ANNUAL
REPORT
December 31, 1998
Franklin Mutual Series Fund Inc.
Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Discovery Fund
Mutual European Fund
Mutual Financial Services Fund
[FRANKLIN TEMPLETON LOGO]
PAGE
Thank you for investing with
Franklin Templeton. We encourage
our investors to maintain a long-
term perspective and remember
that all securities markets move
both up and down, as do mutual
fund share prices. We appreciate
your past support and look
forward to serving your investment
needs in the years ahead.
[PHOTO]
(left to right)
MICHAEL F. PRICE
Chairman of the Board
ROBERT FRIEDMAN
Chief Investment Officer
PETER A. LANGERMAN
Chief Executive Officer
PAGE
SHAREHOLDER LETTER
Dear Fellow Shareholder:
1998 was a challenging year for value investors. Although the top 20 stocks of
the Standard & Poor's(R) 500 Stock Index soared, the vast majority of equities
offered lackluster performance. Through most of the year, value investors had
little choice but to watch "expensive" securities trade at even richer
valuations. Nevertheless, Franklin Mutual Series Fund Inc. remains committed to
owning only those securities that trade at a discount to our estimate of their
current, intrinsic value.
In the last quarter of the year, we instituted changes designed to benefit the
funds and maximize the considerable talents in our firm. Peter Langerman has
become chief executive officer and Rob Friedman is chief investment officer with
overall portfolio responsibility. Peter and Rob modified our portfolio
management structure, which is intended to bear fruit in the upcoming months and
years. Specific portfolio managers now have day-to-day responsibilities for the
funds, and the members of this senior team average over ten years of experience
at Franklin Mutual Series. While our style and philosophy will not change, we
believe the new structure will help address the realities of running a
multi-fund complex in today's investment environment.
CONTENTS
Shareholder Letter ....................................................... 1
Portfolio Managers' Roundtable Discussion ................................ 3
Fund Reports
Mutual Shares Fund .................................................... 10
Mutual Qualified Fund ................................................. 30
Mutual Beacon Fund .................................................... 51
Mutual Discovery Fund ................................................. 70
Mutual European Fund .................................................. 90
Mutual Financial Services Fund ........................................ 107
Financial Statements ..................................................... 122
Notes to Financial Statements ............................................ 131
Independent Auditors' Report ............................................. 160
Tax Designation .......................................................... 161
PAGE
As chairman of Franklin Mutual Advisers, as well as of Franklin Mutual Series
Fund Inc., and a shareholder of the funds, I have both a personal and a
professional interest in the continued success of Franklin Mutual Series. We are
absolutely committed to providing our shareholders with the solid investment
performance that has distinguished us in the past.
You'll notice that we have changed the format of our annual reports. Since many
of our investors own more than one Mutual Series fund, we now include all the
funds in one package. Please feel free to call or write us with comments on the
new design.
Sincerely,
/s/ Michael F. Price
Michael F. Price
Chairman
Franklin Mutual Advisers Inc.
2
PAGE
A ROUNDTABLE DISCUSSION WITH THE MUTUAL SERIES FUNDS' PORTFOLIO MANAGERS - WHERE
HAVE THE FUNDS BEEN AND WHERE ARE THEY HEADED?
What happened to "value" in 1998?
PETER LANGERMAN, CHIEF EXECUTIVE OFFICER, FRANKLIN MUTUAL ADVISERS: Value
investors, including Franklin Mutual Series, generally underperformed the
various indexes used to gauge investment returns in 1998. The funds we manage
provided returns for the fiscal year ranging from +7.08% to - 1.90%.
Although stocks generally performed well during the year under review, the
largest growth stocks (which do not meet our definition of value) of the
Standard & Poor's(R) 500 Stock Index (e.g. Microsoft, Dell and Intel) continued
their extraordinary growth and helped skew the major indexes to record levels.
At year end, the largest 35 stocks of the S&P 500 comprised roughly one half of
its value, the most lopsided weighting in more than 14 years.
ROB FRIEDMAN, CHIEF INVESTMENT OFFICER, FRANKLIN MUTUAL ADVISERS, AND
CO-PORTFOLIO MANAGER FOR MUTUAL DISCOVERY FUND: Many Internet stocks traded at
levels that confounded even traditional growth investors. Moreover, value
stocks, in which we invest, are "supposed to" hold up better than growth stocks
in market downturns, but generally did not do so during the severe, two-month
market correction which occurred in late summer. Some pockets of perceived
value, such as oil service companies, just got cheaper over the course of the
year.
[GRAPHIC MATERIAL]
[This chart lists the one-year total returns of each of the Mutual Series Funds
for the period ended 12/31/98.]
ONE-YEAR TOTAL RETURN
(as of (12/31/98)
- -------------------------------------------------------------------------------
Mutual Shares Fund - Class Z 0.45%
Mutual Qualified Fund - Class Z 0.45%
Mutual Beacon Fund - Class Z 2.37%
Mutual Discovery Fund - Class Z -1.90%
Mutual European Fund - Class Z 4.74%
Mutual Financial Services Fund - Class Z 7.08%
3
PAGE
What can you tell us about Sunbeam?
LANGERMAN: Given the high profile nature of the coverage of the Sunbeam story
over the past year, some additional comments are also appropriate to put the
investment in perspective, both historically and going forward. We were
disappointed that some of the funds, especially Mutual Shares and Mutual
Qualified, were hurt in the second quarter of 1998 by the well-publicized
problems at Sunbeam Corp. and the resulting drop in its stock price. We
originally invested $60 million in the company's debt securities when Sunbeam
was in a Chapter 11 bankruptcy and received Sunbeam shares as part of the
reorganization plan in 1990. Since then, the funds have sold shares of Sunbeam
generating proceeds of approximately $250 million, and have not purchased any
additional shares. As of year end 1998, the value of the funds' investment in
Sunbeam (as a percent of total portfolio holdings) was only - Mutual Shares:
0.8%; Mutual Qualified: 0.6%; Mutual Beacon: 0.2%.
Can you explain the changes in your internal management structure?
FRIEDMAN: As of November 1, 1998, Michael Price stepped down as chief executive
officer but continues now as chairman of Franklin Mutual Advisers and Franklin
Mutual Series Fund Inc., Peter Langerman became chief executive officer and I
became chief investment officer. Just as important, we named specific portfolio
managers for each fund.
Mutual Shares - Larry Sondike and David Marcus
Mutual Qualified - Raymond Garea
(Jeff Diamond, assistant portfolio manager)
Mutual Beacon - Larry Sondike and David Winters
Mutual Discovery - Robert Friedman and David Marcus
Mutual European - David Marcus
4
PAGE
Mutual Financial Services - Raymond Garea
(James P. Agah, assistant portfolio manager)
In addition to these portfolio designations, Jeff Altman will continue to focus
on distressed securities, which are owned throughout many of the portfolios.
These changes are designed to combine the benefits of our team approach with the
increased focus and accountability that portfolio assignments tend to create.
These are important changes that I believe have already begun to have a positive
impact on the funds.
Overall, do you consider your 1998 performance to be satisfactory?
LANGERMAN: The simple answer is, "no," even acknowledging that value was out of
fashion last year. We are convinced of the merits of our value approach and will
not waver from its proven long-term strategy. However, we have also taken
concrete steps designed to improve its execution. Our mission and investing
philosophy remain what they have always been - to produce steady, absolute
returns over long periods of time with minimal risk and volatility. Our team
knows what they need to do and how to do it. Of course, in any short period of
time, the markets may work against us, but our internal framework revision will
help us achieve our objectives.
Can you give us some of the highlights of last year, as well as where you expect
to find value in 1999?
LARRY SONDIKE, CO-PORTFOLIO MANAGER FOR MUTUAL SHARES FUND AND MUTUAL BEACON
FUND: Positions that performed well last year included MediaOne Group Inc.,
which owns attractive cable assets, and Chase Manhattan Corp. and Morgan Stanley
Dean Witter & Co., both of which are in the financial services
5
PAGE
sector. Now we are finding value in the same types of situations that we always
have, in (1) companies such as Payless Shoesource and Lehman Brothers Holdings
Inc. whose share prices have been beaten down due to disappointing earnings or
an uncertain outlook; (2) sectors out of favor with investors, such as lodging;
(3) businesses undergoing restructuring, such as Telephone & Data Systems; or
(4) companies involved in deals, such as Telecommunications Inc., which has an
agreement to be acquired by AT&T. We look for a few companies in the energy and
health care sectors, two areas where we didn't have much success in 1998, to be
moneymakers this year.
RAYMOND GAREA, PORTFOLIO MANAGER FOR MUTUAL QUALIFIED FUND AND MUTUAL FINANCIAL
SERVICES FUND: As Larry indicated, we continue to see value in financial
services and consolidation remains a driving trend for this industry. In 1998,
events such as the Asian and Russian financial crises took their toll on
financials. As a result, many well-positioned and well-run companies sell at
attractive valuations and continue to refine their businesses to improve
profitability. I am still very enthusiastic about Bank One Corp., which has an
extremely valuable credit card operation, as well as more traditional banking
operations.
Regarding health care companies, I would point out that health maintenance
organizations and nursing homes were particularly hard hit last year as changes
in Medicare reimbursement rates and ongoing increases in medical costs pressed
profit margins. As in financial services, we see continuing consolidation in
many segments of the health care industry, particularly as smaller companies
are forced to merge with their larger, better-positioned counterparts.
6
PAGE
DAVID MARCUS, PORTFOLIO MANAGER FOR MUTUAL EUROPEAN FUND AND CO-PORTFOLIO
MANAGER FOR MUTUAL SHARES FUND AND MUTUAL DISCOVERY FUND: I would add
non-domestic names such as Suez Lyonnaise des Eaux SA and Pearson Plc. to the
list of holdings that performed well last year. On the negative side, the oil
and gas area, with the exception of big integrated companies, was weak in 1998.
We still have a large position in Societe Elf Acquitaine SA, which we believe is
one of the world's most undervalued companies. Domestically, we like a few of
the oil service companies such as Cooper Cameron Corp., which manufactures oil
and gas pressure control equipment and power equipment, such as compressors. The
company is slashing expenses in response to lower commodity prices, aggressively
repurchasing stock and rewarding management with stock options rather than cash
bonuses.
What are you seeing in Europe?
MARCUS: We see value in the mid-capitalization area and have a strong flow of
mid-cap ideas. In our opinion, the large caps, however, are, in general, quite
expensive.
DAVID WINTERS, CO-PORTFOLIO MANAGER FOR MUTUAL BEACON FUND: There are a couple
of foreign companies that I particularly like. One is Cie Financiere Richemont
AG, a conglomerate with first class assets consisting of luxury goods, a large
portion of Rothmans Tobacco (slated for sale to another company in the industry)
and 15% of Canal Plus, the French media company. Richemont's management has an
excellent record of creating value and hold significant shares in their company
as well. Also, NV Holdingsmij de Telegraaf, a Dutch publishing company, trades
at a fraction of the valuations of comparable U.S. companies.
7
PAGE
How will the euro affect your approach?
FRIEDMAN: The euro may excite the market in the short run, but that may get
exaggerated. If so, we will attempt to use that as an opportunity to sell what
we believe are fully valued stocks.
Given the volatile markets in 1998, are there many bankruptcy or distressed
opportunities?
JEFF ALTMAN, SENIOR VICE PRESIDENT RESPONSIBLE FOR DISTRESSED INVESTING:
Domestically, we are finding opportunities in the oil and gas firms. We are
interested in scrap metal companies where weak commodity prices have created big
troubles. The consumer finance sector is also intriguing, where we may find debt
instruments trading at a discount to liquidation value.
Internationally, we are looking at various markets throughout Asia, but focusing
mainly on Korea and Japan because of their economic and legal structures. In
Korea, we see numerous overleveraged companies with decent underlying businesses
that we may be able to invest in at attractive valuations. We have dipped our
toe in the water in Japan with a couple of small investments, but are hoping to
find some larger ones as well. I feel good about the prospects for us both
domestically and overseas.
Are you looking at industrial, cyclical companies?
MARCUS: Many of these are statistically cheap, but we remain cautious. Pricing
pressure and weak unit volumes have hurt many commodity-related companies and
overcapacity is a big issue. When things get really ugly, we may want to buy
these companies' shares. Some companies can reduce cost structures and capital
spending, which may also present opportunities for us.
8
PAGE
The following fund discussions reflect the views, opinions and portfolio
holdings as of December 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which may affect our
portfolio manager's strategies and the fund's portfolio composition. Although
past performance is not predictive of future results, these insights may help
you understand our investment and management philosophy.
It is important to remember that the funds may invest in lower-rated "junk
bonds," which entail higher credit risks, as well as in foreign securities
involving risks, such as political uncertainty or fluctuations in foreign
exchange rates in areas where the fund invests. The funds generally expect to
hedge against currency risk where feasible and to the extent possible. The
funds' value-oriented strategy may include investments in companies involved in
mergers, reorganizations, restructurings or liquidations. The risks associated
with this and other fund-specific investments are described in the prospectus.
It is important to remember that stocks offer the potential for long-term gains
but can be subject to short-term up and down price movements. Securities of
companies involved in mergers, liquidations and reorganizations and
distressed/bankruptcy investments, involve higher credit risks. These and other
risks are discussed in the prospectus, which you may wish to review before
making an investment decision.
9
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FUND CATEGORY
[PYRAMID]
U.S. EXPOSURE
Mutual Shares Fund
Based on Total Net Assets
12/31/98
[PIECHART]
[This chart shows in pie format the U.S. Exposure of Mutual Shares Fund, based
on total net assets as of 12/31/98.]
United States 79.1%
Other Countries 20.9%
MUTUAL SHARES FUND
Your Fund's Goal: Mutual Shares Fund seeks capital appreciation, with income as
a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities. The fund may also invest in foreign
securities.
Since we were named portfolio managers for this fund, we have materially reduced
the number of positions and focused on owning meaningful stakes in the companies
in which we have the greatest conviction. At the beginning of the year, Mutual
Shares Fund held over 300 different names in the portfolio. As of year end, the
fund was holding about 200 different names. We are all proponents of a broadly
diversified portfolio to reduce volatility for the fund holder, but we believe
the result of our efforts is a more focused portfolio going forward.
10
PAGE
TOP 5 HOLDINGS
MUTUAL SHARES FUND
12/31/98
[This chart lists the top 5 holdings, including industry and country, of Mutual
Shares Fund, based on total net assets as of 12/31/98.]
% OF TOTAL
COMPANY, INDUSTRY, COUNTRY NET ASSETS
- -------------------------- ----------
Chase Manhattan Corp., Banking, U.S. 4.0%
Investor AB, A & B, Multi-Industry, Sweden 3.2%
MediaOne Group Inc., Broadcasting & Publishing, U.S. 2.2%
Morgan Stanley Dean Witter & Co., Financial Services, U.S. 2.1%
Suez Lyonnaise des Eaux SA, Business & Public Services, France 2.0%
Applying our long-standing value approach, we continue to invest in three areas:
(1) cheap stocks based on asset values, (2) arbitrage and (3) bankruptcy
situations. Our value approach has been as out of favor over the past 3 years as
it was in favor in the early to mid '90's. Our goal has always been solid
compounding with low risk. We do not waver from that goal and will always hunt
for bargains rather than the latest trend.
We thank you for your participation in the Mutual Shares Fund and look forward
to serving your investment needs in the future.
Sincerely,
/s/ Larry Sondike
Larry Sondike
/s/ David Marcus
David Marcus
11
PAGE
MUTUAL SHARES FUND
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, the fund's Manager has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower. Franklin Mutual Advisers has made a commitment to the fund's Board not to
seek an increase in the rate of investment advisory fees for the three-year
period beginning November 1, 1996.
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.75 $19.55 $21.30
DISTRIBUTIONS
Dividend Income $0.5300
Long-term capital gain $1.2200
Short-term capital gain $0.0700
TOTAL $1.8200
CLASS I CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
Net Asset Value -$1.76 $19.50 $21.26
DISTRIBUTIONS
Dividend Income $0.4590
Long-term capital gain $1.2200
Short-term capital gain $0.0700
TOTAL $1.7490
CLASS II CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
Net Asset Value -$1.77 $19.41 $21.18
DISTRIBUTIONS
Dividend Income $0.3339
Long-term capital gain $1.2200
Short-term capital gain $0.0700
TOTAL $1.6239
</TABLE>
Mutual Shares Fund paid distributions derived from long-term capital gains of
$1.22 per share in December, 1998. The fund hereby designates such distributions
as capital gain dividends per Internal Revenue Code Section 852(b)(3).
Past performance is not predictive of future results.
12
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
Class Z 1-Year 5-Year 10-Year
- ------- ------ ------ -------
<S> <C> <C> <C>
Cumulative Total Return(1) 0.45% 106.99% 281.07%
Average Annual Total Return(2) 0.45% 15.65% 14.31%
Value of $10,000 Investment(3) $10,045 $20,699 $38,107
</TABLE>
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 29.11% 20.76% 26.44% 0.45%
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS I 1-YEAR (11/1/96)
- ------- ------ ---------
<S> <C> <C>
Cumulative Total Return(1) 0.06% 34.82%
Average Annual Total Return(2) -5.71% 11.70%
Value of $10,000 Investment(3) $9,429 $12,707
</TABLE>
SINCE
INCEPTION
CLASS II 1-YEAR (11/1/96)
- -------- ------ ---------
Cumulative Total Return(1) -0.59% 32.92%
Average Annual Total Return(2) -2.55% 13.52%
Value of $10,000 Investment(3) $9,745 $13,159
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include sales
charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
13
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MUTUAL SHARES FUND
AVERAGE ANNUAL TOTAL RETURN
12/31/98
[This chart lists the average annual total returns for Mutual Shares Fund -
Class Z for the period ended 12/31/98.]
CLASS Z
- -------
1-Year 0.45%
10-Year 14.31%
AVERAGE ANNUAL TOTAL RETURN
12/31/98
[This chart lists the average annual total returns for Mutual Shares Fund -
Class I for the period ended 12/31/98.]
CLASS I
- -------
1-Year -5.71%
Since Inception 11.70%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees, and reinvested distributions.
CLASS Z (1/1/89 - 12/31/98)
[GRAPH]
The following line graph compares the performance of Mutual Shares Fund's Class
Z shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fund's Average, based on a $10,000 investment from 1/1/89 to 12/31/98.
Date Mutual Shares - S&P 500* Lipper Gr. &
Class Z Inc. Average**
- -----------------------------------------------------------------------
1/1/89 $10,000 $10,000 $10,000
12/31/89 $11,493 $13,169 $12,323
12/31/90 $10,364 $12,761 $11,770
12/31/91 $12,539 $16,649 $15,169
12/31/92 $15,213 $17,918 $16,475
12/31/93 $18,406 $19,724 $18,378
12/31/94 $19,243 $19,984 $18,205
12/31/95 $24,844 $27,494 $23,816
12/31/96 $30,001 $33,807 $28,765
12/31/97 $37,915 $45,085 $36,528
12/31/98 $38,107 $57,970 $42,230
CLASS I (11/1/96 - 12/31/98)
[GRAPH]
[The following line graph compares the performance of Mutual Shares Fund's Class
I shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fund's Average, based on a $10,000 investment from 11/1/96 to
12/31/98.]
Date Mutual Shares S&P 500* Lipper Gr. &
- Class A Inc. Average**
- -----------------------------------------------------------------
11/1/96 $9,425 $10,000 $10,000
11/30/96 $9,968 $10,756 $10,650
12/31/96 $10,077 $10,543 $10,538
1/31/97 $10,391 $11,202 $10,992
2/28/97 $10,635 $11,289 $11,048
3/31/97 $10,494 $10,825 $10,654
4/30/97 $10,602 $11,472 $11,038
5/31/97 $11,102 $12,170 $11,728
6/30/97 $11,438 $12,715 $12,180
7/31/97 $12,072 $13,728 $13,076
8/31/97 $11,989 $12,959 $12,640
9/30/97 $12,533 $13,669 $13,281
10/31/97 $12,308 $13,212 $12,814
11/30/97 $12,462 $13,824 $13,158
12/31/97 $12,698 $14,062 $13,378
1/31/98 $12,597 $14,218 $13,387
2/28/98 $13,325 $15,243 $14,300
3/31/98 $13,767 $16,024 $14,932
4/30/98 $13,714 $16,186 $15,037
5/31/98 $13,582 $15,907 $14,724
6/30/98 $13,517 $16,553 $14,973
7/31/98 $13,149 $16,376 $14,585
8/31/98 $11,293 $14,008 $12,447
9/30/98 $11,214 $14,906 $13,105
10/31/98 $11,948 $16,118 $14,055
11/30/98 $12,585 $17,094 $14,768
12/31/98 $12,707 $18,079 $15,426
Past performance is not predictive of future results.
14
PAGE
CLASS II (11/1/96 - 12/31/98)
[GRAPH ]
[The following line graph compares the performance of Mutual Shares Fund's Class
II shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fund's Average, based on a $10,000 investment from 11/1/96 to
12/31/98.]
Date Mutual Shares - S&P 500* Lipper Gr. &
Class C Inc. Average**
- -------------------------------------------------------------------
11/1/96 $9,900 $10,000 $10,000
11/30/96 $10,467 $10,756 $10,650
12/31/96 $10,576 $10,543 $10,538
1/31/97 $10,901 $11,202 $10,992
2/28/97 $11,154 $11,289 $11,048
3/31/97 $10,995 $10,825 $10,654
4/30/97 $11,103 $11,472 $11,038
5/31/97 $11,621 $12,170 $11,728
6/30/97 $11,969 $12,715 $12,180
7/31/97 $12,624 $13,728 $13,076
8/31/97 $12,526 $12,959 $12,640
9/30/97 $13,090 $13,669 $13,281
10/31/97 $12,848 $13,212 $12,814
11/30/97 $13,004 $13,824 $13,158
12/31/97 $13,235 $14,062 $13,378
1/31/98 $13,129 $14,218 $13,387
2/28/98 $13,879 $15,243 $14,300
3/31/98 $14,329 $16,024 $14,932
4/30/98 $14,266 $16,186 $15,037
5/31/98 $14,123 $15,907 $14,724
6/30/98 $14,048 $16,553 $14,973
7/31/98 $13,661 $16,376 $14,585
8/31/98 $11,720 $14,008 $12,447
9/30/98 $11,638 $14,906 $13,105
10/31/98 $12,392 $16,118 $14,055
11/30/98 $13,045 $17,094 $14,768
12/31/98 $13,159 $18,079 $15,426
AVERAGE ANNUAL TOTAL RETURN
12/31/98
[This chart lists the average annual total returns for Mutual Shares Fund -
Class II for the period ended 12/31/98.]
CLASS II
- --------
1-Year -2.55%
Since Inception 13.52%
*Source: Standard and Poor's Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
**Lipper Growth and Income Fund average consists of 148 funds as of 12/31/98.
Lipper calculations do not include sales charges; past and current expense
reductions by the fund's manager increased the fund's total return. If these
factors had been considered, the fund's performance relative to the Lipper
average may have been different.
Past performance is not predictive of future results.
15
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL SHARES FUND
<TABLE>
<CAPTION>
CLASS Z
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $21.30 $18.57 $17.29 $15.74 $16.19
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .53 .42 .55 .40 .27
Net realized and unrealized gains (losses)......... (.46) 4.43 2.96 4.10 .46
------------------------------------------------------------------
Total from investment operations.................... .07 4.85 3.51 4.50 .73
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.53) (.54) (.50) (.39) (.27)
Net realized gains................................. (1.29) (1.58) (1.73) (2.56) (.91)
------------------------------------------------------------------
Total distributions................................. (1.82) (2.12) (2.23) (2.95) (1.18)
------------------------------------------------------------------
Net asset value, end of year........................ $19.55 $21.30 $18.57 $17.29 $15.74
------------------------------------------------------------------
------------------------------------------------------------------
Total Return........................................ .45% 26.44% 20.76% 29.11% 4.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $6,279,026 $7,918,986 $6,543,063 $5,229,574 $3,745,726
Ratios to average net assets:
Expenses........................................... .73% .72% .70% .69% .72%
Expenses, excluding waiver and payments by
affiliate......................................... .77% .75% .72% .69% .72%
Net investment income.............................. 2.15% 1.92% 3.02% 2.47% 1.80%
Portfolio turnover rate............................. 69.46% 49.61% 58.35% 79.32% 66.55%
</TABLE>
+Per share amounts for all periods prior to December 31, 1996 have been restated
to reflect a 5-for-1 stock split effective February 3, 1997.
16
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL SHARES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997+++ 1996+
-----------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $21.26 $18.56 $18.90
-----------------------------------------
Income from investment operations:
Net investment income...................................... .40 .34 .21
Net realized and unrealized gains (losses)................. (.41) 4.43 1.08
-----------------------------------------
Total from investment operations............................ (.01) 4.77 1.29
-----------------------------------------
Less distributions from:
Net investment income...................................... (.46) (.49) (.47)
Net realized gains......................................... (1.29) (1.58) (1.16)
-----------------------------------------
Total distributions......................................... (1.75) (2.07) (1.63)
-----------------------------------------
Net asset value, end of year................................ $19.50 $21.26 $18.56
-----------------------------------------
-----------------------------------------
Total Return*............................................... .06% 26.03% 6.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $1,509,647 $1,043,262 $35,634
Ratios to average net assets:
Expenses................................................... 1.08% 1.07% 1.09%**
Expenses, excluding waiver and payments by affiliate....... 1.12% 1.10% 1.18%**
Net investment income...................................... 1.78% 1.58% 2.44%**
Portfolio turnover rate..................................... 69.46% 49.61% 58.35%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 5-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
17
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL SHARES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997+++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $21.18 $18.56 $18.90
-------------------------------------
Income from investment operations:
Net investment income...................................... .28 .20 .20
Net realized and unrealized gains (losses)................. (.43) 4.42 1.08
-------------------------------------
Total from investment operations............................ (.15) 4.62 1.28
-------------------------------------
Less distributions from:
Net investment income...................................... (.33) (.42) (.46)
Net realized gains......................................... (1.29) (1.58) (1.16)
-------------------------------------
Total distributions......................................... (1.62) (2.00) (1.62)
-------------------------------------
Net asset value, end of year................................ $19.41 $21.18 $18.56
-------------------------------------
-------------------------------------
Total Return*............................................... (.59)% 25.17% 6.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $993,931 $636,838 $16,873
Ratios to average net assets:
Expenses................................................... 1.73% 1.72% 1.71%**
Expenses, excluding waiver and payments by affiliate....... 1.77% 1.75% 1.80%**
Net investment income...................................... 1.12% .92% 1.69%**
Portfolio turnover rate..................................... 69.46% 49.61% 58.35%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 5-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
See Notes to Financial Statements.
