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: 2/28/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 28, 2009
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
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GLOBAL
TEMPLETON
GLOBAL SMALLER COMPANIES FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ....................................................... 1
SEMIANNUAL REPORT
Templeton Global Smaller Companies Fund .................................. 3
Performance Summary ...................................................... 8
Your Fund's Expenses ..................................................... 11
Financial Highlights and Statement of Investments ........................ 13
Financial Statements ..................................................... 21
Notes to Financial Statements ............................................ 25
Shareholder Information .................................................. 34
Shareholder Letter
Dear Shareholder:
During the six months ended February 28, 2009, world economies entered into a
significant slowdown spawned by the U.S. housing and credit market crises.
Despite coordinated efforts by many governments to address these problems, the
severe economic conditions and high degree of uncertainty fueled market
volatility. Most major equity indexes suffered double-digit losses for the
reporting period. Although this difficult environment is bound to provoke great
concern, we believe it is important to put short-term market developments in
perspective. Keep in mind that as daunting as current conditions may be, we have
navigated through other periods of high market volatility, including global
markets' severe declines of 1987 and the bursting of the technology bubble in
2000. We remain committed to our long-term perspective and our disciplined
investment philosophy. Therefore, we view recent declines as potential
opportunities to find bargains that we believe may be well positioned to become
eventual winners. Although conditions remain challenging, our experience gives
us reason to be optimistic about the potential for future market stabilization
and recovery.
Templeton Global Smaller Companies Fund's semiannual report goes into greater
detail about prevailing conditions during the period under review. In addition,
the portfolio managers discuss investment management decisions and Fund
performance for the period. You will also find performance data and financial
information. Please remember that all securities markets fluctuate, as do mutual
fund share prices.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
articles, and find helpful financial planning tools. We hope you will take
advantage of these online services.
Historically, patient investors have achieved rewarding results by evaluating
their goals, diversifying their assets globally and maintaining a disciplined
investment program, all hallmarks of the Templeton investment philosophy
developed more than 50 years ago. We continue to recommend investors consult
their financial advisors and review their portfolios to design a long-term
strategy and portfolio allocation that meet their individual needs, goals and
risk tolerance. We firmly believe that most people benefit from professional
advice, and that advice is invaluable as investors navigate current market
conditions.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Gary P. Motyl
Gary P. Motyl, CFA
President and Chief Executive Officer - Investment Management
Templeton Global Smaller Companies Fund
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2009. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
2 | Not part of the semiannual report
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.
This semiannual report for Templeton Global Smaller Companies Fund covers the
period ended February 28, 2009.
PERFORMANCE OVERVIEW
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
For the six months under review, Templeton Global Smaller Companies Fund -Class
A had a -49.46% cumulative total return. The Fund underperformed its benchmark,
the Morgan Stanley Capital International (MSCI) World Index, which had a -43.38%
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 8.
ECONOMIC AND MARKET OVERVIEW
During the six months ended February 28, 2009, global economic conditions
continued to deteriorate. Business capital investment and consumer spending in
the U.S. and abroad showed steep declines, unemployment rose steadily, and
business and consumer confidence fell to new lows. In the U.S., gross
(1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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 17.
Semiannual Report | 3
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 2/28/09
(BAR CHART)
Asia 44.2%
North America 27.5%
Europe 20.6%
Australia & New Zealand 5.6%
Middle East & Africa 0.5%
Short-Term Investments & Other Net Assets 1.6%
domestic product (GDP) fell 6.3% on an annualized basis in the fourth quarter of
2008.(2) GDP in the eurozone fell 1.5% in the final three months of 2008 and is
expected to decelerate further in 2009.(3)
The economic slowdown and the seize-up in global credit markets, accompanied by
a decline in inflation indexes, led to easing of monetary policies in the U.S.,
Europe and many other industrialized and emerging countries. The U.S. Federal
Reserve Board cut rates aggressively, as did the European Central Bank and the
Bank of England. As of the end of the reporting period, interest rates in the
U.S. were near zero.
In addition, several countries enacted robust stimulus programs in response to
the global slowdown. In February 2009, the U.S. Congress passed President
Obama's fiscal stimulus package. The package totaled $787 billion and included
tax cuts and government spending of nearly $600 billion in 2009-2010 alone. In
Europe, deteriorating economic conditions led a number of large countries to
also introduce substantial stimulus packages and to continue attempts to revive
basic bank lending.
China announced a fiscal stimulus package during the period, which equaled about
15% of the country's 2008 GDP.(4) Although most observers believed this figure
overstated the actual stimulus effect, the package was significant and reflected
Chinese authorities' desire to avoid the social unrest that might come with
rising joblessness. With 6.8% year-over-year growth in fourth quarter 2008,
China's GDP declined to its slowest growth rate in seven years, although it was
still high relative to any other major economy.(5) Along with making five
successive rate cuts in late 2008, Chinese authorities introduced a series of
measures and public works projects to stimulate internal consumption and help
offset a slowdown in export growth.
Against this challenging economic backdrop, most global equity markets were
volatile, and nearly all local indexes suffered significant losses for the
six-month period. Despite negative economic data and an outlook for decelerating
corporate earnings and profit margins globally, many companies' balance sheets,
primarily outside the banking industry, remained relatively strong.
(2.) Source: Bureau of Economic Analysis.
(3.) Source: European Central Bank.
(4.) Source: International Monetary Fund.
(5.) Source: National Bureau of Statistics, China.
4 | Semiannual Report
INVESTMENT STRATEGY
At Templeton, when choosing investments for this Fund, we take a bottom-up,
value-oriented, long-term approach, focusing on the market price of a company's
securities relative to our evaluation of the company's long-term earnings, asset
value and cash flow growth potential. We also consider the company's
price/earnings ratio, profit margins and liquidation value.
