UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03143
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TEMPLETON GLOBAL SMALLER COMPANIES FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., 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
----
Date of reporting period: 8/31/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
AUGUST 31, 2009
ANNUAL REPORT
AND SHAREHOLDER LETTER
(GRAPHIC)
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GLOBAL
(GRAPHIC)
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 annual report
Contents
SHAREHOLDER LETTER ................ 1
ANNUAL REPORT
Templeton Global Smaller
Companies Fund ................. 3
Performance Summary ............... 8
Your Fund's Expenses .............. 13
Financial Highlights and
Statement of Investments ....... 15
Financial Statements .............. 23
Notes to Financial Statements ..... 27
Report of Independent
Registered Public Accounting
Firm ........................... 36
Tax Designation ................... 37
Board Members and Officers ........ 39
Shareholder Information ........... 44
Shareholder Letter
Dear Shareholder:
The one-year period ended August 31, 2009, was an extraordinary time for
investors and those of us who have worked in financial markets for many years.
Global economies experienced a synchronized recession that began in 2008 with
the U.S. subprime mortgage and credit crises. Despite coordinated efforts by
many governments to address spreading liquidity and credit problems,
deteriorating economic conditions and mounting uncertainty contributed to
record-high market volatility. Later in the period some economic data offered a
better outlook, certain countries began to emerge from recession and global
markets rallied beginning in March.
Amid recent events, we think it is important to put short-term market
developments in perspective. Keep in mind that we have navigated through past
periods of high market volatility by remaining committed to our long-term
perspective and disciplined investment philosophy. During such times, we search
for bargains that we believe may be well positioned to become eventual winners.
Although conditions remain challenging, our experience gives us ample reason to
be optimistic about future market stabilization and economic recovery.
Templeton Global Smaller Companies Fund's annual 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 articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
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
environments.
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, CFA
- -------------------------------------
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 AUGUST 31, 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 annual report
Annual Report
Templeton Global Smaller Companies Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Global Smaller Companies Fund
seeks to achieve long-term capital growth. Under normal market conditions, the
Fund invests at least 80% of its net assets in equity securities of smaller
companies, anywhere in the world, including emerging markets.
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 8/31/09
(PIE CHART)
Asia 34.7%
North America 29.7%
Europe 26.2%
Australia & New Zealand 7.9%
Short-Term Investments &
Other Net Assets 1.5%
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.
This annual report for Templeton Global Smaller Companies Fund covers the fiscal
year ended August 31, 2009.
PERFORMANCE OVERVIEW
For the 12 months under review, Templeton Global Smaller Companies Fund - Class
A had a -8.08% cumulative total return. The Fund performed better than its
benchmark, the Morgan Stanley Capital International (MSCI) World Index, which
had a -16.64% total return for the same period.(1) Please note that index
(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. One cannot invest directly in an index, and an
index is not 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 19.
Annual Report | 3
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
The 12-month period under review can be divided into two halves: the first
marked by the bursting of the credit and commodities' bubbles, the onset of
global recession and the precipitous decline of equity markets, and the second
by a sharp market rebound amid renewed optimism. After the collapse of U.S.
investment bank Lehman Brothers at the beginning of the period, restrictive
credit and wealth deterioration stalled economic activity, marking the first
global recession in nearly half a century. In response, policymakers spent
several trillion dollars purchasing troubled assets and lowering borrowing
costs; some central banks, having exhausted traditional monetary stimulus,
initiated quantitative easing strategies, which increased the money supply to
promote liquidity and lending. Equity market volatility reached record levels
and consumer confidence plummeted as global stocks hit 14-year lows.(1) Currency
markets were particularly volatile in the first half of the reporting period,
though the U.S. dollar advanced as risk-averse investors rotated capital into
Treasuries, pressuring yields. The heavily indebted financials sector and the
expensive materials sector declined most sharply as the bubbles in credit and
commodities burst. Emerging markets, which some investors had believed would
"decouple" from a U.S.-led economic downturn, also participated in the global
sell-off. Although absolute declines were universal during the first half of the
period, relative losses were less severe for the sectors perceived to be more
defensive (e.g., utilities, health care and consumer staples).
Global equity markets suffered heavy losses through March before staging a
second-half rally fueled by low valuations, renewed optimism and aggregate
corporate earnings that beat consensus expectations. Notably, this latter period
witnessed a resurgence of cyclical sectors (financials, materials, energy and
industrials) as data appeared to indicate some stabilization in the economic and
financial turmoil associated with the credit crisis and global recession. Funds
flowed out of cash and Treasuries into equities and credit as a turnaround in
investor sentiment galvanized. The dollar depreciated, ultimately ending the
12-month period roughly unchanged against the currencies of the U.S.'s major
trading partners. Meanwhile, the euro gained against the dollar and the yen,
even as European policymakers lowered interest rates and injected capital into
the economy to stave off a gathering deflationary cycle. Commodities rallied
inconsistently during the period as the demand outlook in emerging markets
improved, but spot prices remained well below 2008 highs. Equities moderated
4 | Annual Report
somewhat toward the end of the period as economic news remained mixed and some
investors worried that stock prices had risen too far. Despite the sharp
second-half rebound, all global sectors and regions posted absolute losses
during the period under review.
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
Although the Fund performed better than its benchmark index for the year, many
of its holdings fell in value and hindered overall results. Among the biggest
detractors was our position in San Francisco, California-based Leapfrog
Enterprises, the leading technology-based educational toy and product maker
targeting young children. According to our analysis, Leapfrog has a solid
balance sheet and strong brand name synonymous with electronic learning.
However, the company's share price suffered from the impact of a weak
macroeconomic environment. Despite recent setbacks, over the longer term we
still believe Leapfrog, which has successfully restructured and significantly
cut costs over the past few years under the direction of a new chief executive
officer, continues to offer attractive growth potential.
JAKKS Pacific, a leading U.S. toy company that designs, develops, produces and
markets toys and other leisure products, was also among the Fund's
worst-performing holdings. Despite its weakened share price, some of which was
related to an overhanging lawsuit from World Wrestling Entertainment (WWE), we
believed JAKKS showed attractive longer term value given the company's ability
to successfully create toys internally which, in combination with recent and
potential future acquisitions, should continue to provide it with attractive
growth prospects. In addition, the recent dismissal of the WWE lawsuit removed a
large element of uncertainty that previously afflicted JAKKS' stock price, and
provides the company an opportunity to use its free cash for further internal
growth or share repurchases.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar goes up compared with a
foreign currency, an investment traded in that foreign currency will go down in
value because it will be worth fewer U.S. dollars. This can have a
TOP 10 COUNTRIES
Based on Equity Securities
8/31/09
% OF TOTAL
NET ASSETS
----------
U.S. 20.3%
Netherlands 8.7%
Hong Kong 8.0%
U.K. 7.9%
Australia 7.9%
South Korea 7.3%
Canada 6.5%
Japan 5.6%
China 5.3%
Taiwan 4.7%
Annual Report | 5
TOP 10 EQUITY HOLDINGS
8/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------- ----------
Sealy Corp.
HOUSEHOLD DURABLES, U.S. 3.3%
Dah Sing Financial Group
COMMERCIAL BANKS, HONG KONG 2.6%
Pacific Brands Ltd.
DISTRIBUTORS, AUSTRALIA 2.2%
Henderson Group PLC
CAPITAL MARKETS, U.K. 2.2%
Chico's FAS Inc.
SPECIALTY RETAIL, U.S. 2.1%
Bank of Ayudhya Public Co. Ltd.
COMMERCIAL BANKS, THAILAND 2.0%
Downer EDI Ltd.
COMMERCIAL SERVICES & SUPPLIES,
AUSTRALIA 2.0%
Legg Mason Inc.
CAPITAL MARKETS, U.S. 1.9%
Tempur-Pedic International Inc.
HOUSEHOLD DURABLES, U.S. 1.9%
Busan Bank
COMMERCIAL BANKS, SOUTH KOREA 1.8%
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 year
ended August 31, 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
portfolio's predominant investment in securities with non-U.S. currency
exposure.
Several holdings performed well during the Fund's fiscal year and helped
mitigate further losses. One of these was Tempur-Pedic International, the
fourth-largest mattress manufacturer and the largest specialty mattress
manufacturer in North America. During the period under review, the company
reported financial results that beat expectations by a wide margin and benefited
its share price. Better manufacturing efficiencies, increased pricing power and
lower commodity costs contributed to higher margins. Tempur-Pedic's strong
franchise and leading industry position helped the company generate double-digit
operating margins and strong free cash flow. At period-end, we believe the
company was likely to survive the current business cycle and was well positioned
to benefit from an economic recovery.
Chico's FAS, a U.S.-based specialty retailer of clothing and accessories, was a
top contributor to the Fund's absolute and relative performance. During the
year, management acted aggressively to restructure the business by cutting
costs, rejuvenating its designs and merchandising teams, and re-establishing
each brand's mandate. The company also had a strong balance sheet, significant
cash and no debt. At period-end, we believed positive sales momentum and cost
cutting should drive operating leverage back into this business, restore margins
and drive earnings that could support further upside in the stock.
Another standout contributor was Biovail, 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
developed multiple reformulations for partners such as GlaxoSmithKline, Johnson
& Johnson and Sanofi-Aventis. The company has strong research and development
and a proven ability to control costs. Free cash flow yield was solid, and
Biovail has a successful track record of developing and commercializing new
products. During the period, Biovail shares gained on indications that a newly
released central nervous system drug was enjoying good initial demand.
6 | Annual Report
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, CFA)
/s/ Bradley Radin
Bradley Radin, CFA
(PHOTO OF HARLAN B. HODES, CPA)
/s/ Harlan B. Hodes
Harlan B. Hodes, CPA
(PHOTO of CINDY L. SWEETING, CFA)
/s/ Cindy L. Sweeting
Cindy L. Sweeting, CFA
Portfolio Management Team
Templeton Global Smaller Companies Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF AUGUST 31, 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.
