UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03143
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TEMPLETON GLOBAL SMALLER COMPANIES FUND
------------------------------------------
(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
-------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
---------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
--------------
Date of fiscal year end: 8/31
----
Date of reporting period: 2/28/10
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ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 28, 2010
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
(GRAPHIC)
GLOBAL
TEMPLETON
GLOBAL SMALLER COMPANIES FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Templeton Global Smaller Companies Fund ................................... 3
Performance Summary ....................................................... 8
Your Fund's Expenses ...................................................... 11
Financial Highlights and Statement of Investments ......................... 13
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 25
Shareholder Information ................................................... 34
Shareholder Letter
Dear Shareholder:
During the six months ended February 28, 2010, world economies experienced a
significant recovery driven by one of the most aggressive global policy
responses in financial history. At the end of the period, however, as investors
began to believe the overall financial system was on the mend, many governments
began positioning themselves to curtail their spending programs and low interest
rate policies, and the market began to focus on the risks associated with this
transition.
Templeton Global Smaller Companies Fund's semiannual report goes into greater
detail about prevailing conditions during the period under review. In addition,
the portfolio managers discuss investment management decisions and Fund
performance for the period. You will also find performance data and financial
information. Please remember that all securities markets fluctuate, as do mutual
fund share prices.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
Historically, patient investors have achieved rewarding results by evaluating
their goals, diversifying their assets globally and maintaining a disciplined
investment program, all hallmarks of the Templeton investment philosophy
developed more than 50 years ago. We continue to recommend investors consult
their financial advisors and review their portfolios to design a long-term
strategy and portfolio allocation that meet their individual needs, goals and
risk tolerance. We firmly believe that most people benefit from professional
advice, and that advice is invaluable as investors navigate changing market
environments.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Gary P. Motyl
Gary P. Motyl, CFA
President and Chief Executive Officer - Investment Management
Templeton Global Smaller Companies Fund
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by CFA Institute.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2010. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
2 | Not part of the semiannual report
Semiannual Report
Templeton Global Smaller Companies Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Global Smaller Companies Fund
seeks to achieve long-term capital growth. Under normal market conditions, the
Fund invests at least 80% of its net assets in equity securities of smaller
companies located anywhere in the world, including emerging markets.
GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 2/28/10
(PIE CHART)
North America .............................. 34.1%
Asia ....................................... 28.8%
Europe ..................................... 24.0%
Australia & New Zealand .................... 5.7%
Short-Term Investments & Other Net Assets .. 7.4%
We are pleased to bring you Templeton Global Smaller Companies Fund's semiannual
report for the period ended February 28, 2010.
PERFORMANCE OVERVIEW
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
For the six months under review, Templeton Global Smaller Companies Fund - Class
A delivered a +9.62% cumulative total return. The Fund outperformed its
benchmark, the Morgan Stanley Capital International (MSCI) World Index, which
had a +5.41% total return for the same period.(1) Please note that index
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The MSCI World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance
in global developed markets. The index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index, 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 17.
Semiannual 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
Equity markets broadly advanced and global economic data indicated measured
improvements during the six months under review. Significant problems persisted,
however, and investor anxiety resurfaced in the period's latter half. Global
equity markets began the period having just delivered their best six-month
returns in more than four decades as governments' aggressive monetary and fiscal
interventions began to gain traction. Investor sentiment reached its highest
level since the onset of the financial crisis, and most major economies
technically exited recession at the beginning of the period. Market volatility
increased in October, however, as lackluster economic data cast doubt over the
global recovery's sustainability. Strong corporate earnings helped buoy markets
through the final months of 2009, although concerns about Dubai's ability to
meet its debt obligations temporarily rattled markets and foreshadowed the
sovereign solvency issues that would gain attention in the initial months of
2010.
Bank lending restrictions in China and escalating debate about financial sector
reform added to concerns over the sovereign debt woes of Greece and some other
European countries, and the market rally stalled in early 2010. Economic data
remained broadly positive showing U.S. gross domestic product (GDP) growth at a
0.1% rate and Chinese GDP up 10.7% year-over-year in the fourth quarter of 2009.
However, investors received such economic reports with heightened skepticism.
While the market punished stocks of companies that failed to meet investors'
significantly elevated earnings expectations, overall financial results
generally exceeded those expectations, as emerging market demand and official
stimulus bolstered a global economic rebound and cost-reduction initiatives
drove corporate earnings growth. The mix of subsidized and organic demand also
supported commodities, most of which made gains during the period.
Monetary policy remained extraordinarily loose, although many central bankers
began to discuss ways to withdraw stimulus without stifling the fragile
recovery. In developing economies with more capacity for policy normalization,
like India and China, officials increased reserve requirements and tightened
lending standards to forestall asset bubble formation and general price
inflation. Growing concerns surrounding Europe's sovereign debt situation
punished the euro, triggering the common currency's longest losing
4 | Semiannual Report
streak against the dollar in more than a year. Sovereign bond yields rose in the
world's more fiscally vulnerable regions, and European policymakers considered a
bilateral lending package should Greece require funding assistance. By
period-end, the future direction of financial markets and the global economy was
unclear, and pundits speculated on a wide range of potential outcomes.
INVESTMENT STRATEGY
At Templeton, when choosing investments for the 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
Many holdings performed well during the six months under review. The most
significant contributor to Fund performance relative to the benchmark MSCI World
Index was bed manufacturer Tempur-Pedic International. The company is one of
North America's largest mattress manufacturers and the largest specialty
mattress manufacturer. Investors reacted positively to the improving economic
outlook and viewed the company's steady sales gains favorably.
