SEMI ANNUAL REPORT
Templeton Global
Smaller Companies Fund, Inc.
February 29, 2000
[FRANKLIN TEMPLETON LOGO]
[CELEBRATING OVER 50 YEARS GRAPHIC]
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]
PETER A. NORI, CFA
Portfolio Manager
Templeton Global Smaller
Companies Fund, Inc.
WE'RE ON THE WEB --
Now you can access online information about your fund, including this
shareholder report. Find our Web site at www.franklintempleton.com, your online
resource for fund literature, prices and performance, investor information and
around-the-clock account services.
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton Global Smaller Companies Fund seeks to achieve
long-term capital growth. Under normal market conditions, the Fund invests
primarily in the equity securities of smaller companies located anywhere in the
world, including emerging markets.
- --------------------------------------------------------------------------------
Dear Shareholder:
This semiannual report of Templeton Global Smaller Companies Fund covers the six
months ended February 29, 2000 -- a period of unbridled optimism in many
markets. Generally, inflation remained under control, Y2K turned out to be a
non-event, the Internet continued to revolutionize global economies, and money
flowed into many equity markets. Unfortunately for global value investors, the
bulk of this cash inflow went to domestic growth stocks in the
telecommunications and technology sectors. As a result, the prices of many of
these stocks rose to unprecedented levels, while shares of economically
sensitive companies were virtually bypassed. Within this environment, Templeton
Global
CONTENTS
Shareholder Letter ........ 1
Performance Summary ....... 6
Financial Highlights &
Statement of Investments .. 9
Financial Statements ...... 19
Notes to Financial
Statements ................ 22
[PYRAMID GRAPH]
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the Fund's Statement of Investments (SOI), a complete listing of
the Fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 13.
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
2/29/00
[PIE CHART]
European Stocks 42.9%
Asian Stocks 20.8%
North American Stocks 18.3%
Latin American Stocks 4.4%
Middle-Eastern
& African Stocks 1.3%
Australian &
New Zealand Stocks 1.0%
Short-Term Investment &
Other Net Assets 11.3%
Smaller Companies Fund - Class A provided a six-month cumulative total
return of 6.21%, as shown by the Performance Summary on page 6. The Fund's
benchmark, The Morgan Stanley Capital International (MSCI) World Index(R), rose
9.53% for the same period.(1)
Although the Fund's portfolio included little in the way of direct Internet
investments at the end of the reporting period, Internet-related benefits, such
as cost savings, improved sourcing ability and broader customer reach, enhanced
the performance of several of its holdings. The share price of Hong Kong-based
Li & Fung Ltd. and Swiss-based Swisslog Holding AG more than doubled over the
last six months. In addition, the AOL/Time Warner merger contributed to media
stocks' generally strong performance, benefiting our holdings of Scholastic
Corp. and MIH Ltd. Emerging market stocks Gujarat Ambuja Cements Ltd. (India)
and Om Gruppen AB (Sweden), which announced its intention to create a new
European stock exchange, also did well. However, we believe investor concerns
about higher interest rates' impact on global economic growth hurt the Fund's
holdings in the more economically sensitive industries.
During the reporting period, we utilized Templeton's time-tested "bottom-up"
value strategy to discover stocks trading at a discount to future earnings
streams or asset values. This led us to initiate positions in a number of
disparate sectors. For example, we purchased shares of Mutual Risk Management
Ltd. (financial services), Seino Transportation, Airborne Freight Corp.
(transportation) and Gas Authority of India Ltd. (energy).
(1) Source: Standard & Poor's Micropal(R). The MSCI World Index includes
approximately 1,450 companies representing the stock markets of 22 countries and
is designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
2
The most significant change in the Fund's geographic distribution during the
reporting period was an increase in our Asian exposure, from 17.1% of total net
assets on August 31, 1999, to 20.8% at period's end. This was primarily due to
the addition of Indian energy producer Gas Authority of India, Japanese
transport company Seino Transportation and Singaporean technology company ST
Assembly Test Services Ltd., as well as the extraordinary performance of two of
the Fund's larger holdings, Li & Fung and Giordano International Ltd.
On the sell side, we took advantage of rising commodity prices by realizing
profits on a number of economically sensitive holdings, including Elkem ASA
(Norway), Hoganas AB (Sweden), Impala Platinum Holdings Ltd. (South Africa), and
Metsa-Serla Oy (Finland). We also made an effort to eliminate large
capitalization stocks by selling our positions in Telefonos de Mexico, Endesa SA
(Spain) and Smart Modular Technologies (U.S.).
Looking forward, the Fund's performance depends, to a large part, on global
economic developments. Believing that the valuation gap between small- and
large-cap stocks is unsustainable over the long term, we expect small companies'
historically cheap valuations to create a favorable environment for mergers and
acquisitions. In our opinion, large companies with highly priced stocks may
attempt to improve their growth prospects by acquiring smaller companies.