MANAGER'S DISCUSSION
During the period under review, several Fund holdings hindered performance.
Among the largest detractors was U.K.-based Yule Catto, a leader in the chemical
manufacturing industry. The company is focused on various niches within
specialty chemical markets and historically has earned a relatively high margin
on its products. Even though we believe Yule Catto manages its costs and asset
utilization well, it underperformed several of its industry peers in the
chemical sector during this period largely due to the market's focus on
non-recurring charges related to restructuring. Based on our analysis, we
believe performance may improve if plant closures and restructuring efforts
begin to show results, and as recent dividends lend support to the share price.
Pacific Brands is a manufacturer and wholesaler of several well-known consumer
brands in Australia. Pacific is a well-run company, in our view, with
market-leading brands across all of its product categories, most of which are
basic types of clothing that generally enjoy more stable demand. Nonetheless,
this wholesaler was not immune from the economic slowdown. At period-end,
however, we felt the company's share price decline was overdone.
Based in the San Francisco Bay Area, LeapFrog Enterprises is a leading
technology-based educational toy and product manufacturer. The backbone for the
company is education, as educational principles guide the core values behind
LeapFrog's brands and products. LeapFrog has a strong brand name synonymous with
electronic learning, a solid balance sheet and, in our view, significant
turnaround potential. A very challenging economic environment negatively
impacted the company's share price during the period, but we believed LeapFrog
continued to offer attractive longer-term value.
TOP 10 HOLDINGS
2/28/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------ ----------
Biovail Corp. 2.8%
PHARMACEUTICALS, CANADA
People's Food Holdings Ltd. 2.4%
FOOD PRODUCTS, CHINA
Steiner Leisure Ltd. 2.3%
DIVERSIFIED CONSUMER SERVICES, BAHAMAS
Iluka Resources Ltd. 2.3%
METALS & MINING, AUSTRALIA
Hibbett Sports Inc. 2.3%
SPECIALTY RETAIL, U.S.
Youngone Corp. 2.2%
TEXTILES, APPAREL & LUXURY GOODS, SOUTH KOREA
Tempur-Pedic International Inc. 2.1%
HOUSEHOLD DURABLES, U.S.
Total Access Communication Public
Co. Ltd., fgn. 2.1%
WIRELESS TELECOMMUNICATION SERVICES, THAILAND
Chico's FAS Inc. 2.1%
SPECIALTY RETAIL, U.S.
Pihsiang Machinery Manufacturing Co. Ltd. 2.0%
HEALTH CARE EQUIPMENT & SUPPLIES, TAIWAN
Semiannual Report | 5
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 increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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 28, 2009, the U.S. dollar rose in value relative to most non-U.S.
currencies. As a result, the Fund's performance was negatively affected by the
Fund's predominant investment in securities with non-U.S. currency exposure.
Several holdings performed well during the period under review. Biovail is a
North American pharmaceutical company focused primarily on its drug delivery
technology platform, which is used to develop better formulations of established
drugs. The company has achieved this objective by developing multiple
reformulations for partners such as GlaxoSmithKline, Johnson & Johnson and
Sanofi-Aventis. According to our analysis, Biovail has strong research and
development capabilities and a proven ability to control costs. Free cash flow
yield has been solid, and the company has a successful track record of
developing and commercializing new products. During the period, Biovail's stock
price appreciated due to indications of good initial demand for a newly released
central nervous system drug.
Corinthian Colleges is a for-profit education company focused on preparing
students for very specific careers. The company has been actively restructuring
over the past few years by improving and centralizing infrastructure,
consolidating brands, divesting underperforming colleges and improving operating
efficiencies. We believe these changes have enabled Corinthian Colleges to take
advantage of the cyclical upturn in the education sector. Over the past few
quarters, student growth for the education sector and Corinthian has been
robust, and as a result the stock has performed well. We sought to take
advantage of the strong share price to trim our position.
6 | Semiannual Report
Largely as a consequence of recent market changes and the availability of
attractive investment candidates for the Fund, our trustees elected to open
Templeton Global Smaller Companies Fund to new investors beginning on December
15, 2008.
Thank you for your continued participation in Templeton Global Smaller Companies
Fund. We look forward to serving your future investment needs.
