORLD CPI TEMPLETON PERFORMANCE S&P MICROPAL
SMALLER COMPANIES INDEX
FUND - ADVISOR
CLASS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
09/01/1990 $10,000 $10,000 $10,000 MSCI World % CPI % MSCI CPI
World
09/30/1990 $9,057 $ 8,947 $10,084 -10.53% 0.84% -10.53% 0.84%
10/31/1990 $8,855 $ 9,785 $10,145 9.36% 0.60% 9.36% 0.60%
11/30/1990 $9,096 $ 9,626 $10,167 -1.62% 0.22% -1.62% 0.22%
12/31/1990 $9,369 $ 9,829 $10,167 2.11% 0.00% 2.11% 0.00%
01/31/1991 $10,041 $10,190 $10,228 3.68% 0.60% 3.68% 0.60%
02/28/1991 $11,090 $11,136 $10,243 9.27% 0.15% 9.27% 0.15%
03/31/1991 $11,638 $10,809 $10,258 -2.93% 0.15% -2.93% 0.15%
04/30/1991 $11,778 $10,896 $10,273 0.80% 0.15% 0.80% 0.15%
05/31/1991 $12,247 $11,144 $10,303 2.28% 0.29% 2.28% 0.30%
06/30/1991 $11,887 $10,458 $10,334 -6.16% 0.30% -6.16% 0.29%
07/31/1991 $12,435 $10,954 $10,349 4.74% 0.14% 4.74% 0.15%
08/31/1991 $12,670 $10,921 $10,379 -0.30% 0.29% -0.30% 0.29%
09/30/1991 $12,638 $11,209 $10,426 2.64% 0.45% 2.64% 0.44%
10/31/1991 $12,635 $11,393 $10,441 1.64% 0.14% 1.64% 0.15%
11/30/1991 $12,333 $10,898 $10,471 -4.34% 0.29% -4.34% 0.29%
12/31/1991 $13,073 $11,694 $10,479 7.30% 0.08% 7.30% 0.07%
01/31/1992 $13,611 $11,479 $10,494 -1.84% 0.14% -1.83% 0.15%
02/29/1992 $13,958 $11,283 $10,532 -1.71% 0.36% -1.71% 0.36%
03/31/1992 $13,524 $10,753 $10,585 -4.69% 0.50% -4.69% 0.51%
04/30/1992 $13,715 $10,905 $10,600 1.41% 0.14% 1.41% 0.14%
05/31/1992 $14,132 $11,340 $10,615 3.99% 0.14% 4.00% 0.14%
06/30/1992 $13,820 $10,962 $10,653 -3.33% 0.36% -3.33% 0.36%
07/31/1992 $13,663 $10,993 $10,676 0.28% 0.22% 0.27% 0.21%
08/31/1992 $13,385 $11,262 $10,706 2.45% 0.28% 2.45% 0.28%
09/30/1992 $13,176 $11,161 $10,736 -0.90% 0.28% -0.90% 0.28%
10/31/1992 $13,122 $10,861 $10,774 -2.69% 0.36% -2.69% 0.35%
11/30/1992 $13,208 $11,057 $10,789 1.81% 0.14% 1.81% 0.14%
12/31/1992 $13,555 $11,149 $10,783 0.83% -0.06% 0.83% -0.07%
01/31/1993 $14,128 $11,188 $10,836 0.35% 0.49% 0.35% 0.49%
02/28/1993 $14,415 $11,455 $10,874 2.38% 0.35% 2.39% 0.35%
03/31/1993 $15,033 $12,122 $10,912 5.82% 0.35% 5.82% 0.35%
04/30/1993 $15,231 $12,685 $10,942 4.65% 0.27% 4.65% 0.28%
05/31/1993 $15,518 $12,980 $10,957 2.32% 0.14% 2.32% 0.14%
06/30/1993 $15,319 $12,872 $10,972 -0.83% 0.14% -0.82% 0.14%
07/31/1993 $15,430 $13,140 $10,972 2.08% 0.00% 2.08% 0.00%
08/31/1993 $16,423 $13,745 $11,003 4.60% 0.28% 4.60% 0.28%
09/30/1993 $16,489 $13,493 $11,025 -1.83% 0.20% -1.83% 0.21%
10/31/1993 $17,064 $13,867 $11,072 2.77% 0.42% 2.77% 0.41%
11/30/1993 $16,953 $13,084 $11,079 -5.64% 0.07% -5.64% 0.07%
12/31/1993 $17,871 $13,727 $11,078 4.91% 0.00% 4.91% 0.00%
01/31/1994 $18,832 $14,635 $11,109 6.62% 0.28% 6.61% 0.27%
02/28/1994 $18,497 $14,448 $11,148 -1.28% 0.35% -1.28% 0.34%
03/31/1994 $17,848 $13,828 $11,186 -4.29% 0.34% -4.29% 0.34%
04/30/1994 $18,005 $14,257 $11,201 3.11% 0.13% 3.11% 0.14%
05/31/1994 $17,938 $14,296 $11,208 0.27% 0.06% 0.27% 0.07%
06/30/1994 $17,201 $14,259 $11,246 -0.26% 0.34% -0.26% 0.34%
07/31/1994 $17,760 $14,533 $11,276 1.92% 0.27% 1.92% 0.27%
08/31/1994 $18,431 $14,973 $11,322 3.03% 0.41% 3.03% 0.40%
09/30/1994 $18,252 $14,582 $11,352 -2.61% 0.26% -2.61% 0.27%
10/31/1994 $18,064 $14,999 $11,361 2.86% 0.07% 2.86% 0.07%
11/30/1994 $17,251 $14,352 $11,376 -4.32% 0.13% -4.32% 0.13%
12/31/1994 $17,051 $14,493 $11,376 0.99% 0.00% 0.99% 0.00%
01/31/1995 $16,593 $14,279 $11,420 -1.48% 0.39% -1.48% 0.40%
02/28/1995 $16,936 $14,490 $11,466 1.48% 0.40% 1.48% 0.40%
03/31/1995 $17,304 $15,191 $11,504 4.84% 0.33% 4.84% 0.33%
04/30/1995 $18,062 $15,723 $11,542 3.50% 0.33% 3.50% 0.33%
05/31/1995 $18,612 $15,861 $11,565 0.88% 0.20% 0.87% 0.20%
06/30/1995 $19,117 $15,859 $11,587 -0.01% 0.20% -0.01% 0.20%
07/31/1995 $20,057 $16,656 $11,587 5.02% 0.00% 5.02% 0.00%