However, if large-cap growth companies continue to lead, the market will prove
challenging for the Fund. To meet this challenge, we have recently begun
implementing internal changes designed to improve our
TOP 10 HOLDINGS
2/29/00
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------------------------
Li & Fung Ltd.
Merchandising, Hong Kong* 5.3%
Swisslog Holding AG
Electronic Components
& Instruments, Switzerland 3.2%
Giordano International Ltd.
Merchandising, Hong Kong* 2.5%
Draka Holding NV
Electronic Components
& Instruments, Netherlands 2.4%
ICICI Ltd., ADR
Financial Services, India 2.3%
VTech Holdings Ltd.
Electronic Components
& Instruments, Hong Kong* 1.7%
Skyepharma PLC
Health & Personal Care,
United Kingdom 1.5%
Twentsche Kabel Holdings NV
Electronic Components
& Instruments, Netherlands 1.4%
Computer Horizons Corp.
Data Processing
& Reproduction, United States 1.3%
Mutual Risk Management Ltd.
Financial Services, Bermuda 1.2%
*Hong Kong reverted to the sovereignty of China on July 1, 1997.
3
research focus and better diversify the portfolio's holdings. We have recently
begun revamping our small cap research approach by adding to the number of our
analysts and moving from geographic to global industry coverage. In addition,
the Fund's Board of Directors recently decided to increase the Fund's maximum
market capitalization for smaller companies, from $1 billion to $2 billion,
effective June 1, 2000. In our opinion, this decision brings the Fund in line
with its competition and should improve our ability to identify bargains by
expanding the universe of 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, Hong Kong's equity market has increased 1,322%
in the last 15 years, but has suffered five declines of more than 20% during
that time.2 The short-term price volatility of smaller companies and emerging
markets can be disconcerting, and declines in excess of 50% are not unusual in
emerging markets. These special risks and other considerations are discussed in
the Fund's prospectus.
2. Source: Hong Kong Hang Seng Index. Based on quarterly percentage price change
over 15 years ended December 31, 1999. Market return is measured in U.S. dollar
terms and does not include reinvested dividends.
4
Thank you for investing in Templeton Global Smaller Companies Fund. We
appreciate your support and welcome your comments and suggestions.
Sincerely,
/s/Peter A. Nori
Peter A. Nori, CFA
Portfolio Manager
Templeton Global Smaller Companies Fund, Inc.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 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.
5
SIX-MONTH PERFORMANCE SUMMARY AS OF 2/29/00
Six-month total return 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 each class's operating
expenses. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A:
Subject to the current, maximum 5.75% initial sales charge. Prior to July 1,
1992, Fund shares were offered at a higher initial sales charge. Thus, actual
total returns would have been lower. On January 1, 1993, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C:
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return 6.21%
Net Asset Value (NAV) $7.24 (2/29/00) $7.40 (8/31/99)
Change in NAV -$0.16
Distributions (9/1/99-2/29/00) Dividend Income $0.1716
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
- ------------------------------------------------------------------------------------
Total $0.5638
CLASS B
Six-Month Total Return 5.72%
Net Asset Value (NAV) $7.18 (2/29/00) $7.36 (8/31/99)
Change in NAV -$0.18
Distributions (9/1/99-2/29/00) Dividend Income $0.1560
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
- ------------------------------------------------------------------------------------
Total $0.5482
CLASS C
Six-Month Total Return 5.70%
Net Asset Value (NAV) $7.16 (2/29/00) $7.27 (8/31/99)
Change in NAV -$0.11
Distributions (9/1/99-2/29/00) Dividend Income $0.0869
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
- ------------------------------------------------------------------------------------
Total $0.4791
ADVISOR CLASS
Six-Month Total Return 6.31%
Net Asset Value (NAV) $7.24 (2/29/00) $7.42 (8/31/99)
Change in NAV -$0.18
Distributions (9/1/99-2/29/00) Dividend Income $0.1982
Short-Term Capital Gain $0.0031
Long-Term Capital Gain $0.3891
- ------------------------------------------------------------------------------------
Total $0.5904
</TABLE>
6 Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 21.40% 55.12% 144.03% 848.19%
Average Annual Total Return(2) 14.38% 7.89% 8.69% 12.33%
Value of $10,000 Investment(3) $11,438 $14,620 $23,010 $89,351
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 20.41% 14.23%
Average Annual Total Return(2) 16.41% 8.13%
Value of $10,000 Investment(3) $11,641 $11,023
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 20.54% 4.60% 43.26%
Average Annual Total Return(2) 18.28% 1.15% 7.36%
Value of $10,000 Investment(3) $11,828 $10,350 $14,182
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (6/1/81)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 21.82% 57.15% 147.22% 860.57%
Average Annual Total Return(2) 21.82% 9.46% 9.47% 12.76%
Value of $10,000 Investment(3) $12,182 $15,715 $24,722 $96,057
</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. On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were 7.59% and 2.35%, respectively.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results. 7
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 $86,000 today. The chart below
illustrates the cumulative total return of a hypothetical $10,000 investment in