(PHOTO OF BRADLEY RADIN)
/s/ Bradley Radin
Bradley Radin, CFA
(PHOTO OF HARLAN B. HODES)
/s/ Harlan B. Hodes
Harlan B. Hodes, CPA
(PHOTO OF CYNTHIA L. SWEETING)
/s/ Cynthia L. Sweeting
Cynthia L. Sweeting, CFA
Portfolio Management Team
Templeton Global Smaller Companies Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2009, 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
Performance Summary as of 2/28/09
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
CLASS A (SYMBOL: TEMGX) CHANGE 2/28/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$3.99 $2.98 $6.97
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.0853
Long-Term Capital Gain $0.5427
TOTAL $0.6280
CLASS B (SYMBOL: N/A) CHANGE 2/28/09 8/31/08
- --------------------- ------ ------- -------
Net Asset Value (NAV) -$3.78 $2.85 $6.63
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.0207
Long-Term Capital Gain $0.5427
TOTAL $0.5634
CLASS C (SYMBOL: TESGX) CHANGE 2/28/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$3.85 $2.92 $6.77
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.0227
Long-Term Capital Gain $0.5427
TOTAL $0.5654
ADVISOR CLASS (SYMBOL: TGSAX) CHANGE 2/28/09 8/31/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$4.01 $2.99 $7.00
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.1019
Long-Term Capital Gain $0.5427
TOTAL $0.6446
8 | Semiannual Report
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) -49.46% -52.21% -32.88% +8.19%
Average Annual Total Return(2) -52.40% -54.96% -8.74% +0.19%
Value of $10,000 Investment(3) $ 4,760 $ 4,504 $ 6,329 $10,192
Avg. Ann. Total Return (3/31/09)(4) -51.73% -7.12% +0.66%
Total Annual Operating Expenses(5) 1.35%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) -49.67% -52.54% -35.34% +1.59%
Average Annual Total Return(2) -51.39% -54.16% -8.54% +0.16%
Value of $10,000 Investment(3) $ 4,861 $ 4,584 $ 6,400 $10,159
Avg. Ann. Total Return (3/31/09)(4) -50.90% -6.89% +0.64%
Total Annual Operating Expenses(5) 2.12%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) -49.65% -52.53% -35.23% +0.62%
Average Annual Total Return(2) -50.08% -52.94% -8.32% +0.06%
Value of $10,000 Investment(3) $ 4,992 $ 4,706 $ 6,477 $10,062
Avg. Ann. Total Return (3/31/09)(4) -49.60% -6.70% +0.51%
Total Annual Operating Expenses(5) 2.09%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------- ------- -------
Cumulative Total Return(1) -49.30% -51.98% -31.92% +11.30%
Average Annual Total Return(2) -49.30% -51.98% -7.40% +1.08%
Value of $10,000 Investment(3) $ 5,070 $ 4,802 $ 6,808 $11,130
Avg. Ann. Total Return (3/31/09)(4) -48.72% -5.80% +1.52%
Total Annual Operating Expenses(5) 1.12%
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 (800) 342-5236.
Semiannual Report | 9
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 THESE 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.
10 | Semiannual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
Semiannual Report | 11
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.
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
VALUE 9/1/08 VALUE 2/28/09 PERIOD* 9/1/08-2/28/09
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 505.40 $ 5.60
Hypothetical (5% return before expenses) $1,000 $1,017.36 $ 7.50
CLASS B
Actual $1,000 $ 503.30 $ 8.54
Hypothetical (5% return before expenses) $1,000 $1,013.44 $11.43
CLASS C
Actual $1,000 $ 503.50 $ 8.54
Hypothetical (5% return before expenses) $1,000 $1,013.44 $11.43
ADVISOR CLASS
Actual $1,000 $ 507.00 $ 4.82
Hypothetical (5% return before expenses) $1,000 $1,018.40 $ 6.46
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.50%; B: 2.29%; C: 2.29%; and Advisor:
1.29%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
12 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 ----------------------------------------------------------------
CLASS A (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ----------------- -------- ---------- ---------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 6.97 $ 10.13 $ 9.09 $ 9.82 $ 8.69 $ 7.16
-------- -------- ---------- ---------- -------- --------
Income from investment operations(a):
Net investment income(b) ........... 0.03 0.07 0.06 0.08 0.12 0.07
Net realized and unrealized gains
(losses) ........................ (3.39) (2.27) 2.13 0.83 2.02 1.56
-------- -------- ---------- ---------- -------- --------
Total from investment operations ...... (3.36) (2.20) 2.19 0.91 2.14 1.63
-------- -------- ---------- ---------- -------- --------
Less distributions from:
Net investment income .............. (0.09) (0.10) (0.12) (0.14) (0.10) (0.10)
Net realized gains ................. (0.54) (0.86) (1.03) (1.50) (0.91) --
-------- -------- ---------- ---------- -------- --------
Total distributions ................... (0.63) (0.96) (1.15) (1.64) (1.01) (0.10)
-------- -------- ---------- ---------- -------- --------
Redemption fees(c) .................... -- --(d) --(d) --(d) --(d) --(d)
-------- -------- ---------- ---------- -------- --------
Net asset value, end of period ........ $ 2.98 $ 6.97 $ 10.13 $ 9.09 $ 9.82 $ 8.69
======== ======== ========== ========== ======== ========
Total return(e) ....................... (49.46)% (23.88)% 26.52% 11.66% 26.78% 23.04%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 1.50% 1.35% 1.32% 1.34% 1.35% 1.42%
Net investment income ................. 1.43% 0.93% 0.68% 0.90% 1.33% 0.91%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $409,440 $936,192 $1,470,895 $1,128,415 $949,606 $744,017
Portfolio turnover rate ............... 14.95% 17.46% 28.07% 33.90% 41.58% 31.69%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 13
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 ---------------------------------------------------
CLASS B (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ----------------- ------- ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 6.63 $ 9.68 $ 8.72 $ 9.50 $ 8.42 $ 6.97
