ncscrs_tgscf-0212.htm - Generated by SEC Publisher for SEC Filing

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.

This semiannual report for Templeton Global Smaller Companies Fund covers
the period ended February 29, 2012.

Performance Overview

For the six months under review, Templeton Global Smaller Companies Fund –
Class A delivered a cumulative total return of +2.43%. The Fund underper-
formed the +7.38% total return of its new benchmark, the MSCI All Country
(AC) World Small Cap Index, which measures performance of small capital-
ization companies in global developed and emerging markets.¹The Fund also

1. Source: © 2012 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 indexes are 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

underperformed the +8.54% total return of its previous benchmark, the MSCI World Index, which measures stock market performance in global developed markets.¹The MSCI AC World Small Cap Index replaced the MSCI World Index because we believe it provides a better comparison to the Fund’s portfolio composition. Please note index performance information is provided for reference and 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.

Economic and Market Overview

Global stocks, as measured by the MSCI World Index, rose from their lowest levels in over a year to deliver solid gains for the six months under review, despite persistent concerns surrounding Europe’s fiscal crisis and a global economic slowdown. The period began amid elevated volatility as sovereign bond yields in Europe spiked to record levels and policymakers scrambled to contain the gathering debt crisis. Greek and Italian debt came under intense pressure, forcing the dissolution of their respective governments and installment of technocrat-led coalitions to oversee restructuring and austerity programs. Realizing the severity of the situation, many policymakers resumed their vigilance. The European Central Bank cut interest rates and expanded lending facilities through the introduction of its Long-Term Refinancing Operation, which provided more than 1 trillion euros (US$1.3 trillion) of low-cost capital to regional lenders in two separate auctions. Greece received its second bailout toward period-end, along with the painful provision of debt restructuring and austerity programs. Policymakers elsewhere also came to Europe’s aid, with the International Monetary Fund revamping its credit line and six global central banks agreeing to lower funding costs for Europe’s distressed lenders. In the U.S., the Federal Reserve Board initiated “Operation Twist,” a program that used the proceeds of short-dated bond sales to fund the purchase of longer dated issues in an effort to drive down key borrowing costs. In emerging markets, China and India encouraged loan growth by reducing the amount of capital banks are required to keep on hand, while Brazil cut interest rates three times during the review period.

The cumulative effect of these decisive policy moves was a period of stabilization that supported broad equity market gains. Resilient corporate earnings and generally improving economic data also fueled the rally, particularly in the U.S., where fourth quarter 2011 growth domestic product (GDP) grew a better-than-expected 3% annualized. Indicators ranging from home sales to unemployment claims to consumer confidence all improved toward period-end. Economic news elsewhere was mostly mixed. Fourth quarter GDP growth of 8.9% in China and 6.1% in India, while still robust in absolute

4 | Semiannual Report

terms, disappointed investor expectations and constituted the weakest eco-
nomic advances since 2009 for the world’s two most populous countries.²In
the eurozone, fourth quarter GDP contracted for the first time since 2009,
registering -0.3% from the previous quarter.³Such growth concerns generally
pressured commodity prices, with the exception of oil, which approached
record highs due to fears geopolitical developments in the Middle East could
strangle supply. Meanwhile, a relatively better near-term growth outlook in
the U.S. helped flatten the Treasury yield curve and supported the dollar’s
rally against the euro and yen.

Investment Strategy

At Templeton, when choosing investments for this Fund, we take a bottom-
up, value-oriented, long-term approach, focusing on the market price of a
company’s securities relative to our evaluation of the company’s long-term
earnings, asset value and cash flow growth potential. We also consider the
company’s price/earnings ratio, profit margins and liquidation value.

Manager’s Discussion

Several holdings performed well during the six-month period under review.
U.S.-based LeapFrog Enterprises is a leading, technology-based educational
toy and product maker focused on young children. LeapFrog’s well-known
brand name is synonymous with electronic learning, in our opinion, and the
company maintains a solid balance sheet. Its shares benefited from strong
earnings growth that exceeded analysts’ expectations. We believe the com-
pany, which has successfully restructured and significantly cut costs over the
past few years, offers attractive growth potential.