the Fund on June 1, 1981 (inception), with income dividends and capital gains
reinvested as shown through February 29, 2000.*
[LINE CHART]
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
February 29, 2000.*
<TABLE>
<CAPTION>
Period End Total Value Principal + Principal + Inflation Principal Income Cap CPI
Cap Gains Dividends Gains
<S> <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 9,356 9,155 9,352 10,468 9,151 201 4 4.68%
12/31/1982 12,720 12,014 12,214 10,869 11,508 706 506 3.83%
12/31/1983 17,674 16,408 15,332 11,281 14,066 1,266 2,342 3.79%
12/31/1984 17,746 16,158 14,603 11,726 13,015 1,588 3,143 3.95%
12/31/1985 23,186 20,781 17,722 12,172 15,317 2,405 5,464 3.80%
12/31/1986 27,562 24,221 20,149 12,306 16,808 3,341 7,413 1.10%
12/31/1987 24,362 20,912 16,905 12,851 13,455 3,450 7,457 4.43%
12/31/1988 31,381 26,700 19,693 13,419 15,012 4,681 11,688 4.42%
12/31/1989 36,984 30,945 22,533 14,043 16,494 6,039 14,451 4.65%
12/31/1990 31,190 25,865 17,661 14,901 12,336 5,325 13,529 6.11%
12/31/1991 43,515 36,012 22,989 15,357 15,486 7,503 20,526 3.06%
12/31/1992 45,120 38,044 19,720 15,802 12,644 7,076 25,400 2.90%
12/31/1993 59,490 49,740 26,204 16,237 16,454 9,750 33,286 2.75%
12/31/1994 56,761 46,936 25,125 16,671 15,300 9,825 31,636 2.67%
12/31/1995 66,780 55,765 26,728 17,094 15,713 11,015 40,052 2.54%
12/31/1996 81,529 68,327 30,417 17,662 17,215 13,202 51,112 3.32%
12/31/1997 87,289 73,092 31,228 17,962 17,031 14,197 56,061 1.70%
12/31/1998 77,349 64,042 27,764 18,251 14,457 13,307 49,585 1.61%
12/31/1999 85,165 69,624 30,204 18,740 14,663 15,541 54,961 2.68%
02/29/2000 86,600 70,797 30,712 18,896 14,909 15,803 55,888 0.83%
</TABLE>
*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current,
maximum 5.75% initial sales charge; thus actual total return for purchasers of
shares during the periods shown may differ. Prior to July 1, 1992, these shares
were offered at a higher initial sales charge. On January 1, 1993, the Fund's
Class A shares implemented a plan of distribution under Rule 12b-1, which will
affect subsequent performance.
Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares. The historical data shown above pertain
only to Class A shares of the Fund. The Fund offers other share classes, subject
to different fees and expenses, which will affect their performance. Please see
the prospectus for more details.
Past performance is not predictive of future results.
8
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 --------------------------------------------------------------
(UNAUDITED)+ 1999+ 1998 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $7.40 $6.90 $9.53 $8.55 $8.77 $8.24
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income................ .01 .13 .16 .13 .16 .11
Net realized and unrealized gains
(losses)........................... .39 .66 (2.07) 1.77 .72 .62
----------------------------------------------------------------------------------
Total from investment operations...... .40 .79 (1.91) 1.90 .88 .73
----------------------------------------------------------------------------------
Less distributions from:
Net investment income................ (.17) (.11) (.13) (.13) (.12) (.11)
Net realized gains................... (.39) (.18) (.59) (.79) (.98) (.09)
----------------------------------------------------------------------------------
Total distributions................... (.56) (.29) (.72) (.92) (1.10) (.20)
----------------------------------------------------------------------------------
Net asset value, end of period........ $7.24 $7.40 $6.90 $9.53 $8.55 $8.77
==================================================================================
Total Return*......................... 6.21% 11.96% (21.64)% 24.20% 11.69% 9.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..... $1,080,402 $1,059,988 $1,275,313 $1,881,547 $1,544,214 $1,447,155
Ratios to average net assets:
Expenses............................. 1.37%** 1.39% 1.27% 1.30% 1.27% 1.36%
Net investment income................ .30%** 1.90% 1.69% 1.43% 1.93% 1.32%
Portfolio turnover rate............... 6.29% 14.04% 23.52% 25.60% 32.71% 18.79%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
9
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2000 PERIOD ENDED
(UNAUDITED) AUGUST 31, 1999+
------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $7.36 $7.02
---------------------------------------
Income from investment operations:
Net investment income (loss)............................... (.02) .07
Net realized and unrealized gains.......................... .39 .27
---------------------------------------
Total from investment operations............................ .37 .34
---------------------------------------
Less distributions from:
Net investment income...................................... (.16) --
Net realized gains......................................... (.39) --
---------------------------------------
Total distributions......................................... (.55) --
---------------------------------------
Net asset value, end of period.............................. $7.18 $7.36
=======================================
Total Return*............................................... 5.72% 4.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $375 $220
Ratios to average net assets:
Expenses................................................... 2.11%** 2.21%**
Net investment income (loss)............................... (.48)%** 1.38%**
Portfolio turnover rate..................................... 6.29% 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.
