UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03143
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TEMPLETON GLOBAL SMALLER COMPANIES FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 8/31
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Date of reporting period: 8/31/04
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ITEM 1. REPORTS TO STOCKHOLDERS
AUGUST 31, 2004
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ANNUAL REPORT AND SHAREHOLDER LETTER
GLOBAL
TEMPLETON GLOBAL
SMALLER COMPANIES FUND
WANT TO RECEIVE
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FASTER VIA EMAIL?
Eligible shareholders can
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see inside for details.
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[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income
investing and also brings expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
Contents
SHAREHOLDER LETTER ................... 1
ANNUAL REPORT
Templeton Global Smaller
Companies Fund ....................... 3
Performance Summary .................. 8
Your Fund's Expenses ................. 13
Financial Highlights and
Statement of Investments ............. 15
Financial Statements ................. 23
Notes to Financial Statements ........ 27
Report of Independent
Registered Public
Accounting Firm ...................... 35
Tax Designation ...................... 36
Special Meeting of
Shareholders ......................... 40
Board Members
and Officers ......................... 44
Shareholder Information .............. 50
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Annual Report
Templeton Global Smaller
Companies Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Global Smaller Companies Fund
seeks to achieve long-term capital growth. Under normal market conditions, the
Fund invests at least 80% of its net assets in smaller companies located
anywhere in the world, including emerging markets, as defined in the Fund's
prospectus.
[SIDEBAR]
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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We are pleased to bring you Templeton Global Smaller Companies Fund's annual
report covering the fiscal year ended August 31, 2004.
PERFORMANCE OVERVIEW
For the 12 months under review, the Fund's Class A shares posted a 23.04%
cumulative total return. The Fund outperformed its benchmark, the Morgan Stanley
Capital International (MSCI) World Index, which posted a 16.14% cumulative total
return for the same period. 1 You can find the Fund's long-term performance data
in the Performance Summary beginning on page 8.
ECONOMIC AND MARKET OVERVIEW
The global economy expanded rapidly over the past few quarters, led by strong
economic growth in the U.S. and China. As of June 30, 2004, U.S. gross domestic
product (GDP) had increased for 11 consecutive quarters. In China, GDP grew at a
strong 9.1% pace in 2003. 2 Despite an effort by Chinese authorities to curb
this growth, China's economy expanded 9.7% in the first half of 2004, slightly
more moderate than the 9.9% rate reported for the fourth quarter of 2003. 2, 3
The continued economic strength reflected strong consumer and business
confidence in China, the U.S., Japan and Europe. The 12-nation euro zone lagged
other regions in the current recovery. However, the European Central Bank
recently projected euro zone growth may be between 1.6% and 2.2% in 2004,
compared with 0.5%
1. Source: Standard & Poor's Micropal. The MSCI World Index is market
capitalization weighted and measures total returns of equity securities in
developed markets globally. The index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
2. Source: www.china.org.cn, "China GDP Speeds up; Pace Seen Continuing."
3. Source: Ministry of Foreign Affairs of the People's Republic of China,
www.china-embassy.org, "China's GDP rose 9.7 percent in the first half of 2004,"
7/16/04.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 19.
Annual Report | 3
Geographic Distribution
Based on Total Net Assets as of 8/31/04
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Europe 40.2%
Asia 28.1%
North America 19.5%
Australia & New Zealand 5.0%
Middle East & Africa 1.2%
Latin America 0.6%
Bahamas 0.3%
Short-Term Investments & Other Net Assets 5.1%
in 2003. In addition, the outlook for emerging European economies improved, led
by double-digit growth in industrial production in Turkey and Poland and steady
growth in Russia. In Japan, the economy has been emerging from its decade-long
deflation. Japan's consumer and business confidence reached their highest levels
since 1991. In Latin America, although growth was slow relative to Asia and the
U.S., there was evidence of a rebound in industrial activity.
Regarding stock market performance, the global equity rally that began in March
2003 extended into the early part of this year propelled by strong liquidity,
reasonably solid economic growth and higher corporate earnings. However, by the
second quarter investor focus shifted to the challenges of rising commodity
prices, especially oil, Iraqi unrest and a potential slowdown in the Chinese
economy. The prospect of higher interest rates also damaged investor confidence.
These factors hindered global equity performance, and consequently most stock
markets traded within a relatively narrow range in the first eight months of
2004. However, stock market performance in aggregate was positive over the
fiscal year. The MSCI All Country World Index's total return was 16.34% for the
year ended August 31, 2004. 4
INVESTMENT STRATEGY
At Templeton, we take a long-term, value-oriented approach to investing. We
focus our analysis primarily at the company level; we seek to identify when a
company's value on the stock exchange is substantially below our estimate of the
company's underlying worth -- also known as its "intrinsic value." Our analysts
determine the intrinsic value of a company first by understanding the company
and the industry in which it operates, and then by forecasting future earnings
and cash flow growth. We look to invest in those companies selling at the lowest
level relative to our expectations for future earnings and cash flow. We are
patient investors; our typical holding period is four to five years.
In looking for opportunities, we put less emphasis on the current situation and
more on what we believe could materialize in the future. Hence, the greatest
opportunities often can be in companies that are out of favor -- they may be
4. Source: Standard & Poor's Micropal. The MSCI All Country World Index is a
free float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed and emerging markets.
4 | Annual Report
undergoing a restructuring, the business cycle may have turned against them, or
they may have been oversold due to temporary difficulties that our analysis
indicates have been over-discounted by the market.
MANAGER'S DISCUSSION
During the fiscal year under review, the Fund benefited from the strong
performance of several holdings. For example, we owned shares of Gail India,
India's largest natural gas transmission company. The company's shares
appreciated strongly in value during the period as India's estimated demand for
gas far outstripped its availability. Natural gas demand grew robustly largely
due to rising industrial production coupled with the low cost of natural gas
relative to alternative fuels. Despite its strong market performance, Gail
India's common stock remained attractive, in our view.
Aalberts Industries, a Dutch-based engineering group that manufactures
high-grade industrial products, also helped Fund performance. The company
benefited from improving European economic conditions as it is a leading
supplier to many European industrial companies. Consistent with our strategy, we
believed the company's operating margins might improve if capacity utilization
rates rise from their sub-par levels in conjunction with regional economic
improvement. We also considered the company attractive because it has a strong
record of finding acquisitions that add value. We believe this trend could
continue due to fragmentation of the market where the company operates. With a
price/earnings ratio of about 13 times earnings and the potential for
significant future earnings growth prospects, our analysis indicates Aalberts
Industries remained undervalued at period-end.
JAKKS Pacific, an innovative U.S. toy company that develops, manufactures and
markets toys and related children's products, was another holding that benefited
Fund performance during the 12-month reporting period. The company is best
TOP 10 HOLDINGS
8/31/04
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COMPANY % OF TOTAL
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SECTOR/INDUSTRY, COUNTRY NET ASSETS
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OPG Groep NV 2.6%
HEALTH CARE PROVIDERS & SERVICES,
NETHERLANDS
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Iluka Resources Ltd. 2.3%
METALS & MINING, AUSTRALIA
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Vestas Wind Systems AS,
common & restricted 2.1%
ELECTRICAL EQUIPMENT, DENMARK
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Hung Hing Printing Group Ltd. 2.0%
CONTAINERS & PACKAGING, HONG KONG
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Gujarat Ambuja Cements Ltd. 1.9%
CONSTRUCTION MATERIALS, INDIA
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Orion Yhtyma OYJ, B 1.8%
PHARMACEUTICALS, FINLAND
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Bodycote International PLC,
common & restricted 1.8%
MACHINERY, U.K.
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Aalberts Industries NV 1.8%
INDUSTRIAL CONGLOMERATES, NETHERLANDS
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Coinstar Inc. 1.8%
COMMERCIAL SERVICES & SUPPLIES, U.S.
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Kidde PLC 1.7%
ELECTRICAL EQUIPMENT, U.K.
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Annual Report | 5
known for its Worldwide Wrestling Federation toys and its gooey compounds. A key
to the company's strategy and success was its diversification into writing
instruments, stationery, back-to-school supplies, sleeping bags, and pool floats
and other leisure items, which made the company's products less seasonal and
created a niche attractive to large licensors. JAKKS' revenues grew during the
period largely due to numerous acquisitions, including strictly toy companies,
as well as other firms that increased the company's activity and novelty
offerings. JAKKS' stock performed extremely well during the Fund's fiscal year
as a result of strong demand for its plug-and-play video games and the strategic
acquisition of PlayAlong in mid-2004, which added Cabbage Patch Kids and Care
Bears to the company's already diverse toy portfolio. Despite the stock's strong
performance, we continued to hold JAKKS Pacific shares because they traded at
just 11 times forecasted 2004 earnings at period-end.
Although the Fund produced double-digit gains, some holdings hindered
performance during the 12 months under review. For example, Fountain Set
Holdings, an Asian manufacturer and supplier of cotton knitted fabrics,
performed poorly. The company supplies its products to garment manufacturers
that produce apparel for some of the world's most popular brands. A large surge
in cotton prices, which accounts for a significant portion of knitted fabrics'
manufacturing costs, pressured Fountain Set's profit margin as the company was
unable to pass on the entire cotton price increase to its customers. Consistent
with our strategy, we believed the shares were undervalued at period-end because
cotton prices are generally expected to weaken longer term. Another positive
factor for the company is its vertically integrated fabric manufacturing
facilities, which allow for the production of fine-quality fabrics at
competitive prices. Also, economies of scale and the significant capital
required to manufacture knitted fabrics create significant barriers to entry for
competitors and contributed to what in our view was the company's
attractiveness. Denmark's Vestas Wind Systems also hindered performance as the
company reported disappointing earnings during the period. Consistent with our
strategy, we continued to hold the stock, however, because of the positive
long-term outlook for wind power and because Vestas' competitive position was
strong.
6 | Annual Report
We thank you for your interest in Templeton Global Smaller Companies Fund,
welcome your questions and comments, and look forward to serving your future
investment needs.
[PHOTO OMITTED]
/S/Tucker Scott
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Tucker Scott, CFA
[PHOTO OMITTED]
/S/Simon Rudolph
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Simon Rudolph, ACA
[PHOTO OMITTED]
/S/Cynthia Sweeting
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Cynthia Sweeting, CFA
Portfolio Management Team
Templeton Global Smaller Companies Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF AUGUST 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 7
Performance Summary as of 8/31/04
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$1.53 $8.69 $7.16
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.1043
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CLASS B CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$1.45 $8.42 $6.97
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.0866
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CLASS C CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$1.50 $8.55 $7.05
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.0594
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ADVISOR CLASS CHANGE 8/31/04 8/31/03
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Net Asset Value (NAV) +$1.54 $8.71 $7.17
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DISTRIBUTIONS (9/1/03-8/31/04)
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Dividend Income $0.1247
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8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 23.04% 37.93% 83.31%
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Average Annual Total Return 2 15.92% 5.39% 5.62%
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Value of $10,000 Investment 3 $11,592 $13,002 $17,282
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Avg. Ann. Total Return (9/30/04) 4 18.45% 6.87% 6.12%
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CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
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Cumulative Total Return 1 22.23% 32.54% 38.96%
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Average Annual Total Return 2 18.23% 5.47% 5.84%
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Value of $10,000 Investment 3 $11,823 $13,054 $13,796
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Avg. Ann. Total Return (9/30/04) 4 20.76% 6.97% 6.43%
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CLASS C 1-YEAR 5-YEAR INCEPTION (5/1/95)
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Cumulative Total Return 1 22.07% 32.87% 74.48%
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Average Annual Total Return 2 21.07% 5.85% 6.14%
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Value of $10,000 Investment 3 $12,107 $13,287 $17,448
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Avg. Ann. Total Return (9/30/04) 4 23.70% 7.35% 6.50%
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ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 23.30% 39.90% 87.92%
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Average Annual Total Return 2 23.30% 6.95% 6.51%
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Value of $10,000 Investment 3 $12,330 $13,990 $18,792
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Avg. Ann. Total Return (9/30/04) 4 25.87% 8.42% 7.01%
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index. The Consumer Price Index (CPI), calculated by the U.S.
