UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, 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: 2/29/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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FEBRUARY 29, 2008
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER GLOBAL
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WANT TO RECEIVE
THIS DOCUMENT
TEMPLETON GLOBAL FASTER VIA EMAIL?
SMALLER COMPANIES FUND
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
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 offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans 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, accurate and personal service
that has 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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[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Templeton Global Smaller Companies Fund ................................... 3
Performance Summary ....................................................... 9
Your Fund's Expenses ...................................................... 12
Financial Highlights and Statement of Investments ......................... 14
Financial Statements ...................................................... 23
Notes to Financial Statements ............................................. 27
Shareholder Information ................................................... 36
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Semiannual 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 equity securities of smaller
companies, anywhere in the world, including emerging markets.
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PERFORMANCE DATA REPRESENT 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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This semiannual report for Templeton Global Smaller Companies Fund covers the
period ended February 29, 2008.
PERFORMANCE OVERVIEW
For the six months under review, Templeton Global Smaller Companies Fund - Class
A had a -19.51% cumulative total return. The Fund underperformed its benchmark,
the Morgan Stanley Capital International (MSCI) World Index, which posted a
- -5.95% total return for the same period. 1 Please note that index performance
information is provided for reference and that we do not attempt to track the
index, but rather undertake investments on the basis of fundamental research.
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 9.
ECONOMIC AND MARKET OVERVIEW
The U.S. economy experienced significantly slower gross domestic product (GDP)
growth in the fourth quarter of 2007 as housing prices declined, consumer demand
softened, and a credit crisis originally related to U.S. subprime loan losses
spread globally. In capital markets, investors quickly began broad reassessment
of risk in the stock, bond and credit markets. Some economists speculated
whether the U.S. would enter a recession while others believed one was already
under way. Many agreed, however, that the slowing U.S. economy -- which is the
world's largest and accounts for roughly 30% of global GDP
1. Source: Standard & Poor's Micropal. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure equity
market performance in global developed markets. 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.
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 18.
Semiannual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 2/29/08
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Asia 39.5%
Europe 23.4%
North America 21.8%
Australia & New Zealand 5.5%
Middle East & Africa 0.9%
Latin America 0.6%
Short-Term Investments & Other Net Assets 8.3%
- -- could have a meaningfully negative impact on growth prospects around the
world. Nevertheless, growth remained robust in certain areas, particularly in
Asia ex-Japan, where China's demand for commodities continued to have
significant impact on commodity prices and related equities.
In the six months under review, prices for oil and agricultural and industrial
commodities, as well as precious metals like platinum, silver and gold,
increased significantly and contributed to global inflationary pressures. While
inflation remained a major concern within the eurozone, the U.S. focused on
reigniting its economy through fiscal and monetary policies. Despite possible
inflationary pressure from lower interest rates, the Federal Reserve Board (Fed)
reduced its federal funds target rate from 5.25% to 3.00% during the period. The
Fed's interest rate reductions pressured the U.S. dollar as other countries'
central banks generally left rates unchanged, and the dollar's value declined
against most of the world's currencies. The U.S. dollar's weakness was another
reason for higher commodity prices, as most of these prices are set in U.S.
dollars.
Against this challenging economic backdrop, global equity markets were volatile,
and the MSCI World Index declined 5.95% for the six-month period even though the
weaker dollar aided returns. Despite negative economic data and an outlook for
decelerating corporate earnings and profit margins, many companies' balance
sheets remained relatively strong. Although many financial institutions were
hurt by their subprime loan exposure, abundant global liquidity sources such as
sovereign wealth funds offered some relief with quick recapitalizations during
the period.
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 evaluating a company's
long-term earnings, asset value and cash flow growth potential. We are patient
investors; our typical holding period is four to five years.
4 | Semiannual Report
MANAGER'S DISCUSSION
The Fund benefited from several of its holdings that performed well during the
six months under review. Canada-based Open Text was among the major contributors
to performance during the reporting period. Following the company's 2006
acquisition of a competitor, Hummingbird, Open Text became the single largest
provider of enterprise content management (ECM) software. The company's stock
price rose as the integration of Hummingbird progressed successfully,
alleviating some market concerns. Open Text also benefited from
better-than-expected profits and industry consolidation.
Denmark's Vestas Wind Systems, the world's leading wind turbine manufacturer,
also performed well during the reporting period. The company's success stems
largely from its ability to develop durable, reliable and cost-effective wind
turbines. Wind power is the cheapest source of renewable energy when the costs
of environmental degradation from traditional power sources are factored in.
Vestas benefited from rising energy prices and increasing global attention on
renewable and environmentally friendly power sources.
Another contributor to performance was Vedior, a Netherlands-based, leading
diversified staffing company. Although Vedior operates in traditional
administrative and specialist segments of the staffing services industry, it has
benefited from its high exposure to more profitable specialist staffing and
permanent placement businesses. The company improved its balance sheet by
reducing its debt, and its shares rose in value as the company agreed to be
acquired by its rival Randstad, also based in the Netherlands. We believed the
premium offered by Randstad, which was more than 50% of Vedior's market value
immediately preceding the offer date, was a fair price. By period-end, the Fund
had sold its investment in Vedior.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar goes up compared with a
foreign currency, an investment traded in that foreign currency will go down in
value because it will be worth fewer U.S. dollars. This can have a negative
effect on Fund performance. Conversely, when the U.S. dollar weakens in relation
to a foreign currency, an investment traded in that foreign currency will
increase in value, which can contribute to Fund performance. For the six months
ended February 29, 2008, the U.S. dollar declined in value relative to most
non-U.S. currencies. As a result, the Fund's performance was positively affected
by the portfolio's predominant investment in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.
TOP 10 HOLDINGS
2/29/08
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Downer EDI Ltd. 2.8%
COMMERCIAL SERVICES & SUPPLIES, AUSTRALIA
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GAME Group PLC 2.1%
SPECIALTY RETAIL, U.K.
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OPG Groep NV 2.0%
HEALTH CARE PROVIDERS & SERVICES, NETHERLANDS
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Bank of Pusan 1.9%
COMMERCIAL BANKS, SOUTH KOREA
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People's Food Holdings Ltd. 1.8%
FOOD PRODUCTS, CHINA
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Yule Catto & Company PLC 1.7%
CHEMICALS, U.K.
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Simplo Technology Co. Ltd. 1.6%
COMPUTERS & PERIPHERALS, TAIWAN
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Youngone Corp. 1.6%
TEXTILES, APPAREL & LUXURY GOODS, SOUTH KOREA
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Steiner Leisure Ltd. 1.5%
DIVERSIFIED CONSUMER SERVICES, BAHAMAS
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FKI PLC 1.5%
MACHINERY, U.K.
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Semiannual Report | 5
Not all of the Fund's holdings performed well during the review period.
Canada-based MEGA Brands is a leading manufacturer of construction toys and
number one in preschool/magnetic construction. The company had a challenging
year and its stock price fell in value as it integrated its largest-ever
acquisition, instituted a product recall and settled numerous lawsuits. However,
our outlook for the company remained positive due to likely efficiency gains
from plant closures and downsizing. We believed MEGA Brands' innovation gives it
a competitive advantage, and that the company is well-positioned to benefit from
a strong product pipeline and international growth opportunities.