10
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ------------------------------------------------------------
(UNAUDITED)++ 1999++ 1998 1997 1996 1995+
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $7.27 $6.78 $9.42 $8.47 $8.75 $7.87
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)......... (.02) .08 .08 .07 .13 --
Net realized and unrealized gains
(losses)........................... .39 .65 (2.05) 1.75 .67 .88
-----------------------------------------------------------------------------------
Total from investment operations...... .37 .73 (1.97) 1.82 .80 .88
-----------------------------------------------------------------------------------
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 period........ $7.16 $7.27 $6.78 $9.42 $8.47 $8.75
===================================================================================
Total Return*......................... 5.70% 11.28% (22.44)% 23.42% 10.74% 11.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..... $24,862 $29,523 $38,287 $43,071 $15,483 $2,569
Ratios to average net assets:
Expenses............................. 2.13%** 2.13% 2.03% 2.05% 2.07% 2.11%**
Net investment income (loss)......... (.45)%** 1.11% .96% .75% 1.23% .16%**
Portfolio turnover rate............... 6.29% 14.04% 23.52% 25.60% 32.71% 18.79%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
++Based on average weighted shares outstanding.
11
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 -----------------------------------
(UNAUDITED)++ 1999++ 1998 1997+
----------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period..................... $7.42 $6.91 $9.55 $8.33
----------------------------------------------------------
Income from investment operations:
Net investment income................................... .02 .16 .16 .10
Net realized and unrealized gains (losses).............. .39 .65 (2.06) 1.12
----------------------------------------------------------
Total from investment operations......................... .41 .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 period........................... $7.24 $7.42 $6.91 $9.55
==========================================================
Total Return*............................................ 6.31% 12.33% (21.51)% 14.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................ $6,064 $6,236 $7,185 $7,895
Ratios to average net assets:
Expenses................................................ 1.12%** 1.14% 1.03% 1.05%**
Net investment income................................... .58%** 2.26% 1.97% 2.18%**
Portfolio turnover rate.................................. 6.29% 14.04% 23.52% 25.60%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
12
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 84.9%
APPLIANCES & HOUSEHOLD DURABLES .5%
Guangdong Kelon Electrical Holdings Ltd., H, 144A........... China 11,152,000 $ 5,445,033
--------------
AUTOMOBILES .5%
Bilia AB, A................................................. Sweden 320,000 3,248,546
Weifu Fuel Injection Co. Ltd., B............................ China 6,169,605 1,775,700
--------------
5,024,246
--------------
BANKING 4.5%
Banco de Andalucia SA....................................... Spain 377,335 10,865,696
Bank Handlowy W Warszawie SA, GDR, 144A..................... Poland 722,000 10,450,950
BPI Sociedad de Gestora de Participacoes Socias SA.......... Portugal 1,506,150 5,597,184
Commercial International Bank Ltd., GDR, 144A............... Egypt 350,700 3,892,770
National Bank of Canada..................................... Canada 893,200 12,157,615
Union Bank of Norway........................................ Norway 314,000 6,924,957
--------------
49,889,172
--------------
BROADCASTING & PUBLISHING 1.8%
Hollinger International Inc., A............................. United States 694,280 8,374,753
*Scholastic Corp. .......................................... United States 178,900 9,269,256
*Vicinity Corp. ............................................ United States 69,800 2,826,900
--------------
20,470,909
--------------
BUILDING MATERIALS & COMPONENTS 5.5%
Anglian Group PLC........................................... United Kingdom 226,984 537,495
*Cementos Diamante SA, ADR, 144A............................ Colombia 395,000 395,000
Cristaleria Espanola SA, Br. ............................... Spain 82,550 2,883,357
Danske Traelast AS.......................................... Denmark 107,000 9,363,454
Gujarat Ambuja Cements Ltd. ................................ India 1,419,600 9,135,504
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 82,600 543,095
Hepworth PLC................................................ United Kingdom 1,680,600 3,979,635
Okumura Corp. .............................................. Japan 2,180,000 5,953,302
Plettac AG.................................................. Germany 75,500 1,431,221
Sarna Kunststoff Holding AG................................. Switzerland 6,570 7,521,398
Schuttersveld NV............................................ Netherlands 220,694 3,760,779
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 1,184,600 3,978,192
Suez Cement Co., GDR, 144A.................................. Egypt 470,000 6,486,000
Uralita SA.................................................. Spain 814,000 5,673,839
--------------
61,642,271
--------------
BUSINESS & PUBLIC SERVICES 3.3%
*Complete Business Solutions Inc. .......................... United States 532,000 10,573,500
*Healthcare Services Group Inc. ............................ United States 547,650 3,902,006
Koninklijke Ahrend NV....................................... Netherlands 312,000 3,829,824
Lex Service PLC............................................. United Kingdom 1,296,000 6,802,747
*Magellan Health Services Inc. ............................. United States 250,000 1,468,750
Scribona AB, B.............................................. Sweden 480,400 1,424,706
</TABLE>
13
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUSINESS & PUBLIC SERVICES (CONT.)