Sonic Automotive is the third-largest automotive retailer in the U.S. The
company’s strong revenue growth contributed to share price appreciation.
We believe Sonic’s improved debt profile, strong operating ratios and high-
quality of its franchise portfolio could continue to enhance the company’s
performance versus that of its competitors.

Hibbett Sports is an industry-leading U.S. sporting goods retailer with a
competitive position. During the period, Hibbett enjoyed solid sales and
margin performance, which drove its share price higher. The company fills a
market niche by focusing expansion in U.S. counties with smaller popula-
tions and serving as the primary, full-priced distribution outlet for premium

2. Sources: National Bureau of Statistics (China); India Central Statistical Organization.
3. Source: Eurostat.

Semiannual Report | 5

branded vendors. In our opinion, this low-cost, small market focus provided insulation from competition and contributed to strong sales growth, operating profits and return on capital.

Certain positions underperformed during the period under review. U.S.-based Savient is a specialty biopharmaceutical company focusing on niche markets. Its shares declined following a disappointing sales launch of its gout drug, Krystexxa, due to delayed approval for reimbursement by Medicare and Medicaid and a lack of physician training and awareness regarding the drug’s unique benefits. Krystexxa has since been approved for reimbursement, and Savient strengthened efforts to educate physicians on the drug’s safety and efficacy. Krystexxa’s commercialization is at an early stage, and we believe the potential for this drug to treat an unmet medical need was not fairly reflected in the stock’s valuation.

U.S.-based K-Swiss designs, develops and markets athletic footwear for sports use, fitness activities and casual wear. Its share price fell during the period due to weak sales and margins, as well as news of a planned heavy marketing campaign that prompted analysts to reduce short-term earnings estimates. We believe the company’s new product range could benefit margins and lead to improved share-price performance.

Vectura is a U.K.-based, emerging biotechnology company focused on developing inhalers and formulating drugs for lung disease treatments. Despite Vectura’s disappointing short-term performance, we believe the company is well positioned to benefit from opportunities in the asthma market. Our analysis shows that unlike many small-cap biotechnology firms, where most of the value usually resides in a single, higher risk product or technology platform, Vectura is well capitalized, receives predictable royalty streams and has strategies to advance its product development without increasing research and development expenditures. In our view, Vectura represents a combination of predictable existing income and a well-capitalized balance sheet, and it possesses strong potential for future growth.

It is important to recognize the effect of currency movements on the Fund’s performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the six months ended February 29, 2012, the U.S. dollar rose in value relative to most currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s investment primarily in securities with non-U.S. currency exposure.

6 | Semiannual Report

Thank you for your continued participation in Templeton Global Smaller
Companies Fund. We look forward to serving your future investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of February 29, 2012, 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 reli-
able, 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 (continued)

Endnotes

All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctu-
ations, 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 is actively managed but there is no
guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the
main investment risks.

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 use-
ful 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.

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.41%; B: 2.16%; C: 2.16%; and
Advisor: 1.16%), multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period.

12 | Semiannual Report

Templeton Global Smaller Companies Fund

Financial Highlights

^aThe 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.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 13

^aThe 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.
^bBased on average daily shares outstanding.
^cAmount rounds to less than $0.01 per share.
^dEffective September 1, 2008, the redemption fee was eliminated.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

14 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Templeton Global Smaller Companies Fund

^aThe 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.
^bBased on average daily shares outstanding.
^cAmount rounds to less than $0.01 per share.
^dEffective September 1, 2008, the redemption fee was eliminated.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15

Templeton Global Smaller Companies Fund

^aThe 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.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Templeton Global Smaller Companies Fund

Statement of Investments, February 29, 2012 (unaudited) (continued)

See Abbreviations on page 35.