08/31/1995 $20,126 $16,287 $11,619 -2.21% 0.27% -2.21% 0.26%
09/30/1995 $20,377 $16,765 $11,640 2.93% 0.19% 2.93% 0.20%
10/31/1995 $19,678 $16,504 $11,679 -1.56% 0.33% -1.56% 0.33%
11/30/1995 $19,828 $17,080 $11,670 3.49% -0.07% 3.49% -0.07%
12/31/1995 $20,060 $17,583 $11,663 2.94% -0.07% 2.94% -0.07%
01/31/1996 $20,611 $17,903 $11,731 1.82% 0.59% 1.83% 0.59%
02/29/1996 $21,215 $18,016 $11,769 0.63% 0.32% 0.63% 0.32%
03/31/1996 $21,531 $18,319 $11,830 1.69% 0.52% 1.68% 0.52%
04/30/1996 $22,057 $18,753 $11,875 2.37% 0.38% 2.37% 0.39%
05/31/1996 $22,478 $18,773 $11,898 0.10% 0.19% 0.10% 0.19%
06/30/1996 $22,635 $18,871 $11,906 0.53% 0.06% 0.52% 0.06%
07/31/1996 $21,714 $18,208 $11,928 -3.51% 0.19% -3.52% 0.19%
08/31/1996 $22,476 $18,421 $11,951 1.17% 0.19% 1.17% 0.19%
09/30/1996 $22,845 $19,146 $11,989 3.93% 0.32% 3.93% 0.32%
10/31/1996 $23,174 $19,282 $12,027 0.71% 0.32% 0.72% 0.32%
11/30/1996 $23,823 $20,366 $12,050 5.62% 0.19% 5.62% 0.19%
12/31/1996 $24,487 $20,044 $12,050 -1.58% 0.00% -1.58% 0.00%
01/31/1997 $25,046 $20,288 $12,088 1.22% 0.31% 1.22% 0.32%
02/28/1997 $25,311 $20,525 $12,124 1.17% 0.30% 1.17% 0.31%
03/31/1997 $25,195 $20,123 $12,154 -1.96% 0.25% -1.96% 0.25%
04/30/1997 $25,164 $20,784 $12,169 3.29% 0.12% 3.29% 0.12%
05/31/1997 $26,370 $22,071 $12,162 6.19% -0.06% 6.19% -0.06%
06/30/1997 $27,398 $23,175 $12,176 5.00% 0.12% 5.00% 0.12%
07/31/1997 $28,163 $24,246 $12,191 4.62% 0.12% 4.62% 0.12%
08/31/1997 $28,075 $22,628 $12,214 -6.67% 0.19% -6.67% 0.19%
09/30/1997 $29,252 $23,860 $12,244 5.45% 0.25% 5.45% 0.25%
10/31/1997 $27,075 $22,608 $12,275 -5.25% 0.25% -5.25% 0.25%
11/30/1997 $26,455 $23,012 $12,268 1.78% -0.06% 1.79% -0.06%
12/31/1997 $26,405 $23,296 $12,253 1.23% -0.12% 1.23% -0.12%
01/31/1998 $25,544 $23,949 $12,275 2.80% 0.18% 2.80% 0.19%
02/28/1998 $27,713 $25,573 $12,300 6.78% 0.20% 6.78% 0.19%
03/31/1998 $29,021 $26,657 $12,324 4.24% 0.20% 4.24% 0.19%
04/30/1998 $29,276 $26,921 $12,346 0.99% 0.18% 0.99% 0.18%
05/31/1998 $28,638 $26,588 $12,369 -1.24% 0.18% -1.24% 0.18%
06/30/1998 $27,395 $27,222 $12,383 2.39% 0.12% 2.39% 0.12%
07/31/1998 $26,374 $27,182 $12,398 -0.15% 0.12% -0.15% 0.12%
08/31/1998 $22,038 $23,561 $12,413 -13.32% 0.12% -13.32% 0.12%
09/30/1998 $21,846 $23,982 $12,428 1.79% 0.12% 1.79% 0.12%
10/31/1998 $22,353 $26,155 $12,458 9.06% 0.24% 9.06% 0.24%
11/30/1998 $23,220 $27,715 $12,458 5.96% 0.00% 5.96% 0.00%
12/31/1998 $23,455 $29,073 $12,450 4.90% -0.06% 4.90% -0.06%
01/31/1999 $22,486 $29,714 $12,481 2.20% 0.24% 2.20% 0.24%
02/28/1999 $21,719 $28,926 $12,493 -2.65% 0.10% -2.65% 0.12%
03/31/1999 $22,319 $30,135 $12,531 4.18% 0.30% 4.18% 0.30%
04/30/1999 $24,421 $31,328 $12,622 3.96% 0.73% 3.96% 0.73%
05/31/1999 $24,121 $30,187 $12,622 -3.64% 0.00% -3.64% 0.00%
06/30/1999 $24,789 $31,599 $12,622 4.68% 0.00% 4.68% 0.00%
07/31/1999 $25,022 $31,509 $12,655 -0.28% 0.26% -0.29% 0.30%
08/31/1999 $24,754 $31,458 $12,693 -0.16% 0.30% -0.16% 0.24%
09/30/1999 $23,987 $31,157 $12,749 -0.96% 0.44% -0.96% 0.48%
10/31/1999 $23,941 $32,781 $12,774 5.21% 0.20% 5.21% 0.18%
11/30/1999 $24,374 $33,706 $12,780 2.82% 0.04% 2.83% 0.06%
12/31/1999 $25,881 $36,440 $12,780 8.11% 0.00% 8.11% 0.00%
01/31/2000 $25,555 $34,357 $12,815 -5.72% 0.28% -5.72% 0.24%
02/29/2000 $26,319 $34,454 $12,889 0.28% 0.57% 0.28% 0.59%
03/31/2000 $27,190 $36,839 $12,992 6.92% 0.81% 6.92% 0.82%
04/30/2000 $25,917 $35,286 $13,003 -4.22% 0.08% -4.22% 0.06%
05/31/2000 $25,555 $34,397 $13,013 -2.52% 0.08% -2.52% 0.06%
06/30/2000 $26,572 $35,560 $13,084 3.38% 0.55% 3.38% 0.58%
07/31/2000 $26,391 $34,563 $13,112 -2.80% 0.21% -2.80% 0.17%
08/31/2000 $26,572 $35,692 $13,112 3.27% 0.00% 3.27% 0.06%
</TABLE>
*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 (8/31/00). The
Consumer Price Index is a commonly used measure of inflation.
***Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class.
Past performance does not guarantee future results.
10
<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 be worth more than $87,000 today. The chart below
illustrates the cumulative total return of a hypothetical $10,000 investment in
the Fund on June 1, 1981 (inception), reflecting the current, maximum sales
charge and applicable fees and expenses, with income dividends and capital gains
reinvested as shown through August 31, 2000.*
GRAPHIC MATERIAL (5)
This logarithmic mountain chart shows the value of a $10,000 investment in
Templeton Global Smaller Companies Fund, from inception on June 1, 1981, through
August 31, 2000.*
$87,318
Total value of investment 8/31/00
$10,000
Cost of investment 6/1/81
Initial net asset value
$9,425
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL TOTAL CPI PRINCIPAL INCOME CAPITAL PERIOD CPI
+ DIVIDENDS + CAP GAINS VALUE GAIN
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/01/1981 $ 9,423 $ 9,423 $ 9,423 $10,000 $ 9,423 $ 0 $ 0
12/31/1981 $ 9,352 $ 9,155 $ 9,356 $10,468 $ 9,151 $ 201 $ 4 81 4.68%
12/31/1982 $12,214 $12,014 $12,720 $10,869 $11,508 $ 706 $ 506 82 3.83%
12/31/1983 $15,332 $16,408 $17,674 $11,281 $14,066 $ 1,266 $ 2,342 83 3.79%
12/31/1984 $14,603 $16,158 $17,746 $11,726 $13,015 $ 1,588 $ 3,143 84 3.95%
12/31/1985 $17,722 $20,781 $23,186 $12,172 $15,317 $ 2,405 $ 5,464 85 3.80%
12/31/1986 $20,149 $24,221 $27,562 $12,306 $16,808 $ 3,341 $ 7,413 86 1.10%
12/31/1987 $16,905 $20,912 $24,362 $12,851 $13,455 $ 3,450 $ 7,457 87 4.43%
12/31/1988 $19,693 $26,700 $31,381 $13,419 $15,012 $ 4,681 $11,688 88 4.42%
12/31/1989 $22,533 $30,945 $36,984 $14,043 $16,494 $ 6,039 $14,451 89 4.65%
12/31/1990 $17,661 $25,865 $31,190 $14,901 $12,336 $ 5,325 $13,529 90 6.11%
12/31/1991 $22,989 $36,012 $43,515 $15,357 $15,486 $ 7,503 $20,526 91 3.06%
12/31/1992 $19,720 $38,044 $45,120 $15,802 $12,644 $ 7,076 $25,400 92 2.90%
12/31/1993 $26,204 $49,740 $59,490 $16,237 $16,454 $ 9,750 $33,286 93 2.75%
12/31/1994 $25,125 $46,936 $56,761 $16,671 $15,300 $ 9,825 $31,636 94 2.67%
12/31/1995 $26,728 $55,765 $66,780 $17,094 $15,713 $11,015 $40,052 95 2.54%
12/31/1996 $30,417 $68,327 $81,529 $17,662 $17,215 $13,202 $51,112 96 3.32%
12/31/1997 $31,228 $73,092 $87,289 $17,962 $17,031 $14,197 $56,061 97 1.70%
12/31/1998 $27,764 $64,042 $77,349 $18,251 $14,457 $13,307 $49,585 98 1.61%
12/31/1999 $30,204 $69,624 $85,165 $18,740 $14,663 $15,541 $54,961 99 2.68%
08/31/2000 $30,967 $71,384 $87,318 $19,229 $15,033 $15,934 $56,351 08/31/2000 2.61%
</TABLE>
*Cumulative total return represents the change in value of an investment over
the indicated period. All cumulative total return figures on this chart 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 does not guarantee future results.