Sifo Group AB, A............................................ Sweden 225,400 $ 2,596,715
Sifo Group AB, B............................................ Sweden 480,400 5,726,223
--------------
36,324,471
--------------
CHEMICALS 2.1%
Energia e Industrias Aragonesas Eia SA...................... Spain 1,641,000 7,757,185
Gurit Heberlein AG, Br. .................................... Switzerland 20,000 11,376,169
Omnova Solutions Inc. ...................................... United States 641,000 4,206,563
--------------
23,339,917
--------------
CONSTRUCTION & HOUSING 1.8%
Hollandsche Beton Groep NV.................................. Netherlands 850,920 11,796,829
*+Schuler Homes Inc. ....................................... United States 1,005,000 6,092,813
Wai Kee Holdings Ltd. ...................................... Hong Kong 17,848,000 2,293,262
--------------
20,182,904
--------------
DATA PROCESSING & REPRODUCTION 1.6%
*Computer Horizons Corp. ................................... United States 630,000 14,017,500
*Quantum Corp-DSSG.......................................... United States 410,000 4,253,750
--------------
18,271,250
--------------
ELECTRICAL & ELECTRONICS 1.7%
*ST Assembly Test Services Ltd., ADR........................ Singapore 77,250 3,708,000
+Techtronic Industries Co. Ltd. ............................ Hong Kong 29,104,621 4,749,302
Varitronix International Ltd. .............................. Hong Kong 4,700,000 10,266,228
--------------
18,723,530
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS 8.8%
Draka Holding NV............................................ Netherlands 333,485 26,150,587
Harman International Industries Inc. ....................... United States 25,000 1,548,437
Swisslog Holding AG......................................... Switzerland 82,500 35,850,216
Twentsche Kabel Holdings NV................................. Netherlands 388,525 16,084,274
VTech Holdings Ltd. ........................................ Hong Kong 4,533,000 18,346,803
--------------
97,980,317
--------------
ENERGY SOURCES 2.3%
Fletcher Challenge Energy Ltd. ............................. New Zealand 3,800,000 8,211,488
*Gas Authority of India Ltd., GDR, 144A..................... India 1,280,500 12,484,875
*Ranger Oil Ltd. ........................................... Canada 1,309,000 4,826,938
--------------
25,523,301
--------------
</TABLE>
14
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 4.5%
*ICICI Ltd., ADR............................................ India 667,000 $ 25,512,750
Mutual Risk Management Ltd. ................................ Bermuda 990,485 13,619,169
Om Gruppen AB............................................... Sweden 217,000 10,989,848
--------------
50,121,767
--------------
FOOD & HOUSEHOLD PRODUCTS 5.1%
Devro PLC................................................... United Kingdom 2,370,000 2,712,527
Geest PLC................................................... United Kingdom 1,180,000 8,522,377
Hazlewood Foods PLC......................................... United Kingdom 6,452,423 7,690,551
Illovo Sugar Ltd. .......................................... South Africa 5,150,000 4,707,866
Lindt & Spruengli Chocolate Works Ltd., prtn. ctf. ......... Switzerland 4,380 10,498,454
McBride PLC................................................. United Kingdom 3,800,000 4,799,116
Panamerican Beverages Inc., A............................... Mexico 234,400 3,999,450
*U.S. Foodservice........................................... United States 748,000 13,230,250
--------------
56,160,591
--------------
FOREST PRODUCTS & PAPER 3.4%
+Crown Van Gelder Papierfabrieken NV........................ Netherlands 373,600 5,035,574
Hung Hing Printing Group Ltd. .............................. Hong Kong 17,271,508 6,657,568
Metsa Serla OY, B........................................... Finland 918,460 8,090,873
Munksjo AB.................................................. Sweden 1,300,000 9,119,425
*Shorewood Packaging Corp. ................................. United States 423,200 8,781,400
--------------
37,684,840
--------------
HEALTH & PERSONAL CARE 3.4%
Apothekers Cooperatie OPG VA, prtn. ctf. ................... Netherlands 180,000 4,072,437
Internatio-Muller NV........................................ Netherlands 628,092 11,640,404
*Quorum Health Group Inc. .................................. United States 557,000 4,960,781
*Skyepharma PLC............................................. United Kingdom 7,616,871 17,104,742
--------------
37,778,364
--------------
INDUSTRIAL COMPONENTS 3.1%
*Aalberts Industries NV..................................... Netherlands 290,000 6,142,352
Madeco Manufacturera de Cobre SA, ADR....................... Chile 405,000 5,442,188
Sylea SA.................................................... France 234,821 7,822,167
Weir Group PLC.............................................. United Kingdom 4,523,412 11,961,031
Yamato Kogyo Co. Ltd. ...................................... Japan 894,000 3,304,028
--------------
34,671,766
--------------
INSURANCE 1.1%
Enhance Financial Services Group Inc. ...................... United States 290,000 3,407,500
Radian Group Inc. .......................................... United States 260,000 9,018,750
--------------
12,426,250
--------------
</TABLE>
15
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
LEISURE & TOURISM 1.4%
Kuoni Reisen Holding AG, B.................................. Switzerland 2,598 $ 11,834,572
*Prime Hospitality Corp. ................................... United States 492,000 4,182,000
--------------
16,016,572
--------------
MACHINERY & ENGINEERING 4.3%