------- ------- ------ ------ ------ ------
Income from investment operations(a):
Net investment income (loss)(b) .... 0.01 0.01 (0.01) 0.01 0.06 0.02
Net realized and unrealized gains
(losses) ........................ (3.23) (2.17) 2.05 0.81 1.95 1.52
------- ------- ------ ------ ------ ------
Total from investment operations ...... (3.22) (2.16) 2.04 0.82 2.01 1.54
------- ------- ------ ------ ------ ------
Less distributions from:
Net investment income .............. (0.02) (0.03) (0.05) (0.10) (0.02) (0.09)
Net realized gains ................. (0.54) (0.86) (1.03) (1.50) (0.91) --
------- ------- ------ ------ ------ ------
Total distributions ................... (0.56) (0.89) (1.08) (1.60) (0.93) (0.09)
------- ------- ------ ------ ------ ------
Redemption fees(c) .................... -- --(d) --(d) --(d) --(d) --(d)
------- ------- ------ ------ ------ ------
Net asset value, end of period ........ $ 2.85 $ 6.63 $ 9.68 $ 8.72 $ 9.50 $ 8.42
======= ======= ====== ====== ====== ======
Total return(e) ....................... (49.67)% (24.47)% 25.69% 10.74% 25.86% 22.23%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 2.29% 2.12% 2.07% 2.09% 2.10% 2.16%
Net investment income (loss) .......... 0.64% 0.16% (0.07)% 0.15% 0.58% 0.17%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 1,730 $ 4,470 $9,010 $8,027 $7,983 $4,896
Portfolio turnover rate ............... 14.95% 17.46% 28.07% 33.90% 41.58% 31.69%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 -------------------------------------------------------
CLASS C (UNAUDITED) 2008 2007 2006 2005 2004
- ------- ----------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 6.77 $ 9.86 $ 8.88 $ 9.65 $ 8.55 $ 7.05
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .... 0.01 0.01 --(c) 0.01 0.06 0.02
Net realized and unrealized gains
(losses) ........................ (3.30) (2.21) 2.07 0.83 1.98 1.54
------- ------- ------- ------- ------- -------
Total from investment operations ...... (3.29) (2.20) 2.07 0.84 2.04 1.56
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .............. (0.02) (0.03) (0.06) (0.11) (0.03) (0.06)
Net realized gains ................. (0.54) (0.86) (1.03) (1.50) (0.91) --
------- ------- ------- ------- ------- -------
Total distributions ................... (0.56) (0.89) (1.09) (1.61) (0.94) (0.06)
------- ------- ------- ------- ------- -------
Redemption fees(d) .................... -- --(c) --(c) --(c) --(c) --(c)
------- ------- ------- ------- ------- -------
Net asset value, end of period ........ $ 2.92 $ 6.77 $ 9.86 $ 8.88 $ 9.65 $ 8.55
======= ======= ======= ======= ======= =======
Total return(e) ....................... (49.65)% (24.38)% 25.58% 10.89% 25.74% 22.07%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 2.29% 2.09% 2.06% 2.09% 2.10% 2.17%
Net investment income (loss) .......... 0.64% 0.19% (0.06)% 0.15% 0.58% 0.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $19,704 $49,346 $98,269 $71,857 $55,448 $30,741
Portfolio turnover rate ............... 14.95% 17.46% 28.07% 33.90% 41.58% 31.69%
(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 repurchases 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) Amount rounds to less than $0.01 per share.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent
deferred sales charges, if applicable, and is not annualized for periods
less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 ----------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2008 2007 2006 2005 2004
- ------------- ----------------- -------- -------- ------- ------- ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $ 7.00 $ 10.17 $ 9.11 $ 9.84 $ 8.71 $ 7.17
--------- -------- -------- ------- ------- ------
Income from investment operations(a):
Net investment income(b) ......................... 0.03 0.10 0.10 0.11 0.16 0.10
Net realized and unrealized gains (losses) ....... (3.40) (2.29) 2.13 0.82 2.01 1.56
--------- -------- -------- ------- ------- ------
Total from investment operations .................... (3.37) (2.19) 2.23 0.93 2.17 1.66
--------- -------- -------- ------- ------- ------
Less distributions from:
Net investment income ............................ (0.10) (0.12) (0.14) (0.16) (0.13) (0.12)
Net realized gains ............................... (0.54) (0.86) (1.03) (1.50) (0.91) --
--------- -------- -------- ------- ------- ------
Total distributions ................................. (0.64) (0.98) (1.17) (1.66) (1.04) (0.12)
--------- -------- -------- ------- ------- ------
Redemption fees(c) .................................. -- --(d) --(d) --(d) --(d) --(d)
--------- -------- -------- ------- ------- ------
Net asset value, end of period ...................... $ 2.99 $ 7.00 $ 10.17 $ 9.11 $ 9.84 $ 8.71
========= ======== ======== ======= ======= ======
Total return(e) (49.30)% (23.69)% 26.98% 11.83% 27.07% 23.30%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ......................................... 1.29% 1.12% 1.07% 1.09% 1.10% 1.17%
Net investment income ............................... 1.64% 1.16% 0.93% 1.15% 1.58% 1.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $ 78,451 $126,003 $117,115 $60,588 $39,912 $9,329
Portfolio turnover rate ............................. 14.95% 17.46% 28.07% 33.90% 41.58% 31.69%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
16 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED)
INDUSTRY SHARES/RIGHTS VALUE
---------------------------------------------- ------------- -------------
COMMON STOCKS AND RIGHTS 98.4%
AUSTRALIA 5.6%
Billabong International Ltd. ................ Textiles, Apparel & Luxury Goods 369,406 $ 1,658,760
Downer EDI Ltd. ............................. Commercial Services & Supplies 2,485,055 5,944,974