Based in Finland, Amer Sports was another strong contributor to relative
performance. Established in 1950 as an industrial company, Amer Sports gradually
became a holding company for global sports equipment brands over the last 15 to
20 years. The company sought to emerge as the market's superior cost leader and
gain strength versus its smaller competitors, and recent performance reflected
these trends. At period-end, we believed the company was still attractive on a
long-term basis due to cost-cutting efforts that led to a low fixed-cost base.
Steiner Leisure, the world's leading provider of spa services, was another top
contributor to the Fund's returns. Steiner offers a valuable service for most of
the world's leading cruise lines by providing their customers with a seamless,
high-quality spa experience while guaranteeing minimum concession fees, without
much operating risk to the ship owners. We like Steiner for its powerful niche
position in the cruise industry, its potential to benefit from an aging
population and wellness trends, and its strong balance sheet and track record of
buying back outstanding shares of its stock. In our analysis, Steiner could
benefit from two primary trends: future worldwide growth in
TOP 10 COUNTRIES
Based on Equity Securities
2/28/10
% OF TOTAL
NET ASSETS
----------
U.S. 18.7%
Netherlands 7.7%
Hong Kong 7.5%
Canada 7.3%
U.K. 6.7%
South Korea 6.1%
Australia 5.7%
Taiwan 4.6%
Japan 3.9%
China 3.5%
Semiannual Report | 5
TOP 10 EQUITY HOLDINGS
2/28/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------ ----------
Dah Sing Financial Group 2.2%
COMMERCIAL BANKS, HONG KONG
Bank of Ayudhya Public Co. Ltd., fgn. 2.2%
COMMERCIAL BANKS, THAILAND
Pacific Brands Ltd., ord. & 144A 2.2%
DISTRIBUTORS, AUSTRALIA
Steiner Leisure Ltd. 2.1%
DIVERSIFIED CONSUMER SERVICES,
BAHAMAS
Chico's FAS Inc. 2.1%
SPECIALTY RETAIL, U.S.
Hibbett Sports Inc. 2.0%
SPECIALTY RETAIL, U.S.
MF Global Holdings Ltd. 1.9%
CAPITAL MARKETS, BERMUDA
Busan Bank 1.9%
COMMERCIAL BANKS, SOUTH KOREA
Sinotrans Ltd., H 1.8%
AIR FREIGHT & LOGISTICS, CHINA
Henderson Group PLC 1.8%
CAPITAL MARKETS, U.K.
cruising, and the continued development of high-end spas at luxury hotels and
resorts. In addition, Steiner's management team has exhibited a track record for
being cost-focused operators with a disciplined approach to generating high
returns.
Despite positive absolute and relative performance, the Fund had some
disappointments during the period. One of the most significant detractors from
relative performance was U.K.-based Game Group, Europe's largest retailer of
computer software, video games, consoles and related products. The company
issued a weak trading statement in December, with unit hardware sales increases
unable to offset the effect of price cuts. Despite strong sales of the most
popular new games, competition from supermarkets pressured margins, and sales of
less heavily supported games lagged. While acknowledging its recent setbacks, we
believe Game Group remains a fundamentally strong company with a solid balance
sheet.
Swiss logistics operation Panalpina Welttransport also detracted from relative
performance for the period. Freight forwarding is the company's core operation,
accounting for about 85% of its revenue. It is the world's third-largest air
freight forwarder and fourth-largest ocean freight forwarder. The stock price
fell significantly from its overall peak in June 2007 due to macroeconomic
concerns and a slowdown of consumer spending. Looking at the longer term,
however, we consider business fundamentals solid as the company has a strong
balance sheet with net cash. Based on our assessment, we continued to hold the
stock because we believe the negatives were reflected in Panalpina
Welttransport's share price and that its growth and return potential was
underappreciated by the market.
JAKKS Pacific, a leading U.S. toy company that designs, develops, produces and
markets toys and other leisure products, was also a key detractor. According to
our analysis, JAKKS offers attractive longer term value given the company's
ability to successfully create toys internally which, in combination with recent
and potential acquisitions, could continue to provide the company with
attractive growth prospects.
6 | Semiannual Report
Thank you for your continued participation in Templeton Global Smaller Companies
Fund. We look forward to serving your future investment needs.
(PHOTO OF BRADLEY RADIN)
/s/ Bradley Radin
Bradley Radin, CFA
(PHOTO OF HARLAN B. HODES)
/s/ Harlan B. Hodes
Harlan B. Hodes, CPA
(PHOTO OF CINDY L. SWEETING)
/s/ Cindy L. Sweeting
Cindy L. Sweeting, CFA
Portfolio Management Team
Templeton Global Smaller Companies Fund
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 7
Performance Summary as of 2/28/10
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: TEMGX) CHANGE 2/28/10 8/31/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.46 $5.88 $5.42
DISTRIBUTIONS (9/1/09-2/28/10)
Dividend Income $0.0606
CLASS B (SYMBOL: N/A) CHANGE 2/28/10 8/31/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.44 $5.60 $5.16
DISTRIBUTIONS (9/1/09-2/28/10)
Dividend Income $0.0382
CLASS C (SYMBOL: TESGX) CHANGE 2/28/10 8/31/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.45 $5.73 $5.28
DISTRIBUTIONS (9/1/09-2/28/10)
Dividend Income $0.0395
ADVISOR CLASS (SYMBOL: TGSAX) CHANGE 2/28/10 8/31/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.46 $5.89 $5.43
DISTRIBUTIONS (9/1/09-2/28/10)
Dividend Income $0.0665
8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +9.62% +99.38% +11.30% +78.40%
Average Annual Total Return(2) +3.33% +88.03% +0.97% +5.34%
Value of $10,000 Investment(3) $10,333 $18,803 $10,494 $16,818
Avg. Ann. Total Return (3/31/10)(4) +88.47% +2.79% +5.83%
Total Annual Operating Expenses(5) 1.49%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +9.28% +97.85% +7.15% +67.61%
Average Annual Total Return(2) +5.28% +93.85% +1.16% +5.30%
Value of $10,000 Investment(3) $10,528 $19,385 $10,594 $16,761
Avg. Ann. Total Return (3/31/10)(4) +94.76% +3.04% +5.81%
Total Annual Operating Expenses(5) 2.26%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +9.28% +97.60% +7.09% +65.58%
Average Annual Total Return(2) +8.28% +96.60% +1.38% +5.17%
Value of $10,000 Investment(3) $10,828 $19,660 $10,709 $16,558
Avg. Ann. Total Return (3/31/10)(4) +97.83% +3.25% +5.67%
Total Annual Operating Expenses(5) 2.26%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- ------- -------
Cumulative Total Return(1) +9.72% +99.25% +12.55% +83.03%
Average Annual Total Return(2) +9.72% +99.25% +2.39% +6.23%
Value of $10,000 Investment(3) $10,972 $ 19,925 $11,255 $18,303
Avg. Ann. Total Return (3/31/10)(4) +101.04% +4.30% +6.73%
Total Annual Operating Expenses(5) 1.26%
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, GO TO
franklintempleton.com OR CALL (800) 342-5236.