Arcadis NV.................................................. Netherlands 275,655 1,990,404
Bucher Holding AG, Br. ..................................... Switzerland 4,226 3,381,509
Fives-Lille Cie De.......................................... France 103,133 8,231,258
IHC Caland NV............................................... Netherlands 256,600 8,646,468
Laird Group PLC............................................. United Kingdom 2,900,000 8,858,631
METSO OYJ................................................... Finland 381,600 4,996,447
SIG Schweizerische Industrie-Gesellschaft Holding........... Switzerland 19,800 11,903,261
--------------
48,007,978
--------------
MERCHANDISING 11.0%
Best Denki Co. Ltd. ........................................ Japan 176,000 1,235,228
Giordano International Ltd. ................................ Hong Kong 25,248,674 28,224,221
*Gymboree Corp. ............................................ United States 906,000 4,246,875
House of Fraser PLC......................................... United Kingdom 6,360,000 4,919,725
Hudsons Bay Co. ............................................ Canada 596,900 5,656,358
Li & Fung Ltd. ............................................. Hong Kong 15,194,000 59,153,287
Matsuzakaya Co. Ltd. ....................................... Japan 1,830,000 4,164,581
Moebel Walther AG........................................... Germany 148,410 2,071,788
SA des Galeries Lafayette................................... France 55,400 9,600,555
Samas-Groep NV.............................................. Netherlands 96,985 1,185,830
Somerfield PLC.............................................. United Kingdom 1,701,700 1,464,088
--------------
121,922,536
--------------
METALS & MINING 2.0%
AK Steel Holding Corp. ..................................... United States 540,000 4,488,750
Birmingham Steel Corp. ..................................... United States 338,600 1,566,025
Boehler-Uddeholm AG......................................... Austria 41,950 1,562,589
Boehler-Uddeholm AG, 144A................................... Austria 8,120 302,461
Boehler-Uddeholm AG, 144A, seasoned......................... Austria 71,200 2,652,118
Century Aluminum Co. ....................................... United States 614,000 8,365,750
LTV Corp. .................................................. United States 894,000 2,961,375
Vallourec Usines A Tubes de Lorraine Escaut Et R............ France 16,185 654,449
--------------
22,553,517
--------------
MULTI-INDUSTRY 2.1%
*DESC SA de CV DESC, B...................................... Mexico 3,473,500 2,298,858
Hogg Robinson PLC........................................... United Kingdom 2,900,000 9,957,376
Nagron Nationaal Grondbezit NV.............................. Netherlands 292,000 6,269,050
Wagon PLC................................................... United Kingdom 1,827,400 4,644,588
--------------
23,169,872
--------------
</TABLE>
16
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 1.2%
Inversiones y Representacion SA............................. Argentina 2,217,914 $ 7,231,484
Inversiones y Representacion SA, GDR........................ Argentina 39,048 1,273,941
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 3,583,000 3,682,993
Tai Cheung Holdings Ltd. ................................... Hong Kong 3,630,000 830,215
--------------
13,018,633
--------------
TELECOMMUNICATIONS .9%
*Latitude Communications Inc. .............................. United States 150,000 3,168,750
*Millicom International Cellular SA......................... Luxembourg 100,000 7,100,000
--------------
10,268,750
--------------
TEXTILES & APPAREL 1.5%
Fountain Set Holdings Ltd. ................................. Hong Kong 35,262,000 3,941,761
Gamma Holding NV............................................ Netherlands 180,000 6,030,673
*Goodys Family Clothing Inc. ............................... United States 670,000 4,690,000
Inner Mongolia Erdos Cashmere Products Co. Ltd., B.......... China 6,200,000 1,488,000
--------------
16,150,434
--------------
TRANSPORTATION 3.9%
Airborne Freight Corp. ..................................... United States 612,000 11,322,000
*Anangel-American Shipholdings Ltd., ADR.................... Greece 208,800 1,017,900
*MS Carriers Inc. .......................................... United States 202,400 4,478,100
Sea Containers Ltd., A...................................... United Kingdom 461,000 11,294,500
Seino Transportation Co. Ltd. .............................. Japan 1,487,000 7,458,350
Stolt Nielsen SA, ADR....................................... Norway 100,000 1,750,000
Stolt Nielsen SA, B......................................... Norway 200,000 3,528,640
Transportes Azkar SA........................................ Spain 5,422 63,162
Tranz Rail Holdings Ltd., ADR............................... New Zealand 499,480 2,481,791
--------------
43,394,443
--------------
UTILITIES ELECTRICAL & GAS .8%
Guangdong Electric Power Development Co. Ltd., B............ China 14,689,967 6,625,094
Public Service Co. of New Mexico............................ United States 163,300 2,510,738
--------------
9,135,832
--------------
WHOLESALE & INTERNATIONAL TRADE .8%
Bergen Brunswig Corp., A.................................... United States 525,000 2,592,193
*Daisytek International Corp. .............................. United States 270,600 6,206,891
--------------
8,799,084
--------------
TOTAL COMMON STOCKS (COST $825,519,850)..................... 944,098,550
--------------
</TABLE>
17
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 3.8%
Ballast Nedam NV, pfd. ..................................... Netherlands 188,040 $ 3,883,216