Annual Report | 7
Performance Summary as of 8/31/09
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 and graphs do 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 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.55 $5.42 $6.97
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.0853
Long-Term Capital Gain $0.5427
TOTAL $0.6280
CLASS B (SYMBOL: N/A) CHANGE 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.47 $5.16 $6.63
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.0207
Long-Term Capital Gain $0.5427
TOTAL $0.5634
CLASS C (SYMBOL: TESGX) CHANGE 8/31/09 8/31/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.49 $5.28 $6.77
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.0227
Long-Term Capital Gain $0.5427
TOTAL $0.5654
ADVISOR CLASS (SYMBOL: TGSAX) CHANGE 8/31/09 8/31/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$1.57 $5.43 $7.00
DISTRIBUTIONS (9/1/08-8/31/09)
Dividend Income $0.1019
Long-Term Capital Gain $0.5427
TOTAL $0.6446
8 | Annual 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 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -8.08% +25.32% +72.85%
Average Annual Total Return(2) -13.42% +3.39% +5.00%
Value of $10,000 Investment(3) $ 8,658 $11,811 $16,294
Avg. Ann. Total Return
(9/30/09)(4) +5.78% +3.98% +6.04%
Total Annual Operating
Expenses(5) 1.35%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -8.88% +20.55% +62.45%
Average Annual Total Return(2) -12.00% +3.60% +4.97%
Value of $10,000 Investment(3) $ 8,800 $11,932 $16,245
Avg. Ann. Total Return
(9/30/09)(4) +7.61% +4.25% +6.01%
Total Annual Operating
Expenses(5) 2.12%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) -8.96% +20.54% +60.16%
Average Annual Total Return(2) -9.74% +3.81% +4.82%
Value of $10,000 Investment(3) $ 9,026 $12,054 $16,016
Avg. Ann. Total Return
(9/30/09)(4) +10.25% +4.42% +5.87%
Total Annual Operating
Expenses(5) 2.09%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------- -------
Cumulative Total Return(1) -7.94% +26.77% +77.34%
Average Annual Total Return(2) -7.94% +4.86% +5.90%
Value of $10,000 Investment(3) $ 9,206 $12,677 $17,734
Avg. Ann. Total Return
(9/30/09)(4) +12.49% +5.50% +6.95%
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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 8/31/09
- ------- -------
1-Year -13.42%
5-Year +3.39%
10-Year +5.00%
CLASS A (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON GLOBAL
SMALLER
COMPANIES FUND MSCI WORLD
DATE - CLASS A INDEX CPI
- ------------- ---------------- ---------- -------
9/1/1999 $ 9,427 $10,000 $10,000
9/30/1999 $ 9,121 $ 9,904 $10,048
10/31/1999 $ 9,102 $10,421 $10,066
11/30/1999 $ 9,267 $10,715 $10,072
12/31/1999 $ 9,846 $11,584 $10,072
1/31/2000 $ 9,708 $10,922 $10,102
2/29/2000 $10,012 $10,953 $10,162
3/31/2000 $10,330 $11,711 $10,245
4/30/2000 $ 9,846 $11,217 $10,251
5/31/2000 $ 9,694 $10,934 $10,263
6/30/2000 $10,095 $11,304 $10,317
7/31/2000 $10,012 $10,987 $10,341
8/31/2000 $10,095 $11,346 $10,341
9/30/2000 $ 9,611 $10,744 $10,395
10/31/2000 $ 9,086 $10,565 $10,413
11/30/2000 $ 8,698 $ 9,925 $10,419
12/31/2000 $ 9,021 $10,087 $10,413
1/31/2001 $ 9,499 $10,283 $10,479
2/28/2001 $ 9,325 $ 9,415 $10,521
3/31/2001 $ 8,500 $ 8,799 $10,545
4/30/2001 $ 8,877 $ 9,451 $10,586
5/31/2001 $ 9,296 $ 9,334 $10,634
6/30/2001 $ 9,094 $ 9,043 $10,652
7/31/2001 $ 8,920 $ 8,924 $10,622
8/31/2001 $ 8,833 $ 8,497 $10,622
9/30/2001 $ 7,631 $ 7,749 $10,670
10/31/2001 $ 7,916 $ 7,899 $10,634
11/30/2001 $ 8,428 $ 8,367 $10,616
12/31/2001 $ 8,867 $ 8,421 $10,575
1/31/2002 $ 8,970 $ 8,167 $10,598
2/28/2002 $ 9,218 $ 8,097 $10,640
3/31/2002 $10,023 $ 8,457 $10,700
4/30/2002 $10,345 $ 8,173 $10,760
5/31/2002 $10,506 $ 8,192 $10,760
6/30/2002 $ 9,921 $ 7,696 $10,766
7/31/2002 $ 8,794 $ 7,049 $10,778
8/31/2002 $ 8,516 $ 7,063 $10,814
9/30/2002 $ 7,726 $ 6,288 $10,832
10/31/2002 $ 7,940 $ 6,753 $10,850
11/30/2002 $ 8,221 $ 7,119 $10,850
12/31/2002 $ 8,088 $ 6,775 $10,826
1/31/2003 $ 7,793 $ 6,571 $10,874
2/28/2003 $ 7,394 $ 6,458 $10,958
3/31/2003 $ 7,424 $ 6,440 $11,023
4/30/2003 $ 8,177 $ 7,015 $10,999
5/31/2003 $ 9,033 $ 7,420 $10,981
6/30/2003 $ 9,357 $ 7,551 $10,993
7/31/2003 $ 9,918 $ 7,706 $11,005
8/31/2003 $10,568 $ 7,874 $11,047
9/30/2003 $10,745 $ 7,924 $11,083
10/31/2003 $11,551 $ 8,396 $11,071
11/30/2003 $11,761 $ 8,526 $11,041
12/31/2003 $12,404 $ 9,063 $11,029
1/31/2004 $12,793 $ 9,210 $11,083
2/29/2004 $13,346 $ 9,368 $11,143
3/31/2004 $13,152 $ 9,309 $11,215
4/30/2004 $12,972 $ 9,124 $11,251
5/31/2004 $12,883 $ 9,213 $11,317
6/30/2004 $13,302 $ 9,406 $11,352
7/31/2004 $12,957 $ 9,102 $11,335
8/31/2004 $13,002 $ 9,145 $11,341
9/30/2004 $13,496 $ 9,321 $11,364
10/31/2004 $13,828 $ 9,552 $11,424
11/30/2004 $14,912 $10,057 $11,430
12/31/2004 $15,662 $10,444 $11,388
1/31/2005 $15,427 $10,211 $11,412
2/28/2005 $16,048 $10,539 $11,478
3/31/2005 $15,864 $10,339 $11,568
4/30/2005 $15,175 $10,121 $11,646
5/31/2005 $15,478 $10,309 $11,634
6/30/2005 $15,830 $10,402 $11,640
7/31/2005 $16,518 $10,768 $11,694
8/31/2005 $16,485 $10,854 $11,753
9/30/2005 $16,871 $11,139 $11,897
10/31/2005 $15,984 $10,871 $11,921
11/30/2005 $16,332 $11,239 $11,825
12/31/2005 $16,868 $11,491 $11,777
1/31/2006 $18,083 $12,007 $11,867
2/28/2006 $18,265 $11,994 $11,891
3/31/2006 $18,974 $12,263 $11,957
4/30/2006 $19,662 $12,642 $12,059
5/31/2006 $18,528 $12,221 $12,118
6/30/2006 $18,062 $12,223 $12,142
7/31/2006 $18,022 $12,302 $12,178
8/31/2006 $18,407 $12,627 $12,202
9/30/2006 $18,609 $12,782 $12,142
10/31/2006 $19,402 $13,253 $12,077
11/30/2006 $20,151 $13,585 $12,059
12/31/2006 $20,966 $13,865 $12,077
1/31/2007 $21,449 $14,031 $12,113
2/28/2007 $21,564 $13,964 $12,178
3/31/2007 $22,368 $14,225 $12,289
4/30/2007 $23,127 $14,861 $12,369
5/31/2007 $23,931 $15,292 $12,445
6/30/2007 $24,414 $15,180 $12,469
7/31/2007 $24,322 $14,847 $12,466
8/31/2007 $23,288 $14,842 $12,443
9/30/2007 $23,449 $15,553 $12,477
10/31/2007 $23,704 $16,033 $12,504
11/30/2007 $21,162 $15,385 $12,578
12/31/2007 $21,160 $15,191 $12,569
1/31/2008 $18,744 $14,033 $12,632
2/29/2008 $18,744 $13,959 $12,669
3/31/2008 $18,846 $13,832 $12,778
4/30/2008 $19,762 $14,570 $12,856
5/31/2008 $20,016 $14,810 $12,964
6/30/2008 $18,363 $13,634 $13,095
7/31/2008 $17,803 $13,305 $13,164
8/31/2008 $17,727 $13,124 $13,111
9/30/2008 $15,514 $11,569 $13,093
10/31/2008 $11,191 $ 9,378 $12,961
11/30/2008 $10,173 $ 8,778 $12,712
12/31/2008 $10,522 $ 9,064 $12,581
1/31/2009 $ 9,680 $ 8,272 $12,636
2/28/2009 $ 8,959 $ 7,431 $12,699
3/31/2009 $ 9,650 $ 7,996 $12,729
4/30/2009 $11,785 $ 8,901 $12,761
5/31/2009 $13,198 $ 9,719 $12,798
6/30/2009 $13,528 $ 9,679 $12,908
7/31/2009 $15,422 $10,502 $12,888
8/31/2009 $16,294 $10,940 $12,916
AVERAGE ANNUAL TOTAL RETURN
CLASS B 8/31/09
- ------- -------
1-Year -12.00%
5-Year +3.60%
10-Year +4.97%
CLASS B (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON GLOBAL
SMALLER COMPANIES MSCI WORLD
DATE FUND - CLASS B INDEX CPI
- ------------- ----------------- ---------- -------
9/1/1999 $10,000 $10,000 $10,000
9/30/1999 $ 9,674 $ 9,904 $10,048
10/31/1999 $ 9,651 $10,421 $10,066