Semiannual Report | 9
Performance Summary (CONTINUED)
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN
EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN
ADDITION TO THOSE ASSOCIATED WITH THESE MARKETS' SMALLER SIZE AND LESSER
LIQUIDITY. IN ADDITION, SMALLER COMPANY STOCKS HAVE HISTORICALLY EXHIBITED
GREATER PRICE VOLATILITY THAN LARGE-COMPANY STOCKS, PARTICULARLY OVER THE SHORT
TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT
RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly causing total annual Fund operating expenses to become higher
than the figures shown.
10 | Semiannual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,096.20 $ 7.28
Hypothetical (5% return before expenses) $1,000 $1,017.85 $ 7.00
CLASS B
Actual $1,000 $1,092.80 $11.10
Hypothetical (5% return before expenses) $1,000 $1,014.18 $10.69
CLASS C
Actual $1,000 $1,092.80 $11.16
Hypothetical (5% return before expenses) $1,000 $1,014.13 $10.74
ADVISOR CLASS
Actual $1,000 $1,097.20 $ 5.98
Hypothetical (5% return before expenses) $1,000 $1,019.09 $ 5.76
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.40%; B: 2.14%; C: 2.15%; and Advisor:
1.15%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
12 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2010 -----------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- -------- -------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 5.42 $ 6.97 $ 10.13 $ 9.09 $ 9.82 $ 8.69
-------- -------- -------- ---------- ---------- --------
Income from investment operations(a):
Net investment income (loss)(b) .... (0.02) 0.06 0.07 0.06 0.08 0.12
Net realized and unrealized gains
(losses) ........................ 0.54 (0.98) (2.27) 2.13 0.83 2.02
-------- -------- -------- ---------- ---------- --------
Total from investment operations ...... 0.52 (0.92) (2.20) 2.19 0.91 2.14
-------- -------- -------- ---------- ---------- --------
Less distributions from:
Net investment income .............. (0.06) (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 ................... (0.06) (0.63) (0.96) (1.15) (1.64) (1.01)
-------- -------- -------- ---------- ---------- --------
Redemption fees(c) .................... -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- ---------- ---------- --------
Net asset value, end of period ........ $ 5.88 $ 5.42 $ 6.97 $ 10.13 $ 9.09 $ 9.82
======== ======== ======== ========== ========== ========
Total return(e) ....................... 9.62% (8.08)% (23.88)% 26.52% 11.66% 26.78%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 1.40% 1.49% 1.35% 1.32% 1.34% 1.35%
Net investment income (loss) .......... (0.58)% 1.47% 0.93% 0.68% 0.90% 1.33%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $815,366 $732,847 $936,192 $1,470,895 $1,128,415 $949,606
Portfolio turnover rate ............... 7.97% 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, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 13
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2010 ----------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- ------ ------- ------ ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 5.16 $ 6.63 $ 9.68 $ 8.72 $ 9.50 $ 8.42
------ ------ ------- ------ ------ ------
Income from investment operations(a):
Net investment income (loss)(b) .... (0.04) 0.03 0.01 (0.01) 0.01 0.06
Net realized and unrealized gains
(losses) ........................ 0.52 (0.94) (2.17) 2.05 0.81 1.95
------ ------ ------- ------ ------ ------
Total from investment operations ...... 0.48 (0.91) (2.16) 2.04 0.82 2.01
------ ------ ------- ------ ------ ------
Less distributions from:
Net investment income .............. (0.04) (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 ................... (0.04) (0.56) (0.89) (1.08) (1.60) (0.93)
------ ------ ------- ------ ------ ------
Redemption fees(c) .................... -- -- --(d) --(d) --(d) --(d)
------ ------ ------- ------ ------ ------
Net asset value, end of period ........ $ 5.60 $ 5.16 $ 6.63 $ 9.68 $ 8.72 $ 9.50
====== ====== ======= ====== ====== ======
Total return(e) ....................... 9.28% (8.88)% (24.47)% 25.69% 10.74% 25.86%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 2.14% 2.26% 2.12% 2.07% 2.09% 2.10%
Net investment income (loss) .......... (1.32)% 0.70% 0.16% (0.07)% 0.15% 0.58%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $2,896 $2,929 $ 4,470 $9,010 $8,027 $7,983
Portfolio turnover rate ............... 7.97% 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, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2010 --------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ----------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 5.28 $ 6.77 $ 9.86 $ 8.88 $ 9.65 $ 8.55
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .... (0.04) 0.03 0.01 --(c) 0.01 0.06
Net realized and unrealized gains
(losses) ........................ 0.53 (0.96) (2.21) 2.07 0.83 1.98
------- ------- ------- ------- ------- -------
Total from investment operations ...... 0.49 (0.93) (2.20) 2.07 0.84 2.04
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .............. (0.04) (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 ................... (0.04) (0.56) (0.89) (1.09) (1.61) (0.94)
------- ------- ------- ------- ------- -------
Redemption fees(d) .................... -- -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- ------- -------
Net asset value, end of period ........ $ 5.73 $ 5.28 $ 6.77 $ 9.86 $ 8.88 $ 9.65
======= ======= ======= ======= ======= =======
Total return(e) ....................... 9.28% (8.96)% (24.38)% 25.58% 10.89% 25.74%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 2.15% 2.26% 2.09% 2.06% 2.09% 2.10%
Net investment income (loss) .......... (1.33)% 0.70% 0.19% (0.06)% 0.15% 0.58%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $35,310 $33,300 $49,346 $98,269 $71,857 $55,448
Portfolio turnover rate ............... 7.97% 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, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Templeton Global Smaller Companies Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2010 -----------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005
- ------------- ----------------- -------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 5.43 $ 7.00 $ 10.17 $ 9.11 $ 9.84 $ 8.71