Emeco Holdings Ltd. ......................... Trading Companies & Distributors 17,495,152 3,357,232
(a) Iluka Resources Ltd. ........................ Metals & Mining 4,230,980 11,637,289
Pacific Brands Ltd. ......................... Distributors 9,506,660 1,368,210
PaperlinX Ltd. .............................. Paper & Forest Products 10,456,146 4,614,909
-------------
28,581,374
-------------
BAHAMAS 2.3%
(a) Steiner Leisure Ltd. ........................ Diversified Consumer Services 464,960 11,721,642
-------------
BELGIUM 1.4%
Barco NV .................................... Electronic Equipment, Instruments & Components 435,919 7,266,097
-------------
CANADA 5.9%
(a) ATS Automation Tooling Systems Inc. ......... Machinery 885,180 2,420,862
Biovail Corp. ............................... Pharmaceuticals 1,330,900 14,141,041
Canaccord Capital Inc. ...................... Capital Markets 1,926,100 6,539,158
Dorel Industries Inc., B .................... Household Durables 171,100 2,659,718
(a) GSI Group Inc. .............................. Electronic Equipment, Instruments & Components 1,071,820 1,018,229
(a) MDS Inc. .................................... Life Sciences Tools & Services 426,700 2,816,834
(a) Mega Brands Inc. ............................ Leisure Equipment & Products 772,900 382,669
-------------
29,978,511
-------------
CAYMAN ISLANDS 0.9%
Stella International Holdings Ltd. .......... Textiles, Apparel & Luxury Goods 4,231,000 4,746,485
-------------
CHINA 5.5%
(a) AAC Acoustic Technologies Holdings Inc. ..... Communications Equipment 9,478,000 3,800,904
(a) Bio-Treat Technology Ltd. ................... Commercial Services & Supplies 20,490,417 529,314
People's Food Holdings Ltd. ................. Food Products 29,293,000 12,107,282
Sinotrans Ltd., H ........................... Air Freight & Logistics 53,339,000 7,978,342
(a) TCL Communication Technology Holdings Ltd. .. Communications Equipment 14,387,887 1,224,477
Weiqiao Textile Co. Ltd., H ................. Textiles, Apparel & Luxury Goods 9,651,000 2,551,150
-------------
28,191,469
-------------
FINLAND 2.6%
Amer Sports OYJ ............................. Leisure Equipment & Products 778,180 5,460,461
(a) Elcoteq SE, A ............................... Communications Equipment 756,951 1,112,155
Huhtamaki OYJ ............................... Containers & Packaging 863,810 6,356,732
-------------
12,929,348
-------------
GERMANY 0.9%
(a) Jenoptik AG ................................. Electronic Equipment, Instruments & Components 977,110 4,381,131
-------------
HONG KONG 7.9%
Asia Satellite Telecommunications Holdings
Ltd. ..................................... Diversified Telecommunication Services 3,454,500 3,608,112
Dah Sing Financial Group .................... Commercial Banks 3,486,400 8,991,186
Semiannual Report | 17
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES/RIGHTS VALUE
---------------------------------------------- ------------- -------------
COMMON STOCKS AND RIGHTS (CONTINUED)
HONG KONG (CONTINUED)
Fountain Set (Holdings) Ltd. ................ Textiles, Apparel & Luxury Goods 33,524,000 $ 1,404,912
Giordano International Ltd. ................. Specialty Retail 31,651,348 7,428,026
Hopewell Holdings Ltd. ...................... Real Estate Management & Development 2,982,000 8,459,411
Hung Hing Printing Group Ltd. ............... Containers & Packaging 20,862,508 2,663,247
Yue Yuen Industrial Holdings Ltd. ........... Textiles, Apparel & Luxury Goods 4,196,500 7,857,125
-------------
40,412,019
-------------
ISRAEL 0.5%
(a) Orbotech Ltd. ............................... Electronic Equipment, Instruments & Components 614,700 2,520,270
-------------
JAPAN 7.4%
Aiful Corp. ................................. Consumer Finance 1,084,850 1,144,931
Asics Corp. ................................. Textiles, Apparel & Luxury Goods 36,000 227,225
Descente Ltd. ............................... Textiles, Apparel & Luxury Goods 2,333,000 8,247,195
MEITEC Corp. ................................ Professional Services 239,900 3,286,503
Nichii Gakkan Co. ........................... Health Care Providers & Services 528,500 8,133,685
Sangetsu Co. Ltd. ........................... Household Durables 186,800 3,847,205
Sohgo Security Services Co. Ltd. ............ Commercial Services & Supplies 737,400 6,074,795
Takuma Co. Ltd. ............................. Machinery 2,627,000 3,526,175
USS Co. Ltd. ................................ Specialty Retail 81,030 3,296,164
-------------
37,783,878
-------------
NETHERLANDS 5.3%
Draka Holding NV ............................ Electrical Equipment 235,136 1,652,621
Imtech NV ................................... Construction & Engineering 577,230 7,417,208
OPG Groep NV ................................ Health Care Providers & Services 838,560 7,105,584
SBM Offshore NV ............................. Energy Equipment & Services 379,423 5,024,435
USG People NV ............................... Professional Services 699,400 5,828,959
-------------
27,028,807
-------------
NORWAY 0.5%
Tomra Systems ASA Machinery 715,996 2,420,280
-------------
PHILIPPINES 0.0%(b)
(a) First Gen Corp. ............................. Independent Power Producers & Energy Traders 610,000 194,188
-------------
SINGAPORE 1.1%
Huan Hsin Holdings Ltd. ..................... Electronic Equipment, Instruments & Components 6,101,000 945,617
(a) Osim International Ltd. ..................... Specialty Retail 7,850,200 253,486
(a) Osim International Ltd., rts., 3/17/09 ...... Specialty Retail 1,744,488 --
Venture Corp. Ltd. .......................... Electronic Equipment, Instruments & Components 1,322,000 4,200,484
-------------
5,399,587
-------------
SOUTH KOREA 7.4%
Busan Bank .................................. Commercial Banks 1,793,670 6,059,024
(a) Busan Bank, rts., 3/06/09 ................... Commercial Banks 391,299 45,932