11/30/1999 $ 9,812 $10,715 $10,072
12/31/1999 $10,410 $11,584 $10,072
1/31/2000 $10,262 $10,922 $10,102
2/29/2000 $10,572 $10,953 $10,162
3/31/2000 $10,895 $11,711 $10,245
4/30/2000 $10,380 $11,217 $10,251
5/31/2000 $10,218 $10,934 $10,263
6/30/2000 $10,630 $11,304 $10,317
7/31/2000 $10,527 $10,987 $10,341
8/31/2000 $10,601 $11,346 $10,341
9/30/2000 $10,100 $10,744 $10,395
10/31/2000 $ 9,524 $10,565 $10,413
11/30/2000 $ 9,127 $ 9,925 $10,419
12/31/2000 $ 9,470 $10,087 $10,413
1/31/2001 $ 9,947 $10,283 $10,479
2/28/2001 $ 9,762 $ 9,415 $10,521
3/31/2001 $ 8,901 $ 8,799 $10,545
4/30/2001 $ 9,270 $ 9,451 $10,586
5/31/2001 $ 9,716 $ 9,334 $10,634
6/30/2001 $ 9,501 $ 9,043 $10,652
7/31/2001 $ 9,301 $ 8,924 $10,622
8/31/2001 $ 9,209 $ 8,497 $10,622
9/30/2001 $ 7,948 $ 7,749 $10,670
10/31/2001 $ 8,245 $ 7,899 $10,634
11/30/2001 $ 8,756 $ 8,367 $10,616
12/31/2001 $ 9,220 $ 8,421 $10,575
1/31/2002 $ 9,313 $ 8,167 $10,598
2/28/2002 $ 9,560 $ 8,097 $10,640
3/31/2002 $10,411 $ 8,457 $10,700
4/30/2002 $10,721 $ 8,173 $10,760
5/31/2002 $10,891 $ 8,192 $10,760
6/30/2002 $10,272 $ 7,696 $10,766
7/31/2002 $ 9,112 $ 7,049 $10,778
8/31/2002 $ 8,818 $ 7,063 $10,814
9/30/2002 $ 7,998 $ 6,288 $10,832
10/31/2002 $ 8,214 $ 6,753 $10,850
11/30/2002 $ 8,494 $ 7,119 $10,850
12/31/2002 $ 8,354 $ 6,775 $10,826
1/31/2003 $ 8,028 $ 6,571 $10,874
2/28/2003 $ 7,623 $ 6,458 $10,958
3/31/2003 $ 7,639 $ 6,440 $11,023
4/30/2003 $ 8,417 $ 7,015 $10,999
5/31/2003 $ 9,303 $ 7,420 $10,981
6/30/2003 $ 9,615 $ 7,551 $10,993
7/31/2003 $10,190 $ 7,706 $11,005
8/31/2003 $10,844 $ 7,874 $11,047
9/30/2003 $11,015 $ 7,924 $11,083
10/31/2003 $11,837 $ 8,396 $11,071
11/30/2003 $12,058 $ 8,526 $11,041
12/31/2003 $12,703 $ 9,063 $11,029
1/31/2004 $13,097 $ 9,210 $11,083
2/29/2004 $13,648 $ 9,368 $11,143
3/31/2004 $13,443 $ 9,309 $11,215
4/30/2004 $13,254 $ 9,124 $11,251
5/31/2004 $13,144 $ 9,213 $11,317
6/30/2004 $13,569 $ 9,406 $11,352
7/31/2004 $13,207 $ 9,102 $11,335
8/31/2004 $13,254 $ 9,145 $11,341
9/30/2004 $13,742 $ 9,321 $11,364
10/31/2004 $14,076 $ 9,552 $11,424
11/30/2004 $15,158 $10,057 $11,430
12/31/2004 $15,909 $10,444 $11,388
1/31/2005 $15,664 $10,211 $11,412
2/28/2005 $16,295 $10,539 $11,478
3/31/2005 $16,085 $10,339 $11,568
4/30/2005 $15,383 $10,121 $11,646
5/31/2005 $15,681 $10,309 $11,634
6/30/2005 $16,032 $10,402 $11,640
7/31/2005 $16,716 $10,768 $11,694
8/31/2005 $16,681 $10,854 $11,753
9/30/2005 $17,050 $11,139 $11,897
10/31/2005 $16,128 $10,871 $11,921
11/30/2005 $16,492 $11,239 $11,825
12/31/2005 $17,011 $11,491 $11,777
1/31/2006 $18,218 $12,007 $11,867
2/28/2006 $18,409 $11,994 $11,891
3/31/2006 $19,108 $12,263 $11,957
4/30/2006 $19,786 $12,642 $12,059
5/31/2006 $18,620 $12,221 $12,118
6/30/2006 $18,154 $12,223 $12,142
7/31/2006 $18,091 $12,302 $12,178
8/31/2006 $18,472 $12,627 $12,202
9/30/2006 $18,663 $12,782 $12,142
10/31/2006 $19,451 $13,253 $12,077
11/30/2006 $20,185 $13,585 $12,059
12/31/2006 $21,011 $13,865 $12,077
1/31/2007 $21,467 $14,031 $12,113
2/28/2007 $21,563 $13,964 $12,178
3/31/2007 $22,354 $14,225 $12,289
4/30/2007 $23,098 $14,861 $12,369
5/31/2007 $23,913 $15,292 $12,445
6/30/2007 $24,369 $15,180 $12,469
7/31/2007 $24,273 $14,847 $12,466
8/31/2007 $23,218 $14,842 $12,443
9/30/2007 $23,378 $15,553 $12,477
10/31/2007 $23,633 $16,033 $12,504
11/30/2007 $21,100 $15,385 $12,578
12/31/2007 $21,097 $15,191 $12,569
1/31/2008 $18,688 $14,033 $12,632
2/29/2008 $18,688 $13,959 $12,669
3/31/2008 $18,789 $13,832 $12,778
4/30/2008 $19,702 $14,570 $12,856
5/31/2008 $19,956 $14,810 $12,964
6/30/2008 $18,308 $13,634 $13,095
7/31/2008 $17,750 $13,305 $13,164
8/31/2008 $17,673 $13,124 $13,111
9/30/2008 $15,468 $11,569 $13,093
10/31/2008 $11,157 $ 9,378 $12,961
11/30/2008 $10,143 $ 8,778 $12,712
12/31/2008 $10,491 $ 9,064 $12,581
1/31/2009 $ 9,651 $ 8,272 $12,636
2/28/2009 $ 8,932 $ 7,431 $12,699
3/31/2009 $ 9,622 $ 7,996 $12,729
4/30/2009 $11,750 $ 8,901 $12,761
5/31/2009 $13,159 $ 9,719 $12,798
6/30/2009 $13,489 $ 9,679 $12,908
7/31/2009 $15,378 $10,502 $12,888
8/31/2009 $16,245 $10,940 $12,916
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 8/31/09
- ------- -------
1-Year -9.74%
5-Year +3.81%
10-Year +4.82%
CLASS C (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON GLOBAL
SMALLER COMPANIES MSCI WORLD
DATE FUND - CLASS C INDEX CPI
- ------------- ----------------- ---------- -------
9/1/1999 $10,000 $10,000 $10,000
9/30/1999 $ 9,670 $ 9,904 $10,048
10/31/1999 $ 9,654 $10,421 $10,066
11/30/1999 $ 9,815 $10,715 $10,072
12/31/1999 $10,408 $11,584 $10,072
1/31/2000 $10,275 $10,922 $10,102
2/29/2000 $10,570 $10,953 $10,162
3/31/2000 $10,910 $11,711 $10,245
4/30/2000 $10,393 $11,217 $10,251
5/31/2000 $10,231 $10,934 $10,263
6/30/2000 $10,644 $11,304 $10,317
7/31/2000 $10,556 $10,987 $10,341
8/31/2000 $10,615 $11,346 $10,341
9/30/2000 $10,113 $10,744 $10,395
10/31/2000 $ 9,547 $10,565 $10,413
11/30/2000 $ 9,150 $ 9,925 $10,419
12/31/2000 $ 9,478 $10,087 $10,413
1/31/2001 $ 9,969 $10,283 $10,479
2/28/2001 $ 9,770 $ 9,415 $10,521
3/31/2001 $ 8,910 $ 8,799 $10,545
4/30/2001 $ 9,294 $ 9,451 $10,586
5/31/2001 $ 9,724 $ 9,334 $10,634
6/30/2001 $ 9,509 $ 9,043 $10,652
7/31/2001 $ 9,309 $ 8,924 $10,622
8/31/2001 $ 9,217 $ 8,497 $10,622
9/30/2001 $ 7,957 $ 7,749 $10,670
10/31/2001 $ 8,253 $ 7,899 $10,634
11/30/2001 $ 8,776 $ 8,367 $10,616
12/31/2001 $ 9,237 $ 8,421 $10,575
1/31/2002 $ 9,344 $ 8,167 $10,598
2/28/2002 $ 9,590 $ 8,097 $10,640
3/31/2002 $10,420 $ 8,457 $10,700
4/30/2002 $10,743 $ 8,173 $10,760
5/31/2002 $10,912 $ 8,192 $10,760
6/30/2002 $10,297 $ 7,696 $10,766
7/31/2002 $ 9,129 $ 7,049 $10,778
8/31/2002 $ 8,837 $ 7,063 $10,814
9/30/2002 $ 8,007 $ 6,288 $10,832
10/31/2002 $ 8,233 $ 6,753 $10,850
11/30/2002 $ 8,511 $ 7,119 $10,850
12/31/2002 $ 8,372 $ 6,775 $10,826
1/31/2003 $ 8,048 $ 6,571 $10,874
2/28/2003 $ 7,632 $ 6,458 $10,958
3/31/2003 $ 7,663 $ 6,440 $11,023
4/30/2003 $ 8,434 $ 7,015 $10,999
5/31/2003 $ 9,312 $ 7,420 $10,981
6/30/2003 $ 9,636 $ 7,551 $10,993
7/31/2003 $10,207 $ 7,706 $11,005
8/31/2003 $10,885 $ 7,874 $11,047
9/30/2003 $11,055 $ 7,924 $11,083
10/31/2003 $11,873 $ 8,396 $11,071
11/30/2003 $12,091 $ 8,526 $11,041
12/31/2003 $12,743 $ 9,063 $11,029
1/31/2004 $13,132 $ 9,210 $11,083
2/29/2004 $13,676 $ 9,368 $11,143
3/31/2004 $13,474 $ 9,309 $11,215
4/30/2004 $13,287 $ 9,124 $11,251
5/31/2004 $13,179 $ 9,213 $11,317
6/30/2004 $13,614 $ 9,406 $11,352
7/31/2004 $13,241 $ 9,102 $11,335
8/31/2004 $13,287 $ 9,145 $11,341
9/30/2004 $13,785 $ 9,321 $11,364
10/31/2004 $14,121 $ 9,552 $11,424
11/30/2004 $15,208 $10,057 $11,430
12/31/2004 $15,963 $10,444 $11,388
1/31/2005 $15,704 $10,211 $11,412
2/28/2005 $16,344 $10,539 $11,478
3/31/2005 $16,137 $10,339 $11,568
4/30/2005 $15,427 $10,121 $11,646
5/31/2005 $15,721 $10,309 $11,634
6/30/2005 $16,067 $10,402 $11,640
7/31/2005 $16,760 $10,768 $11,694
8/31/2005 $16,708 $10,854 $11,753
9/30/2005 $17,106 $11,139 $11,897
10/31/2005 $16,176 $10,871 $11,921
11/30/2005 $16,535 $11,239 $11,825
12/31/2005 $17,046 $11,491 $11,777
1/31/2006 $18,277 $12,007 $11,867
2/28/2006 $18,444 $11,994 $11,891
3/31/2006 $19,153 $12,263 $11,957