18
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 81.2%
AEROSPACE & MILITARY TECHNOLOGY 1.6%
*Coltec Industries Inc. .................................... United States 1,906,113 $ 37,169,204
General Motors Corp., H..................................... United States 463,000 18,375,313
*Hexcel Corp. .............................................. United States 1,740,895 14,579,996
+*Kreisler Manufacturing Corp. ............................. United States 144,480 586,950
Lockheed Martin Corp. ...................................... United States 315,318 26,723,201
Northrop Grumman Corp. ..................................... United States 562,800 41,154,750
--------------
138,589,414
--------------
APPLIANCES & HOUSEHOLD DURABLES .4%
Premark International Inc. ................................. United States 1,064,700 36,865,238
--------------
AUTOMOBILES 2.5%
Borg-Warner Automotive Inc. ................................ United States 827,500 46,184,844
*General Motors Corp. ...................................... United States 2,374,200 169,903,688
Volvo AB, B................................................. Sweden 103,400 2,372,671
--------------
218,461,203
--------------
BANKING 7.6%
Bank One Corp. ............................................. United States 3,238,903 165,386,484
Bankamerica Corp. .......................................... United States 490,527 29,492,936
Chase Manhattan Corp. ...................................... United States 5,118,076 348,349,048
Crestar Financial Corp. .................................... United States 159,500 11,484,000
First Union Corp. .......................................... United States 1,441,403 87,655,320
National City Corp. ........................................ United States 340,600 24,693,500
--------------
667,061,288
--------------
BEVERAGES & TOBACCO 4.4%
Brown-Forman Corp., B....................................... United States 305,100 23,092,256
+Genesee Corp., A........................................... United States 15,911 369,931
Genesee Corp., B............................................ United States 96,750 2,249,438
Heineken Holding NV, A...................................... Netherlands 434,638 20,843,726
Philip Morris Companies Inc. ............................... United States 2,448,600 131,000,100
RJR Nabisco Holdings Corp. ................................. United States 5,348,299 158,777,627
UST Inc. ................................................... United States 1,464,400 51,070,950
--------------
387,404,028
--------------
BROADCASTING & PUBLISHING 6.8%
Central Newspapers Inc., A.................................. United States 642,500 45,898,594
Chris Craft Industries Inc. ................................ United States 209,665 10,103,232
Daily Mail & General Trust Plc. ............................ United Kingdom 65,000 2,614,383
Daily Mail & General Trust Plc., A.......................... United Kingdom 1,284,500 60,650,711
Dow Jones & Co. Inc. ....................................... United States 1,295,800 62,360,375
Houghton Mifflin Co. ....................................... United States 199,700 9,435,825
*MediaOne Group Inc. ....................................... United States 4,195,173 197,173,131
Readers Digest Association Inc., A.......................... United States 1,046,400 26,356,200
</TABLE>
19
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING (CONT.)
Scripps Co., A.............................................. United States 1,477,500 $ 73,505,625
United News & Media Plc. ................................... United Kingdom 3,369,861 29,182,475
Washington Post Co., B...................................... United States 134,900 77,963,769
--------------
595,244,320
--------------
BUILDING MATERIALS & COMPONENTS .5%
*American Standard Cos. Inc. ............................... United States 1,314,500 47,322,000
--------------
BUSINESS & PUBLIC SERVICES 2.6%
*Healthsouth Corp. ......................................... United States 3,518,900 54,323,019
Suez Lyonnaise des Eaux SA.................................. France 839,614 172,546,073
--------------
226,869,092
--------------
CHEMICALS 1.8%
*Cytec Industries Inc. ..................................... United States 1,446,700 30,742,375
General Chemical Group Inc. ................................ United States 475,400 6,596,175
Morton International Inc. .................................. United States 2,757,000 67,546,500
Olin Corp. ................................................. United States 1,976,000 55,945,500
--------------
160,830,550
--------------
ELECTRICAL & ELECTRONICS 1.0%
Philips Electronics NV, ADR................................. Netherlands 579,300 39,211,369
*Wang Laboratories Inc., A.................................. United States 1,845,058 51,200,360
--------------
90,411,729
--------------
ENERGY EQUIPMENT & SERVICES 2.3%
Baker Hughes Inc. .......................................... United States 2,621,000 46,358,938
*Cooper Cameron Corp. ...................................... United States 2,242,900 54,951,050
*Seacor Smit Inc. .......................................... United States 552,500 27,314,219
Transocean Offshore Inc. ................................... United States 1,449,000 38,851,313
*Weatherford International Inc. ............................ United States 1,876,485 36,356,897
--------------
203,832,417
--------------
ENERGY SOURCES 3.0%
Amoco Corp. ................................................ United States 318,900 19,253,588
*Conoco Inc., A............................................. United States 825,000 17,221,875
(R)+*Environmental Credits LLC.............................. United States 316,331 56,781,415
Imperial Oil Ltd. .......................................... Canada 16,200 258,926
*Ocean Energy Inc. ......................................... United States 2,922,710 18,449,607
Royal Dutch Petroleum Co. .................................. Netherlands 884,000 42,321,500
Shell Transport & Trading Co. Plc. ......................... United Kingdom 3,300,000 20,204,642
*Smith International Inc. .................................. United States 406,800 10,246,275
</TABLE>
20
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES (CONT.)
Societe Elf Aquitaine SA, br. .............................. France 597,377 $ 69,081,942
Societe Elf Aquitaine SA, ADR............................... France 158,000 8,946,750
--------------
262,766,520
--------------
FINANCIAL SERVICES 8.9%
*Australis Holdings Pty, Ltd., wts., 144A................... Australia 1,859 0
Bankers Trust Corp. ........................................ United States 174,100 14,874,669
Bear Stearns Co. Inc. ...................................... United States 1,832,100 68,474,738
CIT Group Inc., A........................................... United States 1,427,000 45,396,438
Corporacion Financiera Alba SA.............................. Spain 154,546 25,849,366
(R)*FBR Asset Investment Corp. ............................. United States 750,000 9,375,000
Finova Group Inc. .......................................... United States 756,300 40,792,931
Greenpoint Financial Corp. ................................. United States 1,853,800 65,114,725
Household International Inc. ............................... United States 2,715,948 107,619,440
*IFIL Finanziaria Partecipazioni SpA........................ Italy 6,607,100 18,399,558
(R)Laser Mortgage Management Inc. .......................... United States 332,200 1,806,338
Lehman Brothers Holdings Inc. .............................. United States 1,540,400 67,873,875
Morgan Stanley Dean Witter & Co. ........................... United States 2,588,000 183,748,000
Sunamerica Inc. ............................................ United States 536,500 43,523,563
+United Asset Management Corp. ............................. United States 3,435,900 89,333,400
--------------
782,182,041
--------------
FOOD & HOUSEHOLD PRODUCTS 2.6%
*Rubbermaid Inc. ........................................... United States 278,600 8,758,488
+Seaboard Corp. ............................................ United States 78,050 32,937,100
(R)+Sunbeam Corp. .......................................... United States 11,260,174 70,939,096
U.S. Industries Inc. ....................................... United States 3,059,300 56,979,463
+Van Melle NV............................................... Netherlands 939,307 63,564,762
--------------
233,178,909
--------------
FOREST PRODUCTS & PAPER 1.0%
Bowater Inc. ............................................... United States 87,700 3,634,069
Greif Brothers Corp., A..................................... United States 109,230 3,188,151
Rayonier Inc. .............................................. United States 1,307,750 60,074,766
St. Joe Co. ................................................ United States 1,024,325 24,007,617
--------------
90,904,603
--------------
HEALTH & PERSONAL CARE 2.6%
*Beverly Enterprises Inc. .................................. United States 3,317,000 22,389,750
*Foundation Health Systems, A............................... United States 3,018,250 36,030,359
*Pacificare Health Systems Inc., A.......................... United States 579,924 42,189,471
*Pacificare Health Systems Inc., B.......................... United States 429,992 34,184,364
*Tenet Healthcare Corp. .................................... United States 1,812,900 47,588,625
+*Ventas Inc. .............................................. United States 3,469,300 42,282,094
--------------
224,664,663
--------------
</TABLE>
21
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL COMPONENTS 3.0%
Aeroquip Vickers Inc. ...................................... United States 769,900 $ 23,048,881
BTR Plc. ................................................... United Kingdom 15,134,045 30,970,594
(R)+*Lancer Industries Inc., B.............................. United States 3 9,737,540
*Lear Corp. ................................................ United States 2,065,700 79,529,450
Lucas Varity Plc. .......................................... United Kingdom 18,039,850 59,427,507
Lucas Varity Plc., ADR...................................... United Kingdom 295,800 9,909,300
*Owens-Illinois Inc. ....................................... United States 1,622,900 49,701,313
*PXL Holdings Corp. ........................................ United States 21 48,694
--------------
262,373,279
--------------
INSURANCE 3.4%
*Alleghany Corp. ........................................... United States 243,128 45,677,673
Allmerica Financial Corp. .................................. United States 60,600 3,507,225
AON Corp. .................................................. United States 250,500 13,871,438
Argonaut Group Inc. ........................................ United States 57,350 1,405,075
+Fund American Enterprises Holdings Inc. ................... United States 674,084 94,413,890
Hartford Financial Services Group Inc. ..................... United States 851,300 46,715,088
Kansas City Life Insurance Co. ............................. United States 37,700 3,081,975
Provident Companies Inc. ................................... United States 161,400 6,698,100
Sampo Insurance Co. Plc., A................................. Finland 1,039,915 39,638,108
Torchmark Corp. ............................................ United States 1,324,300 46,764,344
--------------
301,772,916
--------------
LEISURE & TOURISM 1.7%
Hilton Hotels Corp. ........................................ United States 4,875,600 93,245,850
*Promus Hotel Corp. ........................................ United States 1,679,800 54,383,525
--------------
147,629,375
--------------
MACHINERY & ENGINEERING .6%
New Holland NV.............................................. Netherlands 1,800,550 24,645,028
Siebe Plc. ................................................. United Kingdom 7,642,869 30,009,435
--------------
54,654,463
--------------
MERCHANDISING 2.0%
*Federated Department Stores Inc............................ United States 1,475,630 64,282,132
*Payless Shoesource Inc. ................................... United States 930,400 44,077,700
*Toys R Us Inc. ............................................ United States 3,796,015 64,057,753
--------------
172,417,585
--------------
METALS & MINING .4%
Allegheny Teledyne Inc. .................................... United States 1,698,760 34,718,408
--------------
MULTI-INDUSTRY 6.6%
*Berkshire-Hathaway Inc., A................................. United States 1,025 71,750,000
CGIP-Compagnie Generale Industrie de Participation.......... France 813,046 44,827,999
Cie Financiere Richemont AG, br., A......................... Switzerland 46,280 65,435,573
</TABLE>
22
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Edperbrascan Corp., A....................................... Canada 2,412,400 $ 33,453,203
Investor AB, A.............................................. Sweden 1,770,400 78,846,554
Investor AB, B.............................................. Sweden 4,543,500 205,151,990
Kansas City Southern Industries Inc. ....................... United States 704,900 34,672,269
Lagardere S.C.A. ........................................... France 999,593 42,498,181
--------------
576,635,769
--------------
REAL ESTATE 2.7%
+*Alexander's Inc. ......................................... United States 383,200 29,961,450
*Al-Zar Ltd. LP............................................. United States 284 56,800
*Cadillac Fairview Corp. ................................... Canada 125,500 2,308,187
*Cadillac Fairview Corp., fgn. ............................. Canada 2,650,997 49,540,506
*Cadillac Fairview Corp., wts. ............................. Canada 291,749 1,823,431
*Excel Legacy Corp. ........................................ United States 376,057 1,504,228
+*MBO Properties Inc. ...................................... United States 574,712 4,382,179
(R)+MSCW Investors I, LLC................................... United Kingdom 40,500,000 82,340,903
(R)*Security Capital European Realty........................ United States 585,075 11,701,500
Starwood Hotels & Resorts Trust............................. United States 2,240,100 50,822,267
--------------
234,441,451
--------------
RECREATION & OTHER CONSUMER GOODS
*Bulova Corp. .............................................. United States 37,900 750,894
*Club Regina Resorts Inc., wts. ............................ United States 5,250 5,250
--------------
756,144
--------------
TELECOMMUNICATIONS 7.0%
BCE Inc. ................................................... Canada 708,300 26,676,533
*Embratel Participacoes SA.................................. Brazil 1,005,300,000 8,736,313
Media General Inc., A....................................... United States 497,800 26,383,400
*Tele Celular Sul Participacoes SA.......................... Brazil 1,012,690,000 938,724
*Tele Centro Oeste Celular Participacoes SA................. Brazil 1,005,300,000 790,428
*Tele Centro Sul Participacoes SA........................... Brazil 1,066,154,200 7,059,163
*Tele Norte Leste Participacoes SA.......................... Brazil 1,021,961,000 8,373,610
*Tele Sudeste Celular Participacoes SA...................... Brazil 1,005,300,000 2,828,901
Telecom Italia SpA.......................................... Italy 7,870,200 67,149,631
Telecom Italia SpA, di Risp................................. Italy 6,891,100 43,308,055
*Telecommunications Inc. - TCI Ventures Group, A............ United States 2,801,100 66,000,919
*Tele-Communications Inc., A................................ United States 2,713,300 150,079,406
*Telemig Celular Participacoes SA........................... Brazil 161,400 707,225
+Telephone & Data Systems Inc. ............................. United States 2,913,400 130,920,913
*Telesp Celular Participacoes SA............................ Brazil 1,005,300,000 4,326,555
*Telesp Participacoes SA.................................... Brazil 959,915,100 12,314,243
*US Cellular Corp. ......................................... United States 1,441,400 54,773,200
--------------
611,367,219
--------------
</TABLE>
23
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TEXTILES & APPAREL .5%
Liz Claiborne Inc. ......................................... United States 1,380,700 $ 43,578,344
--------------
TRANSPORTATION 3.2%
Burlington Northern Santa Fe Corp. ......................... United States 1,346,400 45,441,000
+Florida East Coast Industries Inc. ........................ United States 2,027,900 71,356,731
(R)*Golden Ocean Group Ltd., wts., 8/31/01.................. United States 4,030 0
Railtrack Group Plc. ....................................... United Kingdom 5,749,463 150,372,778
Xtra Corp. ................................................. United States 404,900 16,752,738
--------------
283,923,247
--------------
UTILITIES ELECTRICAL & GAS .5%
*Calenergy Co. Inc. ........................................ United States 1,168,400 40,528,875
VEBA AG..................................................... Germany 8,210 486,508
--------------
41,015,383
--------------
TOTAL COMMON STOCKS (COST $5,567,551,439)................... 7,131,871,598
--------------
PREFERRED STOCKS .9%
Apartment Investment & Management Co., cvt., pfd. .......... United States 288,802 10,685,674
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 695,000 9,686,563
(R)*Interlake Corp., Series A3, 9.00%, cvt., pfd. .......... United States 2,450 4,685,792
*Tele Celular Sul Participacoes SA, ADR, pfd. .............. Brazil 69,500 1,211,906
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ..... Brazil 231,667 680,522
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 304,300 12,723,544
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 1,185,180 14,740,676
*Tele Sudeste Celular Participacoes SA, ADR, pfd. .......... Brazil 139,000 2,875,563
*Telemig Celular Participacoes SA, ADR, pfd. ............... Brazil 34,750 738,438
*Telesp Celular Participacoes SA, ADR, pfd. ................ Brazil 278,000 4,865,000
*Telesp Participacoes SA, ADR, pfd. ........................ Brazil 641,100 14,184,338
(R)*Viasystems Inc., B, pfd. ............................... United States 32,816 492,238
*Wundies Industries Inc., 11.25%, pfd. ..................... United States 30,892 84,953
--------------
TOTAL PREFERRED STOCKS (COST $102,366,529).................. 77,655,207
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 2.8%
Abraxas Petroleum Corp., 11.50%, 11/01/04................... United States $ 1,760,000 1,337,600
CML Group Inc., 5.50%, 1/15/03.............................. United States 3,000,000 225,000
Eurotunnel Finance Ltd:
Equity Note, 12/31/03..................................... United Kingdom 12,469,442GBP 6,016,368
Participating Loan Note, 4/30/40.......................... United Kingdom 5,520,000GBP 3,030,696
</TABLE>
24
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
Eurotunnel Plc.:
12/31/12, tier 1.......................................... United Kingdom 5,846,313GBP $ 8,170,540
12/31/18, tier 2.......................................... United Kingdom 7,601,475GBP 9,864,654
12/31/25, tier 3.......................................... United Kingdom 3,494,303GBP 3,866,087
12/31/50, Resettable Advance R5........................... United Kingdom 4,237,576GBP 2,608,607
Stabilization Advance, S8, tier 1......................... United Kingdom 712,537GBP 207,460
Stabilization Advance, S8, tier 2......................... United Kingdom 439,990GBP 102,485
Eurotunnel SA:
12/31/12, tier 1 (Pibor).................................. France 5,805,530FRF 872,981
12/31/12, tier 1 (Libor).................................. France 117,895,176FRF 17,727,963
12/31/18, tier 2 (Pibor).................................. France 18,396,212FRF 2,568,659
12/31/18, tier 2 (Libor).................................. France 157,721,522FRF 22,022,625
12/31/25, tier 3 (Pibor).................................. France 40,323,587FRF 4,764,163
12/31/25, tier 3 (Libor).................................. France 167,332,390FRF 19,770,036
12/31/50, Resettable Advance R4........................... France 140,470,932FRF 9,052,582
Stabilization Advance, S6, tier 1 (Pibor)................. France 1,397,921FRF 43,793
Stabilization Advance, S6, tier 2......................... France 8,330,429FRF 208,775
Stabilization Advance, S7, tier 1 (Libor)................. France 10,932,722FRF 342,492
Fine Host Corp., cvt., 144A, 5.00%, 11/01/04................ United States 14,300,000 11,011,000
(R)*Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.......... United States 10,275,000 2,877,000
Hechinger Co., 6.95%, 10/15/03.............................. United States 19,578,000 12,627,810
HIH Capital Ltd., cvt., 7.50%, 9/25/06...................... United Kingdom 7,930,000 4,995,900
Kelly Oil & Gas Company:
10.375%, 10/15/06......................................... United States 6,205,000 4,622,725
Series D, 10.375%, 10/15/06............................... United States 4,540,000 3,382,300
Korea Electric Power Corp.:
6.375%, 12/01/03.......................................... South Korea 3,153,000 2,687,933
6.75%, 8/01/27............................................ South Korea 5,325,000 4,446,375
MCII Holdings, 0/12.00%, 11/15/02........................... United States 4,390,000 3,643,700
Pratama Datakom Asia BV:
Reg S, 12.75%, 7/15/05.................................... Indonesia 2,690,000 665,775
144A, 12.75%, 7/15/05..................................... Indonesia 12,810,000 3,170,475
Raintree Resorts Inc., B, 13.00%, 12/01/04.................. United States 5,250,000 2,887,500
(R)Roil Limited, 144A, 12.779%, 12/05/02.................... Cayman Islands 7,830,000 2,427,300
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03...... United States 60,812,000 48,041,480
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States 16,510,000 6,686,550
Specialty Foods Corp., B, 11.25%, 8/15/03................... United States 14,367,000 7,183,500
TFM SA De CV:
144A, 10.25%, 6/15/07..................................... Mexico 400,000 340,000
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 7,650,000 3,978,000
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11........... Mexico 3,187,942 1,936,675
US Cellular Corp., cvt., 6/15/15............................ United States 5,000,000 2,056,250
--------------
TOTAL CORPORATE BONDS AND NOTES (COST $266,985,987)......... 242,471,814
--------------
</TABLE>
25
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION 1.6%
*Alpargatas SA Industrial y Comercial:
9.00%, 2/20/99............................................ Argentina $ 1,630,000 $ 244,500
11.75%, 8/18/98........................................... Argentina 1,455,000 232,800
bank claim................................................ Argentina 2,190,000 328,500
*American Pad & Paper Co., bank claim....................... United States 5,183,200 4,716,712
*APS Inc., bank claim....................................... United States 2,484,686 1,093,262
*Barney's Inc.:
7.18%, 6/15/00............................................ United States 10,000,000 950,000
8.32%, 6/15/00............................................ United States 1,500,000 142,500
bank claim................................................ United States 11,795,769 1,120,598
*Brunos Inc., Bank Claim:
revolver committment...................................... United States 3,171,809 2,061,676
tranche A................................................. United States 5,461,065 3,549,692
tranche B................................................. United States 3,500,000 2,275,000
*Crown Leasing, bank claim.................................. Japan 1,814,289,084JPY 2,553,355
*Dictaphone Corporation
bank claim................................................ United States 4,014,289 3,512,503
bank claim................................................ United States 4,127,480 3,673,457
bank claim, Tranche C Term Loan........................... United States 2,250,000 2,002,500
*Dow Corning Corp.:
bank debt................................................. United States 600,000,000JPY 6,436,170
bank claim #1............................................. United States 7,500,000 9,825,000
bank claim #2............................................. United States 2,738,952 3,588,027
bank claim #3............................................. United States 1,391,595 1,822,989
9.375%, 2/01/08........................................... United States 2,170,000 2,842,700
8.15%, 10/15/29........................................... United States 5,280,000 6,916,800
9.50%, 8/10/99............................................ United States 1,250,000 1,637,500
8.55%, 3/01/01............................................ United States 500,000 655,000
Swap...................................................... United States 1,000,000 1,310,000
*FPA Medical Management Inc.:
bank claim................................................ United States 2,564,375 243,616
term loan................................................. United States 2,125,000 201,875
*Koninklijke Ned Vlieg Fokker NV, trade claim............... Netherlands 9,550,000NLG 3,867,427
*Korea National Housing Corporation Loan, bank claim........ United States 14,325,000 12,892,500
Mercury Finance Co., Bank Claim, MTN:
5.79%, 2/02/97............................................ United States 580,870 522,783
5.66%, 3/10/97............................................ United States 4,100,261 3,690,235
8.15%, 5/14/97............................................ United States 1,846,141 1,661,527
6.29%, 12/16/97........................................... United States 4,468,419 4,021,577
6.16%, 12/15/98........................................... United States 343,725 309,352
9.76%, 2/20/99............................................ United States 4,000,000 3,000,000
10.86%, 2/20/99........................................... United States 4,000,000 3,000,000
7.33%, 6/29/99............................................ United States 2,257,044 2,031,339
7.42%, 6/29/00............................................ United States 5,445,238 4,900,714
7.50%, 6/29/01............................................ United States 4,324,962 3,892,466
</TABLE>
26
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
Mercury Finance Co., Commercial Paper:
1/31/97................................................... United States $ 1,659,325 $ 1,493,393
2/03/97................................................... United States 1,130,928 1,017,835
2/04/97................................................... United States 102,727 92,454
2/06/97................................................... United States 777,474 699,726
2/07/97................................................... United States 624,502 562,052
2/10/97................................................... United States 282,762 254,486
2/11/97................................................... United States 1,617,975 1,456,177
2/13/97................................................... United States 258,831 232,948
2/18/97................................................... United States 1,013,366 912,030
2/19/97................................................... United States 1,351,431 1,216,288
2/20/97................................................... United States 189,866 170,879
2/21/97................................................... United States 1,142,580 1,028,322
2/24/97................................................... United States 505,635 455,071
2/25/97................................................... United States 571,422 514,279
2/27/97................................................... United States 73,407 66,066
3/07/97................................................... United States 1,205,738 1,085,164
3/10/97................................................... United States 303,657 273,291
3/11/97................................................... United States 48,360 43,524
3/14/97................................................... United States 86,057 77,451
3/17/97................................................... United States 1,022,958 920,662
3/19/97................................................... United States 1,957,885 1,762,096
4/11/97................................................... United States 51,416 46,274
4/14/97................................................... United States 316,695 285,026
4/15/97................................................... United States 61,268 55,142
4/18/97................................................... United States 176,539 158,885
4/22/97................................................... United States 100,873 90,786
4/24/97................................................... United States 151,305 136,174
6/29/98................................................... United States 401,134 361,021
4/05/01................................................... United States 435,345 391,811
*Nippon Credit Bank Ltd., bank claim........................ Japan 923,004,431JPY 1,307,451
*Nippon Total Finance, bank claim........................... Japan 876,860,484JPY 462,427
*Peregrine Investment Holdings Ltd.:
zero coupon, 2/28/99...................................... Japan 95,000,000JPY 75,798
zero coupon, 6/30/00...................................... Hong Kong 250,000,000JPY 249,335
zero coupon, 6/30/01...................................... United States 500,000 56,250
*PIV Investment Finance (Cayman) Ltd., cvt., 4.50%,
12/01/00.................................................. Hong Kong 19,090,000 4,104,350
*Ritvik Holdings:
bank claim................................................ United States 2,630,476 2,104,381
bank claim, term loan B................................... United States 1,058,476 846,781
*Southeast Banking Corp.:
zero coupon, 12/16/96..................................... United States 2,230,000 1,025,800
4.75%, 10/15/97........................................... United States 3,317,000 2,255,560
zero coupon, 11/10/97..................................... United States 1,250,000 575,000
10.50%, 4/11/01........................................... United States 5,300,000 2,544,000
*Ventas Inc., bank claim, tranche D......................... United States 4,162,000 3,953,900
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $143,542,876)... 143,146,998
--------------
</TABLE>
27
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPANIES IN LIQUIDATION .1%
*Apco Oil Corp. ............................................ United States 9,200 $ 0
+*City Investing Co., Liquidating Trust..................... United States 4,314,037 5,527,360
(R)*Kendall International Inc., Residual Ownership
Certif. .................................................. United States 379 4,548
*Mcorp Trust Units.......................................... United States 64,172 642
*Mcorp Financial Trust, claim units......................... United States 64,189 78,471
*Ranger Industries Inc. .................................... United States 76,839 30,736
*Roeser & Pendelton......................................... United States 2,800 2,114
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $612,947).............. 5,643,871
--------------
PRINCIPAL
AMOUNT**
--------
SHORT TERM INVESTMENTS 13.4%
Federal Home Loan Bank, 4.32% to 4.34%, with maturities to
10/28/99.................................................. United States $ 40,000,000 38,456,800
Federal National Mortgage Assn., 4.27% to 5.33%, with
maturities to 12/23/99.................................... United States 1,153,285,000 1,141,856,445
--------------
TOTAL SHORT TERM INVESTMENTS (COST $1,179,776,457).......... 1,180,313,245
--------------
TOTAL INVESTMENTS (COST $7,260,836,235) 100.0%.............. 8,781,102,733
OPTIONS WRITTEN............................................. (17,275)
SECURITIES SOLD SHORT (3.8%)................................ (332,167,328)
NET EQUITY IN FORWARD CONTRACTS............................. (2,341,928)
OTHER ASSETS, LESS LIABILITIES 3.8%......................... 336,027,365
--------------
TOTAL NET ASSETS 100.0%..................................... $8,782,603,567
--------------
--------------
OPTIONS WRITTEN
ISSUER
COUNTRY CONTRACTS VALUE
- ----------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., January/85/Call........................ United States 67 $ 9,213
Bankers Trust Corp., January/85/Put......................... United States 67 5,025
Bankers Trust Corp., January/90/Call........................ United States 243 3,037
--------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $89,525)........... $ 17,275
--------------
--------------
</TABLE>
28
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND
SECURITIES SOLD SHORT
ISSUER
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American International Group Inc. .......................... United States 458,707 $ 44,322,564
Apartment Investment & Management Co. ...................... United States 244,700 9,099,781
AT&T Corp. ................................................. United States 2,104,645 158,374,536
British Petroleum Co. Plc., ADR............................. United Kingdom 34,900 3,315,500
*Cap Gemini SA.............................................. France 137,889 22,141,426
Carrefour Supermarche SA.................................... France 11,972 9,041,901
*DST Systems Inc. .......................................... United States 81,500 4,650,594
Newell Co. ................................................. United States 219,800 9,066,750
Northern Telecom Ltd. ...................................... Canada 279,320 13,929,630
Suntrust Banks Inc. ........................................ United States 153,000 11,704,500
Telecom Italia Mobile SpA................................... Italy 5,254,100 38,882,983
*Tele-Communications Inc., Liberty Media Group, A........... United States 165,800 7,637,163
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $281,794,891)......... $ 332,167,328
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES
SECURITY
VALUE AT UNREALIZED
COUNTRY SHARES 12/31/98 LOSS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Petroleum Co. Plc., cfd 4.47................... United Kingdom 75,000 $1,120,539 $(124,632)
---------- ---------
---------- ---------
</TABLE>
CURRENCY ABBREVIATIONS:
FRF -- French Franc
GBP -- British Pound
JPY -- Japanese Yen
NLG -- Dutch Guilder
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(R)Restricted Securities (See note 6).