Daeduck Electronics Co. Ltd. ................ Electronic Equipment, Instruments & Components 1,221,875 2,235,064
Daegu Bank Co. Ltd. ......................... Commercial Banks 1,249,460 4,758,451
Halla Climate Control Corp. ................. Auto Components 1,104,000 5,025,218
18 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES/RIGHTS VALUE
---------------------------------------------- ------------- -------------
COMMON STOCKS AND RIGHTS (CONTINUED)
SOUTH KOREA (CONTINUED)
INTOPS Co. Ltd. ............................. Electronic Equipment, Instruments & Components 223,678 $ 2,166,108
People & Telecommunication Inc. ............. Communications Equipment 612,718 2,697,086
Sindo Ricoh Co. ............................. Office Electronics 110,350 3,583,703
Youngone Corp. .............................. Textiles, Apparel & Luxury Goods 1,990,740 11,112,677
-------------
37,683,263
-------------
SPAIN 0.7%
Sol Melia SA ................................ Hotels, Restaurants & Leisure 1,078,193 3,700,882
-------------
SWEDEN 0.5%
(c) D. Carnegie & Co. AB ........................ Capital Markets 2,352,546 --
Niscayah Group AB ........................... Commercial Services & Supplies 3,472,830 2,446,292
-------------
2,446,292
-------------
SWITZERLAND 1.5%
Verwaltungs- und Privat-Bank AG ............. Capital Markets 75,518 4,838,829
Vontobel Holding AG ......................... Capital Markets 160,170 2,490,469
-------------
7,329,298
-------------
TAIWAN 10.0%
AcBel Polytech Inc. ......................... Electrical Equipment 13,333,086 5,067,297
D-Link Corp. ................................ Communications Equipment 11,616,430 6,406,547
Giant Manufacturing Co. Ltd. ................ Leisure Equipment & Products 3,866,100 7,379,782
Pihsiang Machinery Manufacturing Co. Ltd. ... Health Care Equipment & Supplies 8,528,000 10,356,908
Simplo Technology Co. Ltd. .................. Computers & Peripherals 2,602,996 6,865,453
(a) Ta Chong Bank Ltd. .......................... Commercial Banks 52,393,000 5,030,447
Taiwan Fu Hsing ............................. Building Products 9,336,180 2,651,854
Test-Rite International Co. Ltd. ............ Distributors 16,626,237 7,269,079
-------------
51,027,367
-------------
THAILAND 4.9%
Bank of Ayudhya Public Co. Ltd., NVDR ....... Commercial Banks 18,625,300 4,556,570
Glow Energy Public Co. Ltd., fgn. ........... Independent Power Producers & Energy Traders 16,956,900 9,749,924
Total Access Communication Public Co. Ltd.,
fgn. ..................................... Wireless Telecommunication Services 12,815,000 10,636,450
-------------
24,942,944
-------------
UNITED KINGDOM 7.2%
Bodycote PLC ................................ Machinery 2,576,506 4,358,483
Burberry Group PLC .......................... Textiles, Apparel & Luxury Goods 804,310 2,957,057
Fiberweb PLC ................................ Personal Products 6,160,581 2,710,004
Future PLC .................................. Media 11,231,610 2,570,781
GAME Group PLC .............................. Specialty Retail 3,113,050 6,513,059
Henderson Group PLC ......................... Capital Markets 9,149,752 10,340,451
New Star Asset Management Group PLC ......... Capital Markets 7,488,090 199,245
Yell Group PLC .............................. Media 7,191,240 2,134,641
Yule Catto & Co. PLC ........................ Chemicals 6,523,350 4,875,959
-------------
36,659,680
-------------
Semiannual Report | 19
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES/RIGHTS VALUE
---------------------------------------------- ------------- -------------
COMMON STOCKS AND RIGHTS (CONTINUED)
UNITED STATES 18.4%
(a) BearingPoint Inc. ........................... IT Services 60,305 $ 4,342
(a) Chico's FAS Inc. ............................ Specialty Retail 2,322,130 10,519,249
(a) Corinthian Colleges Inc. .................... Diversified Consumer Services 283,480 5,584,556
(a) Fossil Inc. ................................. Textiles, Apparel & Luxury Goods 323,440 4,081,813
(a) Hibbett Sports Inc. ......................... Specialty Retail 821,570 11,518,411
(a) JAKKS Pacific Inc. .......................... Leisure Equipment & Products 483,990 6,132,153
K-Swiss Inc., A ............................. Textiles, Apparel & Luxury Goods 891,120 8,875,555
(a, d) Leapfrog Enterprises Inc. ................... Leisure Equipment & Products 2,971,610 4,279,118
Legg Mason Inc. ............................. Capital Markets 531,910 6,824,405
(a) Pier 1 Imports Inc. ......................... Specialty Retail 3,257,950 684,170
PNM Resources Inc. .......................... Multi-Utilities 327,220 2,516,322
(a) RC2 Corp. ................................... Leisure Equipment & Products 292,400 1,371,356
Scholastic Corp. ............................ Media 363,740 4,004,777
(a) Sealy Corp. ................................. Household Durables 3,655,420 2,924,336
Tempur-Pedic International Inc. ............. Household Durables 1,753,710 10,767,779
(a) VASCO Data Security International Inc. ...... Software 275,340 1,360,180
(a) Volcom Inc. ................................. Textiles, Apparel & Luxury Goods 318,960 2,538,922
(a, d) West Marine Inc. ............................ Specialty Retail 1,991,430 9,817,750
-------------
93,805,194
-------------
TOTAL COMMON STOCKS AND RIGHTS
(COST $1,100,570,350) ..................... 501,150,006
-------------
PRINCIPAL
AMOUNT
-------------
SHORT TERM INVESTMENTS
(COST $8,149,919) 1.6%
U.S. GOVERNMENT AND AGENCY SECURITY 1.6%
(e) FHLB, 3/02/09 ............................... $ 8,150,000 8,150,000
-------------
TOTAL INVESTMENTS
(COST $1,108,720,269) 100.0% ............. 509,300,006
OTHER ASSETS, LESS LIABILITIES 0.0%(b) ...... 25,208
-------------
NET ASSETS 100.0% ........................... $ 509,325,214
=============
See Abbreviations on page 33.