Shares of Takuma, a Japanese environmental equipment player with a focus on
designing, constructing and running waste and biomass power plants, declined
during the period due to lower-than-expected earnings. However, our analysis
indicated that the company remained attractively valued and that the company's
high degree of vertical integration could lead to a strong margin recovery if
the domestic municipal demand for environmental products improves.
Hibbett Sports, a leading U.S. retailer of premium, full-priced sporting goods,
also detracted from the Fund's returns. The company fills a market niche by
focusing expansion in areas with smaller populations and often serves as the
primary distribution outlet for branded vendors such as Nike. This low-cost,
small-market focus tends to buffer the company from competition and contributes
to industry-leading sales growth, operating profit and return on capital. We
believed Hibbett's balance sheet was strong, and that its business model is able
to generate significant excess cash flow. However, a slowing U.S. economy led to
reduced earnings forecasts and share price weakness during the reporting period.
6 | Semiannual Report
Thank you for your continued participation in Templeton Global Smaller Companies
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Bradley Radin
Bradley Radin, CPA
[PHOTO OMITTED] /s/ Harlan B. Hodes
Harlan B. Hodes, CPA
[PHOTO OMITTED] /s/ Cynthia Sweeting
Cynthia Sweeting, CFA
Portfolio Management Team
Templeton Global Smaller Companies Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 29, 2008, 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.
Semiannual Report | 7
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BRADLEY RADIN assumed portfolio manager responsibilities for Templeton Global
Smaller Companies Fund in September 2007. In addition, he has global research
responsibilities for Asian, Japanese and Australian banks and small-cap special
situation stocks.
Prior to joining Templeton in 1995, Mr. Radin worked in the Asian equity
research department of Credit Suisse First Boston in Hong Kong. Prior to this
position, he was an account executive with Dentsu, Young & Rubicam in Hong Kong.
He has also worked in Taipei and Moscow.
Mr. Radin earned a business administration degree, with honors, a B.Sc. in
biophysics, and an M.B.A., with a concentration in finance, from the University
of Western Ontario. He is a Chartered Financial Analyst (CFA) Charterholder and
a member of the Toronto Society of Financial Analysts.
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HARLAN B. HODES assumed portfolio manager responsibilities for Templeton Global
Smaller Companies Fund in December 2007. Mr. Hodes has global research
responsibilities for leisure equipment and products, small-cap financial
services and consumer goods, and Latin American banks. He also has country
research coverage of the U.S., Israel, and Egypt.
Prior to joining Templeton in 2001, Mr. Hodes worked for Kaufman, Rossin & Co.
in Miami. In this position, he was responsible for the analysis and reporting of
hedge funds, taxation of individuals, corporations, S corporations, and
partnerships. His responsibilities also included valuations, cash flow, and
financial analysis of other various entities. Prior to working for Kaufman,
Rossin & Co., Mr. Hodes was with Arthur Andersen, where his responsibilities
included the financial reporting and taxation of international banks.
Mr. Hodes earned a B.A. from the University of Michigan and an M.B.A. from the
Leonard N. Stern School of Business at New York University. He is a Certified
Public Accountant (CPA) and a member of the American Institute of Certified
Public Accountants (AICPA).
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8 | Semiannual Report
Performance Summary as of 2/29/08
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 does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: TEMGX) CHANGE 2/29/08 8/31/07
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Net Asset Value (NAV) -$2.76 $7.37 $10.13
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DISTRIBUTIONS (9/1/07-2/29/08)
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Dividend Income $0.0983
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Short-Term Capital Gain $0.0222
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Long-Term Capital Gain $0.8372
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TOTAL $0.9577
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CLASS B (SYMBOL: N/A) CHANGE 2/29/08 8/31/07
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Net Asset Value (NAV) -$2.65 $7.03 $9.68
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DISTRIBUTIONS (9/1/07-2/29/08)
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Dividend Income $0.0253
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Short-Term Capital Gain $0.0222
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Long-Term Capital Gain $0.8372
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TOTAL $0.8847
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CLASS C (SYMBOL: TESGX) CHANGE 2/29/08 8/31/07
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Net Asset Value (NAV) -$2.68 $7.18 $9.86
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DISTRIBUTIONS (9/1/07-2/29/08)
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Dividend Income $0.0312
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Short-Term Capital Gain $0.0222
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Long-Term Capital Gain $0.8372
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TOTAL $0.8906
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ADVISOR CLASS (SYMBOL: TGSAX) CHANGE 2/29/08 8/31/07
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Net Asset Value (NAV) -$2.78 $7.39 $10.17
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DISTRIBUTIONS (9/1/07-2/29/08)
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Dividend Income $0.1216
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Short-Term Capital Gain $0.0222
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Long-Term Capital Gain $0.8372
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TOTAL $0.9810
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Semiannual Report | 9
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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; ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 -19.51% -13.07% +153.50% +77.17%
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Average Annual Total Return 2 -24.15% -18.05% +19.01% +5.26%
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Value of $10,000 Investment 3 $7,585 $8,195 $23,872 $16,696
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Avg. Ann. Total Return (3/31/08) 4 -20.56% +19.05% +4.83%
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Total Annual Operating Expenses 5 1.32%
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CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
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Cumulative Total Return 1 -19.92% -13.77% +143.90% +96.94%
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Average Annual Total Return 2 -22.82% -16.90% +19.32% +7.68%
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Value of $10,000 Investment 3 $7,718 $8,310 $24,190 $19,694
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Avg. Ann. Total Return (3/31/08) 4 -19.38% +19.41% +7.67%
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Total Annual Operating Expenses 5 2.07%
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CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 -19.80% -13.68% +144.49% +64.26%
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Average Annual Total Return 2 -20.53% -14.46% +19.58% +5.09%
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Value of $10,000 Investment 3 $7,947 $8,554 $24,449 $16,426
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Avg. Ann. Total Return (3/31/08) 4 -17.18% +19.58% +4.65%
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Total Annual Operating Expenses 5 2.06%
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ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 -19.44% -12.84% +156.87% +81.65%
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Average Annual Total Return 2 -19.44% -12.84% +20.77% +6.15%
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Value of $10,000 Investment 3 $8,056 $8,716 $25,687 $18,165
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Avg. Ann. Total Return (3/31/08) 4 -15.60% +20.80% +5.72%
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Total Annual Operating Expenses 5 1.07%
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PERFORMANCE DATA REPRESENT 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.
10 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN
EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN
ADDITION TO THOSE ASSOCIATED WITH THEIR MARKETS' SMALLER SIZE AND LESSER
LIQUIDITY. IN ADDITION, SMALLER-COMPANY STOCKS HAVE HISTORICALLY EXHIBITED
GREATER PRICE VOLATILITY THAN LARGE-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.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
Semiannual Report | 11
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 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.