Bureau of Labor Statistics, is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 8/31/04
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1-Year 15.92%
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5-Year 5.39%
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10-Year 5.62%
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Class A (9/1/94-8/31/04)
[GRAPHIC OMITTED]
DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Templeton Global Smaller MSCI World
Period Companies Fund - Class A Index 6 CPI 6
9/1/94 $ 9,428 $10,000 $10,000
9/30/94 $ 9,336 $ 9,739 $10,027
10/31/94 $ 9,240 $10,018 $10,034
11/30/94 $ 8,825 $ 9,585 $10,047
12/31/94 $ 8,722 $ 9,680 $10,047
1/31/95 $ 8,488 $ 9,536 $10,087
2/28/95 $ 8,664 $ 9,677 $10,128
3/31/95 $ 8,852 $10,145 $10,161
4/30/95 $ 9,239 $10,501 $10,195
5/31/95 $ 9,521 $10,593 $10,215
6/30/95 $ 9,779 $10,592 $10,235
7/31/95 $10,260 $11,124 $10,235
8/31/95 $10,296 $10,878 $10,262
9/30/95 $10,425 $11,197 $10,282
10/31/95 $10,067 $11,023 $10,315
11/30/95 $10,144 $11,407 $10,309
12/31/95 $10,262 $11,743 $10,302
1/31/96 $10,544 $11,958 $10,362
2/29/96 $10,854 $12,033 $10,396
3/31/96 $11,015 $12,235 $10,450
4/30/96 $11,284 $12,525 $10,490
5/31/96 $11,499 $12,538 $10,510
6/30/96 $11,580 $12,604 $10,517
7/31/96 $11,109 $12,161 $10,537
8/31/96 $11,499 $12,303 $10,557
9/30/96 $11,688 $12,787 $10,591
10/31/96 $11,855 $12,878 $10,624
11/30/96 $12,188 $13,602 $10,644
12/31/96 $12,529 $13,387 $10,644
1/31/97 $12,753 $13,550 $10,678
2/28/97 $12,903 $13,708 $10,711
3/31/97 $12,828 $13,440 $10,738
4/30/97 $12,813 $13,881 $10,752
5/31/97 $13,413 $14,741 $10,745
6/30/97 $13,952 $15,478 $10,758
7/31/97 $14,327 $16,193 $10,772
8/31/97 $14,282 $15,112 $10,792
9/30/97 $14,866 $15,936 $10,819
10/31/97 $13,751 $15,100 $10,846
11/30/97 $13,435 $15,369 $10,839
12/31/97 $13,414 $15,559 $10,826
1/31/98 $12,976 $15,995 $10,846
2/28/98 $14,062 $17,080 $10,866
3/31/98 $14,744 $17,803 $10,886
4/30/98 $14,857 $17,980 $10,906
5/31/98 $14,533 $17,757 $10,926
6/30/98 $13,900 $18,181 $10,940
7/31/98 $13,397 $18,155 $10,953
8/31/98 $11,192 $15,736 $10,966
9/30/98 $11,078 $16,017 $10,980
10/31/98 $11,327 $17,468 $11,007
11/30/98 $11,768 $18,510 $11,007
12/31/98 $11,886 $19,417 $11,000
1/31/99 $11,395 $19,845 $11,027
2/28/99 $11,006 $19,320 $11,040
3/31/99 $11,310 $20,127 $11,074
4/30/99 $12,377 $20,923 $11,154
5/31/99 $12,208 $20,161 $11,154
6/30/99 $12,546 $21,104 $11,154
7/31/99 $12,665 $21,044 $11,188
8/31/99 $12,530 $21,010 $11,215
9/30/99 $12,123 $20,809 $11,268
10/31/99 $12,098 $21,893 $11,289
11/30/99 $12,317 $22,512 $11,295
12/31/99 $13,087 $24,337 $11,295
1/31/00 $12,903 $22,946 $11,329
2/29/00 $13,308 $23,011 $11,396
3/31/00 $13,731 $24,604 $11,490
4/30/00 $13,087 $23,567 $11,497
5/31/00 $12,885 $22,973 $11,510
6/30/00 $13,418 $23,750 $11,570
7/31/00 $13,308 $23,084 $11,597
8/31/00 $13,418 $23,838 $11,597
9/30/00 $12,775 $22,573 $11,658
10/31/00 $12,077 $22,198 $11,678
11/30/00 $11,561 $20,853 $11,685
12/31/00 $11,991 $21,193 $11,678
1/31/01 $12,626 $21,605 $11,752
2/28/01 $12,395 $19,781 $11,799
3/31/01 $11,298 $18,486 $11,826
4/30/01 $11,798 $19,857 $11,872
5/31/01 $12,356 $19,610 $11,926
6/30/01 $12,087 $18,998 $11,946
7/31/01 $11,856 $18,748 $11,913
8/31/01 $11,741 $17,852 $11,913
9/30/01 $10,143 $16,281 $11,966
10/31/01 $10,522 $16,595 $11,926
11/30/01 $11,202 $17,579 $11,906
12/31/01 $11,786 $17,692 $11,859
1/31/02 $11,922 $17,158 $11,886
2/28/02 $12,253 $17,012 $11,933
3/31/02 $13,322 $17,768 $12,000
4/30/02 $13,750 $17,171 $12,067
5/31/02 $13,964 $17,210 $12,067
6/30/02 $13,186 $16,170 $12,074
7/31/02 $11,689 $14,809 $12,087
8/31/02 $11,319 $14,840 $12,128
9/30/02 $10,269 $13,211 $12,148
10/31/02 $10,554 $14,188 $12,168
11/30/02 $10,927 $14,956 $12,168
12/31/02 $10,750 $14,235 $12,141
1/31/03 $10,358 $13,804 $12,195
2/28/03 $ 9,828 $13,568 $12,289
3/31/03 $ 9,867 $13,531 $12,362
4/30/03 $10,868 $14,739 $12,336
5/31/03 $12,006 $15,589 $12,315
6/30/03 $12,437 $15,864 $12,329
7/31/03 $13,183 $16,190 $12,342
8/31/03 $14,046 $16,543 $12,389
9/30/03 $14,281 $16,648 $12,430
10/31/03 $15,354 $17,639 $12,416
11/30/03 $15,632 $17,912 $12,383
12/31/03 $16,487 $19,040 $12,369
1/31/04 $17,004 $19,350 $12,430
2/29/04 $17,739 $19,681 $12,497
3/31/04 $17,481 $19,558 $12,577
4/30/04 $17,242 $19,168 $12,617
5/31/04 $17,123 $19,356 $12,691
6/30/04 $17,680 $19,762 $12,732
7/31/04 $17,222 $19,122 $12,711
8/31/04 $17,282 $19,214 $12,718
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------
CLASS B 8/31/04
- ----------------------------------------
1-Year 18.23%
- ----------------------------------------
5-Year 5.47%
- ----------------------------------------
Since Inception (1/1/99) 5.84%
- ----------------------------------------
Class B (1/1/99-8/31/04)
[GRAPHIC OMITTED]
DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Templeton Global Smaller
Period Companies Fund - Class B MSCI World Index 6 CPI 6
1/1/99 $10,000 $10,000 $10,000
1/31/99 $ 9,573 $10,220 $10,024
2/28/99 $ 9,245 $ 9,950 $10,037
3/31/99 $ 9,487 $10,366 $10,067
4/30/99 $10,385 $10,776 $10,140
5/31/99 $10,242 $10,383 $10,140
6/30/99 $10,513 $10,869 $10,140
7/31/99 $10,613 $10,838 $10,171
8/31/99 $10,484 $10,820 $10,195
9/30/99 $10,142 $10,717 $10,244
10/31/99 $10,118 $11,275 $10,262
11/30/99 $10,287 $11,594 $10,268
12/31/99 $10,914 $12,534 $10,268
1/31/00 $10,759 $11,818 $10,299
2/29/00 $11,084 $11,851 $10,360
3/31/00 $11,423 $12,672 $10,445
4/30/00 $10,883 $12,137 $10,451
5/31/00 $10,713 $11,831 $10,464
6/30/00 $11,145 $12,231 $10,519
7/31/00 $11,037 $11,889 $10,543
8/31/00 $11,114 $12,277 $10,543
9/30/00 $10,590 $11,626 $10,598
10/31/00 $ 9,985 $11,432 $10,616
11/30/00 $ 9,569 $10,740 $10,622
12/31/00 $ 9,929 $10,915 $10,616
1/31/01 $10,428 $11,127 $10,683
2/28/01 $10,235 $10,188 $10,726
3/31/01 $ 9,332 $ 9,520 $10,750
4/30/01 $ 9,719 $10,227 $10,793
5/31/01 $10,187 $10,100 $10,842
6/30/01 $ 9,961 $ 9,785 $10,860
7/31/01 $ 9,751 $ 9,656 $10,830
8/31/01 $ 9,655 $ 9,194 $10,830
9/30/01 $ 8,333 $ 8,385 $10,879
10/31/01 $ 8,645 $ 8,547 $10,842
11/30/01 $ 9,180 $ 9,054 $10,824
12/31/01 $ 9,667 $ 9,112 $10,781
1/31/02 $ 9,764 $ 8,837 $10,805
2/28/02 $10,023 $ 8,761 $10,848
3/31/02 $10,915 $ 9,151 $10,909
4/30/02 $11,240 $ 8,843 $10,970
5/31/02 $11,418 $ 8,864 $10,970
6/30/02 $10,769 $ 8,328 $10,976
7/31/02 $ 9,553 $ 7,627 $10,988
8/31/02 $ 9,245 $ 7,643 $11,025
9/30/02 $ 8,385 $ 6,804 $11,043
10/31/02 $ 8,612 $ 7,307 $11,062
11/30/02 $ 8,906 $ 7,703 $11,062
12/31/02 $ 8,759 $ 7,331 $11,037
1/31/03 $ 8,417 $ 7,110 $11,086
2/28/03 $ 7,992 $ 6,988 $11,171
3/31/03 $ 8,009 $ 6,969 $11,239
4/30/03 $ 8,824 $ 7,591 $11,214
5/31/03 $ 9,754 $ 8,029 $11,196
6/30/03 $10,080 $ 8,170 $11,208
7/31/03 $10,684 $ 8,338 $11,220
8/31/03 $11,369 $ 8,520 $11,263
9/30/03 $11,548 $ 8,574 $11,300
10/31/03 $12,411 $ 9,085 $11,287
11/30/03 $12,642 $ 9,225 $11,257
12/31/03 $13,318 $ 9,806 $11,245
1/31/04 $13,731 $ 9,966 $11,300
2/29/04 $14,309 $10,136 $11,361
3/31/04 $14,094 $10,073 $11,434
4/30/04 $13,896 $ 9,872 $11,470
5/31/04 $13,780 $ 9,969 $11,538
6/30/04 $14,226 $10,178 $11,574
7/31/04 $13,846 $ 9,848 $11,556
8/31/04 $13,796 $ 9,895 $11,562
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS C 8/31/04
- ---------------------------------------
1-Year 21.07%
- ---------------------------------------
5-Year 5.85%
- ---------------------------------------
Since Inception (5/1/95) 6.14%
- ---------------------------------------
[GRAPHIC OMITTED]
DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Templeton Global Smaller
Period Companies Fund - Class C MSCI World Index 6 CPI 6
5/1/95 $10,000 $10,000 $10,000
5/31/95 $10,305 $10,087 $10,020
6/30/95 $10,585 $10,086 $10,039
7/31/95 $11,094 $10,593 $10,039
8/31/95 $11,132 $10,359 $10,066
9/30/95 $11,260 $10,663 $10,086
10/31/95 $10,856 $10,497 $10,118
11/30/95 $10,939 $10,863 $10,112
12/31/95 $11,047 $11,183 $10,105
1/31/96 $11,353 $11,387 $10,165
2/29/96 $11,687 $11,459 $10,197
3/31/96 $11,847 $11,651 $10,250
4/30/96 $12,124 $11,927 $10,290
5/31/96 $12,357 $11,940 $10,309
6/30/96 $12,444 $12,002 $10,316
7/31/96 $11,920 $11,580 $10,336
8/31/96 $12,328 $11,716 $10,355
9/30/96 $12,531 $12,177 $10,388
10/31/96 $12,692 $12,264 $10,421
11/30/96 $13,052 $12,953 $10,441
12/31/96 $13,406 $12,748 $10,441
1/31/97 $13,648 $12,904 $10,474
2/28/97 $13,793 $13,054 $10,507
3/31/97 $13,696 $12,798 $10,533