(a) Non-income producing for the twelve months ended February 28, 2009.
(b) Rounds to less than 0.1% of net assets.
(c) Security has been deemed illiquid because it may not be able to be sold
within seven days. At February 28, 2009, the value of this security was $0.
(d) See Note 8 regarding holdings of 5% voting securities.
(e) The security is traded on a discount basis with no stated coupon rate.
The accompanying notes are an integral part of these financial statements.
20 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2009 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................... $1,048,068,052
Cost - Non-controlled affiliated issuers (Note 8) ... 60,652,217
--------------
Total cost of investments ........................... $1,108,720,269
==============
Value - Unaffiliated issuers ........................ $ 495,203,138
Value - Non-controlled affiliated issuers (Note 8) .. 14,096,868
--------------
Total value of investments .......................... 509,300,006
Cash ................................................... 1,770
Foreign currency, at value (cost $ 151) ................ 149
Receivables:
Investment securities sold .......................... 494,345
Capital shares sold ................................. 288,204
Dividends and interest .............................. 1,601,778
Other assets ........................................... 649,628
--------------
Total assets ..................................... 512,335,880
--------------
Liabilities:
Payables:
Investment securities purchased ..................... 774,019
Capital shares redeemed ............................. 1,243,804
Affiliates .......................................... 556,375
Unaffiliated transfer agent fees .................... 196,155
Accrued expenses and other liabilities ................. 240,313
--------------
Total liabilities ................................ 3,010,666
--------------
Net assets, at value .......................... $ 509,325,214
==============
Net assets consist of:
Paid-in capital ........................................ $1,180,617,008
Undistributed net investment income .................... 4,810,255
Net unrealized appreciation (depreciation) ............. (599,858,590)
Accumulated net realized gain (loss) ................... (76,243,459)
--------------
Net assets, at value .......................... $ 509,325,214
==============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 21
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2009 (unaudited)
CLASS A:
Net assets, at value .................................................... $409,439,515
------------
Shares outstanding ...................................................... 137,253,745
------------
Net asset value per share(a) ............................................ $ 2.98
------------
Maximum offering price per share (net asset value per share / 94.25%) ... $ 3.16
------------
CLASS B:
Net assets, at value .................................................... $ 1,730,038
------------
Shares outstanding ...................................................... 606,341
------------
Net asset value and maximum offering price per share(a) ................. $ 2.85
------------
CLASS C:
Net assets, at value .................................................... $ 19,704,418
------------
Shares outstanding ...................................................... 6,748,866
------------
Net asset value and maximum offering price per share(a) ................. $ 2.92
------------
ADVISOR CLASS:
Net assets, at value .................................................... $ 78,451,243
------------
Shares outstanding ...................................................... 26,261,557
------------
Net asset value and maximum offering price per share .................... $ 2.99
------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
22 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2009 (unaudited)
Investment income:
Dividends (net of foreign taxes of $ 496,688) ...................................... $ 9,862,566
Interest ........................................................................... 175,832
-------------
Total investment income ...................................................... 10,038,398
-------------
Expenses:
Management fees (Note 3a) .......................................................... 2,581,358
Administrative fees (Note 3b) ...................................................... 467,380
Distribution fees: (Note 3c)
Class A ......................................................................... 604,597
Class B ......................................................................... 12,530
Class C ......................................................................... 145,950
Transfer agent fees (Note 3e) ...................................................... 1,013,910
Custodian fees (Note 4) ............................................................ 112,002
Reports to shareholders ............................................................ 68,878
Registration and filing fees ....................................................... 94,982
Professional fees .................................................................. 19,864
Trustees' fees and expenses ........................................................ 56,134
Other .............................................................................. 19,611
-------------
Total expenses ............................................................... 5,197,196
Expense reductions (Note 4) .................................................. (813)
-------------
Net expenses .............................................................. 5,196,383
-------------
Net investment income .................................................. 4,842,015
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................................................... (86,761,431)
Foreign currency transactions ................................................... (401,519)
-------------
Net realized gain (loss) .................................................. (87,162,950)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................................... (449,655,929)
Translation of other assets and liabilities denominated in foreign currencies .. (373,858)
-------------
Net change in unrealized appreciation (depreciation) ...................... (450,029,787)
-------------
Net realized and unrealized gain (loss) ............................................... (537,192,737)
-------------
Net increase (decrease) in net assets resulting from operations ....................... $(532,350,722)
=============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 23
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 2009 YEAR ENDED
(UNAUDITED) AUGUST 31, 2008
----------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 4,842,015 $ 12,536,230
Net realized gain (loss) from investments and foreign currency transactions .......... (87,162,950) 109,572,815
Net change in unrealized appreciation (depreciation) on investments and translation of
other assets and liabilities denominated in foreign currencies .................... (450,029,787) (516,437,027)
-------------- --------------
Net increase (decrease) in net assets resulting from operations ................ (532,350,722) (394,327,982)
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................................... (10,399,161) (14,287,758)
Class B ........................................................................... (11,709) (23,467)
Class C ........................................................................... (143,310) (306,005)
Advisor Class ..................................................................... (2,277,049) (1,436,355)
Net realized gains:
Class A ........................................................................... (66,168,239) (125,660,828)
Class B ........................................................................... (306,993) (796,890)
Class C ........................................................................... (3,426,195) (8,455,957)
Advisor Class ..................................................................... (12,127,130) (10,615,063)
-------------- --------------
Total distributions to shareholders ..................................................... (94,859,786) (161,582,323)
-------------- --------------
Capital share transactions: (Note 2)
Class A ........................................................................... (6,908,615) (61,748,809)
Class B ........................................................................... (409,567) (1,772,174)
Class C ........................................................................... (3,094,506) (18,880,962)
Advisor Class ..................................................................... 30,937,536 59,030,152
-------------- --------------
Total capital share transactions ........................................................ 20,524,848 (23,371,793)
-------------- --------------
Redemption fees ......................................................................... -- 3,148
-------------- --------------
Net increase (decrease) in net assets ....................................... (606,685,660) (579,278,950)
Net assets:
Beginning of period ..................................................................... 1,116,010,874 1,695,289,824
-------------- --------------
End of period ........................................................................... $ 509,325,214 $1,116,010,874
============== ==============
Undistributed net investment income included in net assets:
End of period ........................................................................... $ 4,810,255 $ 12,799,469
============== ==============
The accompanying notes are an integral part of these financial statements.