*Celular CRT Participacoes SA, pfd. ........................ Brazil 8,249,900 2,750,697
Companhia Riograndense de Telecom, pfd., A.................. Brazil 8,249,900 3,100,415
Coteminas Cia Tecidos Norte de Minas, pfd. ................. Brazil 23,829,100 2,437,450
Fertilizantes Fosfatados SA, pfd. .......................... Brazil 2,500,000,000 9,395,309
Hugo Boss AG, pfd. ......................................... Germany 66,000 8,196,863
Moebel Walther AG, pfd. .................................... Germany 150,000 1,848,478
Weg SA, pfd. ............................................... Brazil 17,249,300 10,527,966
--------------
TOTAL PREFERRED STOCKS (COST $53,442,625)................... 42,140,394
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$878,962,475)............................................. 986,238,944
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
---------
<S> <C> <C> <C>
REPURCHASE AGREEMENT (COST $84,294,000) 7.6%
Dresdner Bank, 5.75%, 3/01/00 (Maturity Value $84,307,464)
Collateralized by U.S. Treasury Notes & Bonds............. United States $ 84,294,000 84,294,000
--------------
TOTAL INVESTMENTS (COST $963,256,475) 96.3%................. 1,070,532,944
OTHER ASSETS, LESS LIABILITIES 3.7%......................... 41,169,969
--------------
TOTAL NET ASSETS 100.0%..................................... $1,111,702,913
==============
</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 February
29, 2000, were $15,877,689.
See Notes to Financial Statements.
18
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $878,962,475).... $ 986,238,944
Repurchase agreement, at value and cost.................... 84,294,000
Cash....................................................... 70,330
Receivables:
Capital shares sold....................................... 44,754,256
Dividends and interest.................................... 1,572,286
--------------
Total assets.......................................... 1,116,929,816
--------------
Liabilities:
Payables:
Capital shares redeemed................................... 3,063,376
To affiliates............................................. 1,171,463
Deferred tax liability (Note 1e)........................... 514,732
Accrued expenses........................................... 477,332
--------------
Total liabilities..................................... 5,226,903
--------------
Net assets, at value........................................ $1,111,702,913
==============
Net assets consist of:
Distributions in excess of net investment income........... $ (1,783,501)
Net unrealized appreciation................................ 106,761,737
Accumulated net realized gain.............................. 68,290,074
Capital shares............................................. 938,434,603
--------------
Net assets, at value........................................ $1,111,702,913
==============
CLASS A:
Net asset value per share ($1,080,402,514 / 149,314,612
shares outstanding)....................................... $7.24
==============
Maximum offering price per share ($7.24 / 94.25%).......... $7.68
==============
CLASS B:
Net asset value and maximum offering price per share
($374,788 / 52,181 shares outstanding)*................... $7.18
==============
CLASS C:
Net asset value per share ($24,861,952 / 3,470,108 shares
outstanding)*............................................. $7.16
==============
Maximum offering price per share ($7.16 / 99.00%).......... $7.23
==============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($6,063,659 / 836,975 shares outstanding)................. $7.24
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
19
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $686,093)
Dividends.................................................. $ 8,041,456
Interest................................................... 842,930
-----------
Total investment income............................... $ 8,884,386
Expenses:
Management fees (Note 3)................................... 3,972,836
Administrative fees (Note 3)............................... 666,460
Distribution fees (Note 3)
Class A................................................... 1,283,315
Class B................................................... 1,297
Class C................................................... 134,713
Transfer agent fees (Note 3)............................... 792,500
Custodian fees............................................. 203,300
Reports to shareholders.................................... 134,300
Registration and filing fees............................... 54,300
Professional fees.......................................... 44,200
Directors' fees and expenses............................... 79,900
Other...................................................... 3,103
-----------
Total expenses........................................ 7,370,224
-----------
Net investment income........................... 1,514,162
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 73,516,088
Foreign currency transactions............................. (341,567)
-----------
Net realized gain..................................... 73,174,521
Net unrealized depreciation on:
Investments............................................... (6,544,865)
Deferred taxes (Note 1e).................................. (514,732)
-----------
Net unrealized depreciation........................... (7,059,597)
-----------
Net realized and unrealized gain............................ 66,114,924
-----------
Net increase in net assets resulting from operations........ $67,629,086
===========
</TABLE>
See Notes to Financial Statements.