4/30/2006 $19,842 $12,642 $12,059
5/31/2006 $18,673 $12,221 $12,118
6/30/2006 $18,193 $12,223 $12,142
7/31/2006 $18,152 $12,302 $12,178
8/31/2006 $18,527 $12,627 $12,202
9/30/2006 $18,715 $12,782 $12,142
10/31/2006 $19,491 $13,253 $12,077
11/30/2006 $20,236 $13,585 $12,059
12/31/2006 $21,072 $13,865 $12,077
1/31/2007 $21,520 $14,031 $12,113
2/28/2007 $21,615 $13,964 $12,178
3/31/2007 $22,417 $14,225 $12,289
4/30/2007 $23,149 $14,861 $12,369
5/31/2007 $23,974 $15,292 $12,445
6/30/2007 $24,423 $15,180 $12,469
7/31/2007 $24,328 $14,847 $12,466
8/31/2007 $23,267 $14,842 $12,443
9/30/2007 $23,408 $15,553 $12,477
10/31/2007 $23,674 $16,033 $12,504
11/30/2007 $21,129 $15,385 $12,578
12/31/2007 $21,076 $15,191 $12,569
1/31/2008 $18,659 $14,033 $12,632
2/29/2008 $18,659 $13,959 $12,669
3/31/2008 $18,737 $13,832 $12,778
4/30/2008 $19,646 $14,570 $12,856
5/31/2008 $19,880 $14,810 $12,964
6/30/2008 $18,243 $13,634 $13,095
7/31/2008 $17,671 $13,305 $13,164
8/31/2008 $17,593 $13,124 $13,111
9/30/2008 $15,384 $11,569 $13,093
10/31/2008 $11,096 $ 9,378 $12,961
11/30/2008 $10,083 $ 8,778 $12,712
12/31/2008 $10,405 $ 9,064 $12,581
1/31/2009 $ 9,586 $ 8,272 $12,636
2/28/2009 $ 8,858 $ 7,431 $12,699
3/31/2009 $ 9,525 $ 7,996 $12,729
4/30/2009 $11,618 $ 8,901 $12,761
5/31/2009 $13,013 $ 9,719 $12,798
6/30/2009 $13,317 $ 9,679 $12,908
7/31/2009 $15,197 $10,502 $12,888
8/31/2009 $16,016 $10,940 $12,916
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 8/31/09
- ------------- -------
1-Year -7.94%
5-Year +4.86%
10-Year +5.90%
ADVISOR CLASS (9/1/99-8/31/09)
(PERFORMANCE GRAPH)
TEMPLETON GLOBAL
SMALLER COMPANIES MSCI WORLD
DATE FUND - ADVISOR CLASS INDEX CPI
- ------------- -------------------- ---------- -------
9/1/1999 $10,000 $10,000 $10,000
9/30/1999 $ 9,690 $ 9,904 $10,048
10/31/1999 $ 9,671 $10,421 $10,066
11/30/1999 $ 9,846 $10,715 $10,072
12/31/1999 $10,455 $11,584 $10,072
1/31/2000 $10,323 $10,922 $10,102
2/29/2000 $10,631 $10,953 $10,162
3/31/2000 $10,983 $11,711 $10,245
4/30/2000 $10,470 $11,217 $10,251
5/31/2000 $10,323 $10,934 $10,263
6/30/2000 $10,734 $11,304 $10,317
7/31/2000 $10,660 $10,987 $10,341
8/31/2000 $10,734 $11,346 $10,341
9/30/2000 $10,235 $10,744 $10,395
10/31/2000 $ 9,668 $10,565 $10,413
11/30/2000 $ 9,270 $ 9,925 $10,419
12/31/2000 $ 9,614 $10,087 $10,413
1/31/2001 $10,107 $10,283 $10,479
2/28/2001 $ 9,937 $ 9,415 $10,521
3/31/2001 $ 9,059 $ 8,799 $10,545
4/30/2001 $ 9,444 $ 9,451 $10,586
5/31/2001 $ 9,907 $ 9,334 $10,634
6/30/2001 $ 9,691 $ 9,043 $10,652
7/31/2001 $ 9,506 $ 8,924 $10,622
8/31/2001 $ 9,429 $ 8,497 $10,622
9/30/2001 $ 8,150 $ 7,749 $10,670
10/31/2001 $ 8,450 $ 7,899 $10,634
11/30/2001 $ 8,996 $ 8,367 $10,616
12/31/2001 $ 9,465 $ 8,421 $10,575
1/31/2002 $ 9,590 $ 8,167 $10,598
2/28/2002 $ 9,840 $ 8,097 $10,640
3/31/2002 $10,714 $ 8,457 $10,700
4/30/2002 $11,058 $ 8,173 $10,760
5/31/2002 $11,230 $ 8,192 $10,760
6/30/2002 $10,605 $ 7,696 $10,766
7/31/2002 $ 9,402 $ 7,049 $10,778
8/31/2002 $ 9,121 $ 7,063 $10,814
9/30/2002 $ 8,278 $ 6,288 $10,832
10/31/2002 $ 8,501 $ 6,753 $10,850
11/30/2002 $ 8,802 $ 7,119 $10,850
12/31/2002 $ 8,660 $ 6,775 $10,826
1/31/2003 $ 8,343 $ 6,571 $10,874
2/28/2003 $ 7,917 $ 6,458 $10,958
3/31/2003 $ 7,948 $ 6,440 $11,023
4/30/2003 $ 8,770 $ 7,015 $10,999
5/31/2003 $ 9,687 $ 7,420 $10,981
6/30/2003 $10,034 $ 7,551 $10,993
7/31/2003 $10,635 $ 7,706 $11,005
8/31/2003 $11,346 $ 7,874 $11,047
9/30/2003 $11,535 $ 7,924 $11,083
10/31/2003 $12,390 $ 8,396 $11,071
11/30/2003 $12,631 $ 8,526 $11,041
12/31/2003 $13,331 $ 9,063 $11,029
1/31/2004 $13,749 $ 9,210 $11,083
2/29/2004 $14,343 $ 9,368 $11,143
3/31/2004 $14,134 $ 9,309 $11,215
4/30/2004 $13,942 $ 9,124 $11,251
5/31/2004 $13,845 $ 9,213 $11,317
6/30/2004 $14,311 $ 9,406 $11,352
7/31/2004 $13,942 $ 9,102 $11,335
8/31/2004 $13,990 $ 9,145 $11,341
9/30/2004 $14,520 $ 9,321 $11,364
10/31/2004 $14,887 $ 9,552 $11,424
11/30/2004 $16,052 $10,057 $11,430
12/31/2004 $16,855 $10,444 $11,388
1/31/2005 $16,602 $10,211 $11,412
2/28/2005 $17,289 $10,539 $11,478
3/31/2005 $17,072 $10,339 $11,568
4/30/2005 $16,349 $10,121 $11,646
5/31/2005 $16,675 $10,309 $11,634
6/30/2005 $17,072 $10,402 $11,640
7/31/2005 $17,813 $10,768 $11,694
8/31/2005 $17,777 $10,854 $11,753
9/30/2005 $18,192 $11,139 $11,897
10/31/2005 $17,226 $10,871 $11,921
11/30/2005 $17,622 $11,239 $11,825
12/31/2005 $18,200 $11,491 $11,777
1/31/2006 $19,509 $12,007 $11,867
2/28/2006 $19,727 $11,994 $11,891
3/31/2006 $20,491 $12,263 $11,957
4/30/2006 $21,233 $12,642 $12,059
5/31/2006 $20,011 $12,221 $12,118
6/30/2006 $19,509 $12,223 $12,142
7/31/2006 $19,465 $12,302 $12,178
8/31/2006 $19,880 $12,627 $12,202
9/30/2006 $20,120 $12,782 $12,142
10/31/2006 $20,974 $13,253 $12,077
11/30/2006 $21,783 $13,585 $12,059
12/31/2006 $22,687 $13,865 $12,077
1/31/2007 $23,208 $14,031 $12,113
2/28/2007 $23,332 $13,964 $12,178
3/31/2007 $24,226 $14,225 $12,289
4/30/2007 $25,045 $14,861 $12,369
5/31/2007 $25,939 $15,292 $12,445
6/30/2007 $26,460 $15,180 $12,469
7/31/2007 $26,361 $14,847 $12,466
8/31/2007 $25,244 $14,842 $12,443
9/30/2007 $25,417 $15,553 $12,477
10/31/2007 $25,730 $16,033 $12,504
11/30/2007 $22,953 $15,385 $12,578
12/31/2007 $22,950 $15,191 $12,569
1/31/2008 $20,336 $14,033 $12,632
2/29/2008 $20,336 $13,959 $12,669
3/31/2008 $20,446 $13,832 $12,778
4/30/2008 $21,437 $14,570 $12,856
5/31/2008 $21,712 $14,810 $12,964
6/30/2008 $19,951 $13,634 $13,095
7/31/2008 $19,345 $13,305 $13,164
8/31/2008 $19,263 $13,124 $13,111
9/30/2008 $16,869 $11,569 $13,093
10/31/2008 $12,163 $ 9,378 $12,961
11/30/2008 $11,062 $ 8,778 $12,712
12/31/2008 $11,464 $ 9,064 $12,581
1/31/2009 $10,549 $ 8,272 $12,636
2/28/2009 $ 9,765 $ 7,431 $12,699
3/31/2009 $10,484 $ 7,996 $12,729
4/30/2009 $12,835 $ 8,901 $12,761
5/31/2009 $14,370 $ 9,719 $12,798
6/30/2009 $14,730 $ 9,679 $12,908
7/31/2009 $16,820 $10,502 $12,888
8/31/2009 $17,734 $10,940 $12,916
Annual Report | 11
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.
(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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(6.) Source: (C) 2009 Morningstar. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets. The Consumer Price
Index (CPI), calculated by the U.S. Bureau of Labor Statistics, is a
commonly used measure of the inflation rate.
12 | Annual 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.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 3/1/09 VALUE 3/31/09 PERIOD* 3/1/09-8/31/09
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,818.80 $10.44
Hypothetical (5% return before expenses) $1,000 $1,017.80 $ 7.48
CLASS B
Actual $1,000 $1,810.50 $15.73
Hypothetical (5% return before expenses) $1,000 $1,014.01 $11.27
CLASS C
Actual $1,000 $1,808.20 $15.71
Hypothetical (5% return before expenses) $1,000 $1,014.01 $11.27
ADVISOR CLASS
Actual $1,000 $1,816.10 $ 8.73
Hypothetical (5% return before expenses) $1,000 $1,019.00 $ 6.26
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.47%; B: 2.22%; C: 2.22%; and Advisor:
1.23%), multiplied by the average account value over the period, multiplied
by 184/365 to reflect the one-half year period.