12 | Semiannual Report
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 9/1/07 VALUE 2/29/08 PERIOD* 9/1/07-2/29/08
- -------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 804.90 $ 5.79
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.45 $ 6.47
- -------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 800.80 $ 9.22
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Hypothetical (5% return before expenses) $ 1,000 $ 1,014.62 $10.32
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CLASS C
- -------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 802.00 $ 9.05
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Hypothetical (5% return before expenses) $ 1,000 $ 1,014.82 $10.12
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ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 805.60 $ 4.80
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Hypothetical (5% return before expenses) $ 1,000 $ 1,019.54 $ 5.37
- -------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.29%; B: 2.06%; C: 2.02%; and Advisor: 1.07%),
multiplied by the average account value over the period, multiplied by 182/366
to reflect the one-half year period.
Semiannual Report | 13
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED AUGUST 31,
CLASS A (UNAUDITED) 2007 2006 2005 2004 2003
----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period .......................... $ 10.13 $ 9.09 $ 9.82 $ 8.69 $ 7.16 $ 5.82
----------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......... 0.01 0.06 0.08 0.12 0.07 0.07
Net realized and unrealized
gains (losses) ............... (1.81) 2.13 0.83 2.02 1.56 1.32
----------------------------------------------------------------------------------------------
Total from investment operations ... (1.80) 2.19 0.91 2.14 1.63 1.39
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ........... (0.10) (0.12) (0.14) (0.10) (0.10) (0.05)
Net realized gains .............. (0.86) (1.03) (1.50) (0.91) -- --
----------------------------------------------------------------------------------------------
Total distributions ................ (0.96) (1.15) (1.64) (1.01) (0.10) (0.05)
----------------------------------------------------------------------------------------------
Redemption fees .................... -- e -- e -- e -- e -- e -- e
----------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 7.37 $ 10.13 $ 9.09 $ 9.82 $ 8.69 $ 7.16
==============================================================================================
Total return c ..................... (19.51)% 26.52% 11.66% 26.78% 23.04% 24.09%
RATIOS TO AVERAGE NET ASSETS d
Expenses ........................... 1.29% f 1.32% f 1.34% f 1.35% f 1.42% f 1.46%
Net investment income .............. 0.26% 0.68% 0.90% 1.33% 0.91% 1.18%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ......................... $ 1,071,290 $ 1,470,895 $ 1,128,415 $ 949,606 $ 744,017 $ 691,103
Portfolio turnover rate ............ 5.71% 28.07% 33.90% 41.58% 31.69% 29.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
f Benefit of expense reduction rounds to less than 0.01%.
14 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED AUGUST 31,
CLASS B (UNAUDITED) 2007 2006 2005 2004 2003
-------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ........................... $ 9.68 $ 8.72 $ 9.50 $ 8.42 $ 6.97 $ 5.70
-------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ... (0.02) (0.01) 0.01 0.06 0.02 0.03
Net realized and unrealized
gains (losses) ................ (1.74) 2.05 0.81 1.95 1.52 1.27
-------------------------------------------------------------------------------------------
Total from investment operations .... (1.76) 2.04 0.82 2.01 1.54 1.30
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............ (0.03) (0.05) (0.10) (0.02) (0.09) (0.03)
Net realized gains ............... (0.86) (1.03) (1.50) (0.91) -- --
-------------------------------------------------------------------------------------------
Total distributions ................. (0.89) (1.08) (1.60) (0.93) (0.09) (0.03)
-------------------------------------------------------------------------------------------
Redemption fees ..................... -- e -- e -- e -- e -- e -- e
-------------------------------------------------------------------------------------------
Net asset value, end of period ...... $ 7.03 $ 9.68 $ 8.72 $ 9.50 $ 8.42 $ 6.97
===========================================================================================
Total return c ...................... (19.92)% 25.69% 10.74% 25.86% 22.23% 22.97%
RATIOS TO AVERAGE NET ASSETS d
Expenses ............................ 2.06% f 2.07% f 2.09% f 2.10% f 2.16% f 2.21%
Net investment income (loss) ........ (0.51)% (0.07)% 0.15% 0.58% 0.17% 0.43%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $ 5,786 $ 9,010 $ 8,027 $ 7,983 $ 4,896 $ 3,171
Portfolio turnover rate ............. 5.71% 28.07% 33.90% 41.58% 31.69% 29.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
f Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 15
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED AUGUST 31,
CLASS C (UNAUDITED) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ........................... $ 9.86 $ 8.88 $ 9.65 $ 8.55 $ 7.05 $ 5.75
------------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ... (0.02) -- e 0.01 0.06 0.02 0.02
Net realized and unrealized
gains (losses) ................ (1.77) 2.07 0.83 1.98 1.54 1.30
------------------------------------------------------------------------------------------
Total from investment operations .... (1.79) 2.07 0.84 2.04 1.56 1.32
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............ (0.03) (0.06) (0.11) (0.03) (0.06) (0.02)
Net realized gains ............... (0.86) (1.03) (1.50) (0.91) -- --
------------------------------------------------------------------------------------------
Total distributions ................. (0.89) (1.09) (1.61) (0.94) (0.06) (0.02)
------------------------------------------------------------------------------------------
Redemption fees ..................... -- e -- e -- e -- e -- e -- e
------------------------------------------------------------------------------------------
Net asset value, end of period ...... $ 7.18 $ 9.86 $ 8.88 $ 9.65 $ 8.55 $ 7.05
==========================================================================================
Total return c ...................... (19.80)% 25.58% 10.89% 25.74% 22.07% 23.17%
RATIOS TO AVERAGE NET ASSETS d
Expenses ............................ 2.02% f 2.06% f 2.09% f 2.10% f 2.17% f 2.20%
Net investment income (loss) ........ (0.47)% (0.06)% 0.15% 0.58% 0.16% 0.44%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $ 64,782 $ 98,269 $ 71,857 $ 55,448 $ 30,741 $ 17,347
Portfolio turnover rate ............. 5.71% 28.07% 33.90% 41.58% 31.69% 29.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
f Benefit of expense reduction rounds to less than 0.01%.