+Affiliated Issuers (See note 7).
See Notes to Financial Statements.
29
PAGE
[PYRAMID]
FUND CATEGORY
Global
Growth
Growth & Income
Income
Tax-Free Income
This chart shows in pie format the U.S. exposure of Mutual Qualifited, based on
total net assets as of 12/31/98.
[PIECHART]
U.S. EXPOSURE
United States 75.9%
Other Countries 24.1%
MUTUAL QUALIFIED FUND
Your Fund's Goal: Mutual Qualified Fund seeks capital appreciation, with income
as a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities. The fund may also invest in foreign
securities.
Since we were named portfolio managers for this fund, we have somewhat reduced
the number of positions and focused on owning meaningful stakes in the companies
in which we have the greatest conviction. At the beginning of the year, Mutual
Qualified Fund held over 300 different names in the portfolio. As of year end,
the fund was holding about 220 different names, and we expect that number to
decline somewhat further. We are all proponents of a broadly diversified
portfolio to reduce volatility for the fund holder, but we believe the result of
our efforts is a more focused portfolio going forward.
30
PAGE
TOP 5 HOLDINGS
Mutual Qualified Fund
12/31/98
This chart lists the top 5 holdings, including industry and country, of Mutual
Qualifed Fund, based on total net assets as of 12/31/98.
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY, INDUSTRY, COUNTRY NET ASSETS
- -------------------------- ----------
<S> <C>
Investor AB, A & B, Multi-Industry, Sweden 3.2%
Chase Manhattan Corp., Banking, U.S. 3.0%
General Motors Corp., Automobiles, U.S. 2.3%
Bank One Corp., Banking, U.S. 1.8%
Suez Lyonnaise des Eaux SA, Business & Public Services, France 1.8%
</TABLE>
Applying our long-standing value approach, we continue to invest in three areas:
(1) cheap stocks based on asset values, (2) arbitrage and (3) bankruptcy
situations. Our value approach has been as out of favor over the past 3 years as
it was in favor in the early to mid '90's. Our goal has always been solid
compounding at a low risk-adjusted rate. We do not waver from that goal and will
always hunt for bargains rather than the latest trend.
We thank you for your participation in Mutual Qualified Fund and look forward to
serving your investment needs in the future.
Sincerely,
/s/ Raymond Garea
Raymond Garea
/s/ Jeff Diamond
Jeff Diamond
Assistant Portfolio Manager
31
PAGE
MUTUAL QUALIFIED FUND
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, the fund's Manager has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower. Franklin Mutual Advisers has made a commitment to the fund's Board not to
seek an increase in the rate of investment advisory fees for the three-year
period beginning November 1, 1996.
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.73 $16.46 $18.19
DISTRIBUTIONS
-------------
Dividend Income $0.4500
Long-term capital gain $1.2600
Short-term capital gain $0.0700
TOTAL $1.7800
</TABLE>
<TABLE>
<CAPTION>
CLASS I CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.72 $16.42 $18.14
DISTRIBUTIONS
-------------
Dividend Income $0.3875
Long-term capital gain $1.2600
Short-term capital gain $0.0700
TOTAL $1.7175
</TABLE>
<TABLE>
<CAPTION>
CLASS II CHANGE 12/31/98 12/31/97
- -------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.74 $16.35 $18.09
DISTRIBUTIONS
-------------
Dividend Income $0.2787
Long-term capital gain $1.2600
Short-term capital gain $0.0700
TOTAL $1.6087
</TABLE>
Mutual Qualified Fund paid distributions derived from long-term capital gains of
$1.26 per share in December, 1998. The fund hereby designates such distributions
as capital gain distributions per Internal Revenue Code Section 852(b)(3).
Past performance is not predictive of future results.
32
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
CLASS Z 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
<S> <C> <C> <C>
Cumulative Total Return(1) 0.45% 103.64% 282.01%
Average Annual Total Return(2) 0.45% 15.28% 14.34%
Value of $10,000 Investment(3) $10,045 $20,364 $38,201
</TABLE>
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 26.60% 21.19% 24.95% 0.45%
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS I 1-YEAR (11/1/96)
- ------- ------ ---------
<S> <C> <C>
Cumulative Total Return(1) 0.15% 32.69%
Average Annual Total Return(2) -5.62% 10.87%
Value of $10,000 Investment(3) $9,438 $12,507
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS II 1-YEAR (11/1/96)
- -------- ------ ---------
<S> <C> <C>
Cumulative Total Return(1) -0.58% 30.77%
Average Annual Total Return(2) -2.54% 12.67%
Value of $10,000 Investment(3) $9,746 $12,947
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include sales
charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
33
PAGE
MUTUAL QUALIFIED FUND
This chart lists the average annual total return of Mutual Qualifed Fund-Class Z
for the period ended 12/31/98.
AVERAGE ANNUAL TOTAL RETURN
12/31/98
CLASS Z
- -------
1-Year 0.45%
10-Year 14.34%
This chart lists the average annual total return of Mutual Qualifed Fund-Class I
for the period ended 12/31/98.
AVERAGE ANNUAL TOTAL RETURN
12/31/98
CLASS I
- -------
1-Year -5.62%
Since Inception 10.87%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees, and reinvested distributions.
Class Z (1/1/89 - 12/31/98)
[GRAPH]
The following line graph compares the performance of Mutual Shares Fund's Class
Z shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fund's Average, based on a $10,000 investment from 1/1/89 to 12/31/98.
<TABLE>
<CAPTION>
Date Mutual Shares - S&P 500* Lipper Gr. &
Class Z Inc. Average**
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1/1/89 $10,000 $10,000 $10,000
12/31/89 $11,493 $13,169 $12,323
12/31/90 $10,364 $12,761 $11,770
12/31/91 $12,539 $16,649 $15,169
12/31/92 $15,213 $17,918 $16,475
12/31/93 $18,406 $19,724 $18,378
12/31/94 $19,243 $19,984 $18,205
12/31/95 $24,844 $27,494 $23,816
12/31/96 $30,001 $33,807 $28,765
12/31/97 $37,915 $45,085 $36,528
12/31/98 $38,107 $57,970 $42,230
</TABLE>
Class I (11/1/96 - 12/31/98)
[GRAPH]
The following line graph compares the performance of Mutual Shares Fund's Class
I shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fun's Average, based on a $10,000 investment from 11/1/96 to 12/31/98.
<TABLE>
<CAPTION>
Date Mutual Shares S&P 500* Lipper Gr. &
- Class A Inc. Average**
- -----------------------------------------------------------------
<S> <C> <C> <C>
11/1/96 $9,425 $10,000 $10,000
11/30/96 $9,968 $10,756 $10,650
12/31/96 $10,077 $10,543 $10,538
1/31/97 $10,391 $11,202 $10,992
2/28/97 $10,635 $11,289 $11,048
3/31/97 $10,494 $10,825 $10,654
4/30/97 $10,602 $11,472 $11,038
5/31/97 $11,102 $12,170 $11,728
6/30/97 $11,438 $12,715 $12,180
7/31/97 $12,072 $13,728 $13,076
8/31/97 $11,989 $12,959 $12,640
9/30/97 $12,533 $13,669 $13,281
10/31/97 $12,308 $13,212 $12,814
11/30/97 $12,462 $13,824 $13,158
12/31/97 $12,698 $14,062 $13,378
1/31/98 $12,597 $14,218 $13,387
2/28/98 $13,325 $15,243 $14,300
3/31/98 $13,767 $16,024 $14,932
4/30/98 $13,714 $16,186 $15,037
5/31/98 $13,582 $15,907 $14,724
6/30/98 $13,517 $16,553 $14,973
7/31/98 $13,149 $16,376 $14,585
8/31/98 $11,293 $14,008 $12,447
9/30/98 $11,214 $14,906 $13,105
10/31/98 $11,948 $16,118 $14,055
11/30/98 $12,585 $17,094 $14,768
12/31/98 $12,707 $18,079 $15,426
</TABLE>
Past performance is not predictive of future results.
34
PAGE
CLASS II (11/1/96 - 12/31/98)
[GRAPH]
The following line graph compares the performance of Mutual Shares Fund's Class
II shares to that of the Standard & Poor's 500 Stock Index and the Lipper Growth
& Income Fund's Average, based on a $10,000 investment from 11/1/96 to 12/31/98.
<TABLE>
<CAPTION>
Date Mutual Shares - S&P 500* Lipper Gr. &
Class C Inc. Average**
- -------------------------------------------------------------------
<S> <C> <C> <C>
11/1/96 $9,900 $10,000 $10,000
11/30/96 $10,467 $10,756 $10,650
12/31/96 $10,576 $10,543 $10,538
1/31/97 $10,901 $11,202 $10,992
2/28/97 $11,154 $11,289 $11,048
3/31/97 $10,995 $10,825 $10,654
4/30/97 $11,103 $11,472 $11,038
5/31/97 $11,621 $12,170 $11,728
6/30/97 $11,969 $12,715 $12,180
7/31/97 $12,624 $13,728 $13,076
8/31/97 $12,526 $12,959 $12,640
9/30/97 $13,090 $13,669 $13,281
10/31/97 $12,848 $13,212 $12,814
11/30/97 $13,004 $13,824 $13,158
12/31/97 $13,235 $14,062 $13,378
1/31/98 $13,129 $14,218 $13,387
2/28/98 $13,879 $15,243 $14,300
3/31/98 $14,329 $16,024 $14,932
4/30/98 $14,266 $16,186 $15,037
5/31/98 $14,123 $15,907 $14,724
6/30/98 $14,048 $16,553 $14,973
7/31/98 $13,661 $16,376 $14,585
8/31/98 $11,720 $14,008 $12,447
9/30/98 $11,638 $14,906 $13,105
10/31/98 $12,392 $16,118 $14,055
11/30/98 $13,045 $17,094 $14,768
12/31/98 $13,159 $18,079 $15,426
</TABLE>
* Source: Standard and Poor's Micropal. Index is unmanaged and included
reinvested dividends. One cannot invest directly in an index.
** Lipper Growth and Income Fund Average consists of 148 funds as of 12/31/98.
Lipper calculations do not include sales charges; past and current expense
reductions by the fund's manager increased the fund's total return. If these
factors had not been considered, the fund's performance relative to the Lipper
average may have been different.
AVERAGE ANNUAL TOTAL RETURN
12/31/98
This chart lists the average annual total return for Mutual Qualified Fund -
Class II for the period ended 12/31/98.
CLASS II
- --------
1-Year -2.54%
Since Inception 12.67%
Past performance is not predictive of future results.
35
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL QUALIFIED FUND
<TABLE>
<CAPTION>
CLASS Z
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $18.19 $16.24 $14.87 $13.34 $13.50
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .43 .37 .47 .33 .22
Net realized and unrealized gains (losses)......... (.38) 3.62 2.62 3.17 .55
------------------------------------------------------------------
Total from investment operations.................... .05 3.99 3.09 3.50 .77
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.45) (.64) (.43) (.33) (.21)
Net realized gains................................. (1.33) (1.40) (1.29) (1.64) (.72)
------------------------------------------------------------------
Total distributions................................. (1.78) (2.04) (1.72) (1.97) (.93)
------------------------------------------------------------------
Net asset value, end of year........................ $16.46 $18.19 $16.24 $14.87 $13.34
==================================================================
Total Return........................................ .45% 24.95% 21.19% 26.60% 5.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $3,942,519 $5,239,947 $4,287,975 $3,002,132 $1,791,940
Ratios to average net assets:
Expenses........................................... .76% .75% .75% .72% .73%
Expenses, excluding waiver and payments by
affiliate......................................... .79% .78% .78% .72% .73%
Net investment income.............................. 2.05% 1.85% 3.06% 2.71% 1.91%
Portfolio turnover rate............................. 66.84% 52.76% 65.03% 75.59% 67.65%
</TABLE>
+Per share amounts for all periods prior to December 31, 1996, have been
restated to reflect a 2-for-1 stock split effective February 3, 1997.
36
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL QUALIFIED FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997+++ 1996+
------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $18.14 $16.23 $16.40
------------------------------------
Income from investment operations:
Net investment income...................................... .35 .28 .16
Net realized and unrealized gains (losses)................. (.35) 3.63 .89
------------------------------------
Total from investment operations............................ (.00) 3.91 1.05
------------------------------------
Less distributions from:
Net investment income...................................... (.39) (.60) (.41)
Net realized gains......................................... (1.33) (1.40) (.81)
------------------------------------
Total distributions......................................... (1.72) (2.00) (1.22)
------------------------------------
Net asset value, end of year................................ $16.42 $18.14 $16.23
====================================
Total Return*............................................... .15% 24.44% 6.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $570,143 $452,590 $20,381
Ratios to average net assets:
Expenses................................................... 1.11% 1.10% 1.13%**
Expenses, excluding waiver and payments by affiliate....... 1.14% 1.13% 1.28%**
Net investment income (loss)............................... 1.66% 1.48% 3.19%**
Portfolio turnover rate..................................... 66.84% 52.76% 65.03%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996, have been restated
to reflect a 2-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
37
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL QUALIFIED FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997+++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $18.09 $16.23 $16.40
-------------------------------------
Income from investment operations:
Net investment income...................................... .24 .16 .13
Net realized and unrealized gains (losses)................. (.37) 3.63 .91
-------------------------------------
Total from investment operations............................ (.13) 3.79 1.04
-------------------------------------
Less distributions from:
Net investment income...................................... (.28) (.53) (.39)
Net realized gains......................................... (1.33) (1.40) (.82)
-------------------------------------
Total distributions......................................... (1.61) (1.93) (1.21)
-------------------------------------
Net asset value, end of year................................ $16.35 $18.09 $16.23
=====================================
Total Return*............................................... (.58)% 23.66% 6.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $322,609 $231,721 $9,963
Ratios to average net assets:
Expenses................................................... 1.76% 1.75% 1.78%**
Expenses, excluding waiver and payments by affiliate....... 1.79% 1.78% 1.93%**
Net investment income...................................... 1.01% .84% 2.59%**
Portfolio turnover rate..................................... 66.84% 52.76% 65.03%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996, have been restated
to reflect a 2-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
See Notes to Financial Statements.
38
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 85.9%
AEROSPACE & MILITARY TECHNOLOGY .5%
*General Motors Corp., H ................................... United States 285,700 $ 11,338,719
*Hexcel Corp. .............................................. United States 843,498 7,064,296
Lockheed Martin Corp. ...................................... United States 51,122 4,332,590
---------------
22,735,605
---------------
AUTOMOBILES 2.8%
Borg-Warner Automotive Inc. ................................ United States 469,800 26,220,713
General Motors Corp. ....................................... United States 1,532,500 109,669,531
Volvo AB, B................................................. Sweden 73,530 1,687,259
---------------
137,577,503
---------------
BANKING 8.4%
Bank One Corp. ............................................. United States 1,737,656 88,729,060
BankAmerica Corp. .......................................... United States 283,607 17,051,871
Chase Manhattan Corp. ...................................... United States 2,096,944 142,723,251
Crestar Financial Corp. .................................... United States 483,000 34,776,000
First Union Corp. .......................................... United States 524,320 31,885,210
*Golden State Bancorp Inc., wts. ........................... United States 1,552,300 7,082,369
*Imperial Bancorp........................................... United States 1,078,800 17,935,050
Kapital Holding............................................. Denmark 100,589 4,978,480
M & T Bank Corp. ........................................... United States 51,999 26,984,231
+Western Bancorp............................................ United States 1,093,773 31,992,860
---------------
404,138,382
---------------
BEVERAGES & TOBACCO 3.7%
Brown-Forman Corp., A....................................... United States 18,700 1,304,325
Brown-Forman Corp., B....................................... United States 198,600 15,031,538
Genesee Corp., A............................................ United States 7,000 162,750
Genesee Corp., B............................................ United States 42,241 982,103
Heineken Holding NV, A...................................... Netherlands 340,382 16,323,536
Philip Morris Companies Inc. ............................... United States 1,036,300 55,442,050
RJR Nabisco Holdings Corp. ................................. United States 2,151,683 63,878,089
UST Inc. ................................................... United States 797,450 27,811,069
---------------
180,935,460
---------------
BROADCASTING & PUBLISHING 6.8%
*Capstar Broadcasting Corp., A.............................. United States 90,400 2,067,900
*Chancellor Media Corp., A.................................. United States 511,000 24,464,125
*Chris Craft Industries Inc. ............................... United States 196,883 9,487,300
Daily Mail & General Trust Plc. ............................ United Kingdom 38,500 1,548,519
Daily Mail & General Trust Plc., A.......................... United Kingdom 949,800 44,847,058
Dow Jones & Co. Inc. ....................................... United States 929,500 44,732,188
Houghton Mifflin Co. ....................................... United States 155,000 7,323,750
*MediaOne Group Inc. ....................................... United States 1,576,000 74,072,000
NV Holdingsmij de Telegraaf................................. Netherlands 1,841,454 49,551,568
Pulitzer Publishing Co. .................................... United States 116,500 10,091,813
</TABLE>
39
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING (CONT.)
Scripps (EW) Co., A......................................... United States 1,073,300 $ 53,396,675
The Ackerley Group, Inc. ................................... United States 310,900 5,673,925
---------------
327,256,821
---------------
BUILDING MATERIALS & COMPONENTS 1.3%
*American Standard Cos. Inc. ............................... United States 821,900 29,588,400
Lone Star Industries Inc. .................................. United States 643,610 23,692,893
Puerto Rican Cement Co. Inc. ............................... United States 219,500 7,668,781
---------------
60,950,074
---------------
BUSINESS & PUBLIC SERVICES 2.8%
*Healthsouth Corp. ......................................... United States 2,514,400 38,816,050
Ratin AS, A................................................. Denmark 30,005 6,175,905
Ratin AS, B................................................. Denmark 8,315 1,763,728
Suez Lyonnaise des Eaux SA.................................. France 420,000 86,312,699
---------------
133,068,382
---------------
CHEMICALS 2.6%
+Chemfirst Inc. ............................................ United States 974,000 19,236,500
General Chemical Group Inc. ................................ United States 402,700 5,587,463
Geon Co. ................................................... United States 868,500 19,975,500
Hanna M.A. Co. ............................................. United States 1,253,800 15,437,413
Morton International Inc. .................................. United States 1,106,000 27,097,000
Olin Corp. ................................................. United States 1,306,900 37,001,606
---------------
124,335,482
---------------
DATA PROCESSING & REPRODUCTION .2%
HBO & Co. .................................................. United States 245,000 7,028,438
*National Processing Inc. .................................. United States 254,300 1,398,650
---------------
8,427,088
---------------
ELECTRICAL & ELECTRONICS 2.1%
Philips Electronics NV...................................... Netherlands 163,000 10,943,678
Philips Electronics NV, ADR Netherlands 530,900 35,935,294
Varian Associates Inc. ..................................... United States 403,100 15,267,413
*Wang Laboratories Inc., A.................................. United States 1,413,600 39,227,400
---------------
101,373,785
---------------
ELECTRONIC COMPONENTS & INSTRUMENTS .4%
*Amphenol Corp., A.......................................... United States 300,173 9,061,472
Spectra Physics AB, A....................................... Sweden 748,800 8,822,127
---------------
17,883,599
---------------
</TABLE>
40
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY EQUIPMENT & SERVICES 2.3%
Cie Generale De Geophysique SA.............................. France 245,643 $ 14,322,066
*Cie Generale De Geophysique SA, ADR........................ France 86,600 941,775
*Cooper Cameron Corp. ...................................... United States 720,000 17,640,000
*Seacor Smit Inc. .......................................... United States 607,750 30,045,641
Transocean Offshore Inc. ................................... United States 993,332 26,633,714
*Weatherford International Inc. ............................ United States 1,105,505 21,419,159
---------------
111,002,355
---------------
ENERGY SOURCES 2.7%
Amoco Corp. ................................................ United States 170,603 10,300,156
British Petroleum Co. Plc., ADR............................. United Kingdom 40,500 3,847,500
*Conoco Inc., A............................................. United States 380,000 7,932,500
*Ocean Energy Inc., new..................................... United States 1,913,260 12,077,454
Pancanadian Petroleum Ltd. ................................. Canada 309,550 3,486,468
Royal Dutch Petroleum Co. .................................. Netherlands 384,800 18,422,300
*Santa Fe Energy Resources Inc. ............................ United States 1,243,000 9,167,125
Shell Transport & Trading Co. Plc. ......................... United Kingdom 2,065,500 12,646,269
Societe Elf Aquitaine SA, br. .............................. France 446,000 51,576,385
---------------
129,456,157
---------------
FINANCIAL SERVICES 9.2%
Advanta Corp., A............................................ United States 92,317 1,223,200
Advanta Corp., B............................................ United States 1,262,045 13,961,373
*Amerin Corp. .............................................. United States 5,400 127,575
Bankers Trust Corp. ........................................ United States 98,200 8,389,963
CIT Group Inc., A........................................... United States 851,000 27,072,438
*Coast Federal Litigation Contingent Pymt Rts Trust,
rts. ..................................................... United States 1,178,600 7,808,225
(R)*Cobalt Holdings LLC..................................... United States 15,357 1,536
Commercial Federal Corp. ................................... United States 1,087,210 25,209,682
Finova Group Inc. .......................................... United States 324,300 17,491,931
Greenpoint Financial Corp. ................................. United States 1,207,200 42,402,900
Household International Inc. ............................... United States 1,275,173 50,528,730
+*ITLA Capital Corp. ....................................... United States 709,000 10,723,625
(R)*Laser Mortgage Management Inc. ......................... United States 220,000 1,196,250
Lehman Brothers Holdings Inc. .............................. United States 259,500 11,434,219
+*Long Beach Financial Corp. ............................... United States 1,553,500 11,651,250
Metris Cos. Inc. ........................................... United States 754,600 37,965,813
Morgan Stanley Dean Witter & Co. ........................... United States 831,400 59,029,400
New Germany Fund Inc. ...................................... Germany 618,956 8,007,743
Peoples Bancorp Inc. ....................................... United States 748,800 8,143,200
Sunamerica Inc. ............................................ United States 255,300 20,711,213
TCF Financial Corp. ........................................ United States 1,277,500 30,899,531
United Asset Management Corp. .............................. United States 2,011,100 52,288,600
---------------
446,268,397
---------------
</TABLE>
41
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 1.9%
Rubbermaid Inc. ............................................ United States 157,400 $ 4,948,263
Seaboard Corp. ............................................. United States 10,100 4,262,200
(R)Sunbeam Corp. ........................................... United States 4,800,554 30,243,490
U.S. Industries Inc. ....................................... United States 1,209,500 22,526,938
+Van Melle NV............................................... Netherlands 468,576 31,709,464
---------------
93,690,355
---------------
FOREST PRODUCTS & PAPER .7%
Bowater Inc. ............................................... United States 58,500 2,424,094
+*Fibermark Inc. ........................................... United States 731,800 9,970,775
Greif Brothers Corp., A..................................... United States 44,960 1,312,270
Rayonier Inc. .............................................. United States 242,800 11,153,625
St. Joe Co. ................................................ United States 441,000 10,335,938
---------------
35,196,702
---------------
HEALTH & PERSONAL CARE 6.1%
*Beverly Enterprises Inc., new.............................. United States 1,917,000 12,939,750
*Foundation Health Systems, A............................... United States 2,465,730 29,434,652
+*Maxicare Health Plans Inc. ............................... United States 1,768,779 9,507,187
+*Mid-Atlantic Medical Services Inc. ....................... United States 4,246,400 41,667,800
*Pacificare Health Systems Inc., A.......................... United States 358,342 26,069,381
*Pacificare Health Systems Inc., B.......................... United States 316,990 25,200,705
*Pharmerica Inc............................................. United States 1,652,426 9,914,556
*PSS World Medical Inc. .................................... United States 1,257,500 28,922,500
*Quorum Health Group Inc. .................................. United States 2,333,700 30,192,244
Tenet Healthcare Corp. ..................................... United States 998,300 26,205,375
+*Vencor Inc. .............................................. United States 6,264,400 28,189,800
*Ventas Inc. ............................................... United States 2,228,400 27,158,625
---------------
295,402,575
---------------
INDUSTRIAL COMPONENTS 4.1%
BTR Plc. ................................................... United Kingdom 8,498,600 17,391,695
Gencorp Inc. ............................................... United States 1,159,500 28,915,031
(R)+*Lancer Industries Inc., B.............................. United States 4 11,456,492
*Lear Corp. ................................................ United States 1,144,300 44,055,550
Lucas Varity Plc. .......................................... United Kingdom 5,259,000 17,324,382
Lucas Varity Plc., ADR...................................... United Kingdom 1,084,074 36,316,479
Mark IV Industries Inc. .................................... United States 958,200 12,456,600
*Owens-Illinois Inc. ....................................... United States 973,100 29,801,188
---------------
197,717,417
---------------
INSURANCE 3.0%
*Alleghany Corp. ........................................... United States 98,173 18,444,252
Allmerica Financial Corp. .................................. United States 34,000 1,967,750
AON Corp. .................................................. United States 354,950 19,655,356
Argonaut Group Inc. ........................................ United States 28,100 688,450
</TABLE>
42
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
(R)*CGA Group Ltd. ......................................... United States 139,785 $ 0
CMAC Investment Corp. ...................................... United States 347,000 15,940,313
Fund American Enterprises Hldgs. Inc. ...................... United States 242,976 34,031,826
Hartford Financial Services Group Inc. ..................... United States 348,900 19,145,888
Kansas City Life Insurance Co. ............................. United States 12,290 1,004,708
Provident Companies Inc. ................................... United States 85,700 3,556,550
Sampo Insurance Co. Plc., A................................. Finland 509,800 19,431,884
(R)*St. George Holdings Ltd., A............................. United States 152,073 15,207
(R)*St. George Holdings Ltd., B............................. United States 1,495 150
Torchmark Corp. ............................................ United States 384,900 13,591,781
---------------
147,474,115
---------------
LEISURE & TOURISM 1.2%
Hilton Hotels Corp. ........................................ United States 1,766,000 33,774,750
*Prime Hospitality Corp. ................................... United States 198,800 2,099,825
*Promus Hotel Corp. ........................................ United States 680,900 22,044,138
---------------
57,918,713
---------------
MACHINERY & ENGINEERING .4%
Siebe Plc. ................................................. United Kingdom 4,374,700 17,177,093
---------------
MERCHANDISING 2.0%
+*Dress Barn Inc. .......................................... United States 1,486,600 22,577,738
*Payless Shoesource Inc. ................................... United States 524,600 24,852,925
*Signet Group Plc. ......................................... United Kingdom 41,050,000 21,342,858
*Signet Group Plc., ADR..................................... United Kingdom 240,000 3,720,000
*Toys R Us Inc. ............................................ United States 1,412,375 23,833,828
---------------
96,327,349
---------------
METALS & MINING .8%
Allegheny Teledyne Inc. .................................... United States 568,600 11,620,763
*Ucar International Inc. ................................... United States 1,595,900 28,426,969
---------------
40,047,732
---------------
MULTI-INDUSTRY 6.8%
*Berkshire-Hathaway Inc., A................................. United States 425 29,750,000
Cie Financiere Richemont AG, br., A......................... Switzerland 26,285 37,164,521
Edperbrascan Corp., A....................................... Canada 1,280,800 17,761,094
Forvaltnings AB Ratos, B.................................... Sweden 3,708,680 26,079,444
Investor AB, A.............................................. Sweden 934,900 41,636,717
Investor AB, B.............................................. Sweden 2,457,000 110,940,561
Kansas City Southern Industries Inc. ....................... United States 402,000 19,773,375
Kinnevik AB, B.............................................. Sweden 430,600 10,093,267
Lagardere SCA............................................... France 811,776 34,513,050
---------------
327,712,029
---------------
</TABLE>
43
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 2.4%
*Alexander's Inc. .......................................... United States 132,890 $ 10,390,337
*Al-Zar Ltd., LP units...................................... United States 59 11,800
*Cadillac Fairview Corp. ................................... Canada 75,000 1,379,395
*Cadillac Fairview Corp., fgn. ............................. Canada 764,135 14,279,773
*Cadillac Fairview Corp., wts. ............................. Canada 126,360 789,750
E & J Properties Ltd., LP units............................. United States 5,600 280
*Excel Legacy Corp. ........................................ United States 247,507 990,028
+MBO Properties Inc. ....................................... United States 412,418 3,144,687
(R)+MSCW Investors II LLC................................... United Kingdom 23,562,000 47,904,108
(R)+*S.H. Mortgage Acquisition LLC.......................... United States 4,999,441 4,999,441
(R)*Security Capital European Realty........................ United States 362,500 7,250,000
+*Wellsford Real Properties Inc. ........................... United States 2,404,348 24,794,839
---------------
115,934,438
---------------
RECREATION & OTHER CONSUMER GOODS .6%
*Raintree Resorts, wts. .................................... United States 3,250 3,250
*Gtech Holdings Corp. ...................................... United States 1,118,800 28,669,250
---------------
28,672,500
---------------
TELECOMMUNICATIONS 6.1%
BCE Inc. ................................................... Canada 464,200 17,483,053
*Embratel Participacoes SA.................................. Brazil 398,750,000 3,465,239
*Tele Celular Sul Participacoes SA.......................... Brazil 402,812,000 373,391
*Tele Centro Oeste Celular Participacoes SA................. Brazil 398,750,000 313,522
Tele Centro Sul Participacoes SA............................ Brazil 422,887,600 2,800,001
*Tele Norte Leste Participacoes SA.......................... Brazil 418,508,900 3,429,123
*Tele Sudeste Celular Participacoes SA...................... Brazil 398,750,000 1,122,077
Telecom Italia SpA.......................................... Italy 4,372,600 37,307,626
Telecom Italia SpA, di Risp................................. Italy 3,543,300 22,268,351
*Telecommunications Inc. - TCI Ventures Group, A............ United States 1,753,600 41,319,200
*Tele-Communications Inc., A................................ United States 1,492,300 82,542,844
*Telemig Celular Participacoes SA........................... Brazil 398,750,000 280,519
Telephone & Data Systems Inc. .............................. United States 1,690,000 75,944,375
*Telesp Celular Participacoes SA............................ Brazil 398,750,000 1,716,118
*Telesp Participacoes SA.................................... Brazil 381,383,300 4,892,565
---------------
295,258,004
---------------
TEXTILES & APPAREL .1%
St. John Knits Inc. ........................................ United States 253,800 6,598,800
---------------
TRANSPORTATION 3.5%
Airborne Freight Corp. ..................................... United States 735,000 26,505,938
Burlington Northern Santa Fe Corporation.................... United States 375,600 12,676,500
Florida East Coast Industries Inc. ......................... United States 1,201,500 42,277,781
(R)*Golden Ocean Group Ltd., wts. 8/31/01................... United States 2,565 0
</TABLE>
44
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION (CONT.)