4/30/97 $13,680 $13,219 $10,546
5/31/97 $14,310 $14,037 $10,540
6/30/97 $14,875 $14,740 $10,553
7/31/97 $15,263 $15,421 $10,566
8/31/97 $15,215 $14,391 $10,586
9/30/97 $15,828 $15,176 $10,612
10/31/97 $14,618 $14,379 $10,639
11/30/97 $14,279 $14,636 $10,632
12/31/97 $14,255 $14,817 $10,619
1/31/98 $13,767 $15,232 $10,639
2/28/98 $14,916 $16,265 $10,658
3/31/98 $15,612 $16,954 $10,678
4/30/98 $15,717 $17,122 $10,698
5/31/98 $15,351 $16,910 $10,718
6/30/98 $14,672 $17,314 $10,731
7/31/98 $14,133 $17,289 $10,744
8/31/98 $11,801 $14,986 $10,757
9/30/98 $11,679 $15,253 $10,770
10/31/98 $11,939 $16,635 $10,797
11/30/98 $12,409 $17,627 $10,797
12/31/98 $12,517 $18,490 $10,790
1/31/99 $11,993 $18,898 $10,816
2/28/99 $11,560 $18,398 $10,829
3/31/99 $11,885 $19,166 $10,862
4/30/99 $13,005 $19,925 $10,941
5/31/99 $12,824 $19,199 $10,941
6/30/99 $13,149 $20,097 $10,941
7/31/99 $13,276 $20,040 $10,974
8/31/99 $13,131 $20,007 $11,001
9/30/99 $12,698 $19,816 $11,053
10/31/99 $12,676 $20,849 $11,073
11/30/99 $12,889 $21,438 $11,080
12/31/99 $13,667 $23,176 $11,080
1/31/00 $13,492 $21,851 $11,113
2/29/00 $13,880 $21,913 $11,178
3/31/00 $14,326 $23,430 $11,271
4/30/00 $13,648 $22,442 $11,277
5/31/00 $13,434 $21,877 $11,290
6/30/00 $13,977 $22,616 $11,350
7/31/00 $13,861 $21,983 $11,376
8/31/00 $13,938 $22,700 $11,376
9/30/00 $13,279 $21,496 $11,435
10/31/00 $12,536 $21,139 $11,455
11/30/00 $12,015 $19,858 $11,461
12/31/00 $12,446 $20,182 $11,455
1/31/01 $13,091 $20,574 $11,527
2/28/01 $12,829 $18,837 $11,573
3/31/01 $11,699 $17,604 $11,600
4/30/01 $12,203 $18,909 $11,646
5/31/01 $12,768 $18,674 $11,698
6/30/01 $12,486 $18,092 $11,718
7/31/01 $12,224 $17,854 $11,685
8/31/01 $12,103 $17,000 $11,685
9/30/01 $10,449 $15,505 $11,738
10/31/01 $10,837 $15,803 $11,698
11/30/01 $11,523 $16,740 $11,679
12/31/01 $12,129 $16,848 $11,633
1/31/02 $12,270 $16,339 $11,659
2/28/02 $12,593 $16,200 $11,705
3/31/02 $13,683 $16,920 $11,771
4/30/02 $14,106 $16,351 $11,837
5/31/02 $14,328 $16,389 $11,837
6/30/02 $13,521 $15,398 $11,843
7/31/02 $11,987 $14,102 $11,856
8/31/02 $11,604 $14,132 $11,896
9/30/02 $10,514 $12,581 $11,916
10/31/02 $10,811 $13,511 $11,935
11/30/02 $11,175 $14,243 $11,935
12/31/02 $10,993 $13,555 $11,909
1/31/03 $10,568 $13,146 $11,962
2/28/03 $10,021 $12,921 $12,054
3/31/03 $10,062 $12,885 $12,126
4/30/03 $11,074 $14,036 $12,100
5/31/03 $12,228 $14,845 $12,080
6/30/03 $12,653 $15,108 $12,093
7/31/03 $13,402 $15,417 $12,107
8/31/03 $14,293 $15,754 $12,153
9/30/03 $14,516 $15,854 $12,192
10/31/03 $15,591 $16,798 $12,179
11/30/03 $15,877 $17,058 $12,146
12/31/03 $16,734 $18,132 $12,133
1/31/04 $17,244 $18,427 $12,192
2/29/04 $17,958 $18,742 $12,258
3/31/04 $17,693 $18,625 $12,337
4/30/04 $17,448 $18,254 $12,377
5/31/04 $17,305 $18,433 $12,449
6/30/04 $17,876 $18,819 $12,488
7/31/04 $17,387 $18,210 $12,469
8/31/04 $17,448 $18,297 $12,475
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
ADVISOR CLASS 5 8/31/04
- ---------------------------------------
1-Year 23.30%
- ---------------------------------------
5-Year 6.95%
- ---------------------------------------
10-Year 6.51%
- ---------------------------------------
Advisor Class (9/1/94-8/31/04) 5
[GRAPHIC OMITTED]
DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Templeton Global Smaller
Period Companies Fund - Advisor Class MSCI World Index 6 CPI 6
9/1/94 $10,000 $10,000 $10,000
9/30/94 $ 9,903 $ 9,739 $10,027
10/31/94 $ 9,801 $10,018 $10,034
11/30/94 $ 9,360 $ 9,585 $10,047
12/31/94 $ 9,252 $ 9,680 $10,047
1/31/95 $ 9,003 $ 9,536 $10,087
2/28/95 $ 9,189 $ 9,677 $10,128
3/31/95 $ 9,389 $10,145 $10,161
4/30/95 $ 9,800 $10,501 $10,195
5/31/95 $10,098 $10,593 $10,215
6/30/95 $10,372 $10,592 $10,235
7/31/95 $10,883 $11,124 $10,235
8/31/95 $10,920 $10,878 $10,262
9/30/95 $11,057 $11,197 $10,282
10/31/95 $10,678 $11,023 $10,315
11/30/95 $10,759 $11,407 $10,309
12/31/95 $10,885 $11,743 $10,302
1/31/96 $11,184 $11,958 $10,362
2/29/96 $11,512 $12,033 $10,396
3/31/96 $11,684 $12,235 $10,450
4/30/96 $11,969 $12,525 $10,490
5/31/96 $12,197 $12,538 $10,510
6/30/96 $12,283 $12,604 $10,517
7/31/96 $11,783 $12,161 $10,537
8/31/96 $12,197 $12,303 $10,557
9/30/96 $12,397 $12,787 $10,591
10/31/96 $12,575 $12,878 $10,624
11/30/96 $12,928 $13,602 $10,644
12/31/96 $13,289 $13,387 $10,644
1/31/97 $13,592 $13,550 $10,678
2/28/97 $13,736 $13,708 $10,711
3/31/97 $13,672 $13,440 $10,738
4/30/97 $13,656 $13,881 $10,752
5/31/97 $14,310 $14,741 $10,745
6/30/97 $14,869 $15,478 $10,758
7/31/97 $15,283 $16,193 $10,772
8/31/97 $15,235 $15,112 $10,792
9/30/97 $15,873 $15,936 $10,819
10/31/97 $14,693 $15,100 $10,846
11/30/97 $14,357 $15,369 $10,839
12/31/97 $14,330 $15,559 $10,826
1/31/98 $13,862 $15,995 $10,846
2/28/98 $15,039 $17,080 $10,866
3/31/98 $15,749 $17,803 $10,886
4/30/98 $15,886 $17,980 $10,906
5/31/98 $15,541 $17,757 $10,926
6/30/98 $14,866 $18,181 $10,940
7/31/98 $14,312 $18,155 $10,953
8/31/98 $11,958 $15,736 $10,966
9/30/98 $11,855 $16,017 $10,980
10/31/98 $12,130 $17,468 $11,007
11/30/98 $12,600 $18,510 $11,007
12/31/98 $12,727 $19,417 $11,000
1/31/99 $12,202 $19,845 $11,027
2/28/99 $11,785 $19,320 $11,040
3/31/99 $12,112 $20,127 $11,074
4/30/99 $13,252 $20,923 $11,154
5/31/99 $13,089 $20,161 $11,154
6/30/99 $13,451 $21,104 $11,154
7/31/99 $13,578 $21,044 $11,188
8/31/99 $13,433 $21,010 $11,215
9/30/99 $13,017 $20,809 $11,268
10/31/99 $12,992 $21,893 $11,289
11/30/99 $13,227 $22,512 $11,295
12/31/99 $14,044 $24,337 $11,295
1/31/00 $13,867 $22,946 $11,329
2/29/00 $14,280 $23,011 $11,396
3/31/00 $14,754 $24,604 $11,490
4/30/00 $14,064 $23,567 $11,497
5/31/00 $13,867 $22,973 $11,510
6/30/00 $14,419 $23,750 $11,570
7/31/00 $14,321 $23,084 $11,597
8/31/00 $14,419 $23,838 $11,597
9/30/00 $13,749 $22,573 $11,658
10/31/00 $12,987 $22,198 $11,678
11/30/00 $12,452 $20,853 $11,685
12/31/00 $12,915 $21,193 $11,678
1/31/01 $13,577 $21,605 $11,752
2/28/01 $13,349 $19,781 $11,799
3/31/01 $12,170 $18,486 $11,826
4/30/01 $12,687 $19,857 $11,872
5/31/01 $13,308 $19,610 $11,926
6/30/01 $13,018 $18,998 $11,946
7/31/01 $12,770 $18,748 $11,913
8/31/01 $12,666 $17,852 $11,913
9/30/01 $10,948 $16,281 $11,966
10/31/01 $11,350 $16,595 $11,926
11/30/01 $12,085 $17,579 $11,906
12/31/01 $12,714 $17,692 $11,859
1/31/02 $12,882 $17,158 $11,886
2/28/02 $13,218 $17,012 $11,933
3/31/02 $14,393 $17,768 $12,000
4/30/02 $14,855 $17,171 $12,067
5/31/02 $15,085 $17,210 $12,067
6/30/02 $14,245 $16,170 $12,074
7/31/02 $12,631 $14,809 $12,087
8/31/02 $12,252 $14,840 $12,128
9/30/02 $11,120 $13,211 $12,148
10/31/02 $11,420 $14,188 $12,168
11/30/02 $11,824 $14,956 $12,168
12/31/02 $11,632 $14,235 $12,141
1/31/03 $11,207 $13,804 $12,195
2/28/03 $10,634 $13,568 $12,289
3/31/03 $10,677 $13,531 $12,362
4/30/03 $11,781 $14,739 $12,336
5/31/03 $13,012 $15,589 $12,315
6/30/03 $13,480 $15,864 $12,329
7/31/03 $14,285 $16,190 $12,342
8/31/03 $15,241 $16,543 $12,389
9/30/03 $15,496 $16,648 $12,430
10/31/03 $16,644 $17,639 $12,416
11/30/03 $16,967 $17,912 $12,383
12/31/03 $17,909 $19,040 $12,369
1/31/04 $18,470 $19,350 $12,430
2/29/04 $19,267 $19,681 $12,497
3/31/04 $18,987 $19,558 $12,577
4/30/04 $18,729 $19,168 $12,617
5/31/04 $18,599 $19,356 $12,691
6/30/04 $19,224 $19,762 $12,732
7/31/04 $18,729 $19,122 $12,711
8/31/04 $18,792 $19,214 $12,718
Annual Report | 11
Performance Summary (CONTINUED)
ENDNOTES
THE FUND INVESTS IN FOREIGN SECURITIES, WHICH CAN INVOLVE EXPOSURE TO CURRENCY
VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. INVESTMENTS IN
DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN
ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER
LIQUIDITY. IN ADDITION, SMALLER-COMPANY STOCKS HAVE HISTORICALLY EXHIBITED
GREATER PRICE VOLATILITY THAN LARGER-COMPANY STOCKS, PARTICULARLY OVER THE SHORT
TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT
RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any current, applicable,
maximum sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. 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, but reflecting the effect of
the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, actual Advisor
Class performance is used reflecting 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 41.42% and 4.62%.
6. Source: Standard & Poor's Micropal. The MSCI World Index is market
capitalization weighted and measures total returns of equity securities in
developed markets globally.