14 | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- -------- -------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 6.97 $ 10.13 $ 9.09 $ 9.82 $ 8.69
-------- -------- ---------- ---------- --------
Income from investment operations(a):
Net investment income(b) ..................... 0.06 0.07 0.06 0.08 0.12
Net realized and unrealized gains (losses) ... (0.98) (2.27) 2.13 0.83 2.02
-------- -------- ---------- ---------- --------
Total from investment operations ................ (0.92) (2.20) 2.19 0.91 2.14
-------- -------- ---------- ---------- --------
Less distributions from:
Net investment income ........................ (0.09) (0.10) (0.12) (0.14) (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)
-------- -------- ---------- ---------- --------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
-------- -------- ---------- ---------- --------
Net asset value, end of year .................... $ 5.42 $ 6.97 $ 10.13 $ 9.09 $ 9.82
======== ======== ========== ========== ========
Total return(e) ................................. (8.08)% (23.88)% 26.52% 11.66% 26.78%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ..................................... 1.49% 1.35% 1.32% 1.34% 1.35%
Net investment income ........................... 1.47% 0.93% 0.68% 0.90% 1.33%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $732,847 $936,192 $1,470,895 $1,128,415 $949,606
Portfolio turnover rate ......................... 31.29% 17.46% 28.07% 33.90% 41.58%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 15
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
----------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------ ------- ------ ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 6.63 $ 9.68 $ 8.72 $ 9.50 $ 8.42
------ ------- ------ ------ ------
Income from investment operations(a):
Net investment income (loss)(b) .............. 0.03 0.01 (0.01) 0.01 0.06
Net realized and unrealized gains (losses) ... (0.94) (2.17) 2.05 0.81 1.95
------ ------- ------ ------ ------
Total from investment operations ................ (0.91) (2.16) 2.04 0.82 2.01
------ ------- ------ ------ ------
Less distributions from:
Net investment income ........................ (0.02) (0.03) (0.05) (0.10) (0.02)
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)
------ ------- ------ ------ ------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
------ ------- ------ ------ ------
Net asset value, end of year .................... $ 5.16 $ 6.63 $ 9.68 $ 8.72 $ 9.50
====== ======= ====== ====== ======
Total return(e) ................................. (8.88)% (24.47)% 25.69% 10.74% 25.86%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ..................................... 2.26% 2.12% 2.07% 2.09% 2.10%
Net investment income (loss) .................... 0.70% 0.16% (0.07)% 0.15% 0.58%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $2,929 $ 4,470 $9,010 $8,027 $7,983
Portfolio turnover rate ......................... 31.29% 17.46% 28.07% 33.90% 41.58%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
16 | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
--------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 6.77 $ 9.86 $ 8.88 $ 9.65 $ 8.55
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .............. 0.03 0.01 --(c) 0.01 0.06
Net realized and unrealized gains (losses) ... (0.96) (2.21) 2.07 0.83 1.98
------- ------- ------- ------- -------
Total from investment operations ................ (0.93) (2.20) 2.07 0.84 2.04
------- ------- ------- ------- -------
Less distributions from:
Net investment income ........................ (0.02) (0.03) (0.06) (0.11) (0.03)
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)
------- ------- ------- ------- -------
Redemption fees(d) .............................. -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- -------
Net asset value, end of year .................... $ 5.28 $ 6.77 $ 9.86 $ 8.88 $ 9.65
======= ======= ======= ======= =======
Total return(e) ................................. (8.96)% (24.38)% 25.58% 10.89% 25.74%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ..................................... 2.26% 2.09% 2.06% 2.09% 2.10%
Net investment income (loss) .................... 0.70% 0.19% (0.06)% 0.15% 0.58%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $33,300 $49,346 $98,269 $71,857 $55,448
Portfolio turnover rate ......................... 31.29% 17.46% 28.07% 33.90% 41.58%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 17
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31,
-----------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 7.00 $ 10.17 $ 9.11 $ 9.84 $ 8.71
-------- -------- -------- ------- -------
Income from investment operations(a):
Net investment income(b) ..................... 0.07 0.10 0.10 0.11 0.16
Net realized and unrealized gains (losses) ... (1.00) (2.29) 2.13 0.82 2.01
-------- -------- -------- ------- -------
Total from investment operations ................ (0.93) (2.19) 2.23 0.93 2.17
-------- -------- -------- ------- -------
Less distributions from:
Net investment income ........................ (0.10) (0.12) (0.14) (0.16) (0.13)
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)
-------- -------- -------- ------- -------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- ------- -------
Net asset value, end of year .................... $ 5.43 $ 7.00 $ 10.17 $ 9.11 $ 9.84
======== ======== ======== ======= =======
Total return .................................... (7.94)% (23.69)% 26.98% 11.83% 27.07%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) ..................................... 1.26% 1.12% 1.07% 1.09% 1.10%
Net investment income ........................... 1.70% 1.16% 0.93% 1.15% 1.58%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $108,383 $126,003 $117,115 $60,588 $39,912
-------- -------- -------- ------- -------
Portfolio turnover rate ......................... 31.29% 17.46% 28.07% 33.90% 41.58%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
18 | Annual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009
INDUSTRY SHARES VALUE
---------------------------------------------- ------------ -------------
COMMON STOCKS 96.3%
AUSTRALIA 7.9%
Billabong International Ltd. ........ Textiles, Apparel & Luxury Goods 381,322 $ 3,381,878
(a) Billabong International Ltd., 144A .. Textiles, Apparel & Luxury Goods 69,332 614,893
Downer EDI Ltd. ..................... Commercial Services & Supplies 2,572,604 17,427,059
Emeco Holdings Ltd. ................. Trading Companies & Distributors 17,820,693 11,665,493
(b) Iluka Resources Ltd. ................ Metals & Mining 3,205,222 10,693,799
(b) Pacific Brands Ltd. ................. Distributors 11,651,881 10,973,564
(a,b) Pacific Brands Ltd., 144A ........... Distributors 8,738,910 8,230,173
PaperlinX Ltd. ...................... Paper & Forest Products 10,456,146 6,093,931
-------------
69,080,790
-------------
BAHAMAS 1.8%
(b) Steiner Leisure Ltd. ................ Diversified Consumer Services 464,960 15,445,971
-------------
BELGIUM 1.6%
(b) Barco NV ............................ Electronic Equipment, Instruments & Components 294,630 14,367,202
-------------
CANADA 6.5%
(b) ATS Automation Tooling Systems
Inc. .............................. Machinery 885,180 3,575,178
Biovail Corp. ....................... Pharmaceuticals 889,700 11,373,786
(b) Canaccord Capital Inc. .............. Capital Markets 1,926,100 15,928,364
Dorel Industries Inc., B ............ Household Durables 171,100 4,712,344
(b) Genworth MI Canada Inc. ............. Thrifts & Mortgage Finance 107,100 2,397,725
(a,b) Genworth MI Canada Inc., 144A ....... Thrifts & Mortgage Finance 466,800 10,450,587
(b) GSI Group Inc. ...................... Electronic Equipment, Instruments & Components 1,071,820 718,119
(b) HudBay Minerals Inc ................. Metals & Mining 357,000 2,753,306
Mullen Group Ltd. ................... Energy Equipment & Services 386,100 5,059,326
-------------
56,968,735
-------------
CAYMAN ISLANDS 1.1%
Stella International Holdings Ltd. .. Textiles, Apparel & Luxury Goods 5,743,500 9,574,353
-------------
CHINA 5.3%
AAC Acoustic Technologies Holdings
Inc. ............................. Communications Equipment 7,772,048 6,437,849
(b) Bio-Treat Technology Ltd. ........... Commercial Services & Supplies 20,490,417 995,336
People's Food Holdings Ltd. ......... Food Products 29,293,000 14,737,466
Sinotrans Ltd., H ................... Air Freight & Logistics 66,042,621 15,593,574
(b) TCL Communication Technology Holdings
Ltd. ............................. Communications Equipment 14,387,887 1,633,616
Weiqiao Textile Co. Ltd., H ......... Textiles, Apparel & Luxury Goods 9,651,000 6,761,490
-------------
46,159,331
-------------
FINLAND 2.2%
Amer Sports OYJ ..................... Leisure Equipment & Products 778,180 8,278,899
(b) Elcoteq SE, A ....................... Communications Equipment 418,798 780,614
Huhtamaki OYJ ....................... Containers & Packaging 863,810 10,416,045
-------------
19,475,558
-------------
GERMANY 0.5%
(b) Jenoptik AG Electronic Equipment, Instruments & Components 977,110 4,693,284
-------------
Annual Report | 19
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------------------- ------------ -------------
COMMON STOCKS (CONTINUED)
HONG KONG 8.0%
Asia Satellite Telecommunications
Holdings Ltd. .................... Diversified Telecommunication Services 3,454,500 $ 5,437,701
Dah Sing Financial Group ............ Commercial Banks 4,228,400 22,695,496
(b) Fountain Set (Holdings) Ltd. ........ Textiles, Apparel & Luxury Goods 33,524,000 4,368,652
Giordano International Ltd. ......... Specialty Retail 40,089,348 11,741,542
Hopewell Highway Infrastructure
Ltd. ............................. Transportation Infrastructure 298,200 180,447
Hopewell Holdings Ltd. .............. Real Estate Management & Development 2,982,000 9,022,373
Hung Hing Printing Group Ltd. ....... Containers & Packaging 20,862,508 5,329,690
Yue Yuen Industrial Holdings Ltd. ... Textiles, Apparel & Luxury Goods 4,196,500 11,072,631
-------------
69,848,532
-------------
JAPAN 5.6%
Aiful Corp. ......................... Consumer Finance 1,084,850 3,240,446
Asics Corp. ......................... Textiles, Apparel & Luxury Goods 36,000 353,927
Descente Ltd. ....................... Textiles, Apparel & Luxury Goods 2,333,000 10,954,346
Kobayashi Pharmaceutical Co. Ltd. ... Personal Products 227,200 10,204,104
MEITEC Corp. ........................ Professional Services 239,900 4,766,037
Nichii Gakkan Co. ................... Health Care Providers & Services 322,500 3,728,484
Sangetsu Co. Ltd. ................... Household Durables 82,663 1,860,739
Sohgo Security Services Co. Ltd. .... Commercial Services & Supplies 172,800 2,159,304
(b) Takuma Co. Ltd. ..................... Machinery 2,627,000 7,028,291
USS Co. Ltd. ........................ Specialty Retail 81,030 5,101,921
-------------
49,397,599
-------------
NETHERLANDS 8.7%
Aalberts Industries NV .............. Machinery 803,140 9,857,201
(b) Draka Holding NV .................... Electrical Equipment 859,206 15,405,280
Imtech NV ........................... Construction & Engineering 606,091 14,681,980
Mediq NV ............................ Health Care Providers & Services 838,560 13,261,671
Twentsche Kabel Holdings NV ......... Communications Equipment 583,786 9,123,654
(b) USG People NV ....................... Professional Services 858,366 13,888,735
-------------
76,218,521
-------------
NORWAY 0.4%
Tomra Systems ASA ................... Commercial Services & Supplies 715,996 3,272,594
-------------
PHILIPPINES 0.0%(c)
(b) First Gen Corp. ..................... Independent Power Producers & Energy Traders 610,000 268,750
-------------
SINGAPORE 0.1%
(b) Huan Hsin Holdings Ltd. ............. Electronic Equipment, Instruments & Components 6,101,000 1,058,430
-------------
SOUTH KOREA 7.3%
Busan Bank .......................... Commercial Banks 1,793,670 16,155,955
Daeduck Electronics Co. Ltd. ........ Electronic Equipment, Instruments & Components 1,221,875 5,400,120
Daegu Bank Co. Ltd. ................. Commercial Banks 1,249,460 14,555,359
Halla Climate Control Corp .......... Auto Components 1,104,000 10,562,690
INTOPS Co. Ltd. ..................... Electronic Equipment, Instruments & Components 223,678 3,393,673
20 | Annual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------------------- ------------ -------------
COMMON STOCKS (CONTINUED)
SOUTH KOREA (CONTINUED)
Sindoh Co. Ltd. ..................... Office Electronics 158,198 $ 7,346,264
(b) Youngone Corp. ...................... Textiles, Apparel & Luxury Goods 657,168 4,093,489
Youngone Holdings Co. Ltd. .......... Textiles, Apparel & Luxury Goods 164,292 2,926,739
-------------
64,434,289
-------------
SPAIN 1.0%
Sol Melia SA ........................ Hotels, Restaurants & Leisure 1,078,193 8,533,441
-------------
SWEDEN 0.7%
(b,d) D. Carnegie & Co. AB ................ Capital Markets 2,352,546 --
Niscayah Group AB ................... Commercial Services & Supplies 3,472,830 6,392,131
-------------
6,392,131
-------------
SWITZERLAND 3.2%
Panalpina Welttransport Holding AG .. Air Freight & Logistics 159,350 12,641,451
Verwaltungs- und Privat-Bank AG ..... Capital Markets 75,518 8,173,360
Vontobel Holding AG ................. Capital Markets 206,628 7,191,049
-------------
28,005,860
-------------
TAIWAN 4.7%
AcBel Polytech Inc. ................. Electrical Equipment 5,709,751 3,530,642