Railtrack Group Plc. ....................................... United Kingdom 3,299,038 $ 86,283,799
Xtra Corp. ................................................. United States 85,800 3,549,975
---------------
171,293,993
---------------
UTILITIES ELECTRICAL & GAS .4%
*Citizens Utilities Co., B.................................. United States 2,637,778 21,431,946
VEBA AG..................................................... Germany 4,500 266,661
---------------
21,698,607
---------------
TOTAL COMMON STOCKS (COST $3,379,189,411)................... 4,153,529,512
---------------
PREFERRED STOCKS 1.3%
Apartment Investment & Management Co., cvt., pfd. .......... United States 165,741 6,132,417
(R)*CGA Group Ltd., A, pfd. ................................ United States 286,630 0
(R)*CGA Group Ltd., B, pfd. ................................ United States 28,571 0
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 384,000 5,352,000
(R)*Interlake Corp., Series A3, 9.00%, cvt., pfd. .......... United States 1,050 2,008,197
Sun Financing I, 144A, 7.00%, cvt., pfd. ................... United States 1,895,000 19,423,750
*Tele Celular Sul Participacoes SA, ADR, pfd. .............. Brazil 38,400 669,600
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ..... Brazil 128,000 376,000
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 167,300 6,995,231
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 654,300 8,137,856
*Tele Sudeste Celular Participacoes SA, ADR, pfd. .......... Brazil 76,800 1,588,800
*Telemig Celular Participacoes SA, ADR, pfd. ............... Brazil 19,200 408,000
*Telesp Celular Participacoes SA, ADR, pfd. ................ Brazil 153,600 2,688,000
*Telesp Participacoes SA, ADR, pfd. ........................ Brazil 354,100 7,834,463
(R)*Viasystems Inc., B, pfd. ............................... United States 52,081 781,221
*Wundies Industries Inc., 11.25%, pfd. ..................... United States 12,168 33,462
---------------
TOTAL PREFERRED STOCKS (COST $111,138,007).................. 62,428,997
---------------
PRINCIPAL
AMOUNT**
--------
CORPORATE BONDS AND NOTES 2.1%
Abraxas Petroleum Corp., Series D, 11.50%, 11/01/04......... United States $ 1,000,000 760,000
(R)*CGA Private Trust Company Ltd., FRN, 6/10/99............ United States 1,071,425 160,714
Eurotunnel Finance Ltd:
Equity Note 12/31/03...................................... United Kingdom 7,945,253GBP 3,833,497
Participating Loan Note 4/30/40........................... United Kingdom 3,800,000GBP 2,086,349
Eurotunnel Plc.:
12/31/12, tier 1.......................................... United Kingdom 4,221,833GBP 5,900,241
12/31/18, tier 2.......................................... United Kingdom 5,244,507GBP 6,805,949
12/31/25, tier 3.......................................... United Kingdom 2,617,435GBP 2,895,923
12/31/50, Resettable Advance R5........................... United Kingdom 3,100,187GBP 1,908,442
Stabilization Advance S8 tier 1........................... United Kingdom 527,500GBP 153,585
Stabilization Advance S8 tier 2........................... United Kingdom 325,856GBP 75,900
</TABLE>
45
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL QUALIFIED FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
Eurotunnel SA:
12/31/12 tier 1 (Libor)................................... France 65,214,348FRF $ 9,806,318
12/31/12 tier 1 (Pibor)................................... France 8,858,381FRF 1,332,040
12/31/18 tier 2 (Libor)................................... France 92,405,819FRF 12,902,606
12/31/18 tier 2 (Pibor)................................... France 17,626,268FRF 2,461,152
12/31/25 tier 3 (Libor)................................... France 90,638,109FRF 10,708,738
12/31/25 tier 3 (Pibor)................................... France 35,314,018FRF 4,172,291
12/31/50 Resettable Advance R4............................ France 84,375,586FRF 5,437,544
Stabilization Advance S6 tier 1 (Pibor)................... France 2,133,023FRF 66,822
Stabilization Advance S7 tier 1 (Libor)................... France 5,161,210FRF 161,686
Stabilization Advance S6 tier 2........................... France 4,931,687FRF 123,597
Fine Host Corp., cvt., 144A, 5.00%, 11/01/04................ United States 8,250,000 6,352,500
(R)*Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.......... United States 6,250,000 1,750,000
Kelly Oil & Gas Co.:
10.375%, 10/15/06......................................... United States 3,225,000 2,402,625
Series D, 10.375%, 10/15/06............................... United States 2,550,000 1,899,750
MCII Holdings, 0/12.00%, 11/15/02........................... United States 3,556,000 2,951,480
Pratama Datakom Asia BV:
Reg S, 12.75%, 7/15/05.................................... Indonesia 1,520,000 376,200
144A, 12.75%, 7/15/05..................................... Indonesia 6,855,000 1,696,613
Raintree Resorts Inc., B, 13.00%, 12/01/04.................. United States 3,250,000 1,787,500
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States 8,660,000 3,507,300
Specialty Foods Corp., B, 11.25%, 8/15/03................... United States 8,315,000 4,157,500
TFM SA de CV:
144A, 10.25%, 6/15/07..................................... Mexico 350,000 297,500
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 4,850,000 2,522,000
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11........... Mexico 1,922,141 1,167,701
---------------
TOTAL CORPORATE BONDS & NOTES (COST $112,656,914)........... 102,622,063
---------------
BONDS & NOTES IN REORGANIZATION 1.8%
*Alpargatas SA Industrial y Comercial:
9.00%, 2/20/99............................................ Argentina 710,000 106,500
11.75%, 8/18/98........................................... Argentina 845,000 135,200
bank claim................................................ Argentina 1,265,000 189,750
*American Pad & Paper Co., bank claim....................... United States 2,981,800 2,713,438
*Brunos Inc., Bank Claim:
revolver committment...................................... United States 1,780,000 1,157,000
tranche A................................................. United States 3,090,000 2,008,500
tranche B................................................. United States 1,950,000 1,267,500
*Caldor Corp., trade claim.................................. United States 7,701,177 9,626
*Crown Leasing, bank claim.................................. Japan 1,018,601,100JPY 1,433,537
*Dictaphone Corporation:
bank claim................................................ United States 2,387,085 2,088,699
Tranche B Term Loan....................................... United States 2,298,000 2,045,220
Tranche C Term Loan....................................... United States 1,300,000 1,157,000
</TABLE>
46
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL QUALIFIED FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Dow Corning Corp.:
bank claim................................................ United States $ 1,801,364 $ 2,359,787
bank debt #1.............................................. United States 2,850,000 3,733,500
9.30%, 1/27/98............................................ United States 1,835,000 2,403,850
8.55%, 3/01/01............................................ United States 1,000,000 1,310,000
9.375%, 2/01/08........................................... United States 735,000 962,850
8.15%, 10/15/29........................................... United States 5,150,000 6,746,500
swap...................................................... United States 7,437,830 9,743,558
*FPA Medical Management Inc.:
bank claim................................................ United States 1,290,000 122,550
term loan................................................. United States 1,483,100 140,895
*Koninklijke Ned Vlieg Fokker NV, trade claim............... Netherlands 5,440,000NLG 2,203,016
*Korea National Housing Corporation Loan, bank claim........ United States 8,600,000 7,740,000
Mercury Finance Co., Bank Claim, MTN:
5.79%, 2/02/97............................................ United States 375,857 338,272
5.66%, 3/10/97............................................ United States 2,733,507 2,460,156
6.29%, 12/16/97........................................... United States 2,956,031 2,660,428
6.16%, 12/15/98........................................... United States 343,725 309,352
9.76%, 2/20/99............................................ United States 2,500,000 1,875,000
10.86%, 2/20/99........................................... United States 2,000,000 1,500,000
7.33%, 6/29/99............................................ United States 1,359,359 1,223,423
7.42%, 6/29/00............................................ United States 3,518,283 3,166,454
7.50%, 6/29/01............................................ United States 2,683,299 2,414,969
Mercury Finance Co., Commercial Paper:
1/31/97................................................... United States 940,959 846,863
2/03/97................................................... United States 836,754 753,078
2/04/97................................................... United States 53,633 48,269
2/06/97................................................... United States 469,907 422,916
2/07/97................................................... United States 337,779 304,001
2/10/97................................................... United States 160,118 144,106
2/11/97................................................... United States 996,389 896,750
2/13/97................................................... United States 136,336 122,703
2/18/97................................................... United States 600,375 540,338
2/19/97................................................... United States 493,538 444,185
2/20/97................................................... United States 102,619 92,357
2/21/97................................................... United States 681,170 613,053
2/24/97................................................... United States 279,588 251,629
2/25/97................................................... United States 342,438 308,194
2/27/97................................................... United States 45,643 41,078
3/07/97................................................... United States 718,024 646,221
3/10/97................................................... United States 182,609 164,348
3/11/97................................................... United States 30,069 27,062
3/14/97................................................... United States 53,509 48,158
3/17/97................................................... United States 619,544 557,589
3/19/97................................................... United States 1,169,361 1,052,425
4/11/97................................................... United States 26,843 24,159
</TABLE>
47
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL QUALIFIED FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
4/14/97................................................... United States $ 190,295 $ 171,265
4/15/97................................................... United States 36,900 33,210
4/18/97................................................... United States 95,417 85,875
4/22/97................................................... United States 54,520 49,068
4/24/97................................................... United States 81,778 73,601
6/29/98................................................... United States 188,769 169,892
4/05/01................................................... United States 204,868 184,381
*Nippon Credit Bank Ltd., bank claim........................ Japan 518,204,809JPY 734,045
*Nippon Total Finance, bank claim........................... Japan 492,298,091JPY 259,622
*Ritvik Holdings:
bank claim................................................ United States 1,489,000 1,191,200
bank claim, term loan B................................... United States 595,000 476,000
*Southeast Banking Corp.:
zero coupon, 12/16/96..................................... United States 2,000,000 920,000
4.75%, 10/15/97........................................... United States 2,200,000 1,496,000
zero coupon, 11/10/97..................................... United States 750,000 345,000
10.50%, 4/11/01........................................... United States 3,875,000 1,860,000
*Ventas Inc., bank claim, tranche D......................... United States 2,695,000 2,560,250
---------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $85,324,572).... 86,685,421
---------------
SHARES
-----
COMPANIES IN LIQUIDATION .1%
*City Investing Co. ........................................ United States 1,579,485 2,023,715
(R)*Kendall International Inc., Residual Ownership
Certif. .................................................. United States 444 5,328
*Mcorp Financial Trust, claim units......................... United States 27,617 33,761
*Mcorp Trust Units.......................................... United States 27,611 276
*Ranger Industries Inc. .................................... United States 24,483 9,793
---------------
TOTAL COMPANIES IN LIQUIDATION (COST $107,466).............. 2,072,873
---------------
PRINCIPAL
AMOUNT**
--------
SHORT TERM INVESTMENTS 7.8%
Fannie Mae, 5.35% to 5.88%, with maturities to 11/03/99..... $ 287,986,000 281,657,294
Federal Home Loan Bank, 5.00% to 5.605%, with maturities to
4/12/01................................................... 98,000,000 97,637,575
---------------
TOTAL SHORT TERM INVESTMENTS (COST $379,351,177)............ 379,294,869
---------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$4,067,767,547)........................................... 4,786,633,735
---------------
</TABLE>
48
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL QUALIFIED FUND COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENT (COST $1,800,000)
Bank of New York, 4.25%, 1/04/99, (Maturity Value
$1,800,850)
Collateralized by U.S. Treasury Notes and Bonds........... United States $ 1,800,000 $ 1,800,000
---------------
TOTAL INVESTMENTS (COST $4,069,567,547) 99.0%............... 4,788,433,735
OPTIONS WRITTEN............................................. (9,375)
SECURITIES SOLD SHORT (4.1%)................................ (195,841,330)
NET EQUITY IN FORWARD CONTRACTS............................. (1,537,212)
OTHER ASSETS, LESS LIABILITIES 5.1%......................... 244,225,155
---------------
TOTAL NET ASSETS 100.0%..................................... $ 4,835,270,973
===============
OPTIONS WRITTEN
ISSUER COUNTRY CONTRACTS VALUE
- ----------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., January/90/Call........................ United States 138 $ 1,725
Bankers Trust Corp., January/85/Call........................ United States 36 4,950
Bankers Trust Corp., January/85/Put......................... United States 36 2,700
---------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $49,246)........... $ 9,375
===============
</TABLE>
<TABLE>
<CAPTION>
SECURITIES SOLD SHORT
ISSUER
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American International Group Inc. .......................... United States 218,400 $ 21,102,900
Apartment Investment & Management Co. ...................... United States 140,600 5,228,562
AT&T Corp. ................................................. United States 1,157,600 87,109,400
*DST Systems Inc. .......................................... United States 60,000 3,423,750
McKesson Corp. ............................................. United States 90,650 7,167,016
Newell Co. ................................................. United States 123,800 5,106,750
Northern Telecom, Ltd. ..................................... Canada 185,680 9,259,823
*Sun Healthcare Group Inc. ................................. United States 262,700 1,723,968
Suntrust Banks Inc. ........................................ United States 463,700 35,473,050
Telecom Italia Mobile SpA................................... Italy 2,161,900 15,999,148
*Tele-Communications Inc., Liberty Media Group, A........... United States 92,200 4,246,963
---------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $168,918,800)......... $ 195,841,330
===============
</TABLE>
49
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND
CONTRACTS FOR DIFFERENCES
ISSUER
VALUE AT UNREALIZED
COUNTRY SHARES 12/31/98 LOSS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Petroleum Co. Plc., cfd 4.47 ....................... United Kingdom 45,500 $ 679,794 $ (75,610)
Rentokil Initial Plc., cfd 4.42............................. United Kingdom 1,507,963 11,315,054 (225,799)
----------- ---------
TOTAL CONTRACTS FOR DIFFERENCES............................. $11,994,848 $(301,409)
=========== =========
</TABLE>
CURRENCY ABBREVIATIONS:
GBP -- British Pound
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Dutch Guilder
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(a) At December 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
(R)Restricted securities (see note 6).
+Affiliated issuers (see note 7).
See Notes to Financial Statements.
50
PAGE
MUTUAL BEACON FUND
Your Fund's Goal: Mutual Beacon Fund seeks capital appreciation, with income as
a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities. The fund may also invest in foreign
securities.
Since we were named portfolio managers for this fund, we have somewhat reduced
the number of positions and focused on owning meaningful stakes in the companies
in which we have the greatest conviction. At the beginning of the year, Mutual
Beacon Fund held over 300 different names in the portfolio. As of year end, the
fund was holding about 210 different names. We are all proponents of a broadly
diversified portfolio to reduce volatility for the fund holder, but we believe
the result of our efforts is a more focused portfolio going forward.
Applying our long-standing value approach, we continue to invest in three areas:
(1) cheap stocks based on asset values, (2) arbitrage and (3) bankruptcy
situations. Our value approach has been as out of favor over the past 3 years as
it was in favor in the early to mid '90's. Our goal has always been solid
compounding at a low risk-adjusted rate. We do not waver from that goal and will
always hunt for bargains rather than the latest trend.
Sincerely,
/s/ Larry Sondike /s/ David J. Winters
Larry Sondike David Winters
FUND CATEGORY
[PYRAMID]
[This chart shows in pie format the U.S. exposure of Mutual Beacon Fund, based
on total net assets as of 12/31/98.]
U.S. EXPOSURE
MUTUAL BEACON FUND
BASED ON TOTAL NET ASSETS
12/31/98
[PIECHART]
United States 66.3%
Other Countries 33.7%
TOP 5 HOLDINGS
MUTUAL BEACON FUND
12/31/98
This chart lists the tope 5 holdings, including industry and country, of Mutual
Beacon Fund, based on total net assets as of 12/31/98.
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------- ----------
Chase Manhattan Corp.,
Banking, U.S. 2.8%
Investor AB, A & B,
Multi-Industry, Sweden 2.7%
Suez Lyonnaise des Eaux SA,
Business & Public Services,
France 2.3%
General Motors Corp.,
Automobiles, U.S. 2.3%
Railtrack Group Plc.,
Transportation, United Kingdom 1.9%
51
PAGE
MUTUAL BEACON FUND
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, Franklin Mutual Advisers has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower. Franklin Mutual Advisers has made a commitment to the fund's Board not to
seek an increase in the rate of investment advisory fees for a three-year period
beginning November 1, 1996.
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.00 $13.12 $14.12
DISTRIBUTIONS
-------------
Dividend Income $0.4500
Long-term capital gain $0.8200
Short-term capital gain $0.0500
TOTAL $1.3200
</TABLE>
<TABLE>
<CAPTION>
CLASS I CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.00 $13.09 $14.09
DISTRIBUTIONS
-------------
Dividend Income $0.4013
Long-term capital gain $0.8200
Short-term capital gain $0.0500
TOTAL $1.2713
</TABLE>
<TABLE>
<CAPTION>
CLASS II CHANGE 12/31/98 12/31/97
- -------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.00 $13.04 $14.04
DISTRIBUTIONS
-------------
Dividend Income $0.3153
Long-term capital gain $0.8200
Short-term capital gain $0.0500
TOTAL $1.1853
</TABLE>
Mutual Beacon Fund paid distributions derived from long-term capital gains of
82.0 cents ($0.8200) per share in December, 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852(b)(3).
Past performance is not predictive of future results.
52
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
CLASS Z 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
<S> <C> <C> <C>
Cumulative Total Return(1) 2.37% 102.93% 288.96%
Average Annual Total Return(2) 2.37% 15.20% 14.55%
Value of $10,000 Investment(3) $10,237 $20,293 $38,896
</TABLE>
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 25.89% 21.19% 23.03% 2.37%
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS I 1-YEAR (11/1/96)
- ------- ------ ---------
<S> <C> <C>
Cumulative Total Return(1) 2.02% 33.14%
Average Annual Total Return(2) -3.85% 11.06%
Value of $10,000 Investment(3) $9,615 $12,548
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS II 1-YEAR (11/1/96)
- -------- ------ ---------
<S> <C> <C>
Cumulative Total Return(1) 1.40% 31.31%
Average Annual Total Return(2) -0.59% 12.89%
Value of $10,000 Investment(3) $9,941 $13,000
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include sales
charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
53
PAGE
MUTUAL BEACON FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees, and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
[The following line graph compares the performance of Mutual Qualified Fund's
Class Z shares to that of the Standard & Poors 500 Stock Index and the Lipper
Growth & Income Fund's Average, based on a $10,000 investment from 1/1/89 to
12/31/98.]
CLASS Z (1/1/89 - 12/31/98)
[GRAPH]
Date Mutual Qualified S&P 500* Lipper Gr. &
- Class Z Inc. Average**
- -----------------------------------------------------------------------
1/1/89 $10,000 $10,000 $10,000
12/31/89 $11,444 $13,169 $12,323
12/31/90 $10,286 $12,761 $11,770
12/31/91 $12,460 $16,649 $15,169
12/31/92 $15,288 $17,918 $16,475
12/31/93 $18,759 $19,724 $18,378
12/31/94 $19,833 $19,984 $18,205
12/31/95 $25,109 $27,494 $23,816
12/31/96 $30,429 $33,807 $28,765
12/31/97 $38,010 $45,085 $36,528
12/31/98 $38,201 $57,970 $42,230
AVERAGE ANNUAL TOTAL RETURN
12/31/98
[This chart lists the average annual total return of Mutual Beacon Fund - Class
Z for the period ended 12/31/98.]
CLASS Z
- -------
1-Year 2.37%
10-Year 14.55%
CLASS I (11/1/96 - 12/31/98)
[GRAPH]
AVERAGE ANNUAL TOTAL RETURN
12/31/98
<TABLE>
<CAPTION>
CLASS I
- -------
<S> <C>
1-Year -3.85%
Since Inception 11.06%
</TABLE>
Past performance is not predictive of future results.
54
PAGE
Class II (11/1/96 - 12/31/98)
[GRAPH]
AVERAGE ANNUAL TOTAL RETURN
12/31/98
<TABLE>
<CAPTION>
CLASS II
- --------
<S> <C>
1-Year -0.59%
Since Inception 12.89%
</TABLE>
*Source: Standard and Poor's Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
**Lipper Growth and Income Fund average consists of 148 funds as of 12/31/98.
Lipper calculations do not include sales charges; past and current expense
reductions by the fund's manager increased the fund's total return. If these
factors had been considered, the fund's performance relative to the Lipper
average may have been different.
Past performance is not predictive of future results.