11
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the
year)
Net asset value, beginning of year.......... $7.40 $6.90 $9.53 $8.55 $8.77
--------------------------------------------------------------------------
Income from investment operations:
Net investment income...................... .11 .13 .16 .13 .16
Net realized and unrealized gains
(losses)................................. .35 .66 (2.07) 1.77 .72
--------------------------------------------------------------------------
Total from investment operations............ .46 .79 (1.91) 1.90 .88
--------------------------------------------------------------------------
Less distributions from:
Net investment income...................... (.17) (.11) (.13) (.13) (.12)
Net realized gains......................... (.39) (.18) (.59) (.79) (.98)
--------------------------------------------------------------------------
Total distributions......................... (.56) (.29) (.72) (.92) (1.10)
--------------------------------------------------------------------------
Net asset value, end of year................ $7.30 $7.40 $6.90 $9.53 $8.55
==========================================================================
Total Return*............................... 7.09% 11.96% (21.64)% 24.20% 11.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............. $952,784 $1,059,988 $1,275,313 $1,881,547 $1,544,214
Ratios to average net assets:
Expenses................................... 1.37% 1.39% 1.27% 1.30% 1.27%
Net investment income...................... 1.60% 1.90% 1.69% 1.43% 1.93%
Portfolio turnover rate..................... 27.19% 14.04% 23.52% 25.60% 32.71%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
12
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999+
-----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $7.36 $7.02
-----------------------------------
Income from investment operations:
Net investment income...................................... .07 .07
Net realized and unrealized gains.......................... .32 .27
-----------------------------------
Total from investment operations............................ .39 .34
-----------------------------------
Less distributions from:
Net investment income...................................... (.16) --
Net realized gains......................................... (.39) --
-----------------------------------
Total distributions......................................... (.55) --
-----------------------------------
Net asset value, end of year................................ $7.20 $7.36
===================================
Total Return*............................................... 6.01% 4.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $519 $220
Ratios to average net assets:
Expenses................................................... 2.11% 2.21%**
Net investment income...................................... .98% 1.38%**
Portfolio turnover rate..................................... 27.19% 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.
13
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................... $7.27 $6.78 $9.42 $8.47 $8.75
--------------------------------------------------------------
Income from investment operations:
Net investment income................................ .05 .08 .08 .07 .13
Net realized and unrealized gains (losses)........... .35 .65 (2.05) 1.75 .67
--------------------------------------------------------------
Total from investment operations...................... .40 .73 (1.97) 1.82 .80
--------------------------------------------------------------
Less distributions from:
Net investment income................................ (.09) (.06) (.08) (.08) (.10)
Net realized gains................................... (.39) (.18) (.59) (.79) (.98)
--------------------------------------------------------------
Total distributions................................... (.48) (.24) (.67) (.87) (1.08)
--------------------------------------------------------------
Net asset value, end of year.......................... $7.19 $7.27 $6.78 $9.42 $8.47
==============================================================
Total Return*......................................... 6.15% 11.28% (22.44)% 23.42% 10.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $20,729 $29,523 $38,287 $43,071 $15,483
Ratios to average net assets:
Expenses............................................. 2.11% 2.13% 2.03% 2.05% 2.07%
Net investment income................................ .79% 1.11% .96% .75% 1.23%
Portfolio turnover rate............................... 27.19% 14.04% 23.52% 25.60% 32.71%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
14
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------
2000 1999 1998 1997+
---------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $7.42 $6.91 $9.55 $8.33
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .14 .16 .16 .10
Net realized and unrealized gains (losses)................. .34 .65 (2.06) 1.12
-----------------------------------------------
Total from investment operations............................ .48 .81 (1.90) 1.22
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.20) (.12) (.15) --
Net realized gains......................................... (.39) (.18) (.59) --
-----------------------------------------------
Total distributions......................................... (.59) (.30) (.74) --
-----------------------------------------------
Net asset value, end of year................................ $7.31 $7.42 $6.91 $9.55
===============================================
Total Return*............................................... 7.34% 12.33% (21.51)% 14.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $10,234 $6,236 $7,185 $7,895
Ratios to average net assets:
Expenses................................................... 1.12% 1.14% 1.03% 1.05%**
Net investment income...................................... 1.93% 2.26% 1.97% 2.18%**
Portfolio turnover rate..................................... 27.19% 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 effective year ended August 31,
1999.
See Notes to Financial Statements.
15
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 82.3%
AIR FREIGHT & COURIERS .5%
Airborne Freight Corp. ..................................... United States 312,000 $ 4,660,500
------------
AUTO COMPONENTS 1.8%
Grupo Industrial Saltillo SA, B............................. Mexico 2,371,350 4,167,991
Laird Group PLC............................................. United Kingdom 2,900,000 10,759,337
*Weifu Fuel Injection Co. Ltd., B........................... China 5,555,065 2,272,083
------------
17,199,411
------------
BANKS 3.9%
Banco de Andalucia SA....................................... Spain 377,335 9,393,119