D-Link Corp. ........................ Communications Equipment 5,902,930 4,537,956
Giant Manufacturing Co. Ltd. ........ Leisure Equipment & Products 4,639,320 11,869,667
Simplo Technology Co. Ltd. .......... Computers & Peripherals 171,099 772,051
(b) Ta Chong Bank Ltd. .................. Commercial Banks 52,393,000 7,960,042
Taiwan Fu Hsing ..................... Building Products 9,336,180 4,652,487
Test-Rite International Co. Ltd. .... Distributors 16,875,630 7,742,997
-------------
41,065,842
-------------
THAILAND 3.7%
Bank of Ayudhya Public Co. Ltd.,
fgn. ............................. Commercial Banks 18,625,300 9,690,412
Bank of Ayudhya Public Co. Ltd.,
NVDR ............................. Commercial Banks 15,401,900 8,058,607
Glow Energy Public Co. Ltd., fgn. ... Independent Power Producers & Energy Traders 8,979,896 8,116,749
Total Access Communication Public
Co. Ltd., fgn. ................... Wireless Telecommunication Services 7,231,000 7,050,225
-------------
32,915,993
-------------
UNITED KINGDOM 7.9%
Bodycote PLC ........................ Machinery 3,610,176 10,030,483
Burberry Group PLC .................. Textiles, Apparel & Luxury Goods 804,310 6,346,462
Fiberweb PLC ........................ Personal Products 6,160,581 6,697,109
Future PLC .......................... Media 11,231,610 3,795,549
GAME Group PLC ...................... Specialty Retail 3,408,480 9,114,825
Henderson Group PLC ................. Capital Markets 9,149,752 19,073,647
Yule Catto & Co. PLC ................ Chemicals 6,523,350 14,236,063
-------------
69,294,138
-------------
Annual Report | 21
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, AUGUST 31, 2009 (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------------------- ------------ -------------
COMMON STOCKS (CONTINUED)
UNITED STATES 18.1%
(b) Chico's FAS Inc. .................... Specialty Retail 1,472,490 $ 18,744,798
(b) Fossil Inc. ......................... Textiles, Apparel & Luxury Goods 440,540 11,180,905
(b) Hibbett Sports Inc. ................. Specialty Retail 821,570 14,434,985
(b) JAKKS Pacific Inc. .................. Leisure Equipment & Products 483,990 6,485,466
K-Swiss Inc., A .................. Textiles, Apparel & Luxury Goods 1,293,330 12,467,701
(b,e) Leapfrog Enterprises Inc. ........... Leisure Equipment & Products 2,971,610 11,678,427
Legg Mason Inc. ..................... Capital Markets 591,630 17,015,279
(b) RC2 Corp. ........................... Leisure Equipment & Products 292,400 4,590,680
Scholastic Corp. .................... Media 363,740 8,860,706
(b) Sealy Corp. ......................... Household Durables 3,655,420 9,577,201
(b) Tempur-Pedic International Inc. ..... Household Durables 1,126,890 16,677,972
(b) VASCO Data Security International
Inc. ............................. Software 775,265 6,713,795
(b) Volcom Inc. ......................... Textiles, Apparel & Luxury Goods 516,790 7,322,914
(b,e) West Marine Inc. .................... Specialty Retail 1,592,777 13,172,266
-------------
158,923,095
-------------
TOTAL COMMON STOCKS
(COST $935,697,748) .............. 845,394,439
-------------
CONVERTIBLE PREFERRED STOCKS
(COST $22,376,433) 2.2%
UNITED STATES 2.2%
(f) Sealy Corp., 8.00%, cvt. pfd., PIK .. Household Durables 281,186 19,264,053
-------------
TOTAL INVESTMENTS BEFORE SHORT TERM
INVESTMENTS (COST $958,074,181) .. 864,658,492
-------------
PRINCIPAL
AMOUNT
------------
SHORT TERM INVESTMENTS
(COST $11,104,975) 1.3%
U.S. GOVERNMENT AND AGENCY SECURITIES 1.3%
(g) FHLB, 9/01/09 ....................... $ 11,105,000 11,105,000
-------------
TOTAL INVESTMENTS
(COST $969,179,156)
99.8% ............................ 875,763,492
OTHER ASSETS, LESS LIABILITIES 0.2% . 1,696,251
-------------
NET ASSETS 100.0% ................... $ 877,459,743
=============
See Abbreviations on page 35.
(a) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At August 31, 2009,
the aggregate value of these securities was $19,295,653, representing 2.20%
of net assets.
(b) Non-income producing.
(c) Rounds to less than 0.1% of net assets.
(d) Security has been deemed illiquid because it may not be able to be sold
within seven days.
(e) See Note 8 regarding holdings of 5% voting securities.
(f) Income may be received in additional securities and/or cash.
(g) The security is traded on a discount basis with no stated coupon rate.
The accompanying notes are an integral part of these financial statements.
22 | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2009
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................... $ 915,631,045
Cost - Non-controlled affiliated issuers (Note 8) ... 53,548,111
--------------
Total cost of investments ........................... $ 969,179,156
==============
Value - Unaffiliated issuers ........................ $ 850,912,799
Value - Non-controlled affiliated issuers (Note 8) .. 24,850,693
==============
Total value of investments .......................... 875,763,492
Cash ................................................... 3,226
Receivables:
Investment securities sold .......................... 3,749,801
Capital shares sold ................................. 2,542,497
Dividends ........................................... 2,244,156
Other assets ........................................... 630
--------------
Total assets ..................................... 884,303,802
--------------
Liabilities:
Payables:
Investment securities purchased ..................... 1,748,396
Capital shares redeemed ............................. 3,703,750
Affiliates .......................................... 908,332
Accrued expenses and other liabilities ................. 483,581
--------------
Total liabilities ................................ 6,844,059
--------------
Net assets, at value .......................... $ 877,459,743
==============
Net assets consist of:
Paid-in capital ........................................ $1,156,345,845
Undistributed net investment income .................... 10,047,277
Net unrealized appreciation (depreciation) ............. (93,369,623)
Accumulated net realized gain (loss) ................... (195,563,756)
--------------
Net assets, at value .......................... $ 877,459,743
==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 23
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
August 31, 2009
CLASS A:
Net assets, at value ................................... $732,846,877
Shares outstanding ..................................... 135,272,991
Net asset value per share(a) ........................... $ 5.42
Maximum offering price per share (net asset value per
share / 94.25%) ..................................... $ 5.75
CLASS B:
Net assets, at value ................................... $ 2,929,340
Shares outstanding ..................................... 567,478
Net asset value and maximum offering price per
share(a) ............................................ $ 5.16
CLASS C:
Net assets, at value ................................... $ 33,300,194
Shares outstanding ..................................... 6,303,827
Net asset value and maximum offering price per
share(a) ............................................ $ 5.28
ADVISOR CLASS:
Net assets, at value ................................... $108,383,332
Shares outstanding ..................................... 19,955,271
Net asset value and maximum offering price per share ... $ 5.43
(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.
24 | Annual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended August 31, 2009
Investment income:
Dividends (net of foreign taxes of $1,666,706) ................................. $ 20,375,109
Interest ....................................................................... 181,514
-------------
Total investment income .................................................. 20,556,623
-------------
Expenses:
Management fees (Note 3a) ...................................................... 5,215,942
Administrative fees (Note 3b) .................................................. 948,450
Distribution fees: (Note 3c)
Class A ..................................................................... 1,287,593
Class B ..................................................................... 24,291
Class C ..................................................................... 279,207
Transfer agent fees (Note 3e) .................................................. 1,949,696
Custodian fees (Note 4) ........................................................ 247,441
Reports to shareholders ........................................................ 145,922
Registration and filing fees ................................................... 90,627
Professional fees .............................................................. 33,508
Trustees' fees and expenses .................................................... 73,129
Other .......................................................................... 55,020
-------------
Total expenses ........................................................... 10,350,826
Expense reductions (Note 4) .............................................. (2,394)
-------------
Net expenses .......................................................... 10,348,432
-------------
Net investment income .............................................. 10,208,191
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers ..................................................... (191,916,912)
Non-controlled affiliated issuers (Note 8) ............................... (3,609,162)
Foreign currency transactions ............................................... (159,220)
-------------
Net realized gain (loss) .............................................. (195,685,294)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................................. 56,348,669
Translation of other assets and liabilities denominated in foreign
currencies ............................................................... 110,511
-------------
Net change in unrealized appreciation (depreciation) .................. 56,459,180
-------------
Net realized and unrealized gain (loss) ........................................... (139,226,114)
-------------
Net increase (decrease) in net assets resulting from operations ................... $(129,017,923)
=============
The accompanying notes are an integral part of these financial statements.
Annual Report | 25
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31,
-------------------------------
2009 2008
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 10,208,191 $ 12,536,230
Net realized gain (loss) from investments and foreign currency transactions ....... (195,685,294) 109,572,815
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies .. 56,459,180 (516,437,027)
-------------- --------------
Net increase (decrease) in net assets resulting from operations ................ (129,017,923) (394,327,982)
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................................ (10,399,127) (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 ........................................................................ (66,168,273) (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 ........................................................................ (8,508,052) (61,748,809)
Class B ........................................................................ (548,255) (1,772,174)
Class C ........................................................................ (4,470,044) (18,880,962)
Advisor Class .................................................................. (1,147,071) 59,030,152
-------------- --------------
Total capital share transactions ..................................................... (14,673,422) (23,371,793)
-------------- --------------
Redemption fees ...................................................................... -- 3,148
-------------- --------------
Net increase (decrease) in net assets ....................................... (238,551,131) (579,278,950)
Net assets:
Beginning of year .................................................................... 1,116,010,874 1,695,289,824
-------------- --------------
End of year .......................................................................... $ 877,459,743 $1,116,010,874
============== ==============
Undistributed net investment income included in net assets:
End of year .......................................................................... $ 10,047,277 $ 12,799,469
============== ==============
The accompanying notes are an integral part of these financial statements.
26 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS
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
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities.
Foreign equity 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 equity 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 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 based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, 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.
Annual Report | 27
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (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. 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 August 31, 2009, and have
determined that no provision for income tax is required in the Fund's financial
statements.
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.
D. 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
28 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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.