16 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED AUGUST 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004 2003
----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 10.17 $ 9.11 $ 9.84 $ 8.71 $ 7.17 $ 5.84
----------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ............ 0.02 0.10 0.11 0.16 0.10 0.06
Net realized and unrealized gains
(losses) ........................ (1.82) 2.13 0.82 2.01 1.56 1.33
----------------------------------------------------------------------------------------
Total from investment operations ...... (1.80) 2.23 0.93 2.17 1.66 1.39
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income .............. (0.12) (0.14) (0.16) (0.13) (0.12) (0.06)
Net realized gains ................. (0.86) (1.03) (1.50) (0.91) -- --
----------------------------------------------------------------------------------------
Total distributions ................... (0.98) (1.17) (1.66) (1.04) (0.12) (0.06)
----------------------------------------------------------------------------------------
Redemption fees ....................... -- e -- e -- e -- e -- e -- e
----------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 7.39 $ 10.17 $ 9.11 $ 9.84 $ 8.71 $ 7.17
========================================================================================
Total return c ........................ (19.44)% 26.98% 11.83% 27.07% 23.30% 24.39%
RATIOS TO AVERAGE NET ASSETS d
Expenses .............................. 1.07% f 1.07% f 1.09% f 1.10% f 1.17% f 1.21%
Net investment income ................. 0.48% 0.93% 1.15% 1.58% 1.16% 1.43%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 126,635 $ 117,115 $ 60,588 $ 39,912 $ 9,329 $ 4,834
Portfolio turnover rate ............... 5.71% 28.07% 33.90% 41.58% 31.69% 29.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
f Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 17
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.7%
AUSTRALIA 5.5%
Billabong International Ltd. .................. Textiles, Apparel & Luxury Goods 369,406 $ 4,333,587
Downer EDI Ltd. ............................... Commercial Services & Supplies 6,018,725 34,911,262
Emeco Holdings Ltd. ........................... Trading Companies & Distributors 3,781,677 2,711,116
Iluka Resources Ltd. .......................... Metals & Mining 4,247,386 14,236,303
PaperlinX Ltd. ................................ Paper & Forest Products 7,001,361 13,819,468
---------------
70,011,736
---------------
BAHAMAS 1.5%
a Steiner Leisure Ltd. .......................... Diversified Consumer Services 592,860 19,457,665
---------------
BELGIUM 0.9%
Barco NV ...................................... Electronic Equipment & Instruments 151,370 11,029,424
---------------
BRAZIL 0.6%
Companhia de Saneamento de Minas Gerais ....... Water Utilities 526,500 7,984,320
---------------
CANADA 5.6%
a ATS Automation Tooling Systems Inc. ........... Machinery 885,180 5,850,198
Dorel Industries Inc., B ...................... Household Durables 362,300 10,657,182
a GSI Group Inc. ................................ Electronic Equipment & Instruments 1,071,820 8,724,615
Linamar Corp. ................................. Auto Components 346,500 4,932,384
a MDS Inc. ...................................... Life Sciences Tools & Services 970,300 16,258,814
a Mega Brands Inc. .............................. Leisure Equipment & Products 772,900 4,007,921
a Open Text Corp. ............................... Internet Software & Services 227,600 7,338,278
a Saxon Energy Services Inc. .................... Energy Equipment & Services 2,338,700 12,888,413
---------------
70,657,805
---------------
CHINA 5.5%
a AAC Acoustic Technologies Holdings Inc. ....... Communications Equipment 9,478,000 9,111,295
Bio-Treat Technology Ltd. ..................... Commercial Services & Supplies 20,490,417 8,666,198
a China Pharmaceutical Group Ltd. ............... Pharmaceuticals 16,118,000 4,950,748
People's Food Holdings Ltd. ................... Food Products 29,293,000 22,678,452
Sinotrans Ltd., H ............................. Air Freight & Logistics 34,391,000 10,961,204
Weiqiao Textile Co. Ltd., H ................... Textiles, Apparel & Luxury Goods 9,651,000 13,544,306
---------------
69,912,203
---------------
FINLAND 2.4%
Amer Sports OYJ ............................... Leisure Equipment & Products 778,180 16,360,690
Elcoteq SE, A ................................. Communications Equipment 756,951 4,584,716
Huhtamaki OYJ ................................. Containers & Packaging 863,810 9,060,832
---------------
30,006,238
---------------
GERMANY 2.3%
Celesio AG .................................... Health Care Providers & Services 302,000 17,365,556
a Jenoptik AG ................................... Electronic Equipment & Instruments 977,110 7,178,945
a Thiel Logistik AG ............................. Air Freight & Logistics 1,547,850 4,675,777
---------------
29,220,278
---------------
18 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HONG KONG 6.3%
Asia Satellite Telecommunications Holdings
Ltd. ........................................ Diversified Telecommunication Services 3,454,500 $ 6,659,448
Dah Sing Financial Group ...................... Commercial Banks 1,519,600 11,248,991
Fountain Set (Holdings) Ltd. .................. Textiles, Apparel & Luxury Goods 33,524,000 6,807,297
Giordano International Ltd. ................... Specialty Retail 20,439,348 8,615,940
Hang Lung Group Ltd. .......................... Real Estate Management & Development 1,665,000 7,788,923
Hopewell Holdings Ltd. ........................ Transportation Infrastructure 2,982,000 13,834,920
Hung Hing Printing Group Ltd. ................. Containers & Packaging 20,862,508 7,775,464
a TCL Communication Technology Holdings
Ltd. ........................................ Communications Equipment 143,878,875 5,362,370
Yue Yuen Industrial Holdings Ltd. ............. Textiles, Apparel & Luxury Goods 4,196,500 12,566,228
---------------
80,659,581
---------------
INDIA 0.8%
b Gail India Ltd., GDR, 144A .................... Gas Utilities 157,710 10,017,271
---------------
ISRAEL 0.9%
a Orbotech Ltd. ................................. Electronic Equipment & Instruments 614,700 11,119,923
---------------
JAPAN 5.2%
Descente Ltd. ................................. Textiles, Apparel & Luxury Goods 2,333,000 12,329,775
MEITEC Corp. .................................. Commercial Services & Supplies 304,100 9,045,716
Nichii Gakkan Co. ............................. Health Care Providers & Services 739,200 10,040,539
Sangetsu Co. Ltd. ............................. Household Durables 186,800 4,081,979
Sohgo Security Services Co. Ltd. .............. Commercial Services & Supplies 1,337,700 18,723,679
Takuma Co. Ltd. ............................... Machinery 2,627,000 6,145,177
USS Co. Ltd. .................................. Specialty Retail 100,000 6,170,582
---------------
66,537,447
---------------
NETHERLANDS 4.6%
Draka Holding NV .............................. Electrical Equipment 235,136 6,838,902
Imtech NV ..................................... Construction & Engineering 577,230 13,818,229
OPG Groep NV .................................. Health Care Providers & Services 838,560 25,204,096
SBM Offshore NV ............................... Energy Equipment & Services 370,390 12,032,194
---------------
57,893,421
---------------
NORWAY 0.9%
Norske Skogindustrier ASA ..................... Paper & Forest Products 1,317,076 6,729,761