12 | Annual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
O Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
O Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 =
$64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 2/29/04 VALUE 8/31/04 PERIOD* 2/29/04-8/31/04
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $974.20 $7.29
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.75 $7.46
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $971.20 $10.95
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,014.03 $11.19
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $971.60 $11.00
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,013.98 $11.24
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $975.40 $6.06
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.19
- -------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio for each class (A: 1.47%; B:
2.21%; C: 2.22%; and Advisor: 1.22%), multiplied by the average account value
over the period, multiplied by 184/366 to reflect the one-half year period.
14 | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS
--------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS A 2004 2003 2002 2001 2000
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $7.16 $5.82 $6.10 $7.30 $7.40
--------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .07 .07 .05 .07 .11
Net realized and unrealized gains (losses) ...................... 1.56 1.32 (.27) (.98) .35
--------------------------------------------------------
Total from investment operations ................................. 1.63 1.39 (.22) (.91) .46
--------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.10) (.05) (.06) (.10) (.17)
Net realized gains .............................................. -- -- -- (.19) (.39)
--------------------------------------------------------
Total distributions .............................................. (.10) (.05) (.06) (.29) (.56)
--------------------------------------------------------
Redemption fees .................................................. -- c -- c -- -- --
--------------------------------------------------------
Net asset value, end of year ..................................... $8.69 $7.16 $5.82 $6.10 $7.30
========================================================
Total return b ................................................... 23.04% 24.09% (3.59)% (12.50)% 7.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $744,017 $691,103 $565,680 $647,893 $952,784
Ratios to average net assets:
Expenses ........................................................ 1.42% 1.46% 1.44% 1.46% 1.37%
Net investment income ........................................... .91% 1.18% .82% 1.07% 1.60%
Portfolio turnover rate .......................................... 31.69% 29.51% 25.31% 36.65% 27.19%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cAmount is less than $0.001 per share.
Annual Report | See notes to financial statements. | 15
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS B 2004 2003 2002 2001 2000
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $6.97 $5.70 $5.99 $7.20 $7.36
--------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .02 .03 .02 .03 .07
Net realized and unrealized gains (losses) ...................... 1.52 1.27 (.28) (.97) .32
--------------------------------------------------------
Total from investment operations ................................. 1.54 1.30 (.26) (.94) .39
--------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.09) (.03) (.03) (.08) (.16)
Net realized gains .............................................. -- -- -- (.19) (.39)
--------------------------------------------------------
Total distributions .............................................. (.09) (.03) (.03) (.27) (.55)
--------------------------------------------------------
Redemption fees .................................................. -- c -- c -- -- --
--------------------------------------------------------
Net asset value, end of year ..................................... $8.42 $6.97 $5.70 $5.99 $7.20
========================================================
Total return b ................................................... 22.23% 22.97% (4.25)% (13.13)% 6.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $4,896 $3,171 $1,409 $333 $519
Ratios to average net assets:
Expenses ........................................................ 2.16% 2.21% 2.19% 2.20% 2.11%
Net investment income ........................................... .17% .43% .07% .53% .98%
Portfolio turnover rate .......................................... 31.69% 29.51% 25.31% 36.65% 27.19%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge and is not
annualized for periods less than one year.
cAmount is less than $0.001 per share.
16 | See notes to financial statements. | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------
YEAR ENDED AUGUST 31,
CLASS C 2004 2003 2002 2001 2000
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $7.05 $5.75 $6.00 $7.19 $7.27
--------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .02 .02 .01 .02 .05
Net realized and unrealized gains (losses) ...................... 1.54 1.30 (.26) (.96) .35
--------------------------------------------------------
Total from investment operations ................................. 1.56 1.32 (.25) (.94) .40
--------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.06) (.02) -- d (.06) (.09)
Net realized gains .............................................. -- -- -- (.19) (.39)
--------------------------------------------------------
Total distributions .............................................. (.06) (.02) -- (.25) (.48)
--------------------------------------------------------
Redemption fees .................................................. -- c -- c -- -- --
--------------------------------------------------------
Net asset value, end of year ..................................... $8.55 $7.05 $5.75 $6.00 $7.19
========================================================
Total return b ................................................... 22.07% 23.17% (4.12)% (13.17)% 6.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $30,741 $17,347 $12,894 $13,348 $20,729
Ratios to average net assets:
Expenses ........................................................ 2.17% 2.20% 2.17% 2.20% 2.11%
Net investment income ........................................... .16% .44% .09% .33% .79%
Portfolio turnover rate .......................................... 31.69% 29.51% 25.31% 36.65% 27.19%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge and is not
annualized for periods less than one year.
cAmount is less than $0.001 per share.
dActual distribution from net investment income per share was $.003.
Annual Report | See notes to financial statements. | 17
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------
YEAR ENDED AUGUST 31,
ADVISOR CLASS 2004 2003 2002 2001 2000
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $7.17 $5.84 $6.12 $7.31 $7.42
--------------------------------------------------------
Income from investment operations:
Net investment income a ......................................... .10 .06 .07 .07 .14
Net realized and unrealized gains (losses) ...................... 1.56 1.33 (.28) (.96) .34
--------------------------------------------------------
Total from investment operations ................................. 1.66 1.39 (.21) (.89) .48
--------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.12) (.06) (.07) (.11) (.20)
Net realized gains .............................................. -- -- -- (.19) (.39)
--------------------------------------------------------
Total distributions .............................................. (.12) (.06) (.07) (.30) (.59)
--------------------------------------------------------
Redemption fees .................................................. -- c -- c -- -- --
--------------------------------------------------------
Net asset value, end of year ..................................... $8.71 $7.17 $5.84 $6.12 $7.31
========================================================
Total return b ................................................... 23.30% 24.39% (3.27)% (12.16)% 7.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $9,329 $4,834 $10,344 $2,929 $10,234
Ratios to average net assets:
Expenses ........................................................ 1.17% 1.21% 1.19% 1.21% 1.12%
Net investment income ........................................... 1.16% 1.43% 1.07% 1.10% 1.93%
Portfolio turnover rate .......................................... 31.69% 29.51% 25.31% 36.65% 27.19%
aBased on average daily shares outstanding.
bTotal return is not annualized for periods less than one year.
cAmount is less than $0.001 per share.
18 | See notes to financial statements. | Annual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.3%
AUSTRALIA 5.0%
APN News & Media Ltd. ................... Media 3,746,205 $ 11,904,220
Billabong Internatational Ltd. .......... Textiles Apparel & Luxury Goods 369,406 2,446,829
Iluka Resources Ltd. .................... Metals & Mining 5,426,320 17,817,847
John Fairfax Holdings Ltd. .............. Media 2,794,300 7,537,603
-------------
39,706,499
-------------
BAHAMAS .3%
aSteiner Leisure Ltd. .................... Specialty Retail 126,500 2,703,305
-------------
BERMUDA .1%
Axis Capital Holdings Ltd. .............. Insurance 31,100 742,357
-------------
CANADA 6.9%
Abitibi-Consolidated Inc. ............... Paper & Forest Products 558,470 3,301,822
CAE Inc. ................................ Aerospace & Defense 1,333,000 5,817,206
aGSI Lumonics Inc. ....................... Electronic Equipment & Instruments 469,900 5,178,315
Legacy Hotels REIT ...................... Real Estate 1,621,700 8,714,053
Linamar Corp. ........................... Auto Components 690,000 7,383,880
National Bank of Canada ................. Commercial Banks 226,400 7,422,951
aPrecision Drilling Corp. ................ Energy Equipment & Services 180,000 8,838,798
Quebecor World Inc. ..................... Commercial Services & Supplies 356,850 7,827,083
-------------
54,484,108
-------------
CHINA 2.9%
China Pharmaceutical Enterprise &
Investment Corp. Ltd. ................. Pharmaceuticals 20,194,000 4,919,083
aChina Resources Power Co. Ltd. .......... Electric Utilities 9,984,000 5,280,034
TCL International Holdings Inc. ......... Household Durables 17,480,000 6,274,912
Weiqiao Textile Co. ..................... Textiles Apparel & Luxury Goods 2,463,000 3,931,352
Weiqiao Textile Co., 144A ............... Textiles Apparel & Luxury Goods 1,290,500 2,059,850
-------------
22,465,231
-------------
DENMARK 3.2%
ISS A/S ................................. Commercial Services & Supplies 179,500 8,842,364
aVestas Wind Systems AS .................. Electrical Equipment 955,140 12,406,544
aVestas Wind Systems AS, 144A ............ Electrical Equipment 318,380 4,135,515
-------------
25,384,423
-------------
FINLAND 4.4%
Amer Group Ltd., A ...................... Leisure Equipment & Products 189,900 8,873,724
Metso OYJ ............................... Machinery 891,650 11,486,425
Orion Yhtyma OYJ B ...................... Pharmaceuticals 506,900 14,569,278
-------------
34,929,427
-------------
GERMANY 1.3%
Celesio AG .............................. Health Care Providers & Services 151,000 9,964,635
-------------
HONG KONG 9.8%
Asia Satellite Telecommunications
Holdings Ltd. ......................... Diversified Telecommunication Services 2,443,500 4,370,134
Dah Sing Financial
Holdings Ltd. ......................... Commercial Banks 1,280,000 9,189,803
Fountain Set Holdings Ltd. .............. Textiles Apparel & Luxury Goods 8,684,000 6,179,040
Annual Report | 19
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
HONG KONG (CONT.)