Erste Bank der Oester Sparkassen AG......................... Austria 163,250 7,271,359
National Bank of Canada..................................... Canada 893,200 14,143,166
Union Bank of Norway........................................ Norway 314,000 7,785,639
------------
38,593,283
------------
BEVERAGES 1.3%
Grupo Continental SA........................................ Mexico 6,517,000 8,282,972
PanAmerican Beverages Inc., A............................... Mexico 234,400 4,351,050
------------
12,634,022
------------
BUILDING PRODUCTS .5%
Hepworth PLC................................................ United Kingdom 1,680,600 5,098,210
------------
CHEMICALS 3.5%
Energia e Industrias Aragonesas Eia SA...................... Spain 1,641,000 7,119,559
Gurit Heberlein AG, Br. .................................... Switzerland 20,000 13,795,874
McBride PLC................................................. United Kingdom 3,800,000 4,063,669
Omnova Solutions Inc. ...................................... United States 641,000 3,846,000
Schuttersveld NV............................................ Netherlands 217,194 3,128,150
*Ucar International Inc. ................................... United States 200,000 2,725,000
------------
34,678,252
------------
COMMERCIAL SERVICES & SUPPLIES 2.4%
Arcadis NV.................................................. Netherlands 493,865 3,819,902
Galileo International Inc. ................................. United States 400,000 7,450,000
Observer AB, A.............................................. Sweden 225,400 3,009,633
Observer AB, B.............................................. Sweden 480,400 6,465,406
Samas-Groep NV.............................................. Netherlands 214,385 2,906,625
------------
23,651,566
------------
COMMUNICATIONS EQUIPMENT 2.5%
+*Latitude Communications Inc. ............................. United States 1,180,600 10,588,506
VTech Holdings Ltd. ........................................ Hong Kong 4,533,000 14,123,306
------------
24,711,812
------------
</TABLE>
16
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
COMPUTERS & PERIPHERALS .6%
*Quantum Corp-DSSG.......................................... United States 410,000 $ 5,560,625
------------
CONSTRUCTION & ENGINEERING 2.7%
+Fives-Lille Cie De......................................... France 133,133 9,397,902
Hollandsche Beton Groep NV.................................. Netherlands 850,920 8,737,665
Okumura Corp. .............................................. Japan 2,047,000 6,814,375
Wai Kee Holdings Ltd. ...................................... Hong Kong 17,848,000 1,350,162
------------
26,300,104
------------
CONSTRUCTION MATERIALS 1.3%
Gujarat Ambuja Cements Ltd. ................................ India 2,070,277 8,856,461
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 82,600 382,025
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 1,184,600 3,738,554
------------
12,977,040
------------
DISTRIBUTORS .1%
*Daisytek International Corp................................ United States 150,000 1,031,250
Scribona AB, B.............................................. Sweden 134,100 319,742
------------
1,350,992
------------
DIVERSIFIED FINANCIALS 1.7%
Athlon Groep NV............................................. Netherlands 146,920 2,031,122
BPI Sociedad de Gestora de Participacoes Socias SA.......... Portugal 1,506,150 5,356,152
ICICI Ltd., ADR............................................. India 667,000 9,421,375
------------
16,808,649
------------
ELECTRIC UTILITIES 1.2%
Guangdong Electric Power Development Co. Ltd., B............ China 14,689,967 11,941,378
------------
ELECTRICAL EQUIPMENT .9%
Twentsche Kabel Holdings NV................................. Netherlands 264,775 9,274,658
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.0%
Varitronix International Ltd. .............................. Hong Kong 4,700,000 9,792,545
------------
FOOD PRODUCTS 2.2%
Devro PLC................................................... United Kingdom 2,270,000 2,212,830
Geest PLC................................................... United Kingdom 1,180,000 7,828,782
Hazlewood Foods PLC......................................... United Kingdom 563,273 733,482
Lindt & Spruengli Chocolate Works Ltd. ..................... Switzerland 21,900 10,619,781
------------
21,394,875
------------
GAS UTILITIES .9%
Gas Authority of India Ltd., GDR, 144A...................... India 1,280,500 8,643,375
------------
HEALTH CARE EQUIPMENT & SUPPLIES .6%
*Medison Co. Ltd. .......................................... South Korea 794,000 5,385,236
------------
</TABLE>
17
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH CARE PROVIDERS & SERVICES 2.0%
Apothekers Cooperatie OPG VA................................ Netherlands 180,000 $ 4,536,807
Bergen Brunswig Corp., A.................................... United States 525,000 4,921,875
*Healthcare Services Group Inc. ............................ United States 212,750 1,077,047
*Quorum Health Group Inc. .................................. United States 707,000 9,102,625
------------
19,638,354
------------
HOTELS RESTAURANTS & LEISURE .5%
*Prime Hospitality Corp. ................................... United States 492,000 5,104,500
------------
HOUSEHOLD DURABLES 2.2%
Bang & Olufsen Holding AS, B................................ Denmark 71,800 2,688,289
Guangdong Kelon Electrical Holdings Ltd., H, 144A........... China 11,152,000 3,681,920
*Schuler Homes Inc. ........................................ United States 1,005,000 7,568,906
+Techtronic Industries Co. Ltd. ............................ Hong Kong 29,104,621 7,649,978
------------
21,589,093
------------
HOUSEHOLD PRODUCTS 1.8%
Alberto-Culver Co., A....................................... United States 396,150 9,507,600
Dial Corp. ................................................. United States 772,800 7,921,200
------------
17,428,800
------------
INDUSTRIAL CONGLOMERATES 1.1%
Aalberts Industries NV...................................... Netherlands 454,000 10,817,212
------------
INSURANCE 4.2%
Enhance Financial Services Group Inc. ...................... United States 290,000 4,567,500
Mutual Risk Management Ltd. ................................ Bermuda 990,485 21,047,806
Radian Group Inc. .......................................... United States 260,000 16,152,500
------------
41,767,806
------------
INTERNET SOFTWARE & SERVICES 3.1%
*Chinadotcom Corp., A....................................... Hong Kong 110,300 1,944,038
*GoAmerica Inc. ............................................ United States 417,500 4,566,406
*Netease.com Inc., ADR...................................... China 444,000 3,385,500
+*Pfsweb Inc. .............................................. United States 1,023,851 2,815,590