E. 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.
F. 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.
G. 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.
Annual Report | 29
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At August 31, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Fund's shares were as follows:
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2009 2008
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Shares sold ....................... 15,188,376 $ 69,507,491 12,337,464 $ 107,834,035
Shares issued in reinvestment of
distributions ................... 19,523,769 67,357,003 13,411,128 121,882,020
Shares redeemed ................... (33,690,427) (145,372,546) (36,641,340) (291,464,864)
----------- ------------- ----------- -------------
Net increase (decrease) ........... 1,021,718 $ (8,508,052) (10,892,748) $ (61,748,809)
=========== ============= =========== =============
CLASS B SHARES:
Shares sold ....................... 50,752 $ 217,080 26,524 $ 224,015
Shares issued in reinvestment of
distributions ................... 87,357 288,277 83,602 727,290
Shares redeemed ................... (244,634) (1,053,612) (366,943) (2,723,479)
----------- ------------- ----------- -------------
Net increase (decrease) ........... (106,525) $ (548,255) (256,817) $ (1,772,174)
=========== ============= =========== =============
CLASS C SHARES:
Shares sold ....................... 826,267 $ 3,466,848 545,994 $ 4,530,362
Shares issued in reinvestment of
distributions ................... 842,760 2,848,530 741,530 6,580,741
Shares redeemed ................... (2,655,994) (10,785,422) (3,958,737) (29,992,065)
----------- ------------- ----------- -------------
Net increase (decrease) ........... (986,967) $ (4,470,044) (2,671,213) $ (18,880,962)
=========== ============= =========== =============
ADVISOR CLASS SHARES:
Shares sold ....................... 9,099,343 $ 37,372,758 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 ................... (11,220,232) (52,595,542) (4,290,289) (33,270,190)
----------- ------------- ----------- -------------
Net increase (decrease) ........... 1,959,028 $ (1,147,071) 6,484,065 $ 59,030,152
=========== ============= =========== =============
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 Transfer agent
Services)
30 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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.
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%
Annual Report | 31
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 year:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................... $60,504
Contingent deferred sales charges retained ...................... $ 2,921
E. TRANSFER AGENT FEES
For the year ended August 31, 2009, the Fund paid transfer agent fees of
$1,949,696, of which $1,098,406 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 year ended August 31, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At August 31, 2009, the Fund had tax basis capital losses of
$20,850,045 expiring in 2017.
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At August 31, 2009, the Fund deferred realized capital losses of
$174,713,711.
The tax character of distributions paid during the years ended August 31, 2009
and 2008, was as follows:
2009 2008
----------- ------------
Distributions paid from:
Ordinary income .......................... $12,838,845 $ 19,953,646
Long term capital gain ................... 82,020,941 141,628,677
----------- ------------
$94,859,786 $161,582,323
=========== ============
32 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
At August 31, 2009, the cost of investments, net unrealized appreciation
(depreciation), and undistributed ordinary income for income tax purposes were
as follows:
Cost of investments .......................... $ 969,338,733
=============
Unrealized appreciation ...................... $ 163,859,463
Unrealized depreciation ...................... (257,434,704)
-------------
Net unrealized appreciation (depreciation) ... $ (93,575,241)
=============
Undistributed ordinary income ................ $ 10,206,852
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, bond discounts and
premiums, and corporate actions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and bond
discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended August 31, 2009, aggregated $219,826,287 and $242,229,455,
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 year ended August 31,
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 YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME GAIN (LOSS)
- -------------- ------------ --------- ---------- ----------- ----------- ---------- ----------------
NON-CONTROLLED AFFILIATES
Leapfrog Enterprises Inc. .. 2,971,610 -- -- 2,971,610 $11,678,427 $-- $ --
West Marine Inc. ........... 1,991,430 -- 398,653 1,592,777 13,172,266 -- (3,609,162)
----------- --- -----------
TOTAL AFFILIATED SECURITIES (2.83% of Net Assets) ............................. $24,850,693 $-- $(3,609,162)
=========== === ===========
Annual Report | 33
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (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 of 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 $1,846 of its
pro rata portion of the Global Credit Facility, which is reflected in other
expenses on the Statement of Operations. During the year ended August 31, 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.
34 | Annual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of August 31, 2009, in valuing
the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ------------ ------- ------------
ASSETS:
Investments in Securities:
Equity Investments:(a)
South Korea ................................. $ 61,507,550 $ 2,926,739 $-- $ 64,434,289
Sweden ...................................... 6,392,131 -- --(b) 6,392,131
Thailand .................................... 24,857,386 8,058,607 -- 32,915,993
Other Equity Investments(c) ................. 760,916,079 -- -- 760,916,079
Short Term Investments ......................... -- 11,105,000 -- 11,105,000
------------ ----------- --- ------------
Total Investments in Securitites ......... $853,673,146 $22,090,346 $-- $875,763,492
============ =========== === ============
(a) Includes common and preferred stock as well as other equity investments.
(b) Includes securities determined to have no value at August 31, 2009.
(c) For detailed industry descriptions, see the accompanying Statement of
Investments.
11. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through October 20, 2009, the issuance
date of the financial statements and determined that no events have occurred
that require disclosure.
ABBREVIATIONS
SELECTED PORTFOLIO
FHLB - Federal Home Loan Bank
PIK - Payment-In-Kind
NVDR - Non Voting Depository Receipt
Annual Report | 35
Templeton Global Smaller Companies Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON GLOBAL SMALLER COMPANIES
FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Global Smaller Companies
Fund (the "Fund") at August 31, 2009, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 2009 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 20, 2009
36 | Annual Report
Templeton Global Smaller Companies Fund
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $82,020,941 as a long
term capital gain dividend for the fiscal year ended August 31, 2009.
Under Section 854(b)(2) of the Code, the Fund designates 19.59% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended August 31, 2009.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $13,114,861 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
August 31, 2009. Distributions, including qualified dividend income, paid during
calendar year 2009 will be reported to shareholders on Form 1099-DIV in January
2010. Shareholders are advised to check with their tax advisors for information
on the treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than $101,611 as interest related dividends for purposes
of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year
ended August 31, 2009.
At August 31, 2008, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from income paid to the Fund on these investments. The Fund elects to treat
foreign taxes paid as allowed under Section 853 of the Code. This designation
will allow shareholders of record on December 18, 2008, to treat their
proportionate share of foreign taxes paid by the Fund as having been paid
directly by them. The shareholder shall consider these amounts as foreign taxes
paid in the tax year in which they receive the Fund distribution.
The following table provides a detailed analysis of foreign tax paid, and
foreign source income, and foreign qualified dividends as designated by the Fund
to Class A, Class B, Class C, and Advisor Class shareholders of record.
RECORD DATE: 12/18/2008
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
CLASS PER SHARE PER SHARE PER SHARE
- ----- ----------- ------------- -------------------
Class A ........ $0.0177 $0.0992 $0.0626
Class B ........ $0.0177 $0.0201 $0.0126
Class C ........ $0.0177 $0.0251 $0.0159
Class Advisor .. $0.0177 $0.1176 $0.0741
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or, as a tax
deduction.
Annual Report | 37
Templeton Global Smaller Companies Fund
TAX DESIGNATION (UNAUDITED) (CONTINUED)
Foreign Source Income Per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income.(1)
Foreign Qualified Dividends Per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund.(1)
In January 2009, shareholders received Form 1099-DIV which included their share
of taxes paid and foreign source income distributed during the calendar year
2008. The Foreign Source Income reported on Form 1099-DIV has not been adjusted
for the rate differential on foreign source qualified dividend income.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their 2008 individual income tax returns.
(1) Qualified dividends are taxed at a maximum rate of 15% (5% for those in the
10% and 15% income tax bracket). In determining the amount of foreign tax
credit that may be applied against the U.S. tax liability of individuals
receiving foreign source qualified dividends, adjustments may be required
to the foreign tax credit limitation calculation to reflect the rate
differential applicable to such dividend income. The rules however permit
certain individuals to elect not to apply the rate differential adjustments
for capital gains and/or dividends for any taxable year. Please consult
your tax advisor and the instructions to Form 1116 for more information.
38 | Annual Report
Templeton Global Smaller Companies Fund
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ------------- ----------------------- ------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1992 134 Bar-S Foods (meat packing company).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ANN TORRE BATES (1958) Trustee Since 2008 31 SLM Corporation (Sallie Mae) and
500 East Broward Blvd. Allied Capital Corporation (financial
Suite 2100 services).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Independent strategic and financial consultant; and FORMERLY, Executive Vice President and Chief Financial Officer, NHP Incorporated
(manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).
FRANK J. CROTHERS (1944) Trustee Since 2004 23 Fortis, Inc. (utility holding company),
500 East Broward Blvd. Victory Nickel Inc. (mineral explo-
Suite 2100 ration) and ABACO Markets Limited
Fort Lauderdale, FL 33394-3091 (retail distributors).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director and Vice Chairman, Caribbean Utilities Company, Ltd. and director of various other private business and nonprofit
organizations.
EDITH E. HOLIDAY (1952) Lead Trustee since 134 Hess Corporation (exploration and
500 East Broward Blvd. Independent 2004 and Lead refining of oil and gas), H.J. Heinz
Suite 2100 Trustee Independent Company (processed foods and allied
Fort Lauderdale, FL 33394-3091 Trustee products), RTI International Metals, Inc.
since 2007 (manufacture and distribution of titani-
um), Canadian National Railway (rail-
road) and White Mountains Insurance
Group, Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
Annual Report | 39
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ------------- ----------------------- ------------------------------------------
DAVID W. NIEMIEC (1949) Trustee Since 2005 23 Emeritus Corporation (assisted living)
500 East Broward Blvd. and OSI Pharmaceuticals, Inc.
Suite 2100 (pharmaceutical products).
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Advisor, Saratoga Partners (private equity fund); and FORMERLY, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg
Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief
Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
FRANK A. OLSON (1932) Trustee Since 2004 134 Hess Corporation (exploration and
500 East Broward Blvd. refining of oil and gas).
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2005 142 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
CONSTANTINE D. TSERETOPOULOS Trustee Since 2004 23 None
(1954)
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
ROBERT E. WADE (1946) Trustee Since 2006 38 El Oro Ltd (investments).
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney at law.
40 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ------------- ----------------------- ------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee, Trustee, 134 None
One Franklin Parkway Chairman of Chairman of
San Mateo, CA 94403-1906 the Board and the Board
Vice President since 1995
and Vice
President
since 1992
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41
of the investment companies in Franklin Templeton Investments.
**GREGORY E. JOHNSON (1961) Trustee Since 2007 91 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Not Applicable Not Applicable
One Franklin Parkway Compliance Compliance
San Mateo, CA 94403-1906 Officer and Officer since
Vice President 2004 and Vice
- AML President -
Compliance AML
Compliance
since 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Chief Since March Not Applicable Not Applicable
One Franklin Parkway Executive 2009
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
ALIYA S. GORDON (1973) Vice President Since March Not Applicable Not Applicable
One Franklin Parkway 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
Annual Report | 41
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ------------- ----------------------- ------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer
of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1996 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin
Templeton Investments.