-------- -------- -------- -------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .... (0.01) 0.07 0.10 0.10 0.11 0.16
Net realized and unrealized gains
(losses) ........................ 0.54 (1.00) (2.29) 2.13 0.82 2.01
-------- -------- -------- -------- ------- -------
Total from investment operations ...... 0.53 (0.93) (2.19) 2.23 0.93 2.17
-------- -------- -------- -------- ------- -------
Less distributions from:
Net investment income .............. (0.07) (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 ................... (0.07) (0.64) (0.98) (1.17) (1.66) (1.04)
-------- -------- -------- -------- ------- -------
Redemption fees(c) .................... -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- ------- -------
Net asset value, end of period ........ $ 5.89 $ 5.43 $ 7.00 $ 10.17 $ 9.11 $ 9.84
======== ======== ======== ======== ======= =======
Total return(e) ....................... 9.72% (7.94)% (23.69)% 26.98% 11.83% 27.07%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 1.15% 1.26% 1.12% 1.07% 1.09% 1.10%
Net investment income (loss) .......... (0.33)% 1.70% 1.16% 0.93% 1.15% 1.58%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $112,327 $108,383 $126,003 $117,115 $60,588 $39,912
Portfolio turnover rate ............... 7.97% 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 is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
16 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (UNAUDITED)
INDUSTRY SHARES VALUE
---------------------------------- ----------- ------------
COMMON STOCKS 89.8%
AUSTRALIA 5.7%
Billabong International Ltd. ........ Textiles, Apparel & Luxury Goods 597,939 $ 5,447,091
(a) Billabong International Ltd., 144A .. Textiles, Apparel & Luxury Goods 103,686 944,556
Emeco Holdings Ltd. ................. Trading Companies & Distributors 18,804,313 11,538,115
(b) Iluka Resources Ltd. ................ Metals & Mining 3,205,222 10,278,458
(b) Pacific Brands Ltd. ................. Distributors 11,651,881 11,898,377
(a, b) Pacific Brands Ltd., 144A ........... Distributors 8,738,910 8,923,782
(b) PaperlinX Ltd. ...................... Paper & Forest Products 10,456,146 5,853,808
------------
54,884,187
------------
BAHAMAS 2.1%
(b) Steiner Leisure Ltd. ................ Diversified Consumer Services 464,960 19,979,331
------------
BELGIUM 1.2%
(b) Barco NV ............................ Electronic Equipment, Instruments
& Components 294,630 11,685,600
------------
BERMUDA 1.9%
(b) MF Global Holdings Ltd. ............. Capital Markets 2,645,470 18,306,652
------------
CANADA 7.3%
(b) ATS Automation Tooling Systems
Inc. ............................. Machinery 885,180 5,779,497
Biovail Corp. ....................... Pharmaceuticals 896,170 13,261,136
Canaccord Financial Inc. ............ Capital Markets 1,926,100 15,504,720
Dorel Industries Inc., B ............ Household Durables 171,100 4,928,760
Genworth MI Canada Inc. ............. Thrifts & Mortgage Finance 107,100 2,773,688
(a) Genworth MI Canada Inc., 144A ....... Thrifts & Mortgage Finance 466,800 12,089,242
(b) HudBay Minerals Inc. ................ Metals & Mining 666,400 8,417,084
Mullen Group Ltd. ................... Energy Equipment & Services 531,700 7,766,802
------------
70,520,929
------------
CAYMAN ISLANDS 1.3%
Stella International Holdings Ltd. .. Textiles, Apparel & Luxury Goods 6,236,487 12,855,009
------------
CHINA 3.5%
(b) Bio-Treat Technology Ltd. ........... Commercial Services & Supplies 22,322,095 1,349,678
People's Food Holdings Ltd. ......... Food Products 31,076,840 15,032,189
Sinotrans Ltd., H ................... Air Freight & Logistics 66,042,621 17,867,178
------------
34,249,045
------------
FINLAND 2.8%
Amer Sports OYJ ..................... Leisure Equipment & Products 1,561,477 17,242,094
(b) Elcoteq SE, A ....................... Communications Equipment 143,298 243,884
Huhtamaki OYJ ....................... Containers & Packaging 863,810 9,408,964
------------
26,894,942
------------
GERMANY 0.6%
(b) Jenoptik AG Electronic Equipment, Instruments
& Components 977,110 6,033,292
------------
Semiannual Report | 17
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------- ----------- ------------
COMMON STOCKS (CONTINUED)
HONG KONG 7.5%
Asia Satellite Telecommunications
Holdings Ltd. .................... Diversified Telecommunication
Services 3,454,500 $ 4,850,919
(b) Dah Sing Financial Group ............ Commercial Banks 4,228,400 21,462,715
(b) Fountain Set (Holdings) Ltd. ........ Textiles, Apparel & Luxury Goods 33,524,000 5,614,506
Giordano International Ltd. ......... Specialty Retail 40,089,348 12,601,760
Hopewell Holdings Ltd. .............. Real Estate Management &
Development 2,982,000 8,720,590
Hung Hing Printing Group Ltd. ....... Containers & Packaging 20,862,508 6,611,713
Yue Yuen Industrial Holdings Ltd. ... Textiles, Apparel & Luxury Goods 4,196,500 12,461,506
------------
72,323,709
------------
JAPAN 3.9%
Asics Corp. ......................... Textiles, Apparel & Luxury Goods 36,000 337,861
Descente Ltd. ....................... Textiles, Apparel & Luxury Goods 2,333,000 12,706,600
Kobayashi Pharmaceutical Co. Ltd. ... Personal Products 227,200 9,267,991
MEITEC Corp. ........................ Professional Services 239,900 4,389,550
(b) Takuma Co. Ltd. ..................... Machinery 2,348,000 5,469,375
USS Co. Ltd. ........................ Specialty Retail 81,030 5,252,155
------------
37,423,532
------------
NETHERLANDS 7.7%
Aalberts Industries NV .............. Machinery 803,140 11,164,790
(b) Draka Holding NV .................... Electrical Equipment 859,206 14,184,454
Imtech NV ........................... Construction & Engineering 354,681 10,829,389
Mediq NV ............................ Health Care Providers & Services 838,560 14,334,562
TKH Group NV ........................ Communications Equipment 847,666 15,580,884
(b) USG People NV ....................... Professional Services 521,736 8,456,950
------------
74,551,029
------------
NORWAY 0.3%
Tomra Systems ASA ................... Commercial Services & Supplies 715,996 3,452,773
------------
SINGAPORE 0.1%
(b) Huan Hsin Holdings Ltd. ............. Electronic Equipment, Instruments
& Components 6,101,000 1,041,571
------------
SOUTH KOREA 6.1%