*Preview Systems Inc. ...................................... United States 500,000 4,343,750
*Sohu.com Inc. ............................................. China 810,570 6,180,596
*Vicinity Corp. ............................................ United States 658,300 7,323,588
------------
30,559,468
------------
IT CONSULTING & SERVICES 1.9%
*Complete Business Solutions Inc. .......................... United States 532,000 7,182,000
*Computer Horizons Corp. ................................... United States 630,000 6,024,375
*Gartner Group Inc., B...................................... United States 500,000 5,625,000
------------
18,831,375
------------
</TABLE>
18
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY 9.3%
Bucher Industries AG........................................ Switzerland 4,226 $ 3,419,506
Draka Holding NV............................................ Netherlands 283,485 22,027,551
IHC Caland NV............................................... Netherlands 256,600 13,345,573
METSO OYJ................................................... Finland 381,600 4,613,940
SIG Schweiz Industrie-Gesellschaft Holding AG............... Switzerland 19,800 13,282,947
Swisslog Holding AG......................................... Switzerland 20,000 11,259,361
Wagon PLC................................................... United Kingdom 2,577,400 7,031,216
Weir Group PLC.............................................. United Kingdom 5,023,412 16,444,802
------------
91,424,896
------------
MARINE .7%
Sea Containers Ltd., A...................................... United Kingdom 233,600 6,657,600
------------
MEDIA 2.7%
*24/7 Media Inc. ........................................... United States 260,000 3,753,750
Hollinger International Inc., A............................. United States 694,280 11,368,835
*Scholastic Corp. .......................................... United States 178,900 11,483,144
------------
26,605,729
------------
METALS & MINING 1.0%
AK Steel Holding Corp. ..................................... United States 540,000 5,872,500
Century Aluminum Co. ....................................... United States 318,300 4,157,794
------------
10,030,294
------------
MULTILINE RETAIL 1.8%
Hudsons Bay Co. ............................................ Canada 596,900 6,253,759
Matsuzakaya Co. Ltd. ....................................... Japan 227,000 557,708
SA des Galeries Lafayette................................... France 55,400 11,013,016
------------
17,824,483
------------
OIL & GAS 1.7%
*Canadian Natural Resources Ltd. ........................... Canada 73,421 2,404,538
Fletcher Challenge Energy Ltd. ............................. New Zealand 3,800,000 14,561,382
------------
16,965,920
------------
PAPER & FOREST PRODUCTS 2.6%
Crown Van Gelder Papierfabrieken NV......................... Netherlands 373,600 4,517,212
Hung Hing Printing Group Ltd. .............................. Hong Kong 17,271,508 6,643,484
Metsa Serla OY, B........................................... Finland 918,460 6,654,916
Munksjo AB.................................................. Sweden 1,300,000 8,059,132
------------
25,874,744
------------
PHARMACEUTICALS .6%
*Skyepharma PLC............................................. United Kingdom 4,616,871 5,844,055
------------
</TABLE>
19
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 1.6%
Inversiones y Representacion SA............................. Argentina 3,117,914 $ 7,578,047
Inversiones y Representacion SA, GDR........................ Argentina 39,048 956,676
Nagron Nationaal Grondbezit NV.............................. Netherlands 292,000 7,190,967
------------
15,725,690
------------
ROAD & RAIL 1.3%
Seino Transportation Co. Ltd. .............................. Japan 1,487,000 7,906,311
Stagecoach Holdings PLC..................................... United Kingdom 4,000,000 4,292,095
*Transportes Azkar SA....................................... Spain 8,133 65,075
------------
12,263,481
------------
SOFTWARE .3%
*Synquest Inc. ............................................. United States 400,000 3,137,500
------------
SPECIALTY RETAIL 6.3%
Danske Traelast AS.......................................... Denmark 107,000 12,758,676
Dickson Concepts International Ltd. ........................ Hong Kong 5,500,000 4,901,081
Giordano International Ltd. ................................ Hong Kong 50,497,348 27,517,050
+*Goodys Family Clothing Inc. .............................. United States 2,065,100 9,486,553
Lex Service PLC............................................. United Kingdom 1,296,000 7,665,013
------------
62,328,373
------------
TEXTILES & APPAREL 3.1%
Fountain Set Holdings Ltd. ................................. Hong Kong 12,830,000 1,365,366
Li & Fung Ltd. ............................................. Hong Kong 6,574,500 28,660,649
------------
30,026,015
------------
TRADING COMPANIES & DISTRIBUTORS 2.2%
Internatio-Muller NV........................................ Netherlands 628,092 11,168,065
Samsung Corp. .............................................. South Korea 1,200,000 10,877,114
------------
22,045,179
------------
WIRELESS TELECOMMUNICATION SERVICES .7%
*Millicom International Cellular SA......................... Luxembourg 150,000 6,628,125
------------
TOTAL COMMON STOCKS (COST $675,377,570)..................... 809,775,225
------------
PREFERRED STOCKS 2.6%
*Celular CRT Participacoes SA, A, pfd. ..................... Brazil 10,249,900 4,844,690
*Companhia Riograndense de Telecom, A, pfd. ................ Brazil 8,715,900 3,784,315
Fertilizantes Fosfatados SA, pfd. .......................... Brazil 837,400,000 2,738,406
Hugo Boss AG, pfd. ......................................... Germany 66,000 14,082,504
------------
TOTAL PREFERRED STOCKS (COST $17,755,071)................... 25,449,915
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$693,132,641)............................................. 835,225,140
------------
</TABLE>
20
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENT (COST $94,697,000) 9.6%
Paribas Corp., 6.62%, 9/01/00 (Maturity Value $94,714,414)
Collateralized by U.S. Treasury Notes and Bonds........... United States $94,697,000 $ 94,697,000
------------
TOTAL INVESTMENTS (COST $787,829,641) 94.5%................. 929,922,140
OTHER ASSETS, LESS LIABILITIES 5.5%......................... 54,343,598
------------
TOTAL NET ASSETS 100.0%..................................... $984,265,738
============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
+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,
2000 were $39,938,529.
(a)At August 31, 2000, all repurchase agreements held by the Fund had been
entered into on that date.
See Notes to Financial Statements.