Giordano International Ltd. ............. Specialty Retail 18,171,348 $ 10,192,328
Hang Lung Group Ltd. .................... Real Estate 1,665,000 2,561,555
Hopewell Holdings Ltd. .................. Transportation Infrastructure 2,982,000 6,461,041
Hung Hing Printing Group Ltd. ........... Containers & Packaging 20,862,508 15,780,716
Li & Fung Ltd. .......................... Distributors 4,761,000 6,103,885
Moulin International Holdings Ltd. ...... Personal Products 17,366,000 9,462,304
Techtronic Industries Co. Ltd. .......... Household Durables 4,561,242 7,192,774
-------------
77,493,580
-------------
INDIA 5.5%
Associated Cement Cos. Ltd. ............. Construction Materials 1,501,300 8,722,085
Gail India Ltd., GDR, 144A .............. Gas Utilities 379,910 9,026,662
Gujarat Ambuja Cements Ltd. ............. Construction Materials 2,110,380 14,765,146
Housing Development Finance
Corp. Ltd. ............................ Thrifts & Mortgage Finance 601,660 7,223,944
Satyam Computers Services Ltd. .......... IT Services 543,622 3,982,886
-------------
43,720,723
-------------
INDONESIA .6%
PT Indosat (Persero) TBK ................ Diversified Telecommunication Services 9,955,000 4,459,840
-------------
ISRAEL 1.2%
aOrbotech Ltd. ........................... Electronic Equipment & Instruments 547,300 9,134,437
-------------
JAPAN 4.0%
Meitec Corp. ............................ Commercial Services & Supplies 223,600 8,047,929
Ono Pharmaceutical Co. Ltd. ............. Pharmaceuticals 203,000 9,026,744
Sangetsu Co. Ltd. ....................... Household Durables 352,000 8,451,592
Sohgo Security Services Co. Ltd. ........ Commercial Services & Supplies 454,100 5,805,297
-------------
31,331,562
-------------
LUXEMBOURG .4%
aThiel Logistik AG ....................... IT Services 629,000 3,493,425
-------------
MEXICO .6%
Grupo Continental SA .................... Beverages 3,158,600 4,838,258
-------------
NETHERLANDS 9.7%
Aalberts Industries NV .................. Industrial Conglomerates 423,479 14,024,358
Arcadis NV .............................. Construction & Engineering 533,932 7,364,893
Draka Holding NV ........................ Electrical Equipment 193,464 2,315,906
Draka Holding NV, 144A .................. Electrical Equipment 135,422 1,621,101
IHC Caland NV ........................... Energy Equipment & Services 142,300 6,831,036
Imtech NV ............................... Construction & Engineering 459,190 12,305,113
OPG Groep NV ............................ Health Care Providers & Services 385,100 20,124,569
Vedior NV ............................... Commercial Services & Supplies 869,000 11,828,302
-------------
76,415,278
-------------
NORWAY 1.4%
Norske Skogindustrier ASA, A ............ Paper & Forest Products 286,000 4,761,008
Prosafe ASA ............................. Energy Equipment & Services 266,800 5,908,978
-------------
10,669,986
-------------
SINGAPORE .3%
Want Want Holdings Ltd. ................. Food Products 2,446,700 2,446,700
-------------
20 | Annual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
SOUTH KOREA 4.6%
Bank of Pusan ........................... Commercial Banks 2,024,960 $ 12,306,047
Dae Duck Electronics Co. Ltd. ........... Electronic Equipment & Instruments 939,895 7,882,438
Daegu Bank Co. Ltd. ..................... Commercial Banks 1,124,200 6,519,647
Halla Climate Control Co. Ltd. .......... Auto Components 1,104,000 9,479,151
-------------
36,187,283
-------------
SPAIN 2.6%
Actividades de Construcciones
y Servicios SA ........................ Construction & Engineering 190,014 3,232,944
Sol Melia SA ............................ Hotels Restaurants & Leisure 835,560 6,762,955
Transportes Azkar SA .................... Air Freight & Logistics 1,359,133 10,125,280
-------------
20,121,179
-------------
SWEDEN 1.3%
D. Carnegie & Co. AB .................... Capital Markets 1,132,536 10,024,710
-------------
SWITZERLAND 2.8%
Gurit Heberlein AG, Br. ................. Chemicals 11,782 8,780,403
SIG Holding AG .......................... Machinery 41,150 7,496,274
Vontobel Holding AG ..................... Capital Markets 295,900 5,787,090
-------------
22,063,767
-------------
TAIWAN .4%
Taiwan Fu Hsing ......................... Household Durables 3,762,000 3,293,408
-------------
UNITED KINGDOM 11.6%
Avis Europe PLC ......................... Road & Rail 4,834,600 7,175,191
Bodycote International PLC .............. Machinery 4,450,330 11,708,656
Bodycote International PLC, 144A ........ Machinery 1,075,082 2,828,501
Brambles Industries PLC ................. Commercial Services & Supplies 1,563,400 6,820,258
Burberry Group PLC ...................... Textiles Apparel & Luxury Goods 777,000 5,059,977
Burberry Group PLC, 144A ................ Textiles Apparel & Luxury Goods 484,100 3,154,732
Geest PLC ............................... Food Products 1,180,000 10,985,285
Homeserve ............................... Commercial Services & Supplies 334,800 3,866,691
aInvensys PLC ............................ Machinery 20,268,400 5,378,119
John Wood Group ......................... Energy Equipment & Services 5,226,800 11,941,491
Kidde PLC ............................... Electrical Equipment 6,419,100 13,597,342
Novar PLC ............................... Building Products 3,565,199 7,888,743
South Staffordshire Group PLC ........... Water Utilities 83,700 1,185,755
-------------
91,590,741
-------------
UNITED STATES 12.4%
aAgile Software Corp. .................... Software 927,850 7,070,217
Alberto-Culver Co. ...................... Personal Products 85,925 4,149,318
American Italian Pasta Co., A ........... Food Products 163,800 4,430,790
Central Parking Corp. ................... Commercial Services & Supplies 568,400 9,236,500
aCoinstar Inc. ........................... Commercial Services & Supplies 704,000 13,882,880
aGamestop Corp. .......................... Specialty Retail 707,700 11,861,052
aGartner Inc., B ......................... IT Services 188,600 2,229,252
Hubbell Inc., B ......................... Electrical Equipment 168,700 7,279,405
aJAKKS Pacific Inc. ...................... Leisure Equipment & Products 389,700 7,630,326
Annual Report | 21
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2004 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
UNITED STATES (CONT.)
aScholastic Corp. ........................ Media 157,400 $ 4,603,950
aToo Inc. ................................ Specialty Retail 709,500 11,103,675
Tredegar Corp. .......................... Industrial Conglomerates 418,300 7,244,956
aTriad Hospitals Inc. .................... Health Care Providers & Services 229,764 7,304,198
-------------
98,026,519
-------------
TOTAL COMMON STOCKS (COST $536,267,447) . 735,691,381
-------------
PREFERRED STOCKS (COST $3,480,566) 1.6%
GERMANY 1.6%
Hugo Boss AG, pfd. ...................... Textiles Apparel & Luxury Goods 538,080 12,522,765
-------------
------------------
PRINCIPAL AMOUNT
------------------
GOVERNMENT AGENCIES (COST $7,294,702) .9%
Federal Home Loan Bank, 1.47%, 9/01/04 .. $ 7,295,000 7,295,000
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE
AGREEMENT (COST $547,042,715) 755,509,146
-------------
REPURCHASE AGREEMENT (COST $35,000,000) 4.4%
UNITED STATES 4.4%
b Dredsner Bank AG, 1.54%, 9/01/04
(Maturity Value $35,001,497)
Collateralized by U.S. Treasury Bills, 9/02/04
to 9/16/04 ............................ 35,000,000 35,000,000
-------------
TOTAL INVESTMENTS
(COST $582,042,715) 100.2% ............ 790,509,146
OTHER ASSETS, LESS LIABILITIES (.2)% .... (1,526,176)
-------------
NET ASSETS 100.0% ....................... $788,982,970
=============
aNon-income producing.
bSee Note 1c regarding repurchase agreements.
22 | See notes to financial statements. | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2004
Assets:
Investments in securities:
Cost .................................................................................................. $582,042,715
-------------
Value ................................................................................................. 790,509,146
Cash ................................................................................................... 322
Foreign currency, at value (cost $1,756 ) .............................................................. 1,730
Receivables:
Investment securities sold ............................................................................ 586,107
Capital shares sold ................................................................................... 361,500
Dividends and interest ................................................................................ 1,558,987
-------------
Total assets ...................................................................................... 793,017,792
-------------
Liabilities:
Payables:
Investment securities purchased ....................................................................... 427,852
Capital shares redeemed ............................................................................... 531,543
Affiliates ............................................................................................ 1,028,851
Deferred tax liability (Note 1g) ....................................................................... 1,790,679
Other liabilities ...................................................................................... 255,897
-------------
Total liabilities ................................................................................. 4,034,822
-------------
Net assets, at value ............................................................................ $788,982,970
=============
Net assets consist of:
Undistributed net investment income .................................................................... $ 3,438,414
Net unrealized appreciation (depreciation) ............................................................. 206,691,412
Accumulated net realized gain (loss) ................................................................... 66,808,336
Capital shares ......................................................................................... 512,044,808
-------------
Net assets, at value ............................................................................ $788,982,970
=============
Annual Report | See notes to financial statements. | 23
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
August 31, 2004
CLASS A:
Net assets, at value ................................................................................... $744,016,512
=============
Shares outstanding ..................................................................................... 85,599,160
=============
Net asset value per share a ............................................................................ $8.69
=============
Maximum offering price per share (net asset value per share / 94.25%) .................................. $9.22
=============
CLASS B:
Net assets, at value ................................................................................... $ 4,896,239
=============
Shares outstanding ..................................................................................... 581,642
=============
Net asset value and maximum offering price per share a ................................................. $8.42
=============
CLASS C:
Net assets, at value ................................................................................... $ 30,741,508
=============
Shares outstanding ..................................................................................... 3,595,648
=============
Net asset value and maximum offering price per share a ................................................. $8.55
=============
ADVISOR CLASS:
Net assets, at value ................................................................................... $ 9,328,711
=============
Shares outstanding ..................................................................................... 1,071,257
=============
Net asset value and maximum offering price per share b ................................................. $8.71
=============
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge and redemption fees retained by the Fund.
bRedemption price is equal to net asset value less any applicable redemption
fees retained by the Fund.
24 | See notes to financial statements. | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended August 31, 2004
Investment income:
(net of foreign taxes of $1,976,115)
Dividends .............................................................................................. $ 18,695,194
Interest ............................................................................................... 278,001
-------------
Total investment income ........................................................................... 18,973,195
-------------
Expenses:
Management fees (Note 3) ............................................................................... 6,111,541
Administrative fees (Note 3) ........................................................................... 1,090,123
Distribution fees (Note 3)
Class A ............................................................................................... 1,939,858
Class B ............................................................................................... 53,041
Class C ............................................................................................... 265,755
Transfer agent fees (Note 3) ........................................................................... 1,444,100
Custodian fees (Note 4) ................................................................................ 302,173
Reports to shareholders ................................................................................ 136,000
Registration and filing fees ........................................................................... 94,400
Professional fees ...................................................................................... 210,200
Trustees' fees and expenses ............................................................................ 81,400
Other .................................................................................................. 29,300
-------------
Total expenses .................................................................................... 11,757,891
Expense reductions (Note 4) ....................................................................... (204)
-------------
Net expenses .................................................................................... 11,757,687
-------------
Net investment income ......................................................................... 7,215,508
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (net of foreign taxes of $255,114) (Note 1g) .............................................. 123,939,145
Foreign currency transactions ......................................................................... 99,917
-------------
Net realized gain (loss) .......................................................................... 124,039,062
Net unrealized appreciation (depreciation) on:
Investments ........................................................................................... 29,804,805
Translation of assets and liabilities denominated in foreign currencies ............................... 11,094
Deferred taxes (Note 1g) .............................................................................. (837,960)
-------------
Net unrealized appreciation (depreciation) ........................................................ 28,977,939
-------------
Net realized and unrealized gain (loss) ................................................................. 153,017,001
-------------
Net increase (decrease) in net assets resulting from operations ......................................... $160,232,509
=============
Annual Report | See notes to financial statements. | 25
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 2004 and 2003
---------------------------------
2004 2003
---------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .......................................................... $ 7,215,508 $ 6,516,285
Net realized gain (loss) from investments and
foreign currency transactions ........................................................ 124,039,062 (27,334,957)
Net unrealized appreciation (depreciation)
on investments, translation of assets and
liabilities denominated in foreign currencies, and deferred taxes ...................... 28,977,939 151,616,930
---------------------------------
Net increase (decrease) in net assets resulting
from operations .................................................................. 160,232,509 130,798,258
Distributions to shareholders from:
Net investment income:
Class A ............................................................................... (10,007,645) (4,409,850)
Class B ............................................................................... (52,559) (6,893)
Class C ............................................................................... (159,628) (48,068)
Advisor Class ......................................................................... (86,378) (127,933)
---------------------------------
Total distributions to shareholders ..................................................... (10,306,210) (4,592,744)
Capital share transactions (Note 2):
Class A ............................................................................... (90,963,416) 2,597,264
Class B ............................................................................... 859,846 1,315,987
Class C ............................................................................... 9,294,105 1,406,677
Advisor Class ......................................................................... 3,386,073 (5,407,925)
---------------------------------
Total capital share transactions ........................................................ (77,423,392) (87,997)
Redemption fees (Note 1i) ............................................................... 25,007 10,345
Net increase (decrease) in net assets ............................................ 72,527,914 126,127,862
Net assets:
Beginning of year ...................................................................... 716,455,056 590,327,194
---------------------------------
End of year ............................................................................ $788,982,970 $716,455,056
=================================
Undistributed net investment income included in net assets:
End of year ............................................................................ $ 3,438,414 $ ,683,493
=================================
26 | See notes to financial statements. | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Smaller Companies Fund (the Fund, formerly Templeton Global
Smaller Companies Fund, Inc.) is registered under the Investment Company Act of
1940 as a diversified, open-end investment company. Effective June 1, 2004, the
Fund was reorganized from a Maryland corporation to a Delaware statutory trust.
The Fund seeks to achieve long-term capital growth. Under normal market
conditions, the Fund will invest at least 80% of its net assets 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 are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing 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 by independent pricing services or recognized dealers in
such securities. Foreign securities are valued at the close of trading of the
foreign exchange or the NYSE, whichever is earlier. If events occur that
materially affect the values of securities after the prices or foreign exchange
rates are determined, but prior to 4:00 p.m. Eastern time or the close of
trading on the NYSE, whichever is earlier, or if market quotations are deemed
not readily available or reliable, the securities will be valued at fair value.
Repurchase agreements are valued at cost. All security valuation procedures are
approved by the Board of Trustees.
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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date.
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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
Annual Report | 27
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, which are accounted for as a loan
by the Fund to the seller, collateralized by securities which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Fund, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At August 31, 2004, all
repurchase agreements held by the Fund had been entered into on the last
business day of the month.
D. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses are included
in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
E. 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 substantially all of its taxable income. Fund distributions to
shareholders are determined on a tax basis and may differ from net investment
income and realized gains for financial reporting purposes.