55
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL BEACON FUND
<TABLE>
<CAPTION>
CLASS Z
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $14.12 $12.98 $11.98 $10.34 $10.36
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .33 .31 .40 .29 .15
Net realized and unrealized gains (losses)......... (.01) 2.63 2.08 2.36 .43
------------------------------------------------------------------
Total from investment operations.................... .32 2.94 2.48 2.65 .58
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.45) (.54) (.35) (.28) (.15)
Net realized gains................................. (.87) (1.26) (1.13) (.73) (.45)
------------------------------------------------------------------
Total distributions................................. (1.32) (1.80) (1.48) (1.01) (.60)
------------------------------------------------------------------
Net asset value, end of year........................ $13.12 $14.12 $12.98 $11.98 $10.34
------------------------------------------------------------------
------------------------------------------------------------------
Total Return........................................ 2.37% 23.03% 21.19% 25.89% 5.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $4,030,517 $5,678,822 $4,920,388 $3,573,297 $2,060,453
Ratios to average net assets:
Expenses........................................... .76% .74% .73% .72% .75%
Expenses, excluding waiver and payments by
affiliate......................................... .79% .77% .75% .72% .75%
Net investment income.............................. 2.28% 1.92% 3.21% 2.89% 1.96%
Portfolio turnover rate............................. 65.27% 54.72% 66.87% 73.18% 70.63%
</TABLE>
+Per share amounts for all periods prior to December 31, 1996 have been restated
to reflect a 3-for-1 stock split effective February 3, 1997.
56
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL BEACON FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998+++ 1997+++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $14.09 $12.98 $13.21
-------------------------------------
Income from investment operations:
Net investment income...................................... .27 .23 .16
Net realized and unrealized gains.......................... -- 2.65 .69
-------------------------------------
Total from investment operations............................ .27 2.88 .85
-------------------------------------
Less distributions from:
Net investment income...................................... (.40) (.51) (.33)
Net realized gains......................................... (.87) (1.26) (.75)
-------------------------------------
Total distributions......................................... (1.27) (1.77) (1.08)
-------------------------------------
Net asset value, end of year................................ $13.09 $14.09 $12.98
-------------------------------------
-------------------------------------
Total Return*............................................... 2.02% 22.52% 6.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $947,444 $753,519 $52,070
Ratios to average net assets:
Expenses................................................... 1.11% 1.09% 1.03%**
Expenses, excluding waiver and payments by affiliate....... 1.14% 1.12% 1.13%**
Net investment income...................................... 1.89% 1.58% 1.33%**
Portfolio turnover rate..................................... 65.27% 54.72% 66.87%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 3-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
57
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL BEACON FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998+++ 1997+++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $14.04 $12.98 $13.21
-------------------------------------
Income from investment operations:
Net investment income...................................... .18 .14 .13
Net realized and unrealized gains.......................... .01 2.63 .71
-------------------------------------
Total from investment operations............................ .19 2.77 .84
-------------------------------------
Less distributions from:
Net investment income...................................... (.32) (.45) (.32)
Net realized gains......................................... (.87) (1.26) (.75)
-------------------------------------
Total distributions......................................... (1.19) (1.71) (1.07)
-------------------------------------
Net asset value, end of year................................ $13.04 $14.04 $12.98
-------------------------------------
-------------------------------------
Total Return*............................................... 1.40% 21.65% 6.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $500,404 $362,425 $16,263
Ratios to average net assets:
Expenses................................................... 1.76% 1.74% 1.75%**
Expenses, excluding waiver and payments by affiliate....... 1.79% 1.77% 1.85%**
Net investment income...................................... 1.24% .92% .84%**
Portfolio turnover rate..................................... 65.27% 54.72% 66.87%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 3-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
See Notes to Financial Statements.
58
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 84.3%
AEROSPACE & MILITARY TECHNOLOGY 1.4%
*Coltec Industries Inc. .................................... United States 1,253,600 $ 24,445,200
*General Motors Corp., H.................................... United States 331,300 13,148,469
*Hexcel Corp. .............................................. United States 991,880 8,306,995
Lockheed Martin Corp. ...................................... United States 136,100 11,534,475
Northrop Grumman Corp. ..................................... United States 246,900 18,054,563
--------------
75,489,702
--------------
AUTOMOBILES 2.9%
Borg-Warner Automotive Inc. ................................ United States 404,000 22,548,250
General Motors Corp. ....................................... United States 1,733,300 124,039,281
*Hayes Lemmerz International Inc. .......................... United States 288,520 8,709,698
Volvo AB, B................................................. Sweden 91,400 2,097,313
--------------
157,394,542
--------------
BANKING 5.8%
Bank One Corp. ............................................. United States 1,968,154 100,498,864
Bankamerica Corp. .......................................... United States 325,508 19,571,168
Chase Manhattan Corp. ...................................... United States 2,224,680 151,417,282
Crestar Financial Corp. .................................... United States 98,600 7,099,200
First Union Corp. .......................................... United States 532,404 32,376,818
Kapital Holding............................................. Denmark 88,883 4,399,111
--------------
315,362,443
--------------
BEVERAGES & TOBACCO 6.0%
Brown-Forman Corp., A....................................... United States 125,200 8,732,700
Brown-Forman Corp., B....................................... United States 281,300 21,290,894
Farmer Brothers Co. ........................................ United States 93,286 19,963,204
Heineken Holding NV, A...................................... Netherlands 430,282 20,634,827
Kita Kyushu Coca-Cola Bottling Co. Ltd. .................... Japan 525,300 16,485,479
Mikuni Coca-Cola Bottling Co. .............................. Japan 507,400 10,863,218
Molson Co. Ltd., A.......................................... Canada 1,882,375 26,961,100
Molson Co. Ltd., B.......................................... Canada 22,700 325,130
Philip Morris Cos. Inc. .................................... United States 1,569,700 83,978,950
RJR Nabisco Holdings Corp. ................................. United States 2,919,685 86,678,148
Shikoku Coca-Cola Bottling Co. Ltd. ........................ Japan 8,600 105,137
UST Inc. ................................................... United States 977,100 34,076,363
--------------
330,095,150
--------------
BROADCASTING & PUBLISHING 6.9%
*Chris Craft Industries Inc. ............................... United States 237,283 11,434,075
Daily Mail & General Trust Plc. ............................ United Kingdom 19,000 764,204
Daily Mail & General Trust Plc., A.......................... United Kingdom 371,200 17,527,088
Dow Jones & Co. Inc. ....................................... United States 1,034,500 49,785,312
Houghton Mifflin Co. ....................................... United States 123,300 5,825,925
*MediaOne Group Inc. ....................................... United States 2,039,000 95,833,000
*Modern Times Group AB, A................................... Sweden 287,550 4,221,477
</TABLE>
59
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING (CONT.)
*Modern Times Group AB, B................................... Sweden 1,919,052 $ 28,410,057
NV Holdingsmij de Telegraaf................................. Netherlands 2,208,400 59,425,694
+R H Donnelly Corp. ........................................ United States 1,914,772 27,883,867
Scripps Co., A.............................................. United States 913,900 45,466,525
Washington Post Co., B...................................... United States 59,500 34,387,281
--------------
380,964,505
--------------
BUILDING MATERIALS & COMPONENTS .7%
*American Standard Cos. Inc. ............................... United States 884,600 31,845,600
Puerto Rican Cement Co. Inc. ............................... United States 248,400 8,678,475
--------------
40,524,075
--------------
BUSINESS & PUBLIC SERVICES 3.0%
*Healthsouth Corp. ......................................... United States 2,244,300 34,646,381
Ratin AS, B................................................. Denmark 16,075 3,409,734
Suez Lyonnaise des Eaux SA.................................. France 619,000 127,208,478
--------------
165,264,593
--------------
CHEMICALS 1.5%
Morton International Inc. .................................. United States 1,633,200 40,013,400
Olin Corp. ................................................. United States 1,393,000 39,439,313
--------------
79,452,713
--------------
ELECTRICAL & ELECTRONICS 1.5%
Philips Electronics NV...................................... Netherlands 191,700 12,870,571
Philips Electronics NV, fgn. ............................... Netherlands 601,000 40,680,188
*Wang Laboratories Inc., A.................................. United States 1,104,000 30,636,000
--------------
84,186,759
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
*Amphenol Corp., A.......................................... United States 652,366 19,693,299
+Spectra Physics AB, A...................................... Sweden 1,130,000 13,313,307
--------------
33,006,606
--------------
ENERGY EQUIPMENT & SERVICES 1.3%
Baker Hughes Inc. .......................................... United States 1,012,300 17,905,056
*Cooper Cameron Corp. ...................................... United States 1,046,300 25,634,350
+*Gulfmark Offshore Inc. ................................... United States 642,074 10,112,665
*Weatherford International Inc. ............................ United States 981,621 19,018,907
--------------
72,670,978
--------------
ENERGY SOURCES 2.5%
Amoco Corp. ................................................ United States 187,200 11,302,200
Apco Argentina Inc. ........................................ United States 57,179 1,129,285
*Conoco Inc., A............................................. United States 425,000 8,871,875
Imperial Oil Ltd. .......................................... Canada 22,500 359,619
</TABLE>
60
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES (CONT.)
*Ocean Energy Inc. ......................................... United States 1,513,780 $ 9,555,736
Royal Dutch Petroleum Co. .................................. Netherlands 124,800 5,974,800
Shell Transport & Trading Co. Plc. ......................... United Kingdom 2,059,500 12,609,533
*Smith International Inc. .................................. United States 273,700 6,893,819
Societe Elf Aquitaine SA, Br. .............................. France 465,000 53,773,585
USEC Inc. .................................................. United States 1,999,100 27,737,513
--------------
138,207,965
--------------
FINANCIAL SERVICES 9.2%
Bankers Trust Corp. ........................................ United States 110,600 9,449,387
Bear Stearns Co. Inc. ...................................... United States 1,086,400 40,604,200
CIT Group Inc., A........................................... United States 883,500 28,106,344
Commercial Federal Corp. ................................... United States 1,209,640 28,048,527
Electra Investment Trust Plc. .............................. United Kingdom 3,263,300 29,725,593
Finova Group Inc. .......................................... United States 294,000 15,857,625
Greenpoint Financial Corp. ................................. United States 741,600 26,048,700
Household International Inc. ............................... United States 1,481,481 58,703,685
(R)Laser Mortgage Management Inc. .......................... United States 255,000 1,386,563
Lehman Brothers Holdings Inc. .............................. United States 1,054,400 46,459,500
Liberty Financial Companies Inc. ........................... United States 1,362,511 36,787,797
Morgan Stanley Dean Witter & Co. ........................... United States 1,017,300 72,228,300
Sunamerica Inc. ............................................ United States 292,800 23,753,400
Takefuji Corp. ............................................. Japan 99,500 7,277,261
United Asset Management Corp. .............................. United States 3,105,000 80,730,000
--------------
505,166,882
--------------
FOOD & HOUSEHOLD PRODUCTS 1.8%
*Rubbermaid Inc............................................. United States 177,600 5,583,300
Seaboard Corp. ............................................. United States 5,350 2,257,700
(R)Sunbeam Corp. ........................................... United States 1,480,670 9,328,221
U.S. Industries Inc. ....................................... United States 1,920,700 35,773,038
Van Melle NV................................................ Netherlands 282,037 19,086,001
Weetabix Ltd., A............................................ United Kingdom 430,725 27,231,595
--------------
99,259,855
--------------
FOREST PRODUCTS & PAPER .7%
Bowater Inc. ............................................... United States 120,200 4,980,787
Greif Brothers Corp., A..................................... United States 7,710 225,036
Rayonier Inc. .............................................. United States 429,300 19,720,969
St. Joe Co. ................................................ United States 490,798 11,503,078
--------------
36,429,870
--------------
HEALTH & PERSONAL CARE 2.8%
*Beverly Enterprises Inc. .................................. United States 2,298,500 15,514,875
*Foundation Health Systems, A............................... United States 1,866,840 22,285,402
*Pacificare Health Systems Inc., A.......................... United States 391,290 28,466,348
</TABLE>
61
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE (CONT.)
*Pacificare Health Systems Inc., B.......................... United States 18,882 $ 1,501,119
*Quorum Health Group Inc. .................................. United States 2,509,000 32,460,188
*Tenet Healthcare Corp. .................................... United States 769,000 20,186,250
*Ventas Inc. ............................................... United States 2,481,600 30,244,500
--------------
150,658,682
--------------
INDUSTRIAL COMPONENTS 3.5%
BTR Plc. ................................................... United Kingdom 9,562,600 19,569,084
Charter Plc. ............................................... United Kingdom 1,250,900 6,784,683
Gencorp Inc. ............................................... United States 806,100 20,102,119
(R)*Lancer Industries Inc., B............................... United States 1 1,145,967
*Lear Corp. ................................................ United States 1,292,100 49,745,850
Lucas Varity Plc. .......................................... United Kingdom 4,770,000 15,713,501
Lucas Varity Plc., ADR...................................... United Kingdom 1,329,944 44,553,124
*Owens-Illinois Inc. ....................................... United States 1,063,500 32,569,688
--------------
190,184,016
--------------
INSURANCE 3.9%
*Alleghany Corp. ........................................... United States 111,169 20,885,876
Allmerica Financial Corp. .................................. United States 38,300 2,216,612
AON Corp. .................................................. United States 202,650 11,221,744
Argonaut Group Inc. ........................................ United States 22,300 546,350
Assurances Generales de France AGF.......................... France 579,781 34,644,463
Fund American Enterprises Holdings Inc. .................... United States 265,111 37,132,109
Hartford Financial Services Group Inc. ..................... United States 451,800 24,792,525
Kansas City Life Insurance Co. ............................. United States 4,050 331,088
*Leucadia National Corp. ................................... United States 1,067,300 33,619,950
Provident Companies Inc. ................................... United States 106,500 4,419,750
Sampo Insurance Co. Plc., A................................. Finland 550,950 21,000,385
Torchmark Corp. ............................................ United States 648,100 22,886,031
--------------
213,696,883
--------------
LEISURE & TOURISM 1.5%
Hilton Hotels Corp. ........................................ United States 2,664,900 50,966,213
*Promus Hotel Corp. ........................................ United States 974,200 31,539,725
--------------
82,505,938
--------------
MACHINERY & ENGINEERING .6%
Bucher Holding AG, Br. ..................................... Switzerland 7,373 5,904,842
New Holland NV.............................................. Netherlands 753,800 10,317,638
Siebe Plc. ................................................. United Kingdom 4,812,247 18,895,105
--------------
35,117,585
--------------
MERCHANDISING 2.6%
*Federated Department Stores Inc............................ United States 394,800 17,198,475
FKI Plc. ................................................... United Kingdom 12,412,000 27,774,960
</TABLE>
62
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING (CONT.)
*Homeland Holdings Corp. ................................... United States 59,798 $ 143,889
*Neiman-Marcus Group Inc. .................................. United States 954,700 23,807,831
*Payless Shoesource Inc. ................................... United States 873,000 41,358,375
*Toys R Us Inc. ............................................ United States 1,945,885 32,836,809
--------------
143,120,339
--------------
METALS & MINING .3%
Allegheny Teledyne Inc. .................................... United States 754,460 15,419,276
Central Steel & Wire Co. ................................... United States 959 748,979
--------------
16,168,255
--------------
MULTI-INDUSTRY 9.2%
Aker RGI ASA, A............................................. Norway 2,218,979 23,299,425
*Berkshire-Hathaway Inc., A................................. United States 628 43,960,000
Cie Financiere Richemont AG, Br., A......................... Switzerland 34,491 48,767,035
Custos AB, A................................................ Sweden 1,000,000 19,738,952
Edperbrascan Corp., A....................................... Canada 1,477,600 20,490,156
Financiere Et Industrielle Gaz Et Eaux SA................... France 135,687 7,214,034
Forvaltnings AB Ratos, B.................................... Sweden 4,916,160 34,570,446
Gendis Inc., A.............................................. Canada 303,200 947,500
Investor AB, A.............................................. Sweden 1,077,000 47,965,284
Investor AB, B.............................................. Sweden 2,258,000 101,955,143
Kansas City Southern Industries Inc. ....................... United States 475,100 23,368,981
Kinnevik AB, A.............................................. Sweden 287,550 6,456,377
Kinnevik AB, B.............................................. Sweden 1,854,552 43,470,710
Lagardere SCA............................................... France 1,185,598 50,406,274
Ste Eurafrance.............................................. France 47,059 31,169,364
--------------
503,779,681
--------------
REAL ESTATE 2.3%
*Alexander's Inc. .......................................... United States 46,300 3,620,081
*Al-Zar Ltd. LP............................................. United States 12 2,400
*Cadillac Fairview Corp. ................................... Canada 91,500 1,682,861
*Cadillac Fairview Corp., fgn............................... Canada 737,672 13,785,246
*Cadillac Fairview Corp., wts............................... Canada 112,599 703,744
E & J Properties Ltd. ...................................... United States 15,000 750
Gould Investors LP.......................................... United States 14,600 1,460,000
(R)+*MB Metropolis LLC...................................... United States 3,043,906 3,759,224
*MBO Properties Inc. ....................................... United States 205,135 1,564,154
(R)+*MSCW Investors III, LLC................................ United Kingdom 28,372,000 57,683,361
+Resurgence Properties Inc. ................................ United States 591,900 26,636
(R)+Resurgence Properties Inc., Restricted.................. United States 900,000 40,500
(R)*Security Capital European Realty........................ United States 416,875 8,337,500
</TABLE>
63
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Starwood Hotels & Resorts Trust............................. United States 689,200 $ 15,636,225
+*Wellsford Real Properties Inc. ........................... United States 1,583,221 16,326,967
--------------
124,629,649
--------------
RECREATION & OTHER CONSUMER GOODS .4%
Raintree Resorts, wts. ..................................... United States 3,750 3,750
*Gtech Holdings Corp. ...................................... United States 789,300 20,225,812
--------------
20,229,562
--------------
TELECOMMUNICATIONS 6.1%
BCE Inc. ................................................... Canada 561,950 21,164,588
*Embratel Participacoes SA.................................. Brazil 461,300,000 4,008,814
*Tele Celular Sul Participacoes SA.......................... Brazil 465,898,000 431,869
*Tele Centro Oeste Celular Participacoes SA................. Brazil 461,300,000 362,702
*Tele Centro Sul Participacoes SA........................... Brazil 489,225,100 3,239,231
*Tele Norte Leste Participacoes SA.......................... Brazil 483,666,000 3,962,999
*Tele Sudeste Celular Participacoes SA...................... Brazil 461,300,000 1,298,092
Telecom Italia SpA.......................................... Italy 4,783,300 40,811,775
Telecom Italia SpA, di Risp................................. Italy 4,020,700 25,268,636
*Telecommunications Inc. - TCI Ventures Group, A............ United States 1,964,900 46,297,956
*Tele-Communications Inc., A................................ United States 1,708,500 94,501,406
*Telemig Celular Participacoes SA........................... Brazil 461,300,000 324,523
Telephone & Data Systems Inc. .............................. United States 1,930,000 86,729,375
*Telesp Celular Participacoes SA............................ Brazil 461,300,000 1,985,318
*Telesp Participacoes SA.................................... Brazil 440,460,000 5,650,428
--------------
336,037,712
--------------
TEXTILES & APPAREL .9%
*Burlington Industries Inc. ................................ United States 1,821,600 20,037,600
*Nautica Enterprises Inc. .................................. United States 1,503,300 22,549,500
St. John Knits Inc. ........................................ United States 287,100 7,464,600
--------------
50,051,700
--------------
TRANSPORTATION 4.0%
+ASG AB, B.................................................. Sweden 1,466,689 27,774,774
Burlington Northern Santa Fe Corp. ......................... United States 861,900 29,089,125
Florida East Coast Industries Inc. ......................... United States 1,339,100 47,119,581
(R)*Golden Ocean Group Ltd., wts., 8/31/01.................. United States 3,010 0
*Old Dominion Freight Line Inc. ............................ United States 403,900 4,594,363
Railtrack Group Plc. ....................................... United Kingdom 3,882,942 101,555,359
Xtra Corp. ................................................. United States 206,000 8,523,250
--------------
218,656,452
--------------
</TABLE>
64
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS .4%
*Citizens Utilities Co., B.................................. United States 2,794,782 $ 22,707,604
VEBA AG..................................................... Germany 5,200 308,141
--------------
23,015,745
--------------
TOTAL COMMON STOCKS (COST $3,813,928,817)................... 4,621,328,837
--------------
PREFERRED STOCKS .8%
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 470,000 6,550,625
(R)*Interlake Corp., Series A3, 9.00%, cvt., pfd. .......... United States 400 765,027
*Tele Celular Sul Participacoes SA, ADR, pfd. .............. Brazil 47,000 819,563
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ..... Brazil 156,666 460,206
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 201,500 8,425,219
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 800,400 9,954,975
*Tele Sudeste Celular Participacoes SA, ADR, pfd. .......... Brazil 94,000 1,944,625
*Telemig Celular Participacoes SA, ADR, pfd. ............... Brazil 23,500 499,375
*Telesp Celular Participacoes SA, ADR, pfd. ................ Brazil 188,000 3,290,000
*Telesp Participacoes SA, ADR, pfd. ........................ Brazil 433,400 9,588,975
(R)*Viasystems Inc., B, pfd. ............................... United States 42,143 632,139
--------------
TOTAL PREFERRED STOCKS (COST $57,967,058)................... 42,930,729
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
-------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 1.7%
Abraxas Petroleum Corp., Series D, 11.50%, 11/01/04......... United States $ 1,100,000 836,000
Eurotunnel Finance Ltd:
Equity Note 12/31/03...................................... United Kingdom 6,927,387GBP 3,342,388
Participating Loan Note 4/30/40........................... United Kingdom 3,200,000GBP 1,756,925
Eurotunnel Plc.:
12/31/12 tier 1........................................... United Kingdom 6,655,315GBP 9,301,164
12/31/18 tier 2........................................... United Kingdom 7,705,620GBP 9,999,806
12/31/25 tier 3........................................... United Kingdom 3,996,940GBP 4,422,203
12/31/50 Resettable Advance R5............................ United Kingdom 4,999,646GBP 3,077,729
Stabilization Advance S8 tier 1........................... United Kingdom 856,619GBP 249,411
Stabilization Advance S8 tier 2........................... United Kingdom 529,763GBP 123,395
Eurotunnel SA:
12/31/12 tier 1 (Libor)................................... France 34,813,519FRF 5,234,928
12/31/12 tier 1 (Pibor)................................... France 803,226FRF 120,782
12/31/18 tier 2 (Libor)................................... France 60,243,888FRF 8,411,842
12/31/18 tier 2 (Pibor)................................... France 7,112,856FRF 993,167
12/31/25 tier 3 (Libor)................................... France 50,039,598FRF 5,912,093
12/31/25 tier 3 (Pibor)................................... France 10,180,217FRF 1,202,775
12/31/50 Resettable Advance R4............................ France 40,764,557FRF 2,627,052
Stabilization Advance S6 tier 1 (Pibor)................... France 193,409FRF 6,058
Stabilization Advance S7 tier 1 (Libor)................... France 3,242,021FRF 101,563
Stabilization Advance S6 tier 2........................... France 2,331,823FRF 58,440
Fine Host Corp., cvt., 144A, 5.00%, 11/01/04................ United States 9,260,000 7,130,200
</TABLE>
65
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL BEACON FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
(R)Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01........... United States $ 7,190,000 $ 2,013,200
Kelly Oil & Gas Co.:
10.375%, 10/15/06......................................... United States 3,910,000 2,912,950
Series D, 10.375%, 10/15/06............................... United States 2,880,000 2,145,600
MCII Holdings, 0/12.00%, 11/15/02........................... United States 4,059,000 3,368,970
Pratama Datakom Asia BV:
Reg S, 12.75%, 7/15/05.................................... Indonesia 1,730,000 428,175
144A, 12.75%, 7/15/05..................................... Indonesia 7,795,000 1,929,263
Raintree Resorts Inc., B, 13.00%, 12/01/04.................. United States 3,750,000 2,062,500
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States 9,805,000 3,971,025
Specialty Foods Corp., B, 11.25%, 8/15/03................... United States 9,510,000 4,755,000
TFM SA de CV:
144A, 10.25%, 6/15/07..................................... Mexico 400,000 340,000
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 5,450,000 2,834,000
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11........... Mexico 2,156,549 1,310,103
--------------
TOTAL CORPORATE BONDS AND NOTES (COST $104,530,195)......... 92,978,707
--------------
BONDS & NOTES IN REORGANIZATION 2.3%
*Alpargatas SA Industrial y Comercial:
11.75%, 8/18/98........................................... Argentina 1,140,000 182,400
9.00%, 2/20/99............................................ Argentina 2,480,000 372,000
bank claim................................................ Argentina 1,450,000 217,500
*American Pad & Paper Co., bank claim....................... United States 3,442,700 3,132,857
*Avatex Corp.:
reclamation trade claim................................... United States 5,488,844 1,427,099
trade claim............................................... United States 610,315 457,736
*Barings BV, zero coupon, 1/22/01........................... Netherlands 25,350,000 14,703,000
*Brunos Inc., Bank Claim:
revolver committment...................................... United States 2,010,000 1,306,500
tranche A................................................. United States 3,470,000 2,255,500
tranche B................................................. United States 2,250,000 1,462,500
*Caldor Corp., trade claim.................................. United States 6,356,432 7,946
*Crown Leasing, bank claim.................................. Japan 1,148,550,168JPY 1,616,421
*Dictaphone Corp:
bank claim................................................ United States 2,600,000 2,314,000
bank claim................................................ United States 2,742,566 2,399,745
bank claim, Tranche C Term Loan........................... United States 1,450,000 1,290,500
*Dow Corning Corp.:
bank claim................................................ United States 2,070,704 2,712,622
bank debt #1.............................................. United States 2,850,000 3,733,500
9.30%, 1/27/98............................................ United States 1,835,000 2,403,850
8.55%, 3/01/01............................................ United States 1,100,000 1,441,000
9.375%, 2/01/08........................................... United States 790,000 1,034,900
8.15%, 10/15/29........................................... United States 7,050,000 9,235,500
9.50%, 8/10/49............................................ United States 350,000 458,500
swap...................................................... United States 7,677,843 10,057,975
*Eli Jacobs, bank claim..................................... United States 25,305,910 2,531
</TABLE>
66
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL BEACON FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*FPA Medical Management Inc.:
bank claim................................................ United States $ 1,430,000 $ 135,850
term loan................................................. United States 1,728,100 164,169
*Heilman Acquisition Corp., 9.625%, 1/31/04................. United States 15,000,000 1,500
*Koninklijke Ned Vlieg Fokker NV, trade claim............... Netherlands 6,205,000NLG 2,512,815
*Korea National Housing Corporation Loan, bank claim........ United States 9,690,000 8,721,000
Mercury Finance Co., Bank Claim, MTN:
5.79%, 2/02/97............................................ United States 444,195 399,775
5.66%, 3/10/97............................................ United States 3,075,196 2,767,676
6.29%, 12/16/97........................................... United States 3,437,246 3,093,521
6.16%, 12/15/98........................................... United States 343,725 309,352
9.76%, 2/20/99............................................ United States 3,000,000 2,250,000
10.86%, 2/20/99........................................... United States 2,500,000 1,875,000
7.33%, 6/29/99............................................ United States 1,390,593 1,251,534
7.42%, 6/29/00............................................ United States 3,897,834 3,508,051
7.5%, 6/29/01............................................. United States 3,131,595 2,818,436
Mercury Finance Co., Commercial Paper:
1/31/97................................................... United States 1,072,491 965,242
2/03/97................................................... United States 738,263 664,437
2/04/97................................................... United States 62,395 56,156
2/06/97................................................... United States 544,438 489,995
2/07/97................................................... United States 391,278 352,150
2/10/97................................................... United States 183,966 165,569
2/11/97................................................... United States 1,109,642 998,678
2/13/97................................................... United States 158,561 142,705
2/18/97................................................... United States 678,728 610,855
2/19/97................................................... United States 574,175 516,758
2/20/97................................................... United States 119,240 107,316
2/21/97................................................... United States 880,469 792,423
2/24/97................................................... United States 474,610 427,149
2/25/97................................................... United States 386,021 347,419
2/27/97................................................... United States 52,794 47,515
3/07/97................................................... United States 812,857 731,571
3/10/97................................................... United States 205,435 184,892
3/11/97................................................... United States 34,780 31,302
3/14/97................................................... United States 61,892 55,703
3/17/97................................................... United States 714,470 643,023
3/19/97................................................... United States 1,329,630 1,196,667
4/05/01................................................... United States 170,724 153,651
4/11/97................................................... United States 31,229 28,106
4/14/97................................................... United States 213,908 192,517
4/15/97................................................... United States 41,078 36,970
4/18/97................................................... United States 110,870 99,783
4/22/97................................................... United States 63,351 57,016
4/24/97................................................... United States 95,023 85,520
6/29/98................................................... United States 157,307 141,577
*Nippon Credit Bank Ltd., bank claim........................ Japan 584,315,313JPY 827,692
</TABLE>
67
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL BEACON FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Nippon Total Finance, bank claim........................... Japan 555,103,519JPY $ 292,743
*Ritvik Holdings:
bank claim................................................ United States 1,692,000 1,353,600
bank claim, term loan B................................... United States 676,000 540,800
*Southeast Banking Corp.:
zero coupon, 12/16/96..................................... United States 5,270,000 2,424,200
zero coupon, 11/10/97..................................... United States 6,880,000 3,164,800
10.50%, 4/11/01........................................... United States 15,840,000 7,603,200
*Ventas Inc., bank claim, tranche D......................... United States 2,970,000 2,821,500
--------------
TAL BONDS & NOTES IN REORGANIZATION (COST $114,914,746)... 123,385,961
--------------
SHARES
-----
COMPANIES IN LIQUIDATION
*City Investing Co.......................................... United States 389,587 499,158
(R)*Kendall International Inc., Residual Ownership
Certif. .................................................. United States 49 588
*Mcorp Financial Trust, claim units......................... United States 13,334 16,301
*Mcorp Trust Units.......................................... United States 13,327 133
*Ranger Industries Inc...................................... United States 5,059 2,024
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $93,393)............... 518,204
--------------
PRINCIPAL
AMOUNT**
--------
SHORT TERM INVESTMENTS 9.5%
Fannie Mae, 4.27% to 5.33%, with maturities to 12/23/99..... United States $ 361,700,000 353,779,892
Federal Home Loan Bank, 4.32% to 4.64%, with maturities to
4/12/01................................................... United States 170,000,000 168,156,985
--------------
TOTAL SHORT TERM INVESTMENTS (COST $521,878,417)............ 521,936,877
--------------
TOTAL INVESTMENTS (COST $4,613,312,626) 98.6%............... 5,403,079,315
OPTIONS WRITTEN............................................. (10,637)
SECURITIES SOLD SHORT (3.3%)................................ (181,183,305)
NET EQUITY IN FORWARD CONTRACTS (.1%)....................... (6,050,273)
OTHER ASSETS, LESS LIABILITIES 4.8%......................... 262,530,021
--------------
TOTAL NET ASSETS 100.0%..................................... $5,478,365,121
--------------
--------------
OPTIONS WRITTEN
ISSUER
COUNTRY CONTRACTS VALUE
- ---------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., January/85/Call........................ United States 41 $ 5,637
Bankers Trust Corp., January/85/Put......................... United States 41 3,075
Bankers Trust Corp., January/90/Call........................ United States 154 1,925
--------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $55,609)........... $ 10,637
--------------
--------------
</TABLE>
68
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND
SECURITIES SOLD SHORT
ISSUER
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American International Group Inc............................ United States $ 250,455 $ 24,200,214
AT&T Corp................................................... United States 1,323,300 99,578,325
British Petroleum Co. Plc., ADR............................. United Kingdom 22,100 2,099,500
*DST Systems Inc............................................ United States 54,700 3,121,319
Newell Co................................................... United States 140,100 5,779,125
Northern Telecom, Ltd....................................... Canada 224,780 11,209,732
Suntrust Banks Inc.......................................... United States 94,700 7,244,550
Telecom Italia Mobile SpA................................... Italy 3,128,900 23,155,434
*Tele-Communications Inc., Liberty Media Group, A........... United States 104,100 4,795,106
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $153,247,075)......... $ 181,183,305
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES
SECURITY
UNREALIZED
COUNTRY SHARES VALUE LOSS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Petroleum Co. Plc., cfd 4.47................ United Kingdom 50,000 $ 747,026 $ (83,088)
Rentokil Initial Plc., cfd. 4.42.................... United Kingdom 1,150,828 8,635,279 (172,323)
---------- ---------
TOTAL CONTRACTS FOR DIFFERENCES..................... $9,382,305 $(255,411)
---------- ---------
---------- ---------
</TABLE>
CURRENCY ABBREVIATIONS:
GBP -- British Pound
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Dutch Guilder
*Non income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(R)Restricted securities (see note 6).