Busan Bank .......................... Commercial Banks 1,793,670 18,014,013
Daeduck Electronics Co. Ltd. ........ Electronic Equipment, Instruments
& Components 1,221,875 6,362,177
Daegu Bank Co. Ltd. ................. Commercial Banks 1,171,230 14,943,279
INTOPS Co. Ltd. ..................... Electronic Equipment, Instruments
& Components 223,678 3,114,138
Sindoh Co. Ltd. ..................... Office Electronics 177,899 8,296,841
Youngone Corp. ...................... Textiles, Apparel & Luxury Goods 657,168 5,393,310
Youngone Holdings Co. Ltd. .......... Textiles, Apparel & Luxury Goods 93,948 2,425,640
------------
58,549,398
------------
SPAIN 0.8%
Sol Melia SA ........................ Hotels, Restaurants & Leisure 1,078,193 7,780,472
------------
18 | Semiannual Report
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------- ----------- ------------
COMMON STOCKS (CONTINUED)
SWEDEN 0.7%
(b, c) D. Carnegie & Co. AB ................ Capital Markets 2,352,546 $ --
Niscayah Group AB ................... Commercial Services & Supplies 3,472,830 6,972,086
------------
6,972,086
------------
SWITZERLAND 3.2%
Panalpina Welttransport Holding AG .. Air Freight & Logistics 244,850 16,406,124
Verwaltungs- und Privat-Bank AG ..... Capital Markets 75,518 7,569,018
Vontobel Holding AG ................. Capital Markets 230,647 6,857,914
------------
30,833,056
------------
TAIWAN 4.6%
D-Link Corp. ........................ Communications Equipment 5,902,930 5,989,278
Giant Manufacturing Co. Ltd. ........ Leisure Equipment & Products 4,639,320 12,836,463
(b) Ta Chong Bank Ltd. .................. Commercial Banks 52,393,000 10,256,831
Taiwan Fu Hsing ..................... Building Products 9,336,180 5,491,871
Test-Rite International Co. Ltd. .... Distributors 16,875,630 9,454,134
------------
44,028,577
------------
THAILAND 3.1%
Bank of Ayudhya Public Co. Ltd.,
fgn. ............................. Commercial Banks 34,027,200 21,102,937
Independent Power Producers &
Glow Energy Public Co. Ltd., fgn. ... Energy Traders 8,979,896 9,032,871
------------
30,135,808
------------
UNITED KINGDOM 6.7%
Bodycote PLC ........................ Machinery 4,644,597 12,670,260
Burberry Group PLC .................. Textiles, Apparel & Luxury Goods 975,321 9,309,986
Fiberweb PLC ........................ Personal Products 7,298,999 6,483,154
Future PLC .......................... Media 11,231,610 3,211,223
GAME Group PLC ...................... Specialty Retail 3,408,480 4,269,681
Henderson Group PLC ................. Capital Markets 9,149,752 17,481,856
(b) Yule Catto & Co. PLC ................ Chemicals 4,296,057 10,972,661
------------
64,398,821
------------
UNITED STATES 18.7%
Brinker International Inc. .......... Hotels, Restaurants & Leisure 539,910 9,777,770
(b) Chico's FAS Inc. .................... Specialty Retail 1,472,490 19,952,239
(b) Fossil Inc. ......................... Textiles, Apparel & Luxury Goods 440,540 15,969,575
(b) Hibbett Sports Inc. ................. Specialty Retail 821,570 18,904,326
(b) JAKKS Pacific Inc. .................. Leisure Equipment & Products 983,320 12,144,002
(b) K-Swiss Inc., A ..................... Textiles, Apparel & Luxury Goods 1,293,330 12,079,702
(b, d) Leapfrog Enterprises Inc. ........... Leisure Equipment & Products 2,971,610 16,195,274
Legg Mason Inc. ..................... Capital Markets 591,630 15,293,636
(b) RC2 Corp. ........................... Leisure Equipment & Products 292,400 4,125,764
(b) Sealy Corp. ......................... Household Durables 3,655,420 12,647,753
(b) Tempur-Pedic International Inc. ..... Household Durables 338,080 9,601,472
(b) True Religion Apparel Inc. .......... Textiles, Apparel & Luxury Goods 250,510 6,152,526
(b) VASCO Data Security International
Inc. ............................. Software 1,010,230 8,001,022
Semiannual Report | 19
Templeton Global Smaller Companies Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (UNAUDITED) (CONTINUED)
INDUSTRY SHARES VALUE
---------------------------------- ----------- ------------
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
(b) Volcom Inc. ......................... Textiles, Apparel & Luxury Goods 516,790 $ 8,340,991
(b, d) West Marine Inc. .................... Specialty Retail 1,260,280 11,884,440
------------
181,070,492
------------
TOTAL COMMON STOCKS
(COST $887,723,216) .............. 867,970,311
------------
NOTE
AMOUNT(e)
-----------
CONVERTIBLE BONDS (COST $22,376,433)
2.8%
UNITED STATES 2.8%
(f) Sealy Corp., 8.00%, cvt. pfd. note,
PIK, 7/15/16 ..................... Household Durables 281,186 26,712,670
------------
TOTAL INVESTMENTS BEFORE SHORT TERM
INVESTMENTS (COST $910,099,649) .. 894,682,981
------------
PRINCIPAL
AMOUNT
-----------
SHORT TERM INVESTMENTS 6.9%
U.S. GOVERNMENT AND AGENCY SECURITIES 6.9%
(g) FHLB, 3/01/10 ....................... 26,525,000 26,525,000
(g) FHLMC,
6/25/10 .......................... 15,000,000 14,995,170
6/29/10 .......................... 25,000,000 24,991,675
------------
TOTAL U.S. GOVERNMENT AND AGENCY
SECURITIES (COST $66,499,422) .... 66,511,845
------------
TOTAL INVESTMENTS (COST $976,599,071)
99.5% ............................ 961,194,826
OTHER ASSETS, LESS LIABILITIES 0.5% 4,705,149
------------
NET ASSETS 100.0% ................... $965,899,975
============
See Abbreviations on page 33.
(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 February 28, 2010,
the aggregate value of these securities was $21,957,580, representing 2.27%
of net assets.
(b) Non-income producing.
(c) Security has been deemed illiquid because it may not be able to be sold
within seven days.
(d) See Note 8 regarding holdings of 5% voting securities.
(e) Principal amount is equal to $26 per note. Total principal amount is
$7,310,836.
(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.
20 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2010 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................. $ 928,413,730
Cost - Non-controlled affiliated issuers (Note 8) ....... 48,185,341
--------------
Total cost of investments ............................... $ 976,599,071
==============
Value - Unaffiliated issuers ............................ $ 933,115,112
Value - Non-controlled affiliated issuers (Note 8) ...... 28,079,714
==============