F. 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. Interest income and estimated expenses are accrued daily. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
G. DEFERRED TAXES
The Fund is subject to a tax imposed on net realized gains of securities of
certain foreign countries. The Fund records an estimated deferred tax liability
for net unrealized gains on these securities as reflected in the accompanying
financial statements.
28 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
I. REDEMPTION FEES
Redemptions and exchanges of Fund shares held five trading days or less (30 days
or less prior to June 1, 2004 and 90 days or less prior to January 1, 2004) may
be subject to the Fund's redemption fee, which is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as additional paid in
capital as noted on the Statement of Changes.
J. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and Trustees are
indemnified against certain liability arising out of the performance of their
duties to the Fund. Additionally, in the normal course of business, the Fund
enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor
Class. Each class of shares differs by its initial sales load, contingent
deferred sales charges, distribution fees, voting rights on matters affecting a
single class, and its exchange privilege.
At August 31, 2004, there were an unlimited number of shares of beneficial
interest authorized (without par value). Transactions in the Fund's shares were
as follows:
-------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
2004 2003
-------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
CLASS A SHARES:
Shares sold ........................ 16,608,824 $ 137,819,241 25,986,563 $ 153,546,743
Shares issued in reinvestment of
distributions ..................... 1,129,959 8,565,100 725,443 3,844,845
Shares redeemed .................... (28,682,784) (237,347,757) (27,313,850) (154,794,324)
-------------------------------------------------------------------------
Net increase (decrease) ............ (10,944,001) $ (90,963,416) (601,844) $ 2,597,264
=========================================================================
Annual Report | 29
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
2004 2003
-------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
CLASS B SHARES:
Shares sold ........................ 791,378 $ 6,371,024 640,501 $ 3,781,182
Shares issued in reinvestment of
distributions ..................... 6,754 49,578 1,255 6,526
Shares redeemed .................... (671,299) (5,560,756) (434,207) (2,471,721)
-------------------------------------------------------------------------
Net increase (decrease) ............ 126,833 $ 859,846 207,549 $ 1,315,987
=========================================================================
CLASS C SHARES:
=========================================================================
Shares sold ........................ 2,457,661 $ 20,249,276 2,481,414 $ 14,159,661
Shares issued in reinvestment of
distributions ..................... 17,982 133,963 8,211 43,189
Shares redeemed .................... (1,339,336) (11,089,134) (2,273,539) (12,796,173)
-------------------------------------------------------------------------
Net increase (decrease) ............ 1,136,307 $ 9,294,105 216,086 $ 1,406,677
=========================================================================
ADVISOR CLASS SHARES:
Shares sold ........................ 1,354,236 $ 10,993,871 1,841,440 $ 10,588,389
Shares issued in reinvestment of
distributions ..................... 10,694 81,278 23,699 125,607
Shares redeemed .................... (967,391) (7,689,076) (2,963,244) (16,121,921)
-------------------------------------------------------------------------
Net increase (decrease) ............ 397,539 $ 3,386,073 (1,098,105) $ (5,407,925)
=========================================================================
3. TRANSACTION WITH AFFILIATES
Certain officers of the Fund are also officers or directors of the following
entities:
- -----------------------------------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------------------------------
Templeton Investments Counsel, LLC (TIC) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton/Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Fund pays an investment management fee to TIC based on the Fund's average
daily net assets as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.750% Up to and including $1 billion
0.730% Over $1 billion, up to and including $5 billion
0.710% Over $5 billion, up to and including $10 billion
0.690% Over $10 billion, up to and including $15 billion
0.670% Over $15 billion, up to and including $20 billion
0.650% Over $20 billion
30 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTION WITH AFFILIATES (CONTINUED)
Prior to June 1, 2004, the Fund paid an investment management fee to TIC of
0.75% per year of the average daily net assets of the Fund.
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.150% First $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% In excess of $1.2 billion
C. DISTRIBUTION FEES
The Fund reimburses Distributors up to 0.25%, 1.00% and 1.00% per year of the
average daily net assets of Class A, Class B and Class C shares, respectively,
for costs incurred in marketing the Fund's shares under a Rule 12b-1 plan.
Under the Class A distribution plan, costs exceeding the maximum for the current
plan year may be reimbursed in subsequent periods. At August 31, 2004,
Distributors advised the Fund unreimbursed costs were $1,249,588
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sale of the Fund's shares for the year:
Sales charges received ....................................... $90,752
Contingent deferred sales charges retained ................... $72,695
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $1,444,100, of which $938,315 was paid to
Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended August 31, 2004, the
custodian fees were reduced as noted in the Statement of Operations.
Annual Report | 31
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
At August 31, 2004, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments .................................... $585,587,772
-------------
Unrealized appreciation ................................ $221,081,426
Unrealized depreciation ................................ (16,160,052)
-------------
Net unrealized appreciation (depreciation) ............. $204,921,374
=============
Undistributed ordinary income .......................... $ 6,983,472
Undistributed long term capital gains .................. 66,808,336
-------------
Distributable earnings ................................. $ 73,791,808
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of passive foreign investment company shares.
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of foreign currency transactions and foreign taxes on
sales of securities.
The tax character of distributions paid during the years ended August 31, 2004
and 2003, was as follows:
----------------------------
2004 2003
----------------------------
Distributions paid from:
Ordinary income ......................... $10,306,210 $4,592,744
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended August 31, 2004 aggregated $246,350,383 and $326,674,089,
respectively.
7. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On September 20, 2004, Franklin Resources, Inc. (Franklin Resources, Inc. and
its subsidiaries are referred to collectively as the "Company") announced that
an agreement has been reached by two of its subsidiaries, Franklin Advisers,
Inc. ("Franklin Advisers") and Franklin Templeton Alternative Strategies, Inc.
("FTAS"), with the Securities Division of the Office of the Secretary of the
Commonwealth of Massachusetts (the "State of Massachusetts") related to an
administrative complaint filed on February 4, 2004. The administrative complaint
addressed one instance of market timing that was also a subject of the August 2,
2004 settlement that Franklin Advisers reached with the SEC, as described below.
32 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
MASSACHUSETTS ADMINISTRATIVE PROCEEDING (CONTINUED)
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers and FTAS have consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts. The consent order has multiple sections, including
"Statements of Fact" and "Violations of Massachusetts Securities Laws." The
Company admitted the "Statements of Fact." The Company did not admit or deny the
"Violations of the Massachusetts Securities Laws." While Franklin Advisers and
FTAS did not admit or deny engaging in any wrongdoing, the Company believes that
it is in its best interest and the interests of its funds' shareholders to
settle this issue now and move forward.
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) SETTLEMENT
On August 2, 2004, the Company announced that an agreement has been reached by
Franklin Advisers with the SEC that resolves the issues resulting from the SEC's
investigation of market timing activity and the SEC issued an "Order instituting
administrative and cease-and-desist proceedings pursuant to sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and sections 9(b) and 9(f) of the
Investment Company Act of 1940, making findings and imposing remedial sanctions
and a cease-and-desist order" (the "Order"). The SEC's Order concerns the
activities of a limited number of third parties that ended in 2000 and those
that are the subject of the Massachusetts administrative complaint described
above.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers neither
admits nor denies any wrongdoing, Franklin Advisers has agreed to pay $50
million, of which $20 million is a civil penalty, to be distributed to
shareholders of certain funds in accordance with a plan to be developed by an
Independent Distribution Consultant. At this time, it is unclear which funds
will receive distributions or which shareholders of any particular fund will
receive distributions. The SEC Order also requires Franklin Advisers to, among
other things, enhance and periodically review compliance policies and
procedures.
OTHER GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the SEC, the U.S. Attorney for the Northern
District of California, the New York Attorney General, the California Attorney
General, the U.S. Attorney for the District of Massachusetts, the Florida
Department of Financial Services and the Commissioner of Securities, the West
Virginia Attorney General, the Vermont Department of Banking, Insurance,
Securities, and Health Care Administration and the National Association of
Securities Dealers, relating to certain practices in the mutual fund industry,
including late trading, market timing and payments to securities dealers who
sell fund shares, the Company and its subsidiaries, as well as certain current
or former executives and employees of the Company, have received requests for
information and/or subpoenas to testify or produce documents. The Company and
its current employees have been providing documents and information in response
to these requests and subpoenas. In addition, the Company has responded to
requests for similar kinds of information from regulatory authorities in some of
the foreign countries where the Company conducts its global asset management
business.
Annual Report | 33
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
OTHER GOVERNMENTAL INVESTIGATIONS (CONTINUED)
The staff of the SEC has also informed the Company that it is considering
recommending a civil action or proceeding against Franklin Advisers and Franklin
Templeton Distributors, Inc. ("FTDI") concerning payments to securities dealers
who sell fund shares (commonly referred to as "revenue sharing"). The staff of
the California Attorney General's Office ("CAGO") also has advised the Company
that the California Attorney General is authorized to bring a civil action
against the Company and FTDI arising from the same events. Even though the
Company currently believes that the charges the SEC staff and CAGO staff are
contemplating are unwarranted, it also believes that it is in the best interest
of the Company's and funds' shareholders to resolve these issues voluntarily, to
the extent the Company can reasonably do so. The Company continues to have
discussions towards resolving these governmental investigations.
OTHER LEGAL PROCEEDINGS
The Fund, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York
and Florida, alleging violations of various federal securities laws and seeking,
among other things, monetary damages and costs. Specifically, the lawsuits claim
breach of duty with respect to alleged arrangements to permit market timing
and/or late trading activity, or breach of duty with respect to the valuation of
the portfolio securities of certain funds managed by Company subsidiaries,
resulting in alleged market timing activity. The majority of these lawsuits
duplicate, in whole or in part, the allegations asserted in the Massachusetts
administrative complaint described above. The lawsuits are styled as class
actions or derivative actions on behalf of either the named funds or the
Company.
Various subsidiaries of the Company have also been named in multiple lawsuits
filed in state courts in Illinois alleging breach of duty with respect to
valuation of the portfolio securities of certain funds managed by such
subsidiaries.
In addition, the Company and certain of its subsidiaries, as well as certain
current and former officers, employees, and directors have been named in
multiple lawsuits alleging violations of various securities laws and pendent
state law claims relating to the disclosure of directed brokerage payments
and/or payment of allegedly excessive advisory, commission, and distribution
fees. These lawsuits are styled as class actions and derivative actions brought
on behalf of certain funds.
The Company's management strongly believes that the claims made in each of these
lawsuits are without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
governmental investigations or class actions or other lawsuits. If the Company
finds that it bears responsibility for any unlawful or inappropriate conduct
that caused losses to the Fund, it is committed to making the Fund or its
shareholders whole, as appropriate.
34 | Annual Report
Templeton Global Smaller Companies Fund
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON GLOBAL SMALLER COMPANIES
FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement 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 (the "Fund", formerly Templeton Global Smaller Companies Fund,
Inc.) at August 31, 2004, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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, 2004 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 13, 2004
Annual Report | 35
Templeton Global Smaller Companies Fund
Tax Designation (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby
designates $66,808,336 as a capital gain dividend for the fiscal year ended
August 31, 2004.
Under Section 854(b)(2) of the Code, the Fund hereby designates up to a maximum
of $16,124,804 as qualified dividends for purposes of the maximum rate under
Section 1(h)(11) of the Code for the fiscal year ended August 31, 2004. In
January 2005, shareholders will receive Form 1099-DIV which will include their
share of qualified dividends distributed during the calendar year 2004.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 854(b)(2) of the Code, the Fund hereby designates 4.62% of the
ordinary income dividends as income qualifying for the dividends received
deduction for the fiscal year ended August 31, 2004.
At August 31, 2004, more than 50% of the Templeton Global Smaller Companies Fund
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. As shown in the table below, the Fund hereby designates to
shareholders the foreign source income and foreign taxes paid, pursuant to
Section 853 of the Code. This designation will allow shareholders of record on
October 21, 2004, to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them. The shareholder shall consider
these amounts as foreign taxes paid in the tax year in which they receive the
Fund distribution.
The following tables provide a detailed analysis, by country, of foreign tax
paid, foreign source income, foreign qualified dividends, and adjusted foreign
source income as designated by the Fund, to Class A, Class B, Class C, and
Advisor Class shareholders of record. As a service to individual shareholders
filing Form 1116, "Adjusted Foreign Source Income per Share" in column 4 below
reports foreign source income with the required adjustments to foreign source
qualified dividends. This information is provided to simplify your reporting of
foreign source income for line 1 of Form 1116.