Tomra Systems ASA ............................. Machinery 715,996 4,914,566
---------------
11,644,327
---------------
PHILIPPINES 0.0% c
First Gen Corp. ............................... Independent Power Producers & Energy Traders 610,000 611,510
---------------
SINGAPORE 1.6%
Huan Hsin Holdings Ltd. ....................... Electronic Equipment & Instruments 6,101,000 2,492,882
Osim International Ltd. ....................... Specialty Retail 10,597,200 2,886,692
Venture Corp. Ltd. ............................ Electronic Equipment & Instruments 1,971,000 14,552,903
---------------
19,932,477
---------------
Semiannual Report | 19
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOUTH KOREA 7.4%
Bank of Pusan ................................. Commercial Banks 1,793,670 $ 24,067,134
Daeduck Electronics Co. Ltd. .................. Electronic Equipment & Instruments 1,221,875 6,154,591
Daegu Bank Co. Ltd. ........................... Commercial Banks 1,249,460 17,297,247
Halla Climate Control Corp. ................... Auto Components 1,104,000 9,287,684
INTOPS Co. Ltd. ............................... Electronic Equipment & Instruments 223,678 5,347,501
People & Telecommunication Inc. ............... Communications Equipment 612,718 4,573,935
Sindo Ricoh Co. ............................... Office Electronics 110,350 6,709,957
Youngone Corp. ................................ Textiles, Apparel & Luxury Goods 1,990,740 20,139,535
---------------
93,577,584
---------------
SWEDEN 1.9%
D. Carnegie & Co. AB .......................... Capital Markets 877,886 15,207,811
Securitas Systems AB, B ....................... Commercial Services & Supplies 3,472,830 9,017,044
---------------
24,224,855
---------------
SWITZERLAND 1.6%
Verwaltungs-und Privat-Bank AG ................ Capital Markets 75,518 14,362,964
Vontobel Holding AG ........................... Capital Markets 160,170 5,707,994
---------------
20,070,958
---------------
TAIWAN 8.7%
a AcBel Polytech Inc. ........................... Electrical Equipment 15,774,595 6,429,238
D-Link Corp. .................................. Communications Equipment 11,388,657 18,235,113
Giant Manufacturing Co. Ltd. .................. Leisure Equipment & Products 3,682,000 8,348,963
Pihsiang Machinery Manufacturing Co. Ltd. ..... Health Care Equipment & Supplies 8,528,000 17,516,675
a Qisda Corp. ................................... Computers & Peripherals 7,282,200 7,054,889
Simplo Technology Co. Ltd. .................... Computers & Peripherals 4,170,360 20,639,336
a Ta Chong Bank Ltd. ............................ Commercial Banks 52,393,000 15,964,485
Taiwan Fu Hsing ............................... Building Products 9,336,180 5,390,614
Test-Rite International Co. Ltd. .............. Distributors 16,461,621 10,463,233
---------------
110,042,546
---------------
THAILAND 3.9%
Bank of Ayudhya Public Co. Ltd. ............... Commercial Banks 18,625,300 14,616,200
Glow Energy Public Co. Ltd., fgn. ............. Independent Power Producers & Energy Traders 16,956,900 17,374,425
a Total Access Communication Public Co. Ltd.,
fgn. ........................................ Wireless Telecommunication Services 12,815,000 18,069,150
---------------
50,059,775
---------------
UNITED KINGDOM 8.8%
Bodycote International PLC .................... Machinery 4,450,330 16,579,845
Burberry Group PLC ............................ Textiles, Apparel & Luxury Goods 804,310 6,732,097
Fiberweb PLC .................................. Personal Products 6,160,581 8,048,304
FKI PLC ....................................... Machinery 12,968,940 18,875,526
Future PLC .................................... Media 11,231,610 6,806,578
GAME Group PLC ................................ Specialty Retail 7,314,518 27,068,797
20 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
New Star Asset Management Group Ltd. .......... Capital Markets 3,177,672 $ 6,029,751
Yule Catto & Company PLC ...................... Chemicals 6,523,350 22,002,267
---------------
112,143,165
---------------
UNITED STATES 14.8%
a AbitibiBowater Inc. ........................... Paper & Forest Products 807,259 8,304,480
a BearingPoint Inc. ............................. IT Services 3,015,260 4,884,721
a Bristow Group Inc. ............................ Energy Equipment & Services 121,080 6,388,181
a Convergys Corp. ............................... IT Services 650,230 9,389,321
a Corinthian Colleges Inc. ...................... Diversified Consumer Services 1,485,640 11,810,838
a Domtar Corp. .................................. Paper & Forest Products 892,900 5,637,935
a,d Fuel Systems Solutions Inc. ................... Auto Components 933,580 9,653,217
a Hibbett Sports Inc. ........................... Specialty Retail 1,098,970 17,363,726
Irwin Financial Corp. ......................... Commercial Banks 164,072 1,232,181
a,d Leapfrog Enterprises Inc. ..................... Leisure Equipment & Products 2,971,610 16,938,177
a LifePoint Hospitals Inc. ...................... Health Care Providers & Services 357,000 8,946,420
a Pier 1 Imports Inc. ........................... Specialty Retail 3,257,950 17,071,658
a RC2 Corp. ..................................... Leisure Equipment & Products 292,400 5,424,020
a Scholastic Corp. .............................. Media 363,740 12,683,614
Sealy Corp. ................................... Household Durables 1,751,580 15,956,894
a Select Comfort Corp. .......................... Specialty Retail 1,305,830 5,588,953
a,d Sharper Image Corp. ........................... Specialty Retail 937,400 206,228
Tredegar Corp. ................................ Industrial Conglomerates 874,320 13,822,999
a,d West Marine Inc. .............................. Specialty Retail 1,991,430 16,070,840
---------------
187,374,403
---------------
TOTAL COMMON STOCKS
(COST $1,218,555,047) ....................... 1,164,188,912
---------------
----------------
PRINCIPAL AMOUNT
----------------
SHORT TERM INVESTMENTS 9.3%
U.S. GOVERNMENT AND AGENCY SECURITIES 9.3%
e FHLB, 3/03/08 ................................. $67,578,000 67,578,000
e FHLB, 6/04/08 ................................. 12,000,000 11,925,444
f FHLB, 2.60%, 9/04/08 .......................... 20,000,000 20,006,940
e FNMA, 7/31/08 ................................. 18,000,000 17,826,372
---------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $117,293,817) ......................... 117,336,756
---------------
Semiannual Report | 21
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2008 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,335,848,864)
101.0% ...................................... $ 1,281,525,668
OTHER ASSETS, LESS LIABILITIES (1.0)% ......... (13,032,167)
---------------
NET ASSETS 100.0% ............................. $ 1,268,493,501
===============
SELECTED PORTFOLIO ABBREVIATIONS
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
GDR - Global Depository Receipt
a Non-income producing for the twelve months ended February 29, 2008.
b Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Fund's Board of Trustees. At February 29, 2008, the value of this security
is $10,017,271, representing 0.79% of net assets.
c Rounds to less than 0.1% of net assets.
d See Note 8 regarding holdings of 5% voting securities.
e The security is traded on a discount basis with no stated coupon rate.
f A portion or all of the security purchased on a when-issued or delayed
delivery basis. See Note 1(c).