21
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $693,132,641).... $835,225,140
Repurchase agreement, at value and cost.................... 94,697,000
Cash....................................................... 134,108
Receivables:
Investment securities sold................................ 7,022,673
Capital shares sold....................................... 55,747,429
Dividends and interest.................................... 4,236,088
------------
Total assets.......................................... 997,062,438
------------
Liabilities:
Payables:
Investment securities purchased........................... 8,791,626
Capital shares redeemed................................... 2,332,615
To affiliates............................................. 1,009,432
Deferred tax liability (Note 1e)........................... 263,125
Accrued expenses........................................... 399,902
------------
Total liabilities..................................... 12,796,700
------------
Net assets, at value........................................ $984,265,738
============
Net assets consist of:
Undistributed net investment income........................ $ 13,059,255
Net unrealized appreciation................................ 141,829,374
Accumulated net realized gain.............................. 38,739,610
Capital shares............................................. 790,637,499
------------
Net assets, at value........................................ $984,265,738
============
CLASS A:
Net asset value per share ($952,784,011 / 130,565,572
shares outstanding)...................................... $7.30
============
Maximum offering price per share ($7.30 / 94.25%).......... $7.75
============
CLASS B:
Net asset value and maximum offering price per share
($519,260 / 72,109 shares outstanding)*................... $7.20
============
CLASS C:
Net asset value per share ($20,728,634 / 2,881,427 shares
outstanding)*............................................. $7.19
============
Maximum offering price per share ($7.19 / 99.00%).......... $7.26
============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($10,233,833 / 1,399,791 shares outstanding).............. $7.31
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
22
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,406,074)
Dividends.................................................. $26,331,656
Interest................................................... 4,262,055
-----------
Total investment income............................... $30,593,711
Expenses:
Management fees (Note 3)................................... 7,735,090
Administrative fees (Note 3)............................... 1,306,347
Distribution fees (Note 3)
Class A................................................... 2,499,572
Class B................................................... 3,250
Class C................................................... 248,171
Transfer agent fees (Note 3)............................... 1,592,500
Custodian fees............................................. 383,300
Reports to shareholders.................................... 229,200
Registration and filing fees............................... 90,300
Professional fees.......................................... 82,200
Directors fees and expenses................................ 109,900
Other...................................................... 3,102
-----------
Total expenses........................................ 14,282,932
-----------
Net investment income........................... 16,310,779
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 44,557,594
Foreign currency transactions............................. (886,547)
-----------
Net realized gain..................................... 43,671,047
Net unrealized appreciation (depreciation) on:
Investments............................................... 28,271,165
Deferred taxes (Note 1e).................................. (263,125)
-----------
Net unrealized appreciation........................... 28,008,040
-----------
Net realized and unrealized gain............................ 71,679,087
-----------
Net increase in net assets resulting from operations........ $87,989,866
===========
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 16,310,779 $ 23,035,583
Net realized gain from investments and foreign currency
transactions............................................. 43,671,047 53,185,618
Net unrealized appreciation on investments and deferred
taxes.................................................... 28,008,040 66,279,167
-----------------------------------
Net increase in net assets resulting from operations.... 87,989,866 142,500,368
Distributions to shareholders from:
Net investment income:
Class A.................................................. (24,567,426) (20,124,664)
Class B.................................................. (4,026) --
Class C.................................................. (334,497) (381,690)
Advisor Class............................................ (167,074) (115,538)
Net realized gains:
Class A.................................................. (56,072,249) (32,018,770)
Class B.................................................. (10,395) --
Class C.................................................. (1,514,644) (996,475)
Advisor Class............................................ (328,140) (162,672)
-----------------------------------
Total distributions to shareholders........................ (82,998,451) (53,799,809)
Capital share transactions (Note 2):
Class A.................................................. (112,391,262) (301,306,911)
Class B.................................................. 284,167 216,176
Class C.................................................. (8,468,081) (10,984,426)
Advisor Class............................................ 3,881,826 (1,442,718)
-----------------------------------
Total capital share transactions........................... (116,693,350) (313,517,879)
Net decrease in net assets.............................. (111,701,935) (224,817,320)
Net assets:
Beginning of year.......................................... 1,095,967,673 1,320,784,993
-----------------------------------
End of year................................................ $ 984,265,738 $1,095,967,673
===================================
Undistributed net investment income included in net assets:
End of year................................................ $ 13,059,255 $ 21,774,665
===================================
</TABLE>
See Notes to Financial Statements.
24
<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. 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.
25
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
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.
d. 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.
e. DEFERRED TAXES:
Deferred taxes are recorded for estimated tax liabilities inherent in the Fund's
portfolio securities which may arise from subsequent sales of those securities
and asset repatriations from countries that impose such taxes.
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, 2000, 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,
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold....................................... 648,287,682 $ 4,625,765,024 185,542,788 $ 1,308,691,167
Shares issued on reinvestment of distributions.... 10,545,804 69,941,217 7,007,145 45,476,057
Shares redeemed................................... (671,505,503) (4,808,097,503) (234,204,372) (1,655,474,135)
-----------------------------------------------------------------------
Net decrease...................................... (12,672,017) $ (112,391,262) (41,654,439) $ (301,306,911)
=======================================================================
</TABLE>
26
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999*
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold....................................... 124,024 $ 871,758 29,870 $ 216,176
Shares issued on reinvestment of distributions.... 2,187 14,422 -- --
Shares redeemed................................... (83,972) (602,013) -- --
-----------------------------------------------------------------------
Net increase...................................... 42,239 $ 284,167 29,870 $ 216,176
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold....................................... 4,746,433 $ 33,310,308 1,311,746 $ 8,857,268
Shares issued on reinvestment of distributions.... 245,032 1,609,170 187,059 1,199,047
Shares redeemed................................... (6,171,879) (43,387,559) (3,082,452) (21,040,741)
-----------------------------------------------------------------------
Net decrease...................................... (1,180,414) $ (8,468,081) (1,583,647) $ (10,984,426)
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold....................................... 3,149,686 $ 22,532,444 2,435,651 $ 17,892,494
Shares issued on reinvestment of distributions.... 73,990 491,828 41,939 272,183
Shares redeemed................................... (2,663,832) (19,142,446) (2,677,179) (19,607,395)
-----------------------------------------------------------------------
Net increase (decrease)........................... 559,844 $ 3,881,826 (199,589) $ (1,442,718)
=======================================================================
</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 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.