36 | Annual Report
Templeton Global Smaller Companies Fund
Tax Designation (unaudited) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
CLASS A
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ----------------------------------------------------------------------------------------------------------------
Australia ................................. 0.0012 0.0098 0.0098 0.0042
Canada .................................... 0.0011 0.0033 0.0028 0.0017
China ..................................... 0.0000 0.0003 0.0000 0.0003
Denmark ................................... 0.0002 0.0006 0.0006 0.0003
Finland ................................... 0.0043 0.0132 0.0132 0.0057
France .................................... 0.0001 0.0004 0.0004 0.0002
Germany ................................... 0.0012 0.0035 0.0008 0.0030
Hong Kong ................................. 0.0000 0.0143 0.0000 0.0143
India ..................................... 0.0028 0.0066 0.0057 0.0033
Indonesia ................................. 0.0003 0.0008 0.0008 0.0003
Japan ..................................... 0.0005 0.0029 0.0029 0.0012
Mexico .................................... 0.0000 0.0025 0.0025 0.0011
Netherlands ............................... 0.0039 0.0116 0.0097 0.0061
New Zealand ............................... 0.0007 0.0021 0.0021 0.0009
Norway .................................... 0.0007 0.0020 0.0020 0.0009
South Korea ............................... 0.0017 0.0045 0.0045 0.0019
Spain ..................................... 0.0006 0.0018 0.0018 0.0008
Sweden .................................... 0.0010 0.0029 0.0029 0.0012
Switzerland ............................... 0.0010 0.0029 0.0029 0.0012
Taiwan .................................... 0.0004 0.0010 0.0000 0.0010
United Kingdom ............................ 0.0030 0.0136 0.0126 0.0064
---------------------------------------------------------------
TOTAL ..................................... $0.0247 $0.1006 $0.0780 $0.0560
---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
CLASS B
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ----------------------------------------------------------------------------------------------------------------
Australia ................................. 0.0012 0.0039 0.0039 0.0017
Canada .................................... 0.0011 0.0013 0.0011 0.0007
China ..................................... 0.0000 0.0001 0.0000 0.0001
Denmark ................................... 0.0002 0.0002 0.0002 0.0001
Finland ................................... 0.0043 0.0053 0.0053 0.0023
France .................................... 0.0001 0.0001 0.0001 0.0000
Germany ................................... 0.0012 0.0014 0.0003 0.0012
Hong Kong ................................. 0.0000 0.0059 0.0000 0.0059
India ..................................... 0.0028 0.0026 0.0023 0.0013
Indonesia ................................. 0.0003 0.0003 0.0003 0.0001
Japan ..................................... 0.0005 0.0012 0.0012 0.0005
Mexico .................................... 0.0000 0.0010 0.0010 0.0004
Netherlands ............................... 0.0039 0.0047 0.0039 0.0025
New Zealand ............................... 0.0007 0.0008 0.0008 0.0003
Norway .................................... 0.0007 0.0008 0.0008 0.0003
South Korea ............................... 0.0017 0.0018 0.0018 0.0008
Spain ..................................... 0.0006 0.0007 0.0007 0.0003
Sweden .................................... 0.0010 0.0012 0.0012 0.0005
Switzerland ............................... 0.0010 0.0012 0.0012 0.0005
Taiwan .................................... 0.0004 0.0004 0.0000 0.0004
United Kingdom ............................ 0.0030 0.0054 0.0050 0.0025
---------------------------------------------------------------
TOTAL $0.0247 $0.0403 $0.0311 $0.0224
---------------------------------------------------------------
Annual Report | 37
Templeton Global Smaller Companies Fund
Tax Designation (unaudited) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
CLASS C
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ----------------------------------------------------------------------------------------------------------------
Australia ................................. 0.0012 0.0052 0.0052 0.0022
Canada .................................... 0.0011 0.0018 0.0015 0.0009
China ..................................... 0.0000 0.0002 0.0000 0.0002
Denmark ................................... 0.0002 0.0003 0.0003 0.0001
Finland ................................... 0.0043 0.0070 0.0070 0.0030
France .................................... 0.0001 0.0002 0.0002 0.0001
Germany ................................... 0.0012 0.0019 0.0004 0.0017
Hong Kong ................................. 0.0000 0.0076 0.0000 0.0076
India ..................................... 0.0028 0.0035 0.0030 0.0018
Indonesia ................................. 0.0003 0.0004 0.0004 0.0002
Japan ..................................... 0.0005 0.0015 0.0015 0.0006
Mexico .................................... 0.0000 0.0014 0.0014 0.0006
Netherlands ............................... 0.0039 0.0062 0.0052 0.0032
New Zealand ............................... 0.0007 0.0011 0.0011 0.0005
Norway .................................... 0.0007 0.0011 0.0011 0.0005
South Korea ............................... 0.0017 0.0024 0.0024 0.0010
Spain ..................................... 0.0006 0.0009 0.0009 0.0004
Sweden .................................... 0.0010 0.0016 0.0016 0.0007
Switzerland ............................... 0.0010 0.0016 0.0016 0.0007
Taiwan .................................... 0.0004 0.0005 0.0000 0.0005
United Kingdom ............................ 0.0030 0.0072 0.0067 0.0034
- ----------------------------------------------------------------------------------------------------------------
TOTAL $0.0247 $0.0536 $0.0415 $0.0299
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
ADJUSTED
FOREIGN TAX FOREIGN FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- ----------------------------------------------------------------------------------------------------------------
Australia ................................. 0.0012 0.0119 0.0119 0.0051
Canada .................................... 0.0011 0.0040 0.0034 0.0021
China ..................................... 0.0000 0.0004 0.0000 0.0004
Denmark ................................... 0.0002 0.0007 0.0007 0.0003
Finland ................................... 0.0043 0.0160 0.0160 0.0069
France .................................... 0.0001 0.0004 0.0004 0.0002
Germany ................................... 0.0012 0.0043 0.0010 0.0037
Hong Kong ................................. 0.0000 0.0175 0.0000 0.0175
India ..................................... 0.0028 0.0080 0.0069 0.0041
Indonesia ................................. 0.0003 0.0010 0.0010 0.0004
Japan ..................................... 0.0005 0.0035 0.0035 0.0015
Mexico .................................... 0.0000 0.0031 0.0031 0.0013
Netherlands ............................... 0.0039 0.0142 0.0119 0.0074
New Zealand ............................... 0.0007 0.0025 0.0025 0.0011
Norway .................................... 0.0007 0.0025 0.0025 0.0011
South Korea ............................... 0.0017 0.0055 0.0055 0.0024
Spain ..................................... 0.0006 0.0021 0.0021 0.0009
Sweden .................................... 0.0010 0.0036 0.0036 0.0015
Switzerland ............................... 0.0010 0.0036 0.0036 0.0015
Taiwan .................................... 0.0004 0.0012 0.0000 0.0012
United Kingdom ............................ 0.0030 0.0165 0.0152 0.0078
- ----------------------------------------------------------------------------------------------------------------
Total $0.0247 $0.1225 $0.0948 $0.0684
- ----------------------------------------------------------------------------------------------------------------
38 | Annual Report
Templeton Global Smaller Companies Fund
Tax Designation (unaudited) (CONTINUED)
Foreign Tax Paid per Share (Column 1) is the amount per share available to you,
as a tax credit or deduction (assuming you held your shares in the Fund for a
minimum of 16 days during the 30-day period beginning 15 days before the
ex-dividend date of the Fund's distribution to which the foreign taxes relate).
Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends without adjustment for the lower U.S.
tax rates. Generally, this is the foreign source income to be reported by
certain trusts and corporate shareholders.
Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund. If you are an individual shareholder who
does not meet the qualified dividend holding period requirements, you may find
this information helpful to calculate the foreign source income adjustment
needed to complete line 1 of Form 1116.
Adjusted Foreign Source Income per Share (Column 4) is the adjusted amount per
share of foreign source income the Fund paid to you. These amounts reflect the
Foreign Source Income reported in column 2 adjusted for the tax rate
differential on foreign source qualified dividends that may be required for
certain individual shareholders pursuant to Internal Revenue Code 904(b)(2)(B).
If you are an individual shareholder who meets the qualified dividend holding
period requirements, generally, these Adjusted Foreign Source Income amounts may
be reported directly on line 1 of Form 1116 without additional adjustment.
In January 2005, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2004. The Foreign Source Income reported on Form 1099-DIV has been
reduced to take into account the tax rate differential on foreign source
qualified dividend income pursuant to Internal Revenue Code 904(b)(2)(B).
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their 2004 individual income tax returns.
Annual Report | 39
Templeton Global Smaller Companies Fund, Inc.
Special Meeting of Shareholders
A Special Meeting of Shareholders of Templeton Global Smaller Companies Fund,
Inc. (the "Fund") was held at the Fund's offices, 500 E. Broward Boulevard, Fort
Lauderdale, Florida, on March 19, 2004 and reconvened on May 17, 2004. The
purpose of the meeting was to elect eleven Directors of the Fund and to vote on
the following Proposals and Sub-Proposals: To approve an Agreement and Plan of
Reorganization that provides for the reorganization of the Fund from a Maryland
corporation to a Delaware statutory trust, to approve amendments to certain of
the Fund's fundamental investment restrictions (including eight Sub-Proposals)
and to approve the elimination of certain of the Fund's fundamental investment
restrictions. At the meeting held on March 19, 2004, the following persons were
elected by the shareholders to serve as Independent Directors of the Fund:
Harris J. Ashton, Frank J. Crothers, S. Joseph Fortunato, Edith E. Holiday,
Gordon S. Macklin, Fred R. Millsaps, Frank A. Olson and Constantine D.
Tseretopoulos. Nicholas F. Brady, Harmon E. Burns and Charles B. Johnson were
elected by the shareholders to serve as Interested Directors. In addition,
Shareholders approved amendments to certain of the Fund's fundamental investment
restrictions (including eight Sub-Proposals) and the elimination of certain of
the Fund's fundamental investment restrictions. At the reconvened meeting held
on May 17, 2004, Shareholders approved an Agreement and Plan of Reorganization
that provided for the reorganization of the Fund from a Maryland corporation to
a Delaware statutory trust. No other business was transacted at the meetings.
The results of the voting at the meetings are as follows:
Proposal 1. The election of Directors:
- ------------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
NAME FOR SHARES SHARES WITHHELD SHARES SHARES
- ------------------------------------------------------------------------------------------------------------------
Harris J. Ashton ............. 51,027,568.061 50.797% 95.654% 2,318,413.619 2.308% 4.346%
Frank J. Crothers ............ 51,101,813.255 50.871% 95.793% 2,244,168.425 2.234% 4.207%
S. Joseph Fortunato .......... 51,034,710.841 50.804% 95.667% 2,311,270.839 2.301% 4.333%
Edith E. Holiday ............. 51,064,486.513 50.834% 95.723% 2,281,495.167 2.271% 4.277%
Gordon S. Macklin ............ 50,875,015.124 50.645% 95.368% 2,470,966.556 2.460% 4.632%
Fred R. Millsaps ............. 51,006,450.953 50.776% 95.614% 2,339,530.727 2.329% 4.386%
Frank A. Olson ............... 50,999,357.660 50.769% 95.601% 2,346,624.020 2.336% 4.399%
Constantine D.
Tseretopoulos ............... 51,073,692.909 50.843% 95.740% 2,272,288.771 2.262% 4.260%
Nicholas F. Brady ............ 50,899,675.836 50.670% 95.414% 2,446,305.844 2.435% 4.586%
Harmon E. Burns .............. 51,020,746.322 50.790% 95.641% 2,325,235.358 2.315% 4.359%
Charles B. Johnson ........... 50,947,682.315 50.717% 95.504% 2,398,299.365 2.387% 4.496%
40 | Annual Report
Templeton Global Smaller Companies Fund, Inc.