GARY P. MOTYL (1952) President and Since 2007 Not Applicable Not Applicable
500 East Broward Blvd. Chief
Suite 2100 Executive
Fort Lauderdale, FL 33394-3091 Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Templeton Investment Counsel, LLC; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin Templeton
Investments.
MARK H. OTANI (1968) Treasurer, Since March Not Applicable Not Applicable
One Franklin Parkway Chief Financial 2009
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Fund Accounting Operations, Franklin Templeton Investments; and officer of 14 of the investment companies in
Franklin Templeton Investments.
ROBERT C. ROSSELOT (1960) Secretary and Secretary Not Applicable Not Applicable
500 East Broward Blvd. Vice President since 2004
Suite 2100 and Vice
Fort Lauderdale, FL 33394-3091 President
since August
2009
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the
South; and officer of 45 of the investment companies in Franklin Templeton Investments.
42 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------ ---------------- ------------- ----------------------- ------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since Not Applicable Not Applicable
One Franklin Parkway August 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be interested person of the Trust under
the federal securities laws due to his position as officer and director and
major shareholder of Franklin Resources, Inc. (Resources), which is the
parent company of the Trust's investment manager and distributor. Gregory
E. Johnson is considered to be interested person of the Trust under the
federal securities laws due to his position as officer and director
Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT
COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL
EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED EACH OF ANN TORRE BATES AND DAVID W. NIEMIEC AS AN AUDIT COMMITTEE
FINANCIAL EXPERT. THE BOARD BELIEVES THAT MS. BATES AND MR. NIEMIEC QUALIFY AS
SUCH AN EXPERT IN VIEW OF THEIR EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE.
MS. BATES HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2008. SHE
CURRENTLY SERVES AS A DIRECTOR OF SLM CORPORATION AND ALLIED CAPITAL CORPORATION
AND WAS FORMERLY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF NHP
INCORPORATED AND VICE PRESIDENT AND TREASURER OF US AIRWAYS, INC. MR. NIEMIEC
HAS SERVED AS A MEMBER OF THE FUND AUDIT COMMITTEE SINCE 2005, CURRENTLY SERVES
AS AN ADVISOR TO SARATOGA PARTNERS AND WAS FORMERLY ITS MANAGING DIRECTOR FROM
1998 TO 2001. MR. NIEMIEC IS A DIRECTOR OF EMERITUS CORPORATION AND OSI
PHARMACEUTICALS, INC. AND VARIOUS PRIVATE COMPANIES, AND WAS FORMERLY MANAGING
DIRECTOR OF SBC WARBURG DILLON READ FROM 1997 TO 1998, AND WAS VICE CHAIRMAN
FROM 1991 TO 1997 AND CHIEF FINANCIAL OFFICER FROM 1982 TO 1997 OF DILLON, READ
& CO. INC. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES
THAT MS. BATES AND MR. NIEMIEC HAVE EACH ACQUIRED AN UNDERSTANDING OF GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION
OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND
RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A
BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO
THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND
PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE
FUNCTIONS. MS. BATES AND MR. NIEMIEC ARE INDEPENDENT BOARD MEMBERS AS THAT TERM
IS DEFINED UNDER THE APPLICABLE U.S. SECURITIES AND EXCHANGE COMMISSION RULES
AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 43
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held May 19, 2009, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for the Fund prepared by Lipper, Inc. (Lipper), an independent
organization, as well as additional material, including a Fund profitability
analysis report prepared by management. The Lipper report compared the Fund's
investment performance and expenses with those of other mutual funds deemed
comparable to the Fund as selected by Lipper. The Fund profitability analysis
report discussed the profitability to Franklin Templeton Investments from its
overall U.S. fund operations, as well as on an individual fund-by-fund basis.
Included with such profitability analysis report was information on a
fund-by-fund basis listing portfolio managers and other accounts they manage, as
well as information on management fees charged by the Manager and its affiliates
including management's explanation of differences where relevant and a
three-year expense analysis with an explanation for any increase in expense
ratios. Additional material accompanying such report was a memorandum prepared
by management describing project initiatives and capital investments relating to
the services provided to the Fund by the Franklin Templeton Investments
organization, as well as a memorandum relating to economies of scale and a
comparative analysis concerning transfer agent fees charged the Fund. Such
material also discussed some of the actions taken by management in coping with
problems arising out of the past year's financial upheaval.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the
44 | Annual Report
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of the
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the transfer
agent and shareholder services provided Fund shareholders by an affiliate of the
Manager, noting continuing expenditures by management to increase and improve
the scope of such services, periodic favorable reports on such service conducted
by third parties, and the continuous enhancements to and high industry ranking
given the Franklin Templeton website. Particular attention was given to the
overall performance and actions taken by the Manager and its affiliates in
response to problems arising out of the market turmoil and financial crisis
experienced during the past year. In this respect, the Board noted that
management's independent credit analysis and diligent risk management procedures
had minimized exposure of funds within the Franklin Templeton complex to
subprime mortgages and that its continuous monitoring of counterparty credit
risk had limited fund exposure to firms experiencing financial difficulties like
Bear Stearns and AIG. The same type of conservative approach and attention to
risk had also prevented any structured investment products or other volatile
instruments from being held in the portfolios of any of the money market funds
within the Franklin Templeton complex, including the sweep money fund utilized
by many of the funds as part of their cash management. The Board also took into
account, among other things, management's efforts in establishing a $725 million
global credit facility for the benefit of the funds and other accounts managed
by Franklin Templeton Investments to provide a source of cash for temporary and
emergency purposes or to meet unusual redemption requests as well as the strong
financial position of the Manager's parent company and its commitment to the
mutual fund business. The Board also noted that during the past year Franklin
Templeton Investments, like many other fund managers, had announced a hiring
freeze and implemented employee reductions, and the Board discussed with
management the nature of such reductions and steps being taken to minimize any
negative impact on the nature and quality of services being provided the Fund.
Annual Report | 45
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed the investment
performance of its Class A shares for the one-year period ended February 28,
2009, as well as the previous 10 years ended on such date in comparison to a
performance universe consisting of the Fund and all retail and institutional
global small/mid-cap funds as selected by Lipper. Consistent with the market
sell-off that occurred in 2008, the Fund and all other funds within such
universe experienced losses for the one-year period. On a comparative basis, the
Lipper report showed the Fund's total return to be in the middle quintile of
such performance universe for the one-year period, and on an annualized basis to
be in the second-lowest quintile of such performance universe for the previous
three- and 10-year periods and the lowest quintile of such performance universe
for the previous five-year period. The Board noted that changes had been made in
the Fund's portfolio management team, including its lead portfolio manager
during the past two years, and the independent Trustees met separately with the
lead portfolio manager and other management representatives to discuss the
reasons for the Fund's performance and steps being taken to improve it. While
intending to continue monitoring the Fund, the Board was satisfied with the
attention being given by management to improving performance and did not believe
that any further change in portfolio management was presently warranted.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Lipper expense data is based upon historical
information taken from each fund's most recent annual report and, as a result of
the severe decline in mutual fund industry assets during the last quarter of
2008, is based on asset levels that are higher than the level currently existing
for most funds. While recognizing the limitations inherent in Lipper's
methodology and recognizing that current expense ratios may increase as assets
decline, the Board believed that the independent analysis conducted by Lipper
remained an appropriate measure of comparative expenses. In reviewing
comparative costs, Lipper provides information on the Fund's contractual
investment management fee in comparison with the contractual investment
management fee that would have been charged by other funds within its Lipper
expense group assuming they were similar in size to the Fund, as well as the
actual total expenses of the Fund in comparison with those of its Lipper expense
group. The Lipper contractual investment management fee analysis includes
administrative charges as being part of a management fee, and total expenses,
for comparative consistency, are shown by Lipper for Fund Class A shares. The
results of such expense comparisons showed that the contractual investment
management fee rate for the Fund was below the median for its Lipper expense
group while its actual total expenses were in the least expensive quintile of
such group. The Board was satisfied with the management fee and total expenses
of the Fund in comparison to its Lipper expense group.
46 | Annual Report
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the Fund during the 12-month period ended September 30, 2008, being the most
recent fiscal year end for Franklin Resources, Inc., the Manager's parent.
During such period, the assets of the Franklin Templeton U.S. fund business were
significantly higher than currently existing, and to such extent the
profitability analysis does not reflect current fund operations. While taking
this into account in assessing the significance of the Fund profitability
analysis, the Board recognized such analysis was made at a given point in time
and that the decline in assets and effect on profitability would be reflected in
the profitability analysis covering Franklin Resources' 2009 fiscal year period.
In reviewing the analysis, attention was given to the methodology followed in
allocating costs to the Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Fund made in prior years
and that the Fund's independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Fund's Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to the Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to each Fund was not excessive in view of the nature,
quality and extent of services provided.
Annual Report | 47
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The Fund's investment management agreement
provides a fee at the rate of 0.75% on the first $1 billion of Fund net assets;
0.73% on the next $4 billion of Fund net assets; with further breakpoints
continuing thereafter up to the $20 billion level of Fund net assets. The Fund
is also charged a separate fee for administrative services that starts at 0.15%
on the first $200 million of Fund net assets, and declines through breakpoints
to a fixed rate of 0.075% after net assets reach the $1.2 billion level. In
discussing such fee structure, management stated its view that it starts with a
relatively low rate reflecting anticipated economies of scale as the Fund's
assets increase and pointed out the Fund's favorable effective management fee
rate and actual total expense rate as previously discussed under "Comparative
Expenses." At the end of 2008, the Fund's net assets were approximately $610
million, and to the extent economies of scale may be realized by the Manager and
its affiliates, the Board believes the schedules of fees under the investment
management agreement provide a sharing of benefits with the Fund and its
shareholders.
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.
48 | Annual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A 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.
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 Quest 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 Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global 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
Mutual International 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(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(3)
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(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(4)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)
LIMITED-/INTERMEDIATE-TERM
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(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(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.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(4.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(5.) The fund invests primarily in insured municipal securities.
(6.) 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.
(7.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/17/09.
(8.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/09 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
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ANNUAL 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 A2009 10/09
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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $31,742 for the fiscal year ended August 31, 2009 and $35,722 for the
fiscal year ended August 31, 2008.
(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4 were $2,650 for
the fiscal year ended August 31, 2009 and $2,650 for the fiscal year ended
August 31, 2008. The services for which these fees were paid included
attestation services.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $6,000 for the fiscal year ended
August 31, 2009 and $0 for the fiscal year ended August 31, 2008. The services
for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31, 2009
and $976 for the fiscal year ended August 31, 2008. The services for which these
fees were paid include review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended August 31,
2009 and $283,101 for the fiscal year ended August 31, 2008. The services for
which these fees were paid include review of materials provided to the fund
Board in connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $8,650 for the fiscal year ended August 31, 2009 and $286,727
for the fiscal year ended August 31, 2008.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
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: October 28, 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: October 28, 2009
By /s/MARK H. OTANI
-----------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: October 28, 2009