Total value of investments .............................. 961,194,826
Cash ....................................................... 4,580
Receivables:
Investment securities sold .............................. 5,404,401
Capital shares sold ..................................... 1,215,544
Dividends ............................................... 1,624,353
Other assets ............................................... 2,797
--------------
Total assets ......................................... 969,446,501
--------------
Liabilities:
Payables:
Investment securities purchased ......................... 1,027,395
Capital shares redeemed ................................. 1,184,164
Affiliates .............................................. 913,450
Unaffiliated transfer agent fees ........................ 192,691
Accrued expenses and other liabilities ..................... 228,826
--------------
Total liabilities .................................... 3,546,526
--------------
Net assets, at value .............................. $ 965,899,975
==============
Net assets consist of:
Paid-in capital ............................................ $1,169,162,617
Distributions in excess of net investment income ........... (2,998,463)
Net unrealized appreciation (depreciation) ................. (15,379,216)
Accumulated net realized gain (loss) ....................... (184,884,963)
--------------
Net assets, at value .............................. $ 965,899,975
==============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 21
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010 (unaudited)
CLASS A:
Net assets, at value ....................................... $815,366,248
============
Shares outstanding ......................................... 138,685,913
============
Net asset value per share(a) ............................... $ 5.88
============
Maximum offering price per share (net asset value per share
/ 94.25%) ............................................... $ 6.24
============
CLASS B:
Net assets, at value ....................................... $ 2,896,065
============
Shares outstanding ......................................... 517,025
============
Net asset value and maximum offering price per share(a) .... $ 5.60
============
CLASS C:
Net assets, at value ....................................... $ 35,310,225
============
Shares outstanding ......................................... 6,161,144
============
Net asset value and maximum offering price per share(a) .... $ 5.73
============
ADVISOR CLASS:
Net assets, at value ....................................... $112,327,437
============
Shares outstanding ......................................... 19,056,435
============
Net asset value and maximum offering price per share ....... $ 5.89
============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
22 | Semiannual Report
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2010 (unaudited)
Investment income:
Dividends (net of foreign taxes of $395,573) ................ $ 3,953,109
Interest .................................................... 31,167
-----------
Total investment income ............................ 3,984,276
-----------
Expenses:
Management fees (Note 3a) ................................... 3,642,886
Administrative fees (Note 3b) ............................... 622,173
Distribution fees: (Note 3c)
Class A .................................................. 1,058,613
Class B .................................................. 14,748
Class C .................................................. 179,323
Transfer agent fees (Note 3e) ............................... 943,107
Custodian fees (Note 4) ..................................... 142,364
Reports to shareholders ..................................... 86,643
Registration and filing fees ................................ 49,694
Professional fees ........................................... 22,410
Trustees' fees and expenses ................................. 40,834
Other ....................................................... 19,505
-----------
Total expenses ..................................... 6,822,300
Expense reductions (Note 4) ........................ (232)
-----------
Net expenses .................................... 6,822,068
-----------
Net investment income (loss) ................. (2,837,792)
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers .................................. 13,360,848
Non-controlled affiliated issuers (Note 8) ............ (2,671,831)
Foreign currency transactions ............................ (10,224)
-----------
Net realized gain (loss) ........................ 10,678,793
-----------
Net change in unrealized appreciation (depreciation) on:
Investments .............................................. 78,011,420
Translation of other assets and liabilities denominated in
foreign currencies .................................... (21,013)
-----------
Net change in unrealized appreciation
(depreciation) ............................... 77,990,407
-----------
Net realized and unrealized gain (loss) ........................ 88,669,200
-----------
Net increase (decrease) in net assets resulting from operations $85,831,408
===========
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 23
Templeton Global Smaller Companies Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 2010 YEAR ENDED
(UNAUDITED) AUGUST 31, 2009
----------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................................ $ (2,837,792) $ 10,208,191
Net realized gain (loss) from investments and foreign currency
transactions ..................................................... 10,678,793 (195,685,294)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities
denominated in foreign currencies ................................ 77,990,407 56,459,180
------------ --------------
Net increase (decrease) in net assets resulting from
operations ................................................. 85,831,408 (129,017,923)
------------ --------------
Distributions to shareholders from:
Net investment income:
Class A .......................................................... (8,704,162) (10,399,127)
Class B .......................................................... (20,173) (11,709)
Class C .......................................................... (249,345) (143,310)