+Affiliated issuers (see note 7).
See Notes to Financial Statements.
69
PAGE
MUTUAL DISCOVERY FUND
FUND CATEGORY
[PYRAMID]
U.S. EXPOSURE
MUTUAL DISCOVERY FUND
BASED ON TOTAL NET ASSETS
12/31/98
[PIECHART]
Other Countries 55.1%
United States 44.9%
Your Fund's Goal: Mutual Discovery Fund seeks long-term capital appreciation by
investing primarily in common and preferred stocks, bonds, and securities of
smaller capitalization companies. The fund may invest 50% or more of its assets
in foreign securities.
Since we were named portfolio managers for this fund, we have somewhat reduced
the number of positions and focused on owning meaningful stakes in the companies
in which we have the greatest conviction. At the beginning of the year, Mutual
Discovery Fund held over 300 different names in the portfolio. As of year end,
the fund was holding about 220 different names. We are all proponents of a
broadly diversified portfolio to reduce volatility for the fund holder, but we
believe the result of our efforts is a more focused portfolio going forward.
70
PAGE
TOP 5 HOLDINGS
MUTUAL DISCOVERY FUND
12/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY, INDUSTRY, COUNTRY NET ASSETS
- -------------------------- ----------
<S> <C>
Suez Lyonnaise des Eaux SA, Business & Public Services, France 3.1%
Investor AB, A & B, Multi-Industry, Sweden 2.6%
Kansas City Southern Industries Inc., Multi-Industry, U.S. 2.6%
Electrafina SA, Energy Sources, Belgium 2.1%
Montedison SpA, Multi-Industry, Italy 1.9%
</TABLE>
Applying our long-standing value approach, we continue to invest in three areas:
(1) cheap stocks based on asset values, (2) arbitrage and (3) bankruptcy
situations. Our value approach has been as out of favor over the past 3 years as
it was in favor in the early to mid '90's. Our goal has always been solid
compounding at a low risk-adjusted rate. We do not waver from that goal and will
always hunt for bargains rather than the latest trend.
We thank you for your participation in the Mutual Discovery Fund and look
forward to serving your investment needs in the future.
Sincerely,
/s/ Robert Friedman
Robert Friedman
/s/ David Marcus
David Marcus
71
PAGE
MUTUAL DISCOVERY FUND
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, the fund's Manager has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower. Franklin Mutual Advisers has made a commitment to the fund's Board not to
seek an increase in the rate of investment advisory fees for the three-year
period beginning November 1, 1996.
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
<S> <C> <C> <C>
Net Asset Value - $1.62 $17.27 $18.89
DISTRIBUTIONS
-------------
Dividend Income $0.4800
Long-term capital gain $0.6800
Short-term capital gain $0.1300
Total $1.2900
</TABLE>
<TABLE>
<CAPTION>
CLASS I CHANGE 12/31/98 12/31/97
- ------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.64 $17.19 $18.83
DISTRIBUTIONS
-------------
Dividend Income $0.4152
Long-term capital gain $0.6800
Short-term capital gain $0.1300
Total $1.2252
</TABLE>
<TABLE>
<CAPTION>
CLASS II CHANGE 12/31/98 12/31/97
- -------- ------ -------- --------
<S> <C> <C> <C>
Net Asset Value -$1.64 $17.15 $18.79
DISTRIBUTIONS
-------------
Dividend Income $0.3049
Long-term capital gain $0.6800
Short-term capital gain $0.1300
Total $1.1149
</TABLE>
Mutual Discovery Fund paid distributions derived from long-term capital gains of
68.0 cents ($0.6800) per share in December, 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852(b)(3).
Past performance is not predictive of future results.
72
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS Z 1-Year 5-Year (12/31/92)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) - 1.90% 100.82% 172.82%
Average Annual Total Return(2) - 1.90% 14.96% 18.21%
Value of $10,000 Investment(3) $9,810 $20,082 $27,282
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98
--------------------------------------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 28.63% 24.93% 22.94% - 1.90%
<CAPTION>
SINCE
INCEPTION
CLASS I 1-YEAR (11/1/96)
- ----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) - 2.37% 25.45%
Average Annual Total Return(2) - 7.99% 8.03%
Value of $10,000 Investment(3) $9,201 $11,822
<CAPTION>
SINCE
INCEPTION
CLASS II 1-YEAR (11/1/96)
- ----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) - 2.97% 23.87%
Average Annual Total Return(2) - 4.90% 9.90%
Value of $10,000 Investment(3) $9,510 $12,270
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include sales
charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results. 73
PAGE
MUTUAL DISCOVERY FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees, and reinvested distributions.
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS Z (12/31/92 - 12/31/98)]
12/31/98
Class Z
- --------------------------
1-Year -1.90%
Since Inception 18.21%
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS I (11/1/96 - 12/31/98)]
12/31/98
Class I
- --------------------------
1-Year -7.99%
Since Inception 8.03%
74 Past performance is not predictive of future results.
PAGE
CLASS II (11/1/96 - 12/31/98) AVERAGE ANNUAL TOTAL RETURN
[GRAPH] 12/31/98
Class II
--------------------------
1-Year -4.90%
Since Inception 9.90%
*Source: Standard and Poor's Micropal.
**Source: Standard and Poor's Micropal (Russell 2000).
Indicies are unmanaged and include reinvested dividends.
One cannot invest directly in an index.
Past performance is not predictive of future results. 75
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL DISCOVERY FUND
<TABLE>
<CAPTION>
CLASS Z
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year................... $18.89 $17.18 $15.16 $12.55 $13.05
----------------------------------------------------------------
Income from investment operations:
Net investment income............................... .38 .39 .34 .17 .15
Net realized and unrealized gains (losses).......... (.71) 3.49 3.39 3.40 .32
----------------------------------------------------------------
Total from investment operations..................... (.33) 3.88 3.73 3.57 .47
----------------------------------------------------------------
Less distributions from:
Net investment income............................... (.48) (.81) (.31) (.14) (.16)
Net realized gains.................................. (.81) (1.36) (1.40) (.82) (.81)
----------------------------------------------------------------
Total distributions.................................. (1.29) (2.17) (1.71) (.96) (.97)
----------------------------------------------------------------
Net asset value, end of year......................... $17.27 $18.89 $17.18 $15.16 $12.55
----------------------------------------------------------------
----------------------------------------------------------------
Total Return......................................... (1.90)% 22.94% 24.93% 28.63% 3.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)...................... $2,514,144 $3,879,550 $2,975,596 $1,370,221 $725,331
Ratios to average net assets:
Expenses............................................ 1.00% .98% .96% .99% .99%
Expenses, excluding waiver and payments by
affiliate......................................... 1.03% 1.00% .99% .99% .99%
Net investment income............................... 1.81% 1.82% 2.24% 2.00% 1.64%
Portfolio turnover rate.............................. 83.57% 58.15% 80.18% 73.23% 72.70%
</TABLE>
76
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL DISCOVERY FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $18.83 $17.15 $17.66
-------------------------------------
Income from investment operations:
Net investment income...................................... .32 .27 .11
Net realized and unrealized gains (losses)................. (.74) 3.54 .74
-------------------------------------
Total from investment operations............................ (.42) 3.81 .85
-------------------------------------
Less distributions from:
Net investment income...................................... (.41) (.77) (.29)
Net realized gains......................................... (.81) (1.36) (1.07)
-------------------------------------
Total distributions......................................... (1.22) (2.13) (1.36)
-------------------------------------
Net asset value, end of year................................ $17.19 $18.83 $17.15
-------------------------------------
-------------------------------------
Total Return*............................................... (2.37)% 22.54% 4.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $859,848 $693,952 $29,903
Ratios to average net assets:
Expenses................................................... 1.35% 1.33% 1.38%**
Expenses, excluding waiver and payments by affiliate....... 1.38% 1.35% 1.51%**
Net investment income...................................... 1.46% 1.39% .74%**
Portfolio turnover rate..................................... 83.57% 58.15% 80.18%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Based on average weighted shares outstanding.
77
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL DISCOVERY FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997++ 1996+
-------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $18.79 $17.17 $17.66
-------------------------------------
Income from investment operations:
Net investment income...................................... .23 .15 .09
Net realized and unrealized gains (losses)................. (.75) 3.52 .76
-------------------------------------
Total from investment operations............................ (.52) 3.67 .85
-------------------------------------
Less distributions from:
Net investment income...................................... (.31) (.69) (.27)
Net realized gains......................................... (.81) (1.36) (1.07)
-------------------------------------
Total distributions......................................... (1.12) (2.05) (1.34)
-------------------------------------
Net asset value, end of year................................ $17.15 $18.79 $17.17
-------------------------------------
-------------------------------------
Total Return*............................................... (2.97)% 21.70% 4.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $563,761 $402,625 $18,038
Ratios to average net assets:
Expenses................................................... 2.00% 1.98% 2.00%**
Expenses, excluding waiver and payments by affiliate....... 2.02% 2.00% 2.13%**
Net investment income...................................... .81% .74% .13%**
Portfolio turnover rate..................................... 83.57% 58.15% 80.18%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
78
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FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 86.7%
AUTOMOBILES .7%
General Motors Corp. ....................................... United States 373,600 $ 26,735,750
Volvo AB, B................................................. Sweden 84,845 1,946,899
--------------
28,682,649
--------------
BANKING 3.8%
Banca Nazionale del Lavoro SpA, di Risp..................... Italy 9,780,000 27,377,847
Banco Latinoamericano de Exportaciones SA, E................ Panama 277,900 4,620,088
Bank One Corp. ............................................. United States 209,300 10,687,381
Bankamerica Corp. .......................................... United States 252,988 15,210,904
Crestar Financial Corp. .................................... United States 74,800 5,385,600
Kapital Holding............................................. Denmark 164,511 8,142,189
Merita Ltd., A.............................................. Finland 2,462,200 15,658,024
UST Corp., Inc. ............................................ United States 1,809,696 42,640,962
Vermont Financial Services Corp. ........................... United States 626,300 20,824,475
--------------
150,547,470
--------------
BEVERAGES & TOBACCO 3.7%
Farmer Brothers Co. ........................................ United States 81,202 17,377,228
Heineken Holding NV, A...................................... Netherlands 214,181 10,271,375
Kita Kyushu Coca-Cola Bottling Co. Ltd. .................... Japan 725,900 22,780,904
Mikuni Coca-Cola Bottling Co. .............................. Japan 632,000 13,530,851
Philip Morris Cos. Inc. .................................... United States 643,100 34,405,850
RJR Nabisco Holdings Corp. ................................. United States 1,577,200 46,823,125
Shikoku Coca-Cola Bottling Co. Ltd. ........................ Japan 15,800 193,158
--------------
145,382,491
--------------
BROADCASTING & PUBLISHING 5.6%
+Alma Media OYJ, Series 2................................... Finland 746,700 24,332,563
*Capstar Broadcasting Corp., A.............................. United States 75,500 1,727,063
*Chancellor Media Corp., A.................................. United States 430,800 20,624,550
Dow Jones & Co. Inc. ....................................... United States 393,500 18,937,188
Euromoney Publications Plc. ................................ United Kingdom 550,450 12,821,396
*MediaOne Group Inc. ....................................... United States 362,700 17,046,900
*Modern Times Group AB...................................... Sweden 1,290,587 19,106,126
*Modern Times Group AB, A................................... Sweden 94,500 1,387,340
NV Holdingsmij de Telegraaf................................. Netherlands 1,673,000 45,018,650
Seat Pagine Gialle SpA...................................... Italy 44,297,000 34,036,552
United News & Media Plc. ................................... United Kingdom 2,137,400 18,509,553
Washington Post Co., B...................................... United States 11,200 6,472,900
--------------
220,020,781
--------------
BUSINESS & PUBLIC SERVICES 6.0%
+Corporate Services Group Plc., A........................... United Kingdom 17,697,482 44,608,078
IFIL Finanziaria Partecipazioni SpA......................... Italy 5,875,000 24,601,761
Ratin AS, A................................................. Denmark 52,385 10,782,363
Ratin AS, B................................................. Denmark 4,423 938,181
</TABLE>
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FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUSINESS & PUBLIC SERVICES (CONT.)
Sophus Berendsen AS, A...................................... Denmark 116,390 $ 3,895,211
Sophus Berendsen AS, B...................................... Denmark 848,800 29,473,611
*Suez Lyonnaise des Eaux SA................................. France 594,680 122,210,562
Suez Lyonnaise des Eaux SA, fgn. ........................... France 269,320 7,840
--------------
236,517,607
--------------
CHEMICALS 2.5%
*Bush Boake Allen Inc. ..................................... United States 711,000 25,062,750
Chemfirst Inc. ............................................. United States 899,200 17,759,200
Morton International Inc. .................................. United States 803,350 19,682,075
Olin Corp. ................................................. United States 481,300 13,626,806
Yule Catto & Company Plc. .................................. United Kingdom 5,867,874 24,406,763
--------------
100,537,594
--------------
DATA PROCESSING & REPRODUCTION .4%
*National Processing Inc. .................................. United States 382,200 2,102,100
+Tecnost Mael SpA........................................... Italy 3,821,000 12,605,805
--------------
14,707,905
--------------
ELECTRICAL & ELECTRONICS 2.8%
(R)+*Distribution Systems SpA............................... Italy 500 20,669
(R)+*MWCR Elettronica SRL................................... Italy 69,056 69,056
(R)+*MWCR LLC............................................... Italy 13,505,313 13,505,313
Philips Electronics NV...................................... Netherlands 552,500 37,094,368
Philips Electronics NV, ADR................................. Netherlands 123,100 8,332,331
Racal Electronics Plc. ..................................... United Kingdom 6,419,800 37,062,983
(R)+*Sweda Industrie Elettroniche SpA....................... Italy 500 20,669
*Wang Laboratories Inc., A.................................. United States 540,130 14,988,608
--------------
111,093,997
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .4%
*Amphenol Corp., A.......................................... United States 454,600 13,723,238
*NBS Technologies Inc. ..................................... Canada 341,500 355,729
--------------
14,078,967
--------------
ENERGY EQUIPMENT & SERVICES 4.2%
Baker Hughes Inc. .......................................... United States 1,074,500 19,005,219
*BJ Services Co. ........................................... United States 1,099,600 17,181,250
*Cie Generale De Geophysique SA............................. France 195,039 11,371,631
*Cie Generale De Geophysique SA, ADR........................ France 629,590 6,846,791
*Cooper Cameron Corp. ...................................... United States 857,000 20,996,500
ISIS SA..................................................... France 157,914 11,279,168
*Noble Drilling Corp. ...................................... United States 1,242,300 16,072,256
Shaw Industries Ltd., A..................................... Canada 391,100 3,182,780
Transocean Offshore Inc. ................................... United States 780,268 20,920,936
</TABLE>
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PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY EQUIPMENT & SERVICES (CONT.)
+*Veritas DGC Inc. ......................................... United States 2,108,700 $ 27,413,100
*Weatherford International Inc. ............................ United States 571,400 11,070,875
--------------
165,340,506
--------------
ENERGY SOURCES 4.4%
*Conoco Inc., A............................................. United States 310,000 6,471,250
Electrafina SA.............................................. Belgium 622,000 81,475,821
*Ocean Energy Inc. ......................................... United States 1,030,080 6,502,380
*Santa Fe Energy Resources Inc. ............................ United States 2,765,800 20,397,775
Societe Elf Aquitaine SA, br. .............................. France 408,700 47,262,934
*Societe Elf Aquitaine SA, ADR.............................. France 172,700 9,779,138
--------------
171,889,298
--------------
FINANCIAL SERVICES 9.3%
*Amerin Corp. .............................................. United States 4,400 103,950
Bankers Trust Corp. ........................................ United States 80,900 6,911,894
Bear Stearns Co. Inc. ...................................... United States 351,900 13,152,263
*Cir Cie Industriali Riunite SpA Torino..................... Italy 10,137,200 11,379,392
*Cir Cie Industriali Riunite SpA Torino, di Risp............ Italy 2,590,900 2,782,684
CIT Group Inc., A........................................... United States 650,000 20,678,125
(R)*Cobalt Holdings LLC..................................... United States 15,357 1,536
Corporacion Financiera Alba SA.............................. Spain 242,952 40,636,155
Eaton Vance Corp. .......................................... United States 688,000 14,362,000
Electra Investment Trust Plc. .............................. United Kingdom 2,493,000 22,708,884
Greenpoint Financial Corp. ................................. United States 452,200 15,883,525
Household International Inc. ............................... United States 907,300 35,951,763
Indymac Mortgage Holdings Inc. ............................. United States 560,600 5,921,338
(R)+Laser Mortgage Management Inc. ......................... United States 1,141,933 6,209,261
Lehman Brothers Holdings Inc. .............................. United States 782,800 34,492,125
Mercury European Privatization Trust Plc. .................. United Kingdom 14,552,253 35,167,037
*Mercury European Privatization Trust Plc., wts. ........... United Kingdom 6,135,000 6,277,390
Metris Cos. Inc. ........................................... United States 290,800 14,630,875
Morgan Stanley Dean Witter & Co. ........................... United States 314,500 22,329,500
+North Central Bancshares Inc. ............................. United States 178,000 3,003,750
Pargesa Holdings SA, Br. ................................... Switzerland 13,000 20,538,770
Pioneer Group Inc. ......................................... United States 883,900 17,457,025
Sunamerica Inc. ............................................ United States 212,600 17,247,175
--------------
367,826,417
--------------
FOOD & HOUSEHOLD PRODUCTS 1.3%
Hillsdown Holdings Plc. .................................... United Kingdom 16,636,100 21,035,581
*Kohler Co. ................................................ United States 30 1,338,000
*Rubbermaid Inc. ........................................... United States 131,000 4,118,313
*Scott's Restaurants Inc. .................................. Canada 345,700 1,597,962
</TABLE>
81
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FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS (CONT.)