24 | 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 an 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 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.
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 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.
Semiannual Report | 25
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
D. 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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
26 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES (CONTINUED)
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.
E. 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, not
including 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.
F. 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.
G. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
Fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the Fund and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
Semiannual Report | 27
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees 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 28, 2009, 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 28, 2009 AUGUST 31, 2008
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
CLASS A SHARES:
Shares sold ........................ 4,137,010 $ 16,933,989 12,337,464 $ 107,834,035
Shares issued in reinvestment of
distributions ................... 19,523,841 67,357,253 13,411,128 121,882,020
Shares redeemed .................... (20,658,379) (91,199,857) (36,641,340) (291,464,864)
----------- ------------ ----------- -------------
Net increase (decrease) ............ 3,002,472 $ (6,908,615) (10,892,748) $ (61,748,809)
=========== ============ =========== =============
CLASS B SHARES:
Shares sold ........................ 15,324 $ 60,541 26,524 $ 224,015
Shares issued in reinvestment of
distributions ................... 87,357 288,277 83,602 727,290
Shares redeemed .................... (170,343) (758,385) (366,943) (2,723,479)
----------- ------------ ----------- -------------
Net increase (decrease) ............ (67,662) $ (409,567) (256,817) $ (1,772,174)
=========== ============ =========== =============
CLASS C SHARES:
Shares sold ........................ 319,770 $ 1,182,383 545,994 $ 4,530,362
Shares issued in reinvestment of
distributions ................... 842,760 2,848,530 741,530 6,580,741
Shares redeemed .................... (1,704,458) (7,125,419) (3,958,737) (29,992,065)
----------- ------------ ----------- -------------
Net increase (decrease) ............ (541,928) $ (3,094,506) (2,671,213) $ (18,880,962)
=========== ============ =========== =============
ADVISOR CLASS SHARES:
Shares sold ........................ 6,832,513 $ 27,874,649 9,517,914 $ 80,904,523
Shares issued in reinvestment of
distributions ................... 4,079,917 14,075,713 1,256,440 11,395,819
Shares redeemed .................... (2,647,116) (11,012,826) (4,290,289) (33,270,190)
----------- ------------ ----------- -------------
Net increase (decrease) ............ 8,265,314 $ 30,937,536 6,484,065 $ 59,030,152
=========== ============ =========== =============
28 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 - sub advisor
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.
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.
Semiannual Report | 29
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
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 . .................................................. $18,270
Contingent deferred sales charges retained ........................... $ 2,185
E. TRANSFER AGENT FEES
For the period ended February 28, 2009, the Fund paid transfer agent fees of
$1,013,910, of which $568,186 was retained by Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended February 28, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At February 28, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ................................................ $1,108,720,269
==============
Unrealized appreciation ............................................ $ 28,348,142
Unrealized depreciation ............................................ (627,768,405)
--------------
Net unrealized appreciation (depreciation) ......................... $ (599,420,263)
==============
30 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and bond discounts
and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatment of foreign currency transactions.
The Fund utilized a tax accounting practice to treat a portion of the proceeds
from capital shares redeemed as a distribution from realized capital gains.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 28, 2009, aggregated $114,630,855 and $103,462,070,
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.
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
28, 2009, 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
Leapfrog Enterprises
Inc. ................. 2,971,610 -- -- 2,971,610 $ 4,279,118 $-- $--
West Marine Inc. ........ 1,991,430 -- -- 1,991,430 9,817,750 -- --
----------- --- ---
TOTAL AFFILIATED SECURITIES (2.77% of Net Assets)........................... $14,096,868 $-- $--
=========== === ===
Semiannual Report | 31
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. CREDIT FACILITY
Effective, January 23, 2009, the Fund, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to
interest charged on any borrowings made by the Fund and other costs incurred by
the Fund, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Fund incurred commitment fees of $153 of its
pro rata portion of the Global Credit Facility, which is reflected in Other
expenses on the Statement of Operations. During the period ended February 28,
2009, the Fund did not utilize the Global Credit Facility.
10. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on September 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Fund has determined that the implementation
of SFAS 157 did not have a material impact on the Fund's financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
32 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of February 28, 2009, in
valuing the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ---------- ------- ------------
ASSETS:
Investments in Securities..... $501,150,006 $8,150,000 $-- $509,300,006
11. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Fund believes applying the various provisions of
SFAS 161 will not have a material impact on its financial statements.
ABBREVIATIONS
SELECTED PORTFOLIO
FHLB - Federal Home Loan Bank
NVDR - Non Voting Depository Receipt
Semiannual Report | 33
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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 (800)
SEC-0330.
34 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(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
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment 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(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap 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
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income 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
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High 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 Global Total Return 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-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-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.) 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.
(3.) 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.
(4.) 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.
(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 four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
12/08 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
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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.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 S2009 04/09
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, 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/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
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/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
By /s/MARK H. OTANI
-------------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: April 27, 2009