Advisor Class .................................................... (1,234,268) (2,277,049)
Net realized gains:
Class A .......................................................... -- (66,168,273)
Class B .......................................................... -- (306,993)
Class C .......................................................... -- (3,426,195)
Advisor Class .................................................... -- (12,127,130)
------------ --------------
Total distributions to shareholders .................................... (10,207,948) (94,859,786)
------------ --------------
Capital share transactions: (Note 2)
Class A .......................................................... 18,257,857 (8,508,052)
Class B .......................................................... (278,759) (548,255)
Class C .......................................................... (792,514) (4,470,044)
Advisor Class .................................................... (4,369,812) (1,147,071)
------------ --------------
Total capital share transactions ....................................... 12,816,772 (14,673,422)
------------ --------------
Net increase (decrease) in net assets ......................... 88,440,232 (238,551,131)
Net assets:
Beginning of period .................................................... 877,459,743 1,116,010,874
------------ --------------
End of period .......................................................... $965,899,975 $ 877,459,743
============ ==============
Undistributed net investment income (distributions in excess of net
investment income) included in net assets:
End of period .......................................................... $ (2,998,463) $ 10,047,277
============ ==============
The accompanying notes are an integral part of these financial statements.
24 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Global Smaller Companies Fund (Fund) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company. The Fund offers four classes of shares: Class A, Class B, Class C, and
Advisor Class. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
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.
Corporate debt and government securities generally trade in the over-the-counter
market rather than on a securities exchange. The Fund may utilize independent
pricing services, quotations from bond dealers, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Fund's pricing services may use valuation models or matrix
pricing which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.
Foreign 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
Semiannual Report | 25
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
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.
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. The Fund may enter
into foreign currency exchange contracts to facilitate transactions denominated
in a foreign currency. 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 February 28, 2010, and has
determined that no provision for income tax is required in the Fund's financial
statements.
26 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. INCOME TAXES (CONTINUED)
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
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 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. 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.
Semiannual Report | 27
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2010, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2010 AUGUST 31, 2009
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Shares sold .................... 27,370,505 $ 159,727,974 15,188,376 $ 69,507,491
Shares issued in reinvestment of
distributions ............... 1,281,302 7,655,959 19,523,769 67,357,003
Shares redeemed ................ (25,238,885) (149,126,076) (33,690,427) (145,372,546)
---------- ------------- ----------- -------------
Net increase (decrease) ........ 3,412,922 $ 18,257,857 1,021,718 $ (8,508,052)
========== ============= =========== =============
CLASS B SHARES:
Shares sold .................... 12,891 $ 72,018 50,752 $ 217,080
Shares issued in reinvestment of
distributions ............... 3,389 19,752 87,357 288,277
Shares redeemed ................ (66,733) (370,529) (244,634) (1,053,612)
---------- ------------- ----------- -------------
Net increase (decrease) ........ (50,453) $ (278,759) (106,525) $ (548,255)
========== ============= =========== =============
CLASS C SHARES:
Shares sold .................... 657,153 $ 3,757,372 826,267 $ 3,466,848
Shares issued in reinvestment of
distributions ............... 36,379 217,055 842,760 2,848,530
Shares redeemed ................ (836,215) (4,766,941) (2,655,994) (10,785,422)
---------- ------------- ----------- -------------
Net increase (decrease) ........ (142,683) $ (792,514) (986,967) $ (4,470,044)
========== ============= =========== =============
ADVISOR CLASS SHARES:
Shares sold .................... 1,689,262 $ 9,903,389 9,099,343 $ 37,372,758
Shares issued in reinvestment of
distributions ............... 195,334 1,179,629 4,079,917 14,075,713
Shares redeemed ................ (2,783,432) (15,452,830) (11,220,232) (52,595,542)
---------- ------------- ----------- -------------
Net increase (decrease) ........ (898,836) $ (4,369,812) 1,959,028 $ (1,147,071)
========== ============= =========== =============
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
- ---------- --------------------------------
Franklin Templeton Investment Corp. (FTIC) Investment manager
Templeton Investment Counsel, LLC (TIC) Investment manager - sub advisor
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
28 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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%
Semiannual Report | 29
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 period:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $93,036
Contingent deferred sales charges retained ................... $ 1,133
E. TRANSFER AGENT FEES
For the period ended February 28, 2010, the Fund paid transfer agent fees of
$943,107, of which $519,755 was retained by Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended February 28, 2010, 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.