*Scott's Restaurants Inc., C................................ Canada 446,600 $ 2,006,211
U.S. Industries Inc. ....................................... United States 1,153,700 21,487,663
--------------
51,583,730
--------------
HEALTH & PERSONAL CARE .2%
(R)*Cape Ann Investors LLC.................................. United States 1,670,389 611,597
*Ventas Inc. ............................................... United States 492,600 6,003,563
--------------
6,615,160
--------------
INDUSTRIAL COMPONENTS 2.4%
BTR Plc. ................................................... United Kingdom 7,073,800 14,475,957
Charter Plc. ............................................... United Kingdom 2,391,400 12,970,575
+DT Industries Inc. ........................................ United States 1,343,530 21,160,598
Konin Emballage Ind Van Leer................................ Netherlands 45,647 960,759
Lucas Varity Plc. .......................................... United Kingdom 5,175,000 17,047,667
Lucas Varity Plc., ADR...................................... United Kingdom 50,000 1,675,000
(R)+*MB-Motori LLC.......................................... Italy 557,863 500,001
*Owens-Illinois Inc. ....................................... United States 787,000 24,101,875
--------------
92,892,432
--------------
INSURANCE 1.8%
*Alleghany Corp. ........................................... United States 44,261 8,315,535
Allmerica Financial Corp. .................................. United States 28,200 1,632,075
Assurances Generales de France AGF.......................... France 330,300 19,736,877
Berkeley W R Corp. ......................................... United States 399,900 13,621,594
(R)*CGA Group Ltd. ......................................... United States 139,785 0
(R)*CGA Group Ltd., wts. ................................... United States 240,000 0
*Companhia de Seguros Mundial Confianca SA.................. Portugal 295,200 9,388,612
Provident Companies Inc. ................................... United States 760,400 2,983,850
Sampo Insurance Co. Plc., A................................. Finland 416,585 15,878,837
(R)*St. George Holdings Ltd., A............................. United States 152,074 15,207
(R)*St. George Holdings Ltd., B............................. United States 1,495 150
--------------
71,572,737
--------------
LEISURE & TOURISM 1.1%
*Promus Hotel Corp. ........................................ United States 263,700 8,537,288
Thistle Hotels Plc. ........................................ United Kingdom 18,965,605 33,920,681
--------------
42,457,969
--------------
MACHINERY & ENGINEERING 2.8%
*Gardner Denver Inc. ....................................... United States 606,500 8,945,875
IMI Plc. ................................................... United Kingdom 4,124,915 16,299,265
Siebe Plc. ................................................. United Kingdom 3,609,700 14,173,350
*Sulzer AG.................................................. Switzerland 12,890 7,845,679
+TT Group Plc. ............................................. United Kingdom 10,726,480 38,101,713
United Dominion Industries Ltd. ............................ Canada 1,285,600 26,194,100
--------------
111,559,982
--------------
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 1.4%
*Federated Department Stores Inc............................ United States 225,000 $ 9,801,563
FKI Plc. ................................................... United Kingdom 13,177,800 29,488,630
*Homeland Holdings Corp. ................................... United States 38,115 91,714
*Toys R Us Inc. ............................................ United States 965,100 16,286,063
--------------
55,667,970
--------------
METALS & MINING 1.4%
*Olympic Steel Inc. ........................................ United States 299,700 1,498,500
*Stillwater Mining Co. ..................................... United States 295,300 12,107,300
Trelleborg AB, B............................................ Sweden 5,265,100 42,870,118
--------------
56,475,918
--------------
MULTI-INDUSTRY 19.4%
Aker RGI ASA, A............................................. Norway 1,363,093 14,312,566
Albatros Investissement SA.................................. France 206,185 7,381,941
*Berkshire-Hathaway Inc., A................................. United States 402 28,140,000
Brierley Investments Ltd. .................................. New Zealand 96,225,800 21,857,485
CGIP-Compagnie Generale Industrie de Participation.......... France 1,223,270 67,446,056
Cie Financiere Richemont AG, Br., A......................... Switzerland 41,500 58,677,102
Custos AB, A................................................ Sweden 878,011 17,331,017
Custos AB, B................................................ Sweden 1,955,092 38,229,673
Empire Co. Ltd., A.......................................... Canada 381,300 8,005,811
Financiere Et Industrielle Gaz Et Eaux SA................... France 154,649 8,222,182
Forvaltnings AB Ratos, B.................................... Sweden 2,796,760 19,666,821
Gendis Inc., A.............................................. Canada 551,200 1,722,500
Inchcape Plc. .............................................. United Kingdom 9,114,200 19,485,479
Investor AB, A.............................................. Sweden 413,200 18,402,280
Investor AB, B.............................................. Sweden 1,878,600 84,824,151
Invik & Co. AB, B........................................... Sweden 250,724 20,414,745
Kansas City Southern Industries Inc. ....................... United States 2,045,600 100,617,950
Kinnevik AB, A.............................................. Sweden 89,500 2,009,549
Kinnevik AB, B.............................................. Sweden 900,000 21,096,005
Lagardere SCA............................................... France 707,146 30,064,655
Montedison SpA.............................................. Italy 56,155,000 74,478,659
Rieber & Son AS, B.......................................... Norway 1,924,200 14,269,235
*Saab AB, B................................................. Sweden 3,597,772 37,727,383
Societe Europeenne de Communication SA, ADR................. Sweden 315,819 5,724,219
Ste Eurafrance.............................................. France 33,058 21,895,850
Tomkins Plc. ............................................... United Kingdom 4,854,824 22,858,584
--------------
764,861,898
--------------
REAL ESTATE 3.4%
*Asticus AB................................................. Sweden 871,201 8,544,558
Castellum AB................................................ Sweden 1,357,000 14,732,167
+First Union Real Estate Equity & Mtg. Investments, SBI..... United States 2,600,732 15,279,301
+LNR Property Corp. ........................................ United States 954,100 19,022,369
+LNR Property Corp., B...................................... United States 638,100 12,722,119
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
*MBO Properties Inc. ....................................... United States 273,144 $ 2,082,723
(R)+*MSCW Investors II, LLC................................. United Kingdom 10,438,000 21,221,589
(R)*Security Capital European Realty........................ United States 304,500 6,090,000
*Security Capital US Realty, A.............................. United States 1,593,000 15,770,700
Starwood Hotels & Resorts Trust............................. United States 512,900 11,636,419
*Trizec Hahn Corp., wts., A................................. Canada 1,131,530 3,315,029
*Wellsford Real Properties Inc. ............................ United States 281,736 2,905,403
--------------
133,322,377
--------------
RECREATION & OTHER CONSUMER GOODS .2%
*Club Regina Resorts Inc., wts. ............................ United States 2,750 2,750
(R)+*Hancock LLC............................................ United States 8,426,332 8,426,332
--------------
8,429,082
--------------
TELECOMMUNICATIONS 3.6%
BCE Inc. ................................................... Canada 633,050 23,842,410
*Embratel Participacoes SA.................................. Brazil 372,200,000 3,234,513
*Tele Celular Sul Participacoes SA.......................... Brazil 375,582,000 348,150
*Tele Centro Oeste Celular Participacoes SA................. Brazil 372,200,000 292,646
*Tele Centro Sul Participacoes SA........................... Brazil 398,645,600 2,639,491
*Tele Norte Leste Participacoes SA.......................... Brazil 388,651,100 3,184,478
*Tele Sudeste Celular Participacoes SA...................... Brazil 372,200,000 1,047,366
Telecom Italia SpA.......................................... Italy 3,886,600 33,161,007
Telecom Italia SpA, di Risp................................. Italy 3,179,600 19,982,629
*Tele-Communications Inc., A................................ United States 355,000 19,635,938
*Telemig Celular Participacoes SA........................... Brazil 372,200,000 261,842
Telephone & Data Systems Inc. .............................. United States 603,400 27,115,288
*Telesp Celular Participacoes SA............................ Brazil 372,200,000 1,601,854
*Telesp Participacoes SA.................................... Brazil 354,833,300 4,551,969
--------------
140,899,581
--------------
TRANSPORTATION 3.2%
ASG AB, B................................................... Sweden 499,700 9,462,848
BTL AB, B................................................... Sweden 5,413,000 21,369,390
Florida East Coast Industries Inc. ......................... United States 535,900 18,856,981
(R)*Golden Ocean Group Ltd., wts., 8/31/01.................. United States 2,110 0
*MIF Ltd. .................................................. Norway 336,378 6,622,483
Railtrack Group Plc. ....................................... United Kingdom 2,591,621 67,781,852
Smit Internationale NV, fgn. ............................... Netherlands 80,752 1,777,086
--------------
125,870,640
--------------
UTILITIES ELECTRICAL & GAS .7%
*Citizens Utilities Co., B.................................. United States 3,227,601 26,224,261
VEBA AG..................................................... Germany 3,600 213,329
--------------
26,437,590
--------------
TOTAL COMMON STOCKS (COST $3,119,187,500)................... 3,415,272,748
--------------
</TABLE>
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PAGE
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS .8%
(R)*CGA Group Ltd., A, pfd. ................................ United States 286,630 $ 0
(R)*CGA Group Ltd., B, pfd. ................................ United States 28,572 0
*Embratel Participacoes SA, ADR, pfd. ...................... Brazil 354,000 4,933,874
*Tele Celular Sul Participacoes SA, ADR, pfd. .............. Brazil 35,400 617,288
*Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ..... Brazil 117,882 346,278
*Tele Centro Sul Participacoes SA, ADR, pfd. ............... Brazil 150,900 6,309,506
*Tele Norte Leste Participacoes SA, ADR, pfd. .............. Brazil 600,600 7,469,963
*Tele Sudeste Celular Participacoes SA, ADR, pfd. .......... Brazil 70,800 1,464,675
*Telemig Celular Participacoes SA, ADR, pfd. ............... Brazil 17,700 376,125
*Telesp Celular Participacoes SA, ADR, pfd. ................ Brazil 141,600 2,478,000
*Telesp Participacoes SA, ADR, pfd. ........................ Brazil 326,500 7,223,813
(R)*Viasystems Inc., B, pfd. ............................... United States 21,909 328,628
--------------
TOTAL PREFERRED STOCKS (COST $51,437,655)................... 31,548,150
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS 1.5%
(R)*CGA Private Trust Company Ltd., FRN, 6/10/99............ United States $ 1,071,425 160,714
Compania Siderurgica de Guadalajara SA De CV:
10.50%, 11/15/07.......................................... Mexico 1,770,000 973,500
144A, 10.50%, 11/15/07.................................... Mexico 4,565,000 2,510,750
Eurotunnel Ltd.:
Equity Note 12/31/03...................................... United Kingdom 6,740,779GBP 3,252,351
Participating Loan Note 4/30/40........................... United Kingdom 1,300,000GBP 713,751
Eurotunnel Plc.:
12/31/25, Tier 3.......................................... United Kingdom 3,762,057GBP 4,162,329
12/31/50, Resettable Advance R5........................... United Kingdom 4,821,594GBP 2,968,122
Stabilization Advance S8 tier 1........................... United Kingdom 826,565GBP 240,660
Stabilization Advance S8 tier 2........................... United Kingdom 511,577GBP 119,159
Eurotunnel SA:
12/31/12, tier 1 (Libor).................................. France 25,245,222FRF 3,796,138
12/31/12, tier 1 (Pibor).................................. France 9,222,243FRF 1,386,754
12/31/18, tier 2 (Libor).................................. France 48,350,331FRF 6,751,147
12/31/18, tier 2 (Pibor).................................. France 15,044,630FRF 2,100,679
12/31/25, tier 3 (Libor).................................. France 31,680,825FRF 3,743,035
12/31/25, tier 3 (Pibor).................................. France 26,909,118FRF 3,179,266
12/31/50, Resettable Advance R4........................... France 39,346,378FRF 2,535,659
Stabilization Advance S6 tier 1 (Pibor)................... France 2,220,638FRF 69,566
Stabilization Advance S7 tier 1 (Libor)................... France 1,087,235FRF 34,060
Stabilization Advance S6 tier 2 France 2,245,368FRF 56,273
Fine Host Corp., cvt.,144A, 5.00%, 11/01/04................. United States 3,865,000 2,976,050
(R)Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01........... United States 5,150,000 1,442,000
HIH Capital Ltd.:
cvt., 7.50%, 9/25/06...................................... United Kingdom 5,445,000 3,430,350
144A, 7.50%, 9/25/06...................................... United Kingdom 2,660,000 1,675,800
MCII Holdings, 0/12.00%, 11/15/02........................... United States 2,020,000 1,676,600
Raintree Resorts Inc., B, 13.00%, 12/1/04................... United States 2,750,000 1,512,500
</TABLE>
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FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States $ 7,600,000 $ 3,078,000
TFM SA de CV:
144A, 10.25%, 6/15/07..................................... Mexico 350,000 297,500
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 4,650,000 2,418,000
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11........... Mexico 4,500,624 2,734,129
--------------
TOTAL BONDS (COST $70,529,331).............................. 59,994,842
--------------
BONDS & NOTES IN REORGANIZATION 2.7%
*Aerovias Venezolanas SA, Bank Claim:
lease..................................................... Venezuela 4,003,770 2,402,262
term loan................................................. Venezuela 860,000 473,000
*Alpargatas SA Industrial y Comercial:
11.75%, 8/18/98........................................... Argentina 760,000 121,600
9.00%, 2/20/99............................................ Argentina 540,000 81,000
bank claim................................................ Argentina 1,245,000 186,750
*Avatex Corp.:
reclamation trade claim................................... United States 5,105,144 1,327,338
trade claim............................................... United States 610,315 457,736
*Banque Pallas Stern,....................................... France 28,590,000FRF 3,121,961
*Brunos Inc., Bank Claim:
revolver committment...................................... United States 1,480,000 962,000
tranche A................................................. United States 2,564,000 1,666,600
tranche B................................................. United States 1,650,000 1,072,500
*Buenos Aires Embotelladora SA:
8.50%, 12/29/00........................................... Argentina 1,916,000 804,720
144A, 8.50%, 12/29/00..................................... Argentina 950,000 399,000
bank claim................................................ Argentina 43,981,118 16,712,825
*Confederation Treasury Services Ltd.:
9.50%, 6/10/97............................................ Canada 130,000CAD 0
zero coupon, 1/01/00...................................... Canada 3,351,523CAD 0
zero coupon, 3/11/04...................................... Canada 4,740,223 0
*Crown Leasing, bank claim.................................. Japan 851,666,508JPY 1,198,600
*Dow Corning Corp.
bank debt................................................. United States 1,241,480 1,626,339
bank debt #1.............................................. United States 3,250,000 4,257,500
8.55%, 3/01/01............................................ United States 2,705,000 3,543,550
9.375%, 2/01/08........................................... United States 100,000 131,000
8.15%, 10/15/29........................................... United States 500,000 655,000
swap...................................................... United States 6,938,674 9,089,663
*Glunz AG, Bank Claim:
5.3125%, 1/15/98, tranche 1............................... Germany 645,800DEM 387,728
5.3125%, 1/15/98, tranche 2............................... Germany 2,870,223DEM 1,723,236
4.50%, 1/15/98, tranche 3................................. Germany 2,500,000DEM 1,410,903
</TABLE>
86
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Glunz France SA, Bank Claim:
zero coupon, 1/15/98...................................... Germany 3,250,000DEM $ 1,834,174
4.2875%, 1/15/98.......................................... France 11,607,142FRF 1,813,317
4.38125%, 1/15/98......................................... France 10,714,285FRF 1,673,831
4.681250%, 1/15/98........................................ France 892,858FRF 139,486
4.78125%, 1/15/98......................................... France 1,785,714FRF 278,972
*Heilman Acquisition Corp., 9.625%, 1/31/04................. United States 7,550,000 755
*Koninklijke Nederlandse Vliegtuigenfabriek Fokker:
6.25%, 11/4/98............................................ Netherlands 3,750,000DEM 661,361
trade claim............................................... Netherlands 38,532,084NLG 15,604,190
*Korea National Housing Corporation Loan, bank claim........ United States 2,385,000 2,146,500
Mercury Finance Co., Bank Claim, MTN:
5.79%, 2/2/97............................................. United States 307,520 276,768
5.66%, 3/10/97............................................ United States 2,050,130 1,845,117
6.29%, 12/16/97........................................... United States 2,199,837 1,979,853
6.16%, 12/15/98........................................... United States 1,031,174 928,056
9.76%, 2/20/99............................................ United States 2,500,000 1,875,000
10.86%, 2/20/99........................................... United States 2,000,000 1,500,000
7.33%, 6/29/99............................................ United States 824,940 742,446
7.42%, 6/29/00............................................ United States 2,587,997 2,329,197
7.50%, 6/29/01............................................ United States 1,890,503 1,701,453
Mercury Finance Co., Commercial Paper:
1/31/97................................................... United States 819,545 737,590
2/03/97................................................... United States 149,717 134,745
2/04/97................................................... United States 66,677 60,009
2/06/97................................................... United States 555,327 499,794
2/07/97................................................... United States 356,435 320,791
2/10/97................................................... United States 2,860,311 2,574,280
2/11/97................................................... United States 916,110 824,499
2/13/97................................................... United States 166,493 149,844
2/18/97................................................... United States 711,673 640,506
2/19/97................................................... United States 207,457 186,711
2/20/97................................................... United States 118,867 106,980
2/21/97................................................... United States 368,675 331,807
2/24/97................................................... United States 158,680 142,812
2/27/97................................................... United States 38,491 34,642
3/07/97................................................... United States 650,286 585,257
3/11/97................................................... United States 25,358 22,822
3/14/97................................................... United States 45,125 40,612
3/17/97................................................... United States 512,237 461,014
3/19/97................................................... United States 1,065,607 959,046
4/11/97................................................... United States 20,300 18,270
4/18/97................................................... United States 73,922 66,530
4/22/97................................................... United States 42,239 38,015
4/24/97................................................... United States 63,356 57,020
*Nippon Credit Bank Ltd., bank claim........................ Japan 433,278,229JPY 613,746
*Nippon Total Finance, bank claim........................... Japan 411,617,263JPY 217,073
</TABLE>
87
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY FUND COUNTRY AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Southeast Banking Corp.:
zero coupon, 12/16/96..................................... United States $ 400,000 $ 184,000
zero coupon, 11/10/97..................................... United States 5,800,000 2,668,000
10.50%, 4/11/01........................................... United States 7,800,000 3,744,000
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $115,794,490)... 107,563,702
--------------
SHARES
-----
COMPANIES IN LIQUIDATION .1%
*City Investing Co. ........................................ United States 100,000 128,125
*Petrie Stores Liquidating Trust, CBI....................... United States 1,213,700 2,503,256
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $3,440,137)............ 2,631,381
--------------
PRINCIPAL
AMOUNT**
--------
SHORT TERM INVESTMENTS 6.0%
Fannie Mae, 4.52% to 5.53%, with maturities to 12/23/99..... United States $ 118,500,000 115,140,944
Federal Home Loan Bank, 4.32% to 5.54%, with maturities to
4/12/01................................................... United States 109,100,000 107,978,274
Federal Home Loan Mortgage Corp., 4.76%, 6/04/99............ United States 10,000,000 9,795,723
--------------
TOTAL SHORT TERM INVESTMENTS (COST $232,950,715)............ 232,914,941
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$3,593,339,828)........................................... 3,849,925,764
--------------
(a)REPURCHASE AGREEMENT (COST $15,500,000) .4%
First Boston, 4.00%, 01/04/99, (Maturity Value $15,501,722)
Collateralized by U.S. Treasury Notes & Bonds............. United States 15,500,000 15,500,000
--------------
TOTAL INVESTMENTS (COST $3,608,839,828) 98.2%............... 3,865,425,764
OPTIONS WRITTEN............................................. (9,112)
SECURITIES SOLD SHORT (4.3%)................................ (169,346,714)
NET EQUITY IN FORWARD CONTRACTS (.5%)....................... (19,812,296)
OTHER ASSETS, LESS LIABILITIES 6.6%......................... 261,495,130
--------------
TOTAL NET ASSETS 100.0%..................................... $3,937,752,772
--------------
--------------
OPTIONS WRITTEN
ISSUER
COUNTRY CONTRACTS VALUE
- ---------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., January/90/Call........................ United States 117 $ 1,462
Bankers Trust Corp., January/85/Call........................ United States 36 4,950
Bankers Trust Corp., January/85/Put......................... United States 36 2,700
--------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $46,106)........... $ 9,112
--------------
--------------
</TABLE>
88
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND
SECURITIES SOLD SHORT
ISSUER
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American International Group Inc. .......................... United States 181,800 $ 17,566,425
AT&T Corp. ................................................. United States 275,200 20,708,800
*Cap Gemini SA.............................................. France 259,596 41,684,439
Carrefour Supermarche SA.................................... France 25,576 19,316,377
*DST Systems Inc. .......................................... United States 370,000 21,113,125
Edison SpA.................................................. Italy 960,300 11,322,504
Newell Co. ................................................. United States 103,100 4,252,875
Northern Telecom, Ltd. ..................................... Canada 253,220 12,628,029
Suntrust Banks Inc. ........................................ United States 71,700 5,485,050
Telecom Italia Mobile SpA................................... Italy 2,045,200 15,135,509
*Tele-Communications Inc., Liberty Media Group, A........... United States 2,900 133,581
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $142,482,346)......... $ 169,346,714
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACT FOR DIFFERENCES
SECURITY
VALUE AT UNREALIZED
COUNTRY SHARES 12/31/98 LOSS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rentokil Initial Plc., cfd 4.42...................... United Kingdom 1,903,587 $14,283,633 $(285,039)
----------- ---------
----------- ---------
</TABLE>
CURRENCY ABBREVIATIONS:
CAD -- Canadian Dollar
DEM -- German Mark
FRF -- French Franc
GBP -- British Pound
JPY -- Japanese Yen
NLG -- Dutch Guilder
*Non-income producing
**Securities traded in U.S. dollars unless otherwise indicated.
(a)At December 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
(R)Restricted securities (see note 6).
+Affiliated issuers (see note 7).
See Notes to Financial Statements.
89
PAGE
[PYRAMID]
MUTUAL EUROPEAN FUND
Your Fund's Goal: Mutual European Fund seeks capital appreciation, with income
as a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities. The fund will normally have at least 65% of
its invested assets in the securities of issuers organized under the laws of, or
whose principal business operations or at least 50% of whose revenue is earned
from, European countries.
This report covers the 12 months ended December 31, 1998. During the year, many
European economies benefited from tight fiscal policies, extensive corporate
restructuring, and falling interest rates as governments moved towards meeting
the January 1999 European Monetary Union convergence criteria. Some European
equity markets reached all-time highs during the first part of the period, but
by late summer, they suffered major declines, due largely to Asia's financial
turmoil and Russia's economic meltdown. However, while some large cap names
rebounded, the broad base of securities did not resurface from the autumn panic.
We emphasize that the European indexes were very skewed to a handful of stocks -
most of which we found too expensive. We continued to see greater value in the
overlooked mid-cap sector.
As of December 31, 1998, the bulk of our investments were in the UK, France, the
Netherlands and the Nordic region. Over the course of the reporting period, we
dramatically reduced the number of the fund's holdings in an attempt to have a
more
90
PAGE
focused, liquid portfolio. We have a long-term horizon for owning stocks, but it
is important to know that if we decide to sell them, we think we will be able to
do so in a reasonable amount of time.
Although we reduced the number of holdings in the fund's portfolio, we did make
some significant new investments during the year. For example, we initiated a
position in Cir Cie Industriali Riunite SpA Torino, an Italian holding company
whose management is restructuring, buying back shares and increasing sales. In
the UK, we focused on engineering companies, and, towards the end of the year,
two of these largest companies, BTR Plc. and Seibe Plc. announced they would be
merging. In our opinion, this combination, which will create a $10 billion
market cap, has enormous potential and is one of the best undervalued
situations in our portfolio. We also added to our positions in holding companies
and conglomerates that we own in Europe. We continue to find value in these
companies because they are going through enormous restructurings.
TOP 5 INDUSTRIES
MUTUAL EUROPEAN FUND
12/31/98
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- ---------------------------------------------------------------
<S> <C>
Multi-Industry 27.9%
Business & Public Services 8.3%
Broadcasting & Publishing 5.0%
Banking 4.9%
Transportation 4.9%
</TABLE>
Looking forward, we see the introduction of the euro as probably the most
significant event facing European markets since the end of World War II. There
is enormous pressure on the
91
PAGE
governments of European Monetary Union members to make it work. We don't know to
what degree it will work, but we believe that because of the uncertainty and
volatility it will create, this introduction should present us with significant
investment opportunities.
TOP 5 COUNTRIES
MUTUAL EUROPEAN FUND
12/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
- ---------------------------------------------------------------
<S> <C>
Sweden 21.3%
United Kingdom 17.0%
France 15.0%
Italy 8.4%
Netherlands 6.1%
</TABLE>
Economic crises in Asia, Russia and Latin America have presented us with
opportunities, in companies that are perceived to have overexposure to these
markets. Our goal is to sift through everything and pick up the cheapest stocks
that have the best potential for substantial future returns, and add them to the
fund's portfolio. We appreciate your participation in the Mutual European Fund
and welcome your comments and suggestions.
92
PAGE
TOP 5 HOLDINGS
MUTUAL EUROPEAN FUND
12/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY, INDUSTRY, COUNTRY NET ASSETS
- ---------------------------------------------------------------
<S> <C>
Suez Lyonnaise des Eaux SA,
Business & Public Services, France 4.8%
Investor AB, A & B,
Multi-Industry, Sweden 2.9%
Van Melle NV,
Food & Household Products, Netherlands 2.2%
Montedison SpA,
Multi-Industry, Italy 2.1%
Brierley Investments Ltd,
Multi-Industry, New Zealand 2.1%
</TABLE>
We thank you for your participation in Mutual European Fund and look forward to
serving your investment needs in the future.
Sincerely,
/S/ David Marcus
- ----------------
David Marcus
93
PAGE
MUTUAL EUROPEAN FUND
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, the fund's Manager has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower. Franklin Mutual Advisers has made a commitment to the fund's Board not to
seek an increase in the rate of investment advisory fees for the three-year
period beginning November 1, 1996.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.06 $12.54 $12.60
DISTRIBUTIONS
--------------------------------
Dividend Income $0.3400
Long-term capital gain $0.2100
Short-term capital gain $0.1500
TOTAL $0.7000
<CAPTION>
CLASS I CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.09 $12.47 $12.56
DISTRIBUTIONS
--------------------------------
Dividend Income $0.2962
Long-term capital gain $0.2100
Short-term capital gain $0.1500
TOTAL $0.6562
<CAPTION>
CLASS II CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.07 $12.45 $12.52
DISTRIBUTIONS
--------------------------------
Dividend Income $0.2253
Long-term capital gain $0.2100
Short-term capital gain $0.1500
TOTAL $0.5853
</TABLE>
Mutual European Fund paid distributions derived from long-term capital gains of
21.0 cents ($0.2100) per share in December, 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852(b)(3).
94 Past performance is not predictive of future results.
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS Z 1-YEAR (7/3/96)
- ---------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 4.74% 47.83%
Average Annual Total Return(2) 4.74% 16.96%
Value of $10,000 Investment(3) $10,474 $14,783
<CAPTION>
SINCE
INCEPTION
CLASS I 1-YEAR (11/1/96)
- ---------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 4.15% 34.85%
Average Annual Total Return(2) - 1.87% 11.71%
Value of $10,000 Investment(3) $9,813 $12,711
<CAPTION>
SINCE
INCEPTION
CLASS II 1-YEAR (11/1/96)
- ---------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 3.74% 33.32%
Average Annual Total Return(2) 1.68% 13.66%
Value of $10,000 Investment(3) $10,168 $13,199
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results. 95
PAGE
MUTUAL EUROPEAN FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The Morgan Stanley Capital International (MSCI) All Countries Europe Index
measures the weighted average performance, in U.S. dollars, of about 60% of the
market capitalization listed on 21 European stock exchanges (approximately 700
securities), and includes all dividends reinvested. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index. Total
return represents the change in value of an investment over the periods shown.
It includes the current, applicable, maximum sales charge(s), fund expenses,
account fees, and reinvested distributions.
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS Z (7/3/96 - 12/31/98)]
12/31/98
CLASS Z
- -------------------------
1-Year 4.74%
Since Inception 16.96%
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS I (11/1/96 - 12/31/98)]
12/31/98
CLASS I
- --------------------------
1-Year -1.87%
Since Inception 11.71%
96 Past performance is not predictive of future results.
PAGE
[GRAPH OF CLASS II (11/1/96 - 12/31/98)]
AVERAGE ANNUAL TOTAL RETURN
12/31/98
CLASS II
- -------------------------
1-Year 1.68%
Since Inception 13.66%
*Source: Standard and Poor's Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
Past performance is not predictive of future results. 97
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL EUROPEAN FUND
<TABLE>
<CAPTION>
CLASS Z
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997++ 1996+
--------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.60 $11.39 $10.00
--------------------------------------
Income from investment operations:
Net investment income...................................... .31 .33 .06
Net realized and unrealized gains.......................... .33 2.28 1.40
--------------------------------------
Total from investment operations............................ .64 2.61 1.46
--------------------------------------
Less distributions from:
Net investment income...................................... (.34) (.84) (.05)
Net realized gains......................................... (.36) (.56) (.02)
--------------------------------------
Total distributions......................................... (.70) (1.40) (.07)
--------------------------------------
Net asset value, end of year................................ $12.54 $12.60 $11.39
--------------------------------------
--------------------------------------
Total Return*............................................... 4.74% 23.16% 14.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $483,873 $546,780 $450,495
Ratios to average net assets:
Expenses................................................... 1.05% 1.02% 1.09%**
Expenses, excluding waiver and payments by affiliate....... 1.05% 1.05% 1.15%**
Net investment income...................................... 2.02% 2.53% 1.87%**
Portfolio turnover rate..................................... 97.62% 98.12% 36.75%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period July 3, 1996 (commencement of operations) to December 31, 1996.
++Based on average weighted shares outstanding.