^†Rounds to less than 0.1% of net assets.
^aNon-income producing.
^bSecurity has been deemed illiquid because it may not be able to be sold within seven days.
^cSee Note 8 regarding holdings of 5% voting securities.
^dA portion or all of the security is on loan at February 29, 2012. See Note 1(c).
^eThe security is traded on a discount basis with no stated coupon rate.
^fSee Note 1(c) regarding securities on loan.
^gThe rate shown is the annualized seven-day yield at period end.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 21

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. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Fund’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an 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. 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. 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. Over-the-counter securities 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. Investments in non-registered money market funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values,

26 | Semiannual Report

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, 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 Depositary 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 that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. 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.

Semiannual Report | 27

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Securities Lending

The Fund participates in an agency based securities lending program. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is invested in a non-registered money fund as indicated on the Statement of Investments. The Fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.

d. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of February 29, 2012, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

28 | Semiannual Report

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
e.	Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

g. 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 | 29

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

2. SHARES OF BENEFICIAL INTEREST

At February 29, 2012, there were an unlimited number of shares authorized (without par value).
Transactions in the Fund’s shares were as follows:

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:

30 | 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:

Under a subadvisory agreement, TIC, an affiliate of FTIC, provides subadvisory services to the
Fund. The subadvisory fee is paid by FTIC based on the average daily net assets, and is not an
additional expense 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:

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:

Semiannual Report | 31

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES (continued)

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses
of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to
investment or from redemption proceeds prior to remittance, as applicable. Distributors has
advised the Fund of the following commission transactions related to the sales and redemptions
of the Fund’s shares for the period:

e. Transfer Agent Fees

For the period ended February 29, 2012, the Fund paid transfer agent fees of $924,884, of
which $486,551 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 29, 2012, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At
August 31, 2011, the Fund had tax basis capital losses of $108,062,968 expiring in 2018. During
the year ended August 31, 2011, the Fund utilized $54,484,822 of capital loss carryforwards.

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permit-
ted to carry forward capital losses incurred in taxable years beginning after December 22, 2010
for an unlimited period. Post-enactment capital loss carryforwards will retain their character as
either short-term or long-term capital losses rather than being considered short-term as under
previous law. Any post-enactment capital losses generated will be required to be utilized prior to
the losses incurred in pre-enactment tax years.

At February 29, 2012, the cost of investments and net unrealized appreciation (depreciation) for
income tax purposes were as follows:

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

5. INCOME TAXES (continued)

Differences between income and/or capital gains as determined on a book basis and a tax basis
are primarily due to differing treatments of foreign currency transactions, passive foreign invest-
ment company shares, payments-in-kind, and corporate actions.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended
February 29, 2012, aggregated $97,812,328 and $172,773,360, respectively.

7. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associ-
ated 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 29, 2012, were as shown below.

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 joint syndicated
senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which matures on
January 18, 2013. This Global Credit Facility provides a source of funds to the Borrowers for
temporary and emergency purposes, including the ability to meet future unanticipated or unusu-
ally large redemption requests.

Semiannual Report | 33

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

9. CREDIT FACILITY (continued)

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 0.08% 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 29, 2012, the Fund did not use the Global Credit Facility.

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 sum-
marized 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.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy
of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of February 29, 2012, in valuing the Fund’s
assets and liabilities carried at fair value:

34 | Semiannual Report

Templeton Global Smaller Companies Fund

Notes to Financial Statements (unaudited) (continued)

11. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The
amendments in the ASU will improve the comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted
Accounting Principles) and IFRS (International Financial Reporting Standards) and include new
guidance for certain fair value measurement principles and disclosure requirements. The ASU is
effective for interim and annual periods beginning after December 15, 2011. The Fund believes
the adoption of this ASU will not have a material impact on its financial statements.

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.

Semiannual Report | 35

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, share-
holders 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,
300 S.E. 2nd Street, Fort Lauderdale, FL 33301, 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.

36 | Semiannual Report

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 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