At February 28, 2010, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ......................... $ 977,412,185
=============
Unrealized appreciation ..................... $ 173,870,746
Unrealized depreciation ..................... (190,088,105)
-------------
Net unrealized appreciation (depreciation) .. $ (16,217,359)
=============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions, passive
foreign investment company shares, 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.
30 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 28, 2010, aggregated $72,198,186 and $130,637,091,
respectively.
7. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 1940 Act defines "affiliated companies" to include investments in portfolio
companies in which a fund owns 5% or more of the outstanding voting securities.
Investments in "affiliated companies" for the Fund for the period ended February
28, 2010, were as shown below.
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME GAIN (LOSS)
- -------------- ------------ --------- ---------- ----------- ----------- ---------- -----------
NON-CONTROLLED AFFILIATES
Leapfrog Enterprises
Inc. .................. 2,971,610 -- -- 2,971,610 $16,195,274 $-- $ --
West Marine Inc. ......... 1,592,777 -- 332,497 1,260,280 11,884,440 -- (2,671,831)
----------- --- -----------
TOTAL AFFILIATED
SECURITIES (2.91% of
Net Assets) .............................................................. $28,079,714 $-- $(2,671,831)
=========== === ===========
9. CREDIT FACILITY
The Fund, together with other U.S. registered and foreign investment funds
(collectively "Borrowers"), managed by Franklin Templeton Investments, are
borrowers in a 364-day joint syndicated senior unsecured credit facility
totaling $750 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. On January 22,
2010, the Fund renewed the Global Credit Facility for a total of $750 million,
maturing January 21, 2011.
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 of 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statement of
Operations. During the period ended February 28, 2010, the Fund did not utilize
the Global Credit Facility.
Semiannual Report | 31
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. FAIR VALUE MEASUREMENTS
The Fund follows 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.
The following is a summary of the inputs used as of February 28, 2010, in
valuing the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ----------- ------- ------------
ASSETS:
Investments in Securities:
Equity Investments(a) ... $867,970,311 $ -- $--(b) $867,970,311
Convertible Bonds ....... 26,712,670 -- -- 26,712,670
Short Term Investments .. -- 66,511,845 -- 66,511,845
------------ ----------- --- ------------
Total Investments in
Securities ........ $894,682,981 $66,511,845 $-- $961,194,826
============ =========== === ============
(a) For detailed industry descriptions, see the accompanying Statement of
Investments.
(b) Includes securities determined to have no value at February 28, 2010.
11. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND
DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS,
which enhances and clarifies existing fair value measurement disclosure
requirements and is effective for interim and annual periods beginning after
December 15, 2009. The Fund is currently evaluating the impact, if any, of
applying this provision.
In March 2010, the FASB issued ASU No. 2010-11, DERIVATIVES AND HEDGING (TOPIC
815): SCOPE EXCEPTION RELATED TO EMBEDDED CREDIT DERIVATIVES, which clarifies
existing derivatives and hedging disclosure requirements and is effective for
fiscal quarters beginning after June 15, 2010. The Fund is currently evaluating
the impact, if any, of applying this provision.
32 | Semiannual Report
Templeton Global Smaller Companies Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the issuance of the financial
statements and determined that no events have occurred that require disclosure.
ABBREVIATIONS
SELECTED PORTFOLIO
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
PIK - Payment-In-Kind
Semiannual Report | 33
Templeton Global Smaller Companies Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Fund uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Fund's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at (954) 527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling (800)
SEC-0330.
34 | Semiannual Report
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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(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
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 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(4)
Templeton Global Long-Short Fund(5)
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(6)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(6)
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(6)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(7)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)
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(9)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(10)
Michigan(10)
Minnesota(10)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(10)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(11)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) Effective 12/18/09, this fund is closed to new investors, pending a
proposal to merge the fund into Templeton World Fund. Existing shareholders
may continue to make additional investments until shortly before the
completion of the transaction, expected in April 2010.
(6.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(7.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(8.) The fund invests primarily in insured municipal securities.
(9.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(10.) 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 2/15/09.
(11.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/10 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON GLOBAL SMALLER
COMPANIES FUND
INVESTMENT MANAGER
Franklin Templeton Investments Corp.
SUBADVISOR
Templeton Investment Counsel, LLC
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
Authorized for distribution only when accompanied or preceded by a summary
prospectus and/or 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. A 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 S 04/10
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a
copy of its code of ethics that applies to its principal executive
officers and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is David W. Niemiec and he is
"independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON GLOBAL SMALLER COMPANIES FUND
By /s/LAURA F. FERGERSON
- ------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date: April 27, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/LAURA F. FERGERSON
- ------------------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date: April 27, 2010
By /s/MARK H. OTANI
- -------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: April 27, 2010