98
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL EUROPEAN FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
-----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997++ 1996+
-----------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.56 $11.38 $10.84
-----------------------------------
Income from investment operations:
Net investment income...................................... .27 .24 .03
Net realized and unrealized gains.......................... .29 2.31 .58
-----------------------------------
Total from investment operations............................ .56 2.55 .61
-----------------------------------
Less distributions from:
Net investment income...................................... (.29) (.81) (.05)
Net realized gains......................................... (.36) (.56) (.02)
-----------------------------------
Total distributions......................................... (.65) (1.37) (.07)
-----------------------------------
Net asset value, end of year................................ $12.47 $12.56 $11.38
-----------------------------------
-----------------------------------
Total Return*............................................... 4.15% 22.61% 5.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $170,486 $93,231 $9,200
Ratios to average net assets:
Expenses................................................... 1.40% 1.37% 1.32%**
Expenses, excluding waiver and payments by affiliate....... 1.40% 1.39% 1.42%**
Net investment income...................................... 1.68% 1.84% 1.44%**
Portfolio turnover rate..................................... 97.62% 98.12% 36.75%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Based on average weighted shares outstanding.
99
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL EUROPEAN FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997++ 1996+
----------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.52 $11.38 $10.84
----------------------------------
Income from investment operations:
Net investment income...................................... .21 .13 .02
Net realized and unrealized gains.......................... .31 2.33 .58
----------------------------------
Total from investment operations............................ .52 2.46 .60
----------------------------------
Less distributions from:
Net investment income...................................... (.23) (.76) (.04)
Net realized gains......................................... (.36) (.56) (.02)
----------------------------------
Total distributions......................................... (.59) (1.32) (.06)
----------------------------------
Net asset value, end of year................................ $12.45 $12.52 $11.38
----------------------------------
----------------------------------
Total Return*............................................... 3.74% 21.79% 5.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $96,555 $49,174 $2,754
Ratios to average net assets:
Expenses................................................... 2.05% 2.02% 1.94%**
Expenses, excluding waiver and payments by affiliate....... 2.05% 2.05% 2.04%**
Net investment income...................................... 1.00% 1.03% .79%**
Portfolio turnover rate..................................... 97.62% 98.12% 36.75%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
100
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 86.6%
BANKING 4.9%
Banca Nazionale del Lavoro SpA, di Risp..................... Italy 2,940,000 $ 8,230,150
Banque Cantonale de Geneve, br. ............................ Switzerland 32,590 8,186,058
Banque Cantonale Vaudoise................................... Switzerland 12,010 4,083,487
Kapital Holding............................................. Denmark 26,073 1,290,438
Merita AS................................................... Finland 460,800 2,930,395
Standard Chartered Plc. .................................... United Kingdom 280,000 3,233,009
Union Bank of Norway, Primary Capital Cert., 144A........... Norway 458,340 8,903,310
------------
36,856,847
------------
BEVERAGES & TOBACCO 2.4%
Bbag Oesterreichische Brau-Beteiligungs AG.................. Austria 227,870 13,026,532
Heineken Holding NV, A...................................... Netherlands 102,800 4,929,930
------------
17,956,462
------------
BROADCASTING & PUBLISHING 5.0%
*Modern Times Group AB...................................... Sweden 693,500 10,266,723
NV Holdingsmij de Telegraaf................................. Netherlands 382,500 10,292,668
Seat Pagine Gialle SpA...................................... Italy 16,602,000 12,756,504
United News & Media Plc. ................................... United Kingdom 495,600 4,291,819
------------
37,607,714
------------
BUSINESS & PUBLIC SERVICES 8.3%
Corporate Services Group Plc., A............................ United Kingdom 3,198,500 8,062,104
*Global Unilabs Clinical Trials Ltd. ....................... United States 581,585 0
IFIL Finanziaria Partecipazioni SpA......................... Italy 1,744,000 7,303,059
Sophus Berendsen AS, B...................................... Denmark 237,400 8,243,444
Suez Lyonnaise des Eaux SA.................................. France 176,987 36,371,966
*Suez Lyonnaise des Eaux SA, fgn. .......................... France 61,009 1,776
+*Uniholding Corp. ......................................... United States 581,585 2,217,293
------------
62,199,642
------------
CHEMICALS .5%
Yule Catto & Company Plc. .................................. United Kingdom 990,223 4,118,721
------------
DATA PROCESSING & REPRODUCTION .8%
Tecnost Mael SpA............................................ Italy 1,863,900 6,149,165
------------
ELECTRICAL & ELECTRONICS 2.2%
Philips Electronics NV...................................... Netherlands 97,900 6,572,921
Racal Electronics Plc. ..................................... United Kingdom 1,707,800 9,859,523
------------
16,432,444
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 1.3%
Spectra Physics AB, A....................................... Sweden 818,200 9,639,776
------------
</TABLE>
101
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY EQUIPMENT & SERVICES 1.3%
*Cie Generale De Geophysique SA............................. France 19,300 $ 1,125,275
*Cie Generale De Geophysique SA, ADR........................ France 243,400 2,646,975
ISIS SA..................................................... France 84,917 6,065,283
------------
9,837,533
------------
ENERGY SOURCES 4.1%
British Petroleum Co. Plc., ADR............................. United Kingdom 32,500 3,087,500
Electrafina SA.............................................. Belgium 77,000 10,086,235
*Fortum OYJ................................................. Finland 1,315,000 8,180,768
Societe Elf Aquitaine SA, br. .............................. France 81,500 9,424,833
------------
30,779,336
------------
FINANCIAL SERVICES 4.6%
*Cir Cie Industriali Riunite SpA Torino..................... Italy 7,165,000 8,042,985
*Cir Cie Industriali Riunite SpA Torino, Di Risp............ Italy 455,000 488,680
Corporacion Financiera Alba SA.............................. Spain 75,600 12,644,857
*Garban Plc. ............................................... United Kingdom 1,421,753 5,464,187
Societe Generale Paris...................................... France 49,000 7,938,312
------------
34,579,021
------------
FOOD & HOUSEHOLD PRODUCTS 4.6%
Hillsdown Holdings Plc. .................................... United Kingdom 6,343,500 8,021,063
*Terranova Foods Plc. ...................................... United Kingdom 5,188,025 9,581,079
Van Melle NV................................................ Netherlands 246,458 16,678,300
------------
34,280,442
------------
INDUSTRIAL COMPONENTS 2.5%
BTR Plc. ................................................... United Kingdom 1,323,300 2,708,026
Finnveden Invest AB, B...................................... Sweden 497,400 7,639,752
Konin Emballage Ind. Van Leer............................... Netherlands 8,503 178,968
Lucas Varity Plc. .......................................... United Kingdom 2,500,000 8,235,588
------------
18,762,334
------------
INSURANCE 1.7%
*Companhia de Seguros Imperio SA............................ Portugal 238,500 1,943,125
*Companhia de Seguros Mundial Confianca SA.................. Portugal 226,700 7,210,021
Sampo Insurance Co. Plc., A................................. Finland 90,950 3,466,712
------------
12,619,858
------------
LEISURE & TOURISM .8%
Thistle Hotels Plc. ........................................ United Kingdom 3,426,028 6,127,577
------------
MACHINERY & ENGINEERING 3.3%
IMI Plc. ................................................... United Kingdom 1,140,000 4,504,617
Incentive AS................................................ Denmark 146,932 5,078,960
Siebe Plc. ................................................. United Kingdom 1,305,871 5,127,453
</TABLE>
102
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING (CONT.)
*Sulzer AG.................................................. Switzerland 2,600 $ 1,582,526
TT Group Plc. .............................................. United Kingdom 2,307,000 8,194,734
------------
24,488,290
------------
MERCHANDISING 1.1%
FKI Plc. ................................................... United Kingdom 3,641,700 8,149,216
------------
METALS & MINING 1.0%
Trelleborg AB, B............................................ Sweden 926,000 7,539,786
------------
MULTI-INDUSTRY 27.9%
Aker RGI ASA, A............................................. Norway 709,700 7,451,897
Albatros Investissement SA.................................. France 235,000 8,413,591
*Anders Dioes AB............................................ Sweden 744,700 4,363,943
Atle AB..................................................... Sweden 438,100 5,675,010
Berisford Plc. ............................................. United Kingdom 800,000 2,375,842
Brierley Investments Ltd. .................................. New Zealand 68,487,600 15,556,812
CGIP-Compagnie Generale Industrie de Participation.......... France 246,510 13,591,543
Cie Financiere Richemont AG, A.............................. Switzerland 7,800 11,028,467
Cie Nationale A Portefeuille................................ Belgium 63,936 5,583,321
Custos AB, A................................................ Sweden 114,500 2,260,110
Custos AB, B................................................ Sweden 341,520 6,678,048
Fimalac SA.................................................. France 45,244 5,394,097
Financiere Et Industrielle Gaz Et Eaux SA................... France 26,830 1,426,463
+Geveko AB, B............................................... Sweden 552,134 5,789,853
Groupe Bruxelles Lambert SA................................. Belgium 21,000 4,279,009
Investor AB, A.............................................. Sweden 65,300 2,908,202
Investor AB, B.............................................. Sweden 414,100 18,697,797
Invik & Co. AB, B........................................... Sweden 137,212 11,172,237
Kinnevik AB, B.............................................. Sweden 373,300 8,750,154
Lagardere S.C.A. ........................................... France 188,687 8,022,119
Montedison SpA.............................................. Italy 11,800,000 15,650,399
Oresund Investment AB....................................... Sweden 344,233 8,323,629
*Saab AB, B................................................. Sweden 952,400 9,987,170
*Societe Europeenne de Communication SA, ADR................ Sweden 245,266 4,445,446
*Societe Europeenne de Communication SA, A, ADR............. Sweden 139,752 2,664,023
Ste Eurafrance.............................................. France 17,999 11,921,575
Tomkins Plc. ............................................... United Kingdom 1,458,917 6,869,204
------------
209,279,961
------------
REAL ESTATE 3.7%
*Asticus AB................................................. Sweden 743,100 7,288,170
Castellum AB................................................ Sweden 500,000 5,428,212
*Fastighets AB Balder....................................... Sweden 608,740 6,758,938
</TABLE>
103
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
(R)*Security Capital European Realty........................ United States 108,750 $ 2,175,000
*Societe des Immeubles De France............................ France 259,328 5,798,229
------------
27,448,549
------------
TELECOMMUNICATIONS 1.2%
Telecom Italia SpA.......................................... Italy 688,900 5,877,790
Telecom Italia SpA, di Risp................................. Italy 550,900 3,462,206
------------
9,339,996
------------
TRANSPORTATION 3.4%
ASG AB, B................................................... Sweden 393,000 7,442,264
BTL AB, B................................................... Sweden 1,468,200 5,796,146
De Sammensluttede Vognmaend AF, B........................... Denmark 5,700 501,532
Railtrack Group Plc. ....................................... United Kingdom 468,500 12,253,257
------------
25,993,199
------------
UTILITIES ELECTRICAL & GAS
VEBA AG..................................................... Germany 700 41,481
------------
TOTAL COMMON STOCKS (COST $598,539,498)..................... 650,227,350
------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 1.4%
Eurotunnel Finance Ltd.:
Equity Note 12/31/03...................................... United Kingdom 1,334,692GBP 643,974
Participating Loan Note 4/30/40........................... United Kingdom 780,000GBP 428,251
Eurotunnel Plc.:
12/31/12 Tier 1........................................... United Kingdom 1,189,649GBP 1,662,599
12/31/18 Tier 2........................................... United Kingdom 1,112,152GBP 1,443,272
12/31/25 Tier 3........................................... United Kingdom 610,000GBP 674,902
12/31/50 Resettable Advance R5............................ United Kingdom 895,083GBP 551,004
Stabilization Advance S8 Tier 1........................... United Kingdom 155,206GBP 45,189
Stabilization Advance S8 Tier 2........................... United Kingdom 95,290GBP 22,196
Eurotunnel SA:
12/31/12 Tier 1 (Libor)................................... France 7,644,387FRF 1,149,491
12/31/18 Tier 2 (Libor)................................... France 12,205,944FRF 1,704,314
12/31/18 Tier 2 (Pibor)................................... France 1,186,943FRF 165,733
12/31/25 Tier 3 (Libor)................................... France 11,358,910FRF 1,342,036
12/31/25 Tier 3 (Pibor)................................... France 2,125,989FRF 251,182
12/31/50 Resettable Advance R4............................ France 8,955,892FRF 577,158
Stabilization Advance S7 Tier 1 (Libor)................... France 725,463FRF 22,727
Stabilization Advance S6 Tier 2........................... France 494,894FRF 12,403
------------
TOTAL CORPORATE BONDS AND NOTES (COST $10,781,815).......... 10,696,431
------------
</TABLE>
104
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL EUROPEAN FUND COUNTRY AMOUNT** VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION 2.5%
*Fokker NV:
6.25%, 2/20/99............................................ Netherlands 16,800,000DEM $ 2,962,896
6.50%, 2/20/99............................................ Netherlands 4,000,000DEM 705,451
7.50%, 2/20/99............................................ Netherlands 4,500,000DEM 793,633
trade claim............................................... Netherlands 6,880,952NLG 2,786,553
*Glunz France SA, Bank Claim:
5.3125%, 1/15/98, tranche 1............................... Germany 645,800DEM 387,728
5.3125%, 1/15/98, tranche 2............................... Germany 2,870,223DEM 1,723,236
4.50%, 1/18/98, tranche 3................................. Germany 2,500,000DEM 1,410,903
*Glunz France SA, Bank Claim:
zero coupon, 1/15/98...................................... Germany 3,250,000DEM 1,834,174
4.2875%, 1/15/98.......................................... France 11,607,142FRF 1,813,317
4.3813%, 1/15/98.......................................... France 10,714,285FRF 1,673,831
4.68125%, 1/15/98......................................... France 892,858FRF 139,486
4.7813%, 1/15/98.......................................... France 1,785,714FRF 278,972
*Northampton Business Parks, bank claim..................... United Kingdom 10,444,484GBP 2,089,227
------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $14,441,696).... 18,599,407
------------
SHORT TERM INVESTMENTS 10.0%
Fannie Mae, 4.50% to 5.28% with maturities to 12/23/99...... United States 54,888,000 53,309,749
Federal Home Loan Bank, 4.44% to 5.54% with maturities to
11/12/99.................................................. United States 16,500,000 16,237,853
Federal Home Loan Mortgage Corp., 4.96%, 3/29/99............ United States 5,500,000 5,440,075
------------
TOTAL SHORT TERM INVESTMENTS (COST $74,946,572)............. 74,987,677
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$698,709,581)............................................. 754,510,865
------------
(a)REPURCHASE AGREEMENT (COST $7,000,000) .9%
Bank Of New York Co. Inc., 4.25%, 01/04/99 (Maturity Value
$7,003,306)
Collateralized by U.S. Treasury Notes and Bonds........... United States 7,000,000 7,000,000
------------
TOTAL INVESTMENTS (COST $705,709,581) 101.4%................ 761,510,865
SECURITIES SOLD SHORT (2.6%)................................ (19,634,252)
NET EQUITY IN FORWARD CONTRACTS (.7%)....................... (5,148,339)
OTHER ASSETS, LESS LIABILITIES 1.9%......................... 14,185,953
------------
TOTAL NET ASSETS 100.0%..................................... $750,914,227
------------
------------
<CAPTION>
SECURITIES SOLD SHORT
ISSUER
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Cap Gemini SA.............................................. France 52,550 $ 8,438,178
Carrefour Supermarche SA.................................... France 8,260 6,238,398
Edison SpA.................................................. Italy 201,800 2,379,341
Telecom Italia Mobile SpA................................... Italy 348,400 2,578,335
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $16,176,469).......... $ 19,634,252
------------
------------
</TABLE>
105
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
MUTUAL EUROPEAN FUND
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 12/31/98 LOSS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rentokil Initial Plc., cfd 4.42 ...................... United Kingdom 217,000 $1,628,267 $(250,500)
---------- ---------
---------- ---------
</TABLE>
CURRENCY ABBREVIATIONS:
DEM -- German Mark
FRF -- French Franc
GBP -- British Pound
NLG -- Dutch Guilder
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(a)At December 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
(R)Restricted securities (see note 6).
+Affiliated issuers (see note 7).
See Notes to Financial Statements.
106
PAGE
FUND CATEGORY
[PYRAMID GRAPH]
MUTUAL FINANCIAL SERVICES FUND
Portfolio Breakdown
12/31/98
[PIE GRAPH]
Equities 86.8%
Bonds 1.6%
Short-Term Investments of Other Net Assets 11.6%
MUTUAL FINANCIAL SERVICES FUND
Your Fund's Goal: Mutual Financial Services Fund seeks capital appreciation,
with income as a secondary goal, by investing primarily in common and preferred
stocks, bonds, and convertible securities issued by companies in the financial
services industry. The fund normally will have at least 65% of its invested
assets in the securities of issuers such as banks, savings and loan
organizations, credit card companies, brokerage firms, finance companies,
sub-prime lending institutions, investment advisers, and insurance companies.
In this annual report of the Mutual Financial Services Fund, which covers the 12
month period ended December 31, 1998, we discuss the fund's performance; the
disparity in performance among large-capitalization financials versus medium-
and small-cap companies; our value-based investment philosophy, how it has
worked and why we remain committed to it; and our outlook for 1999.
FUND PERFORMANCE
The fund's Z class shares produced a 7.08% cumulative total return, as discussed
in the performance summary on page 113. As in the past, the relevant comparisons
to our performance are indexes or a group of funds composed solely or
predominantly of financial services companies. We outperformed the Keefe,
Bruyette & Woods 50 Index (KBW 50), which increased 6.1% over the same period.*
We also outperformed a universe of
*Source: Keefe, Bruyette & Woods Inc. Index is unmanaged. Change in value
measures price appreciation only and does not include reinvested dividends. One
cannot invest directly in an index. 107
PAGE
18 well-established financial services mutual funds that we monitor. Their
median return was 6.3%. It should also be noted that the stocks in KBW's bank
universe, a non-market-cap weighted group of approximately 200 banking companies
followed by KBW's analysts, declined an average of 6.9% during 1998.*
LARGE-CAP VERSUS MEDIUM- AND SMALL-CAP FINANCIAL COMPANIES
The KBW universe's performance illustrates a phenomenon characterizing the
overall stock market during 1998: large-cap companies outperforming all others.
For example, the Standard & Poor's 500(R) Stock Index (a market-cap weighted
index) increased 26.7% in 1998. If it were unweighted, it would have increased
only 7.1%. Banking company performance was similar: large cap stocks 3.1%;
mid-cap stocks -6.5%; small-cap stocks -9.2%; and micro-cap stocks -14.6%.
Still, we believe that generally the best opportunities exist in smaller
capitalization companies.
OUR VALUE PHILOSOPHY, HOW IT WORKED, AND WHY WE REMAIN COMMITTED TO IT
As you know, value investing is the cornerstone of Mutual Financial Services
Fund's investment approach. Although 1998 was a challenging year for us, we
believe the financial services sector can be a particularly fruitful one for
skillful value investors. We
108 *Source: Keefe, Bruyette & Woods Inc.
PAGE
remain confident that our investment philosophy, executed properly, will deliver
superior returns in this sector. The KBW universe contains more than 200
companies. During the reporting period, we purchased shares in four of the worst
performers in this universe of stocks. As of the end of 1998, all of them had
appreciated in value from when we purchased them.
For some time, we have believed that European financial companies were not as
attractive as their U.S. counterparts. During the first six months of 1998,
European financials strengthened considerably and their stock valuations became
less attractive, so we reduced our European exposure from 26% of total net
assets at December 31, 1997, to 18% at June 30, 1998. After August and
September's sharp sell-off of domestic financials, we found such compelling
values in the U.S. that we continued to divest of international holdings and our
foreign exposure at year end was less than 10%. We believe large European banks
may suffer earnings disappointments in 1999 with the advent of the European
Monetary Union and the euro. We, therefore, do not anticipate significant
European opportunities until valuations there reflect the difficult operating
environment we expect.
TOP 5 HOLDINGS
MUTUAL FINANCIAL SERVICES FUND
12/31/98
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------------------------
<S> <C>
Bank One Corp.,
Banking, U.S. 4.3%
Western Bancorp,
Banking, U.S. 3.9%
Vermont Financial
Services Corp.,
Banking, U.S. 3.9%
UST Corp., Inc.,
Banking, U.S. 3.8%
United Asset
Management Corp.,
Financial Services,
U.S. 3.1%
</TABLE>
109
PAGE
OUR OUTLOOK FOR 1999
We see several encouraging themes for 1999. Based on price-to-earnings ratios,
small- and medium-cap banking companies represent the best bargains, and, at the
end of 1998, were trading at their most attractive relative valuations in a long
time. We expect to see a significant amount of consolidation in this area,
particularly during the second half of 1999, and we have tried to position the
fund to benefit from such an event. Indeed, the acquisition of Vermont Financial
Services Corp., one of the funds largest holdings, by another Vermont bank was
announced in December 1998. This in-market deal appears attractive to us, and we
continue to own a significant position.
A key success factor for financial companies in 1999, in our opinion, will be
revenue growth. Among the large companies that we own, several have demonstrated
superior revenue growth capability, yet still trade at attractive valuations.
For small-cap companies, we find ourselves with a significant concentration in
two states, California (10%) and Texas (3%), in which we expect above-average
economic growth and market share gains leading to strong revenue and earnings
growth. Finally, our 10 largest positions comprise approximately 33% of total
net assets, yet six of these are companies with market caps under $1.5 billion,
which we expect to be beneficial in 1999.
110
PAGE
Of course, there are special risks involved with investing in a single industry,
including increased sensitivity to economic, political, or regulatory
developments, which can result in greater volatility than a fund investing in
many different industries.
We appreciate your participation in Mutual Financial Services Fund.
Sincerely,
/S/ Raymond Garea
- -----------------
Raymond Garea
/S/ James P. Agah
- -----------------
James P. Agah
Assistant Portfolio Manager
111
PAGE
MUTUAL FINANCIAL SERVICES FUND
PERFORMANCE SUMMARY AS OF 12/31/98
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
CLASS Z:
No initial sales charge or Rule 12b-1 fees and are available only to certain
investors, as described in the fund's prospectus.
CLASS I:
Subject to the maximum 5.75% initial sales charge.
CLASS II:
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class I shares.
For all share classes, Franklin Mutual Advisers has agreed in advance to waive
all or a portion of its management fee and/or make certain payments to reduce
the fund's expenses for the first 24 months of operation, after which Franklin
Mutual Advisers may terminate this arrangement at any time.
PRICE AND DISTRIBUTION INFORMATION (1/1/98 - 12/31/98)
<TABLE>
<CAPTION>
CLASS Z CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value $0.58 $12.85 $12.27
DISTRIBUTIONS
--------------------------------
Dividend Income $0.1900
Long-term capital gain $0.0100
Short-term capital gain $0.1000
Total $0.3000
CLASS I CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
Net Asset Value $0.60 $12.87 $12.27
DISTRIBUTIONS
--------------------------------
Dividend Income $0.1474
Long-term capital gain $0.0100
Short-term capital gain $0.1000
Total $0.2574
CLASS II CHANGE 12/31/98 12/31/97
- ----------------------------------------------------------------
Net Asset Value $0.57 $12.83 $12.26
DISTRIBUTIONS
--------------------------------
Dividend Income $0.0830
Long-term capital gain $0.0100
Short-term capital gain $0.1000
Total $0.1930
</TABLE>
Mutual Financial Services Fund paid distributions derived from long-term capital
gains of 1.0 cents ($0.100) per share in December, 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
112 Past performance is not predictive of future results.
PAGE
PERFORMANCE
<TABLE>
<CAPTION>
SINCE
INCEPTION
CLASS Z 1-YEAR (8/19/97)
- ----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 7.08% 32.69%
Average Annual Total Return(2) 7.08% 22.99%
Value of $10,000 Investment(3) $10,708 $13,269
SINCE
INCEPTION
CLASS I 1-YEAR (8/19/97)
- ----------------------------------------------------------------
Cumulative Total Return(1) 6.90% 32.37%
Average Annual Total Return(2) 0.74% 17.57%
Value of $10,000 Investment(3) $10,074 $12,476
SINCE
INCEPTION
CLASS II 1-YEAR (8/19/97)
- ----------------------------------------------------------------
Cumulative Total Return(1) 6.13% 31.14%
Average Annual Total Return(2) 4.11% 21.04%
Value of $10,000 Investment(3) $10,411 $12,983
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results. 113
PAGE
MUTUAL FINANCIAL SERVICES FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The Keefe, Bruyette & Woods "KBW 50" index tracks the 50 largest U.S. banks'
stocks. The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees, and reinvested distributions.
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS Z (8/19/97 - 12/31/98)]
12/31/98
CLASS Z
- --------------------------
1-Year 7.08%
Since Inception 22.99%
AVERAGE ANNUAL TOTAL RETURN [GRAPH OF CLASS I (8/19/97 - 12/31/98)]
12/31/98
CLASS I
- --------------------------
1-Year 0.74%
Since Inception 17.57%
*Source: Keefe, Bruyette & Woods, Inc. Index is unmanaged.
114 Past performance is not predictive of future results.
PAGE
[GRAPH OF CLASS II (8/19/97 - 12/31/98)] AVERAGE ANNUAL TOTAL RETURN
12/31/98
CLASS II
--------------------------
1-Year 4.11%
Since Inception 21.04%
*Source: Keefe, Bruyette & Woods, Inc. Index is unmanaged. Change in value
measures price appreciation only and does not include reinvested dividends. One
cannot invest directly in an index.
Past performance is not predictive of future results. 115
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights
MUTUAL FINANCIAL SERVICES FUND
<TABLE>
<CAPTION>
CLASS Z
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998++ 1997+
-----------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.27 $10.00
-----------------------
Income from investment operations:
Net investment income...................................... .24 .04
Net realized and unrealized gains.......................... .64 2.35
-----------------------
Total from investment operations............................ .88 2.39
-----------------------
Less distributions from:
Net investment income...................................... (.19) (.03)
Net realized gains......................................... (.11) (.09)
-----------------------
Total distributions......................................... (.30) (.12)
-----------------------
Net asset value, end of year................................ $12.85 $12.27
-----------------------
-----------------------
Total Return*............................................... 7.08% 23.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $143,132 $136,350
Ratios to average net assets:
Expenses................................................... 1.00% 1.00%**
Expenses, excluding waiver and payments by affiliate....... 1.09% 1.62%**
Net investment income...................................... 1.76% 1.37%**
Portfolio turnover rate..................................... 136.76% 42.26%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period August 19, 1997 (commencement of operations) to December 31,
1997.
++Based on average weighted shares outstanding.
116
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL FINANCIAL SERVICES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1997+
------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.27 $10.00
------------------------
Income from investment operations:
Net investment income...................................... .17 .03
Net realized and unrealized gains.......................... .69 2.35
------------------------
Total from investment operations............................ .86 2.38
------------------------
Less distributions from:
Net investment income...................................... (.15) (.02)
Net realized gains......................................... (.11) (.09)
------------------------
Total distributions......................................... (.26) (.11)
------------------------
Net asset value, end of year................................ $12.87 $12.27
------------------------
------------------------
Total Return*............................................... 