22 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
TEMPLETON GLOBAL SMALLER COMPANIES FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2008 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .......................................... $ 1,243,938,229
Cost - Non-controlled affiliated issuers (Note 8) .................... 91,910,635
---------------
Total cost of investments ............................................ $ 1,335,848,864
===============
Value - Unaffiliated issuers ......................................... $ 1,238,657,206
Value - Non-controlled affiliated issuers (Note 8) ................... 42,868,462
---------------
Total value of investments ........................................... 1,281,525,668
Cash .................................................................... 7,201
Foreign currency, at value (cost $8,031,194) ............................ 8,025,865
Receivables:
Investment securities sold ........................................... 1,896,146
Capital shares sold .................................................. 635,695
Dividends and interest ............................................... 3,527,889
---------------
Total assets ...................................................... 1,295,618,464
---------------
Liabilities:
Payables:
Investment securities purchased ...................................... 22,120,545
Capital shares redeemed .............................................. 3,650,960
Affiliates ........................................................... 1,259,905
Accrued expenses and other liabilities .................................. 93,553
---------------
Total liabilities ................................................. 27,124,963
---------------
Net assets, at value ........................................... $ 1,268,493,501
===============
Net assets consist of:
Paid-in capital ......................................................... $ 1,248,701,593
Undistributed net investment income ..................................... 1,764,757
Net unrealized appreciation (depreciation) .............................. (54,249,989)
Accumulated net realized gain (loss) .................................... 72,277,140
---------------
Net assets, at value ........................................... $ 1,268,493,501
===============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 23
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
February 29, 2008 (unaudited)
CLASS A:
Net assets, at value .................................................... $ 1,071,289,966
===============
Shares outstanding ...................................................... 145,423,900
===============
Net asset value per share a ............................................. $ 7.37
===============
Maximum offering price per share (net asset value per share / 94.25%) ... $ 7.82
===============
CLASS B:
Net assets, at value .................................................... $ 5,786,297
===============
Shares outstanding ...................................................... 822,808
===============
Net asset value and maximum offering price per share a .................. $ 7.03
===============
CLASS C:
Net assets, at value .................................................... $ 64,782,493
===============
Shares outstanding ...................................................... 9,025,726
===============
Net asset value and maximum offering price per share a .................. $ 7.18
===============
ADVISOR CLASS:
Net assets, at value .................................................... $ 126,634,745
===============
Shares outstanding ...................................................... 17,140,897
===============
Net asset value and maximum offering price per share a .................. $ 7.39
===============
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
24 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the period ended February 29, 2008 (unaudited)
Investment income:
Dividends (net of foreign taxes of $596,269) ................................. $ 10,843,892
Interest ..................................................................... 904,854
---------------
Total investment income ................................................ 11,748,746
---------------
Expenses:
Management fees (Note 3a) .................................................... 5,622,570
Administrative fees (Note 3b) ................................................ 853,372
Distribution fees: (Note 3c)
Class A ................................................................... 1,430,424
Class B ................................................................... 37,591
Class C ................................................................... 393,429
Transfer agent fees (Note 3e) ................................................ 1,114,812
Custodian fees (Note 4) ...................................................... 282,348
Reports to shareholders ...................................................... 68,775
Registration and filing fees ................................................. 72,753
Professional fees ............................................................ 46,850
Trustees' fees and expenses .................................................. 49,487
Other ........................................................................ 14,609
---------------
Total expenses ......................................................... 9,987,020
Expense reductions (Note 4) ............................................ (19,045)
---------------
Net expenses ........................................................ 9,967,975
---------------
Net investment income ............................................ 1,780,771
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................... 87,904,945
Foreign currency transactions ............................................. 717,697
---------------
Net realized gain (loss) ............................................ 88,622,642
---------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................... (420,723,184)
Translation of assets and liabilities denominated in foreign currencies ... (135,029)
---------------
Net unrealized depreciation ......................................... (420,858,213)
---------------
Net realized and unrealized gain (loss) ......................................... (332,235,571)
---------------
Net increase (decrease) in net assets resulting from operations ................. $ (330,454,800)
===============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 25
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2008 YEAR ENDED
(UNAUDITED) AUGUST 31, 2007
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 1,780,771 $ 10,036,879
Net realized gain (loss) from investments and foreign currency transactions ........... 88,622,642 163,411,373
Net change in unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies ............. (420,858,213) 170,590,868
------------------------------------
Net increase (decrease) in net assets resulting from operations .................. (330,454,800) 344,039,120
------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................................. (14,295,028) (15,048,067)
Class B ............................................................................. (23,467) (47,191)
Class C ............................................................................. (306,096) (499,960)
Advisor Class ....................................................................... (1,436,355) (1,008,972)
Net realized gains from investments:
Class A ............................................................................. (125,653,546) (130,374,696)
Class B ............................................................................. (796,890) (942,747)
Class C ............................................................................. (8,455,866) (8,442,311)
Advisor Class ....................................................................... (10,615,063) (7,582,297)
------------------------------------
Total distributions to shareholders ...................................................... (161,582,311) (163,946,241)
------------------------------------
Capital share transactions: (Note 2)
Class A ............................................................................. 19,917,346 184,816,320
Class B ............................................................................. (733,059) (7,494)
Class C ............................................................................. (6,465,149) 16,393,367
Advisor Class ....................................................................... 52,519,605 45,103,275
------------------------------------
Total capital share transactions ......................................................... 65,238,743 246,305,468
------------------------------------
Redemption fees .......................................................................... 2,045 4,942
------------------------------------
Net increase (decrease) in net assets ............................................ (426,796,323) 426,403,289
Net assets:
Beginning of period ...................................................................... 1,695,289,824 1,268,886,535
------------------------------------
End of period ............................................................................ $ 1,268,493,501 $ 1,695,289,824
====================================
Undistributed net investment income included in net assets:
End of period ............................................................................ $ 1,764,757 $ 16,044,932
====================================
26 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Smaller Companies Fund (Fund) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as a diversified,
open-end investment company. 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. The Fund was
closed to new investors effective April 30, 2007.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market.
Government securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The investment manager monitors price movements
following the close of trading in foreign stock markets
Semiannual Report | 27
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
through a series of country specific market proxies (such as baskets of American
Depository Receipts, futures contracts and exchange traded funds). These price
movements are measured against established trigger thresholds for each specific
market proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Fund's 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. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
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 on the
Statement of Operations.
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.
C. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
28| Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at a future date. Realized and unrealized gains and losses on these
contracts 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, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
E. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
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.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recognized as soon as the Fund is notified
of the ex-dividend date. Distributions to shareholders are recorded on the
ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States of America. These differences may be permanent or temporary.
Permanent differences are reclassified among capital accounts to reflect their
tax character. These reclassifications have no impact on net assets or the
results of operations. Temporary differences are not reclassified, as they may
reverse in subsequent periods.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
Semiannual Report | 29
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. 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.
H. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the fund and accounted for as an addition to paid-in
capital.
I. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities 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. Currently, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At February 29, 2008, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS A SHARES:
Shares sold ......................... 9,230,661 $ 84,759,850 33,430,757 $ 319,544,148
Shares issued in reinvestment of
distributions ..................... 13,411,126 121,882,008 14,926,722 128,461,129
Shares redeemed ..................... (22,361,908) (186,724,512) (27,413,640) (263,188,957)
------------------------------------------------------------
Net increase (decrease) ............. 279,879 $ 19,917,346 20,943,839 $ 184,816,320
============================================================
CLASS B SHARES:
Shares sold ......................... 17,519 $ 158,720 123,786 $ 1,113,589
Shares issued in reinvestment of
distributions ..................... 83,600 727,290 105,669 875,424
Shares redeemed ..................... (209,131) (1,619,069) (219,274) (1,996,507)
------------------------------------------------------------
Net increase (decrease) ............. (108,012) $ (733,059) 10,181 $ (7,494)
============================================================
30 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
CLASS C SHARES:
Shares sold .............................. 427,572 $ 3,677,337 2,880,102 $ 26,561,750
Shares issued in reinvestment of
distributions ......................... 741,530 6,580,740 797,149 6,725,270
Shares redeemed .......................... (2,105,383) (16,723,226) (1,811,233) (16,893,653)
--------------------------------------------------------
Net increase (decrease) .................. (936,281) $ (6,465,149) 1,866,018 $ 16,393,367
========================================================
ADVISOR CLASS SHARES:
Shares sold .............................. 6,851,661 $ 61,127,439 5,337,731 $ 50,709,881
Shares issued in reinvestment of
distributions ......................... 1,256,441 11,395,819 935,293 8,074,661
Shares redeemed .......................... (2,479,383) (20,003,653) (1,407,985) (13,681,267)
--------------------------------------------------------
Net increase (decrease) .................. 5,628,719 $ 52,519,605 4,865,039 $ 45,103,275
========================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- ---------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ---------------------------------------------------------------------------------------
Franklin Templeton Investment Corp. (FTIC) Investment manager
Templeton Investment 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 FTIC based on the average daily
net assets of the Fund 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% In excess of $20 billion
Under a subadvisory agreement, TIC, an affiliate of FTIC, provides subadvisory
services to the Fund and receives from FTIC fees based on the average daily net
assets of the Fund.
Semiannual Report | 31
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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% Up to and including $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's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
Under the Class A reimbursement distribution plan, costs exceeding the maximum
for the current plan year cannot be reimbursed in subsequent periods.
In addition, under the Fund's Class B and C compensation distribution plans, the
Fund pays Distributors for costs incurred in connection with the servicing, sale
and distribution of the Fund's shares up to the maximum annual plan rate for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ............................................................ 0.25%
Class B ............................................................ 1.00%
Class C ............................................................ 1.00%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the period:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................... $38,360
Contingent deferred sales charges retained ...................... $19,381
E. TRANSFER AGENT FEES
For the period ended February 29, 2008, the Fund paid transfer agent fees of
$1,114,812, of which $649,628 was retained by Investor Services.
32 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 period ended February 29, 2008, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, realized currency losses, occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At August 31, 2007, the Fund deferred realized currency losses of
$400,183.
At February 29, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments .................................... $1,335,848,864
==============
Unrealized appreciation ................................ $ 249,556,411
Unrealized depreciation ................................ (303,879,607)
--------------
Net unrealized appreciation (depreciation) ............. $ (54,323,196)
==============
Net investment income and net realized gains (losses) differ for financial
statement and tax purposes primarily due to differing treatments of foreign
currency transactions and passive foreign investment company shares.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended February 29, 2008, aggregated $84,430,896 and $235,553,611,
respectively.
7. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
Semiannual Report | 33
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 1940 Act defines "affiliated companies" to include investments in portfolio
companies in which a fund owns 5% or more of the outstanding voting securities.
Investments in "affiliated companies" for the Fund for the period ended February
29, 2008, were as shown below.
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT REALIZED CAPITAL
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
NON-CONTROLLED AFFILIATES
Fuel Systems
Solutions Inc. .......... 933,580 -- -- 933,580 $ 9,653,217 $ -- $ --
Leapfrog Enterprises
Inc. .................... 2,971,610 -- -- 2,971,610 16,938,177 -- --
Sharper Image Corp. ........ 937,400 -- -- 937,400 206,228 -- --
West Marine Inc. ........ 1,991,430 -- -- 1,991,430 16,070,840 -- --
---------------------------------------------
TOTAL NON-CONTROLLED AFFILIATED SECURITIES (3.38% of Net Assets) $42,868,462 $ -- $ --
=============================================
9. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission (SEC), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares (marketing support), Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the Company), entered into
settlements with certain of those regulators and governmental entities.
Specifically, the Company entered into settlements with the SEC, among others,
concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
34 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY AND LITIGATION MATTERS (CONTINUED)
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company 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.
10. NEW ACCOUNTING PRONOUNCEMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48), on February 29, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a tax return. FIN 48 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The Fund has reviewed the tax
positions for each of the three open tax years as of August 31, 2007 and has
determined that the implementation of FIN 48 did not have a material impact on
the Fund's financial statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The Fund
believes the adoption of SFAS 157 will have no material impact on its financial
statements.
Semiannual Report | 35
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 1-954/527-7678 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 U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. 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.
36 | Semiannual Report
GOF P-5 SUPPLEMENT DATED MARCH 1, 2008
TO THE CURRENTLY EFFECTIVE PROSPECTUS
OF EACH OF THE LISTED FUNDS
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
FRANKLIN CALIFORNIA TAX-FREE TRUST
Franklin California Insured Tax-Free Income Fund
Franklin California Intermediate-Term Tax-Free Income Fund
Franklin California Limited-Term Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
FRANKLIN CAPITAL GROWTH FUND
FRANKLIN CUSTODIAN FUNDS
Franklin DynaTech Fund
Franklin Growth Fund
Franklin Income Fund
Franklin U.S. Government Securities Fund
Franklin Utilities Fund
FRANKLIN FEDERAL TAX-FREE INCOME FUND
FRANKLIN GLOBAL TRUST
Franklin Global Real Estate Fund
FRANKLIN GOLD AND PRECIOUS METALS FUND
FRANKLIN HIGH INCOME TRUST
Franklin High Income Fund
FRANKLIN INVESTORS SECURITIES TRUST
Franklin Adjustable U.S. Government Securities Fund
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Limited Maturity U.S. Government Securities Fund
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Total Return Fund
FRANKLIN MANAGED TRUST
Franklin Rising Dividends Fund
FRANKLIN MUNICIPAL SECURITIES TRUST
Franklin California High Yield Municipal Fund
Franklin Tennessee Municipal Bond Fund
FRANKLIN MUTUAL SERIES FUND INC.
Mutual Beacon Fund
Mutual Discovery Fund
Mutual European Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FRANKLIN NEW YORK TAX-FREE INCOME FUND
FRANKLIN NEW YORK TAX-FREE TRUST
Franklin New York Insured Tax-Free Income Fund
Franklin New York Intermediate-Term Tax-Free Income Fund
Franklin New York Limited-Term Tax-Free Income Fund
Franklin New York Tax-Exempt Money Fund
FRANKLIN REAL ESTATE SECURITIES TRUST
Franklin Real Estate Securities Fund
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
FRANKLIN STRATEGIC SERIES
Franklin Biotechnology Discovery Fund
Franklin Flex Cap Growth Fund
Franklin Focused Core Equity Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Growth Opportunities Fund
Franklin Natural Resources Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund
Franklin Strategic Income Fund
Franklin Technology Fund
FRANKLIN TAX-FREE TRUST
Franklin Alabama Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Federal Limited-Term Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Perspectives Allocation Fund
FRANKLIN TEMPLETON GLOBAL TRUST
Franklin Templeton Hard Currency Fund
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Franklin India Growth Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Long-Short Fund
FRANKLIN VALUE INVESTORS TRUST
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
TEMPLETON CHINA WORLD FUND
TEMPLETON DEVELOPING MARKETS TRUST
TEMPLETON FUNDS
Templeton Foreign Fund
Templeton World Fund
TEMPLETON GLOBAL INVESTMENT TRUST
Templeton BRIC Fund
Templeton Emerging Markets Small Cap Fund
Templeton Income Fund
TEMPLETON GLOBAL OPPORTUNITIES TRUST
TEMPLETON GLOBAL SMALLER COMPANIES FUND
TEMPLETON GROWTH FUND, INC.