27
<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, 2000, unreimbursed costs were $632,518. Distributors
received net commissions from sales of the Fund's shares and received contingent
deferred sales charges for the year of $83,563 and $66,805, respectively.
4. 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.
At August 31, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $787,994,643 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $231,593,564
Unrealized depreciation..................................... (89,666,067)
------------
Net unrealized appreciation................................. $141,927,497
============
</TABLE>
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of wash sales and losses
realized subsequent to October 31, on the sale of foreign currencies.
At August 31, 2000, the Fund had deferred currency losses occurring subsequent
to October 31, 1999 of $933,381. For tax purposes, such losses will be reflected
in the year ending August 31, 2001.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $260,779,886 and $604,214,865, respectively.
28
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
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, 2000, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
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 audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, 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 audits, which included confirmation
of securities at August 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above. The
financial highlights for each of the three years ending August 31, 1998 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 29, 2000
29
<PAGE>
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $22,475,970 as a capital gain dividend for the fiscal year ended
August 31, 2000.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
6.44% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 2000.
At August 31, 2000, 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 of record on October 19, 2000.
<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 $0.0012 $0.0000 $0.0009
Austria.............................................. 0.0003 0.0013 0.0003 0.0010
Bermuda.............................................. 0.0000 0.0066 0.0000 0.0054
Brazil............................................... 0.0012 0.0086 0.0012 0.0070
Canada............................................... 0.0007 0.0035 0.0007 0.0029
China................................................ 0.0000 0.0048 0.0000 0.0039
Denmark.............................................. 0.0003 0.0014 0.0003 0.0011
Egypt................................................ 0.0000 0.0021 0.0000 0.0017
Finland.............................................. 0.0006 0.0032 0.0006 0.0026
France............................................... 0.0002 0.0011 0.0002 0.0009
Germany.............................................. 0.0003 0.0019 0.0003 0.0015
Hong Kong............................................ 0.0000 0.0265 0.0000 0.0218
India................................................ 0.0000 0.0066 0.0000 0.0055
Japan................................................ 0.0005 0.0026 0.0005 0.0022
Mexico............................................... 0.0002 0.0018 0.0002 0.0015
Netherlands.......................................... 0.0047 0.0232 0.0047 0.0191
New Zealand.......................................... 0.0007 0.0031 0.0007 0.0025
Norway............................................... 0.0006 0.0034 0.0006 0.0028
Poland............................................... 0.0001 0.0004 0.0001 0.0003
Portugal............................................. 0.0002 0.0008 0.0002 0.0007
South Africa......................................... 0.0000 0.0047 0.0000 0.0039
Spain................................................ 0.0012 0.0059 0.0012 0.0048
Sweden............................................... 0.0006 0.0031 0.0006 0.0026
Switzerland.......................................... 0.0009 0.0046 0.0009 0.0038
United Kingdom....................................... 0.0047 0.0352 0.0047 0.0289
------------------------------------------------------------------------
TOTAL................................................ $0.0180 $0.1576 $0.0180 $0.1293
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
30
<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 $0.0009 $0.0000 $0.0012
Austria.............................................. 0.0003 0.0010 0.0003 0.0013
Bermuda.............................................. 0.0000 0.0052 0.0000 0.0070
Brazil............................................... 0.0012 0.0068 0.0012 0.0091
Canada............................................... 0.0007 0.0028 0.0007 0.0037
China................................................ 0.0000 0.0038 0.0000 0.0051
Denmark.............................................. 0.0003 0.0011 0.0003 0.0014
Egypt................................................ 0.0000 0.0017 0.0000 0.0022
Finland.............................................. 0.0006 0.0025 0.0006 0.0034
France............................................... 0.0002 0.0009 0.0002 0.0012
Germany.............................................. 0.0003 0.0015 0.0003 0.0020
Hong Kong............................................ 0.0000 0.0210 0.0000 0.0282
India................................................ 0.0000 0.0053 0.0000 0.0071
Japan................................................ 0.0005 0.0021 0.0005 0.0028
Mexico............................................... 0.0002 0.0014 0.0002 0.0019
Netherlands.......................................... 0.0047 0.0184 0.0047 0.0247
New Zealand.......................................... 0.0007 0.0024 0.0007 0.0033
Norway............................................... 0.0006 0.0027 0.0006 0.0036
Poland............................................... 0.0001 0.0003 0.0001 0.0004
Portugal............................................. 0.0002 0.0007 0.0002 0.0009
South Africa......................................... 0.0000 0.0037 0.0000 0.0050
Spain................................................ 0.0012 0.0047 0.0012 0.0063
Sweden............................................... 0.0006 0.0025 0.0006 0.0033
Switzerland.......................................... 0.0009 0.0036 0.0009 0.0049
United Kingdom....................................... 0.0047 0.0278 0.0047 0.0374
------------------------------------------------------------------------
TOTAL................................................ $0.0180 $0.1248 $0.0180 $0.1674
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
In January 2001, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 2000. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
31
<PAGE>
[FRANKLIN TEMPLETON LOGO]
FRANKLIN (R) TEMPLETON (R) INVESTMENTS
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
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. 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 A00 10/00 [RECYCLE SYMBOL] Printed on recycled paper