20
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,514,162 $ 23,035,583
Net realized gain from investments and foreign currency
transactions............................................. 73,174,521 53,185,618
Net unrealized appreciation (depreciation) on investments
and deferred taxes....................................... (7,059,597) 66,279,167
---------------------------------------
Net increase in net assets resulting from operations.... 67,629,086 142,500,368
Distributions to shareholders from:
Net investment income:
Class A.................................................. (24,566,804) (20,124,664)
Class B.................................................. (3,953) --
Class C.................................................. (334,497) (381,690)
Advisor Class............................................ (167,074) (115,538)
Net realized gains:
Class A.................................................. (56,072,276) (32,018,770)
Class B.................................................. (10,212) --
Class C.................................................. (1,514,644) (996,475)
Advisor Class............................................ (328,140) (162,672)
Capital share transactions (Note 2):
Class A.................................................. 35,302,220 (301,306,911)
Class B.................................................. 149,672 216,176
Class C.................................................. (4,251,102) (10,984,426)
Advisor Class............................................ (97,036) (1,442,718)
---------------------------------------
Net increase (decrease) in net assets................... 15,735,240 (224,817,320)
Net assets:
Beginning of period........................................ 1,095,967,673 1,320,784,993
---------------------------------------
End of period.............................................. $1,111,702,913 $1,095,967,673
=======================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ (1,783,501) $ 21,774,665
=======================================
</TABLE>
See Notes to Financial Statements.
21
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Smaller Companies Fund, Inc. (the Fund), is registered under
the Investment Company Act of 1940 as a diversified, open-end investment
company. The Fund seeks to achieve long-term capital growth. Under normal 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.
22
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (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 repatriation 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 February 29, 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>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold....................................... 227,038,291 $ 1,600,901,939 185,542,788 $ 1,308,691,167
Shares issued on reinvestment of distributions.... 10,545,548 69,939,452 7,007,145 45,476,057
Shares redeemed................................... (231,506,816) (1,635,539,171) (234,204,372) (1,655,474,135)
-----------------------------------------------------------------------
Net increase (decrease)........................... 6,077,023 $ 35,302,220 (41,654,439) $ (301,306,911)
=======================================================================
</TABLE>
23
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999*
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold....................................... 42,944 $ 298,716 29,870 $ 216,176
Shares issued on reinvestment of distributions.... 2,148 14,165 -- --
Shares redeemed................................... (22,781) (163,209) -- --
-----------------------------------------------------------------------
Net increase...................................... 22,311 $ 149,672 29,870 $ 216,176
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold....................................... 987,471 $ 6,622,614 1,311,746 $ 8,857,268
Shares issued on reinvestment of distributions.... 245,032 1,609,170 187,059 1,199,047
Shares redeemed................................... (1,824,236) (12,482,886) (3,082,452) (21,040,741)
-----------------------------------------------------------------------
Net decrease...................................... (591,733) $ (4,251,102) (1,583,647) $ (10,984,426)
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold....................................... 1,439,593 $ 10,253,161 2,435,651 $ 17,892,494
Shares issued on reinvestment of distributions.... 73,990 491,828 41,939 272,183
Shares redeemed................................... (1,516,555) (10,842,025) (2,677,179) (19,607,395)
-----------------------------------------------------------------------
Net decrease...................................... (2,972) $ (97,036) (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.
24
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC.
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays monthly an investment management fee to TICI of 0.75% per year of
the average daily net assets of the Fund. The Fund pays an administrative fee to
FT Services based on the Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors 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 February 29, 2000, unreimbursed costs were $489,797. Distributors
received net commissions from sales of the Fund's shares and received contingent
deferred sales charges for the year of $47,561 and $3,659, 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.
The cost of securities for income tax purposes is the same as that shown in the
statement of investments. At February 29, 2000, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 315,879,483
Unrealized depreciation..................................... (208,603,014)
-------------
Net unrealized appreciation................................. $ 107,276,469
=============
</TABLE>
At August 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1998 of $661,000. For tax purposes, such losses will be reflected
in the year ending August 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 29, 2000 aggregated $64,653,892 and $250,998,723,
respectively.
25
SEMIANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Templeton Global
Smaller Companies Fund, Inc. prospectus, which contains more complete
information including risk factors, charges and expenses. Like any investment in
securities, the value of the Fund's portfolio will be subject to the risk of
loss from market, currency, economic, political and other factors. 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.
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