Special Meeting of Shareholders (CONTINUED)
Proposal 2. To approve an Agreement and Plan of Reorganization that
provides for the reorganization of the Company from a Maryland
corporation to a Delaware statutory trust:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 51,462,867.94 51.230% 80.217%
Against ................... 2,498,337.94 2.487% 3.894%
Abstain ................... 3,247,400.69 3.233% 5.062%
Broker Non-Votes .......... 6,945,768.00 6.914% 10.827%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 64,154,374.57 63.864% 100.00%
Proposal 3. To approve amendments to certain of the Fund's fundamental
investment restrictions (includes eight (8) Sub-Proposals):
Sub-Proposal 3a: To amend the Fund's fundamental investment
restriction regarding diversification of investments:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 38,440,011.805 38.266% 72.058%
Against ................... 2,602,710.761 2.591% 4.879%
Abstain ................... 2,648,727.114 2.637% 4.965%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Sub-Proposal 3b: To amend the Fund's fundamental investment
restriction regarding investments in real estate:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,613,911.006 37.444% 70.509%
Against ................... 3,448,624.544 3.433% 6.465%
Abstain ................... 2,628,914.130 2.617% 4.928%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Sub-Proposal 3c: To amend the Fund's fundamental investment
restriction regarding investments in commodities:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 36,962,468.630 36.795% 69.288%
Against ................... 3,936,282.748 3.918% 7.379%
Abstain ................... 2,792,698.302 2.780% 5.235%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Annual Report | 41
Templeton Global Smaller Companies Fund, Inc.
Special Meeting of Shareholders (CONTINUED)
Sub-Proposal 3d: To amend the Fund's fundamental investment
restriction regarding underwriting:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,588,295.769 37.418% 70.461%
Against ................... 3,287,224.246 3.272% 6.162%
Abstain ................... 2,815,929.665 2.803% 5.279%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Sub-Proposal 3e: To amend the Fund's fundamental investment
restriction regarding issuing senior securities:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,209,165.613 37.041% 69.751%
Against ................... 3,733,287.905 3.716% 6.998%
Abstain ................... 2,748,996.162 2.737% 5.153%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Sub-Proposal 3f: To amend the Fund's fundamental investment
restriction regarding lending:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,095,516.757 36.928% 69.538%
Against ................... 3,716,306.212 3.700% 6.966%
Abstain ................... 2,879,626.711 2.867% 5.398%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Sub-Proposal 3g: To amend the Fund's fundamental investment
restriction regarding borrowing:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 36,819,912.549 36.653% 69.021%
Against ................... 4,004,927.082 3.987% 7.507%
Abstain ................... 2,866,610.049 2.854% 5.374%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
42 | Annual Report
Templeton Global Smaller Companies Fund, Inc.
Special Meeting of Shareholders (CONTINUED)
Sub-Proposal 3h: To amend the Fund's fundamental investment restriction
regarding industry concentration:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,780,241.515 37.609% 70.821%
Against ................... 3,146,449.949 3.132% 5.898%
Abstain ................... 2,764,758.216 2.752% 5.183%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
- ----------------------------------------------------------------------------------------------------------------
Proposal 4: To approve the elimination of certain of the
Fund's fundamental investment restrictions:
- ----------------------------------------------------------------------------------------------------------------
SHARES VOTED % OF OUTSTANDING SHARES % OF SHARES PRESENT
- ----------------------------------------------------------------------------------------------------------------
For ....................... 37,011,532.513 36.844% 69.380%
Against ................... 3,773,768.458 3.757% 7.074%
Abstain ................... 2,906,148.709 2.893% 5.448%
Broker Non-Votes .......... 9,654,532.000 9.611% 18.098%
- ----------------------------------------------------------------------------------------------------------------
TOTAL ..................... 53,345,981.680 53.105% 100.000%
Note: Due to rounding, the percentage totals may not necessarily agree with the
arithmetic sum of the figures.
Annual Report | 43
Board Members and Officers
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Fund, principal occupations during the
past five years and number of U.S. registered portfolios overseen in the
Franklin Templeton Investments fund complex are shown below. Each board member
will serve until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1992 140 Director, Bar-S Foods (meat packing
500 East Broward Blvd. company).
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (60) Trustee Since March 2004 21 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Island Corporate Holdings Ltd. (Vice Chairman 1996-2003); Vice Chairman, Caribbean Utilities Co. Ltd.;
Director and President, Provo Power Company Ltd.; Director, Caribbean Electric Utility Services Corporation (Chairman
until 2002); director of various other business and nonprofit organizations; and FORMERLY, Chairman, Atlantic Equipment
& Power Ltd. (1977-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (72) Trustee Since 1992 141 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since March 2004 96 Director, Amerada Hess Corporation
500 East Broward Blvd. (exploration and refining of oil and
Suite 2100 gas); H.J. Heinz Company (processed
Fort Lauderdale, FL 33394-3091 foods and allied products); RTI
International Metals, Inc. (manufac-
ture and distribution of titanium); and
Canadian National Railway (railroad).
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
44 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1993 140 Director, White Mountains Insurance
500 East Broward Blvd. Group, Ltd. (holding company);
Suite 2100 Martek Biosciences Corporation;
Fort Lauderdale, FL 33394-3091 MedImmune, Inc. (biotechnology);
and Overstock.com (Internet servic-
es); and FORMERLY, Director, MCI
Communication Corporation (subse-
quently known as MCI WorldCom,
Inc. and WorldCom, Inc.) (communi-
cations services) (1988-2002) and
Spacehab, Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation
(financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association
of Securities Dealers, Inc.
(1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
FRED R. MILLSAPS (75) Trustee Since 1990 28 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various business and nonprofit organizations; manager of personal investments (1978-present); and FORMERLY, Chairman
and Chief Executive Officer, Landmark Banking Corporation (1969-1978); Financial Vice President, Florida Power and Light
(1965-1969); and Vice President, Federal Reserve Bank of Atlanta (1958-1965).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (72) Trustee Since March 2004 21 Director, Becton, Dickinson and Co.
500 East Broward Blvd. (medical technology); White
Suite 2100 Mountains Insurance Group Ltd.
Fort Lauderdale, FL 33394-3091 (holding company); and Amerada
Hess Corporation (exploration and
refining of oil and gas).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, The Hertz Corporation (car rental) (since 1980) (Chief Executive Officer 1977-1999); and FORMERLY, Chairman
of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTANTINE D. TSERETOPOULOS Trustee Since March 2004 21 None
(50)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 45
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**NICHOLAS F. BRADY (74) Trustee Since 1993 21 Director, Amerada Hess Corporation
500 East Broward Blvd. (exploration and refining of oil and
Suite 2100 gas); and C2, Inc. (operating and
Fort Lauderdale, FL 33394-3091 investment business); and FORMERLY,
Director, H.J. Heinz Company
(processed foods and allied products)
(1987-1988; 1993-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Darby Overseas Investments, Ltd., Darby Emerging Markets Investments LDC and Darby Technology Ventures Group, LLC
(investment firms) (1994-present); Director, Templeton Capital Advisors Ltd. and Franklin Templeton Investment Fund; and FORMERLY,
Chairman, Templeton Emerging Markets Investment Trust PLC (until 2003), Secretary of the United States Department of the Treasury
(1988-1993); Chairman of the Board, Dillon, Read & Co., Inc. (investment banking) (until 1988); and U.S. Senator, New Jersey (April
1982-December 1982).
- ------------------------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (59) Trustee and Trustee since 36 None
One Franklin Parkway Vice President 1992 and
San Mateo, CA 94403-1906 Vice President
since 1996
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and
of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (71) Trustee, Trustee and 140 None
One Franklin Parkway Chairman of Chairman of the
San Mateo, CA 94403-1906 the Board and Board since 1995
Vice President and Vice
President since
1992
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable None
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin Resources, Inc.;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
46 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY A. EVERETT (40) President and Since 2002 Not Applicable None
PO Box N-7759 Chief
Lyford Cay, Nassau, Bahamas Executive
Officer -
Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; officer of 15 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Investment Officer, First Pennsylvania Investment Research (until 1989).
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1990 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin
Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.;
Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief
Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (57) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.;
officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and
Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 47
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Vice President Not Applicable None
One Franklin Parkway and Secretary since 2000
San Mateo, CA 94403-1906 and Secretary
since 1996
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (64) Vice President Since 1996 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN R. KAY (64) Vice President Since 1994 Not Applicable None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin Templeton Distributors, Inc.; Senior Vice President,
Franklin Templeton Services, LLC; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 35 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
DIOMEDES LOO-TAM (65) Treasurer Since March 2004 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 15 of the investment companies in Franklin Templeton Investments; Consultant, MyVest Corporation (software development
company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc.
(2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments (1985-2000); and Senior
Vice President, Franklin Templeton Services, LLC (1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (67) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch
600 Fifth Avenue - AML Chemicals, Inc. and Lingnan
Rockefeller Center Compliance Foundation
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; and officer and/or director, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
48 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case may be, of some of the
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY,
Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director,
Templeton Asset Management Ltd. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (52) Chief FinancialSince May 2004 Not Applicable None
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton Services,
LLC; and FORMERLY, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen, LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton
Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers.
** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as
an officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's
adviser and distributor. Harmon E. Burns is considered to be an interested person of the Fund under the federal securities laws due
to his position as officer and director of Resources. Nicholas F. Brady is considered to be an interested person of the Fund under
the federal securities laws due to his ownership interest in a subsidiary of Resources, as well as his director positions with such
company and certain other related companies. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE
FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND
RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF FRED R. MILLSAPS AND FRANK A. OLSON AS AN AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MESSRS.
MILLSAPS AND OLSON QUALIFY AS SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE. MR. MILLSAPS WHO IS
CURRENTLY A DIRECTOR OF VARIOUS BUSINESS AND NONPROFIT ORGANIZATIONS, HAS SERVED AS A MEMBER AND CHAIRMAN OF THE FUND AUDIT
COMMITTEE SINCE 1991 AND WAS FORMERLY CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF LANDMARK BANKING CORPORATION AND FINANCIAL VICE
PRESIDENT OF FLORIDA POWER AND LIGHT. MR. OLSON WHO CURRENTLY SERVES AS CHAIRMAN OF THE BOARD OF THE HERTZ CORPORATION AND WAS ITS
CHIEF EXECUTIVE OFFICER FROM 1977 TO 1999; IS A DIRECTOR AND AUDIT COMMITTEE MEMBER OF AMERADA HESS CORPORATION AND WHITE MOUNTAINS
INSURANCE GROUP, LTD. AND A FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF UNITED AIRLINES. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. MILLSAPS AND MR. OLSON HAVE EACH ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING
ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR
FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MESSRS. MILLSAPS AND OLSON ARE INDEPENDENT TRUSTEES AS THAT
TERM IS DEFINED UNDER THE APPLICABLE SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT
CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
</FN>
Annual Report | 49
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
50 | Annual Report
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Literature Request
TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R)
(1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 1
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet
Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery
Fund Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
Franklin Templeton Perspectives
Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 5, 7
Franklin Money Fund 5, 6
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 8
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-ExemptN Money Fund 5, 6
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 11
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders and select retirement plans.
3. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. Although the fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
7. Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and strategy
remained the same.
8. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/04 Not part of the annual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON GLOBAL SMALLER
COMPANIES FUND
INVESTMENT MANAGER
Templeton Investment Counsel, LLC
SUB-ADVISOR
Franklin Templeton Investments (Asia) Limited
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. 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. The prospectus
contains this and other information; please read it carefully before investing.
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
identified by the presence of a regular beeping tone.
103 A2004 10/04
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(a), the registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(A)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial experts are Fred R. Millsaps and Frank A.
Olson, they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $13,661 for the fiscal year ended August 31, 2004 and $31,830 for the
fiscal year ended August 31, 2003.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of the their financial
statements were $45,000 for the fiscal year ended August 31, 2004 and $3,614 for
the fiscal year ended August 31, 2003. The services for which these fees were
paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $366 for the fiscal year ended August 31, 2004
and $0 for the fiscal year ended August 31, 2003. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $99,634 for the fiscal year ended August
31, 2004 and $12,994 for the fiscal year ended August 31, 2003. The services for
which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process,
subscription fees and a review of an ICI transfer agent survey.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $145,000 for the fiscal year ended August 31, 2004 and $16,608
for the fiscal year ended August 31, 2003.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASES.
N/A
ITEM 9. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 10. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 11. EXHIBITS
(a) Code of Ethics
(b)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON GLOBAL SMALLER COMPANIES FUND
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date October 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date October 29, 2004
By /s/GALEN G. VETTER
Chief Financial Officer
Date October 29, 2004