TEMPLETON INCOME TRUST
Templeton Global Bond Fund
Templeton International Bond Fund
The prospectus is revised as follows:
1. Effective October 1, 2008, for all funds that are offered with an initial
sales charge, the cumulative quantity discount and letter of intent portion of
the "Sales Charge Reductions and Waivers" section is amended to read:
1. CUMULATIVE QUANTITY DISCOUNT - lets you combine certain existing
holdings of Franklin Templeton fund shares - referred to as "cumulative
quantity discount eligible shares" - with your current purchase of Class A
shares to determine if you qualify for a sales charge breakpoint.
Cumulative quantity discount eligible shares are Franklin Templeton Fund
shares registered to (or held by a financial intermediary for):
o You, individually;
o Your spouse or domestic partner, as recognized by applicable state
law, and your children under the age of 21 (each a "Family Member");
Not part of the semiannual report
o You jointly with one or more Family Members;
o You jointly with another person(s) who is(are) not Family Members if
that other person has not included the value of the shares as
cumulative quantity discount eligible shares for purposes of that
person's separate investments in Franklin Templeton fund shares;
o A trustee/custodian of a Coverdell Education Savings account for
which you or a Family Member is the identified responsible person;
o A trustee/custodian of an IRA (which includes a Roth IRA and an
employer sponsored IRA such as a SIMPLE IRA) or your non-ERISA
covered 403(b), if the shares are registered/recorded under yours or
a Family Member's Social Security number
o A 529 college savings plan over which you or a Family Member has
investment discretion and control;
o Any entity over which you or a Family Member has (have) individual
or shared authority, as principal, has investment discretion and
control (for example, an UGMA/UTMA account for a child on which you
or a Family Member is the custodian, a trust on which you or a
Family Member is the trustee, a business account [not to include
retirement plans] for your solely owned business [or the solely
owned business of a Family Member] on which you or a Family Member
is the authorized signer);
o A trust established by you or a Family Member as grantor.
Franklin Templeton fund shares held through an administrator or
trustee/custodian of an Employer Sponsored Retirement plan such as a
401(k) plan (see definition below) do not qualify for a cumulative
quantity discount.
If you believe there are cumulative quantity discount eligible shares that
can be combined with your current purchase to achieve a sales charge
breakpoint (for example, shares held in a different broker-dealer's
brokerage account or with a bank or an investment advisor), it is your
responsibility to specifically identify those shares to your financial
adviser at the time of your purchase (including at the time of any future
purchase). If you have not designated a financial adviser associated with
your Franklin Templeton Fund shares, it is your responsibility to
specifically identify any cumulative quantity discount eligible shares to
the Fund's transfer agent at the time of any purchase.
If there are cumulative quantity discount eligible shares that would
qualify for combining with your current purchase and you do not tell your
financial adviser or the Franklin Templeton Funds' transfer agent at the
time of any purchase, you may not receive the benefit of a reduced sales
charge that might otherwise be available since your financial adviser and
the Fund generally will not have that information.
The value of cumulative quantity discount eligible shares equals the cost
or current value of those shares, whichever is higher. The current value
of shares is determined by multiplying the number of shares by their
highest current public offering price. It is your responsibility to retain
any records necessary to substantiate historical share costs because
neither your current financial adviser nor the Franklin Templeton Funds
may have or maintain this information.
An "Employer Sponsored Retirement Plan" is a Qualified Retirement Plan,
ERISA covered 403(b) and certain non-qualified deferred compensation
arrangements that operate in a similar manner to a Qualified Retirement
Plan, such as 457 plans and executive deferred compensation arrangements,
but not including employer sponsored IRAs. A "Qualified Retirement Plan"
is an employer sponsored pension or profit sharing plan that qualifies
under section 401(a) of the Internal Revenue Code, including 401(k), money
purchase pension, profit sharing and defined benefit plans.
2. LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of "cumulative quantity discount eligible shares" (as defined in
the "Cumulative Quantity Discount" section above) over a 13-month period
and lets you receive the same sales charge as if all shares had been
purchased at one time. We will reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your LOI to
cover any additional sales charge that may apply if you do not buy the
amount stated in your LOI. It is your responsibility to tell your
financial adviser when you believe you have fulfilled your LOI with
sufficient cumulative quantity discount eligible shares. If you have not
designated a financial adviser associated with your Franklin Templeton
Fund shares, it is your responsibility to tell the Funds' transfer agent
when you believe you have fulfilled your LOI with sufficient cumulative
quantity discount eligible shares. Please refer to the Statement of
Additional Information for more LOI details.
To sign up for these programs, complete the appropriate section of your
account application.
2. Effective October 1, 2008, the second sentence of the section "Investments of
$1 Million or More" is amended as follows:
However, there is a 1% Contingent Deferred Sales Charge ("CDSC") for funds
that have a maximum initial sales charge of 5.75%; for all other funds,
the maximum CDSC will be 0.75%. The CDSC is assessed on any shares you
redeem within 18 months of purchase.
3. The "Qualified Investors - Advisor Class" (and "Qualified Investors - Class
Z" for Mutual Series funds) section is revised to include the following category
of investor:
o Unaffiliated U.S. registered mutual funds, including those that
operate as "fund of funds." Minimum initial investment: $1 million
in Advisor Class or Class Z shares of any Franklin Templeton fund.
PLEASE KEEP THIS SUPPLEMENT FOR FUTURE REFERENCE.
Not part of the semiannual report
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Literature Request
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 FUNDS
INTERNATIONAL
Franklin India Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Opportunities Fund 2
Franklin Small Cap Growth Fund 3
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 4
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Focused Core Equity Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
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
Templeton Income Fund
Templeton International Bond Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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 8
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
3. Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy remained
the same.
4. 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.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. The fund invests primarily in insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/08 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON GLOBAL SMALLER COMPANIES FUND
INVESTMENT MANAGER
Franklin Templeton Investments Corp.
SUBADVISOR
Templeton Investment Counsel, LLC
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 or the subadvisor.
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 S2008 04/08
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 12(a)(1), 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 expert is David W. Niemiec and he is
"independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO 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 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting 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/GALEN G. VETTER
------------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date: April 28, 2008
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/GALEN G. VETTER
-----------------------------
Galen G. Vetter
Chief Executive Officer -
Finance and Administration
Date: April 28, 2008
By /s/LAURA F. FERGERSON
- ------------------------------
Laura F. Fergerson
Chief Financial Officer and
Chief Accounting Officer
Date: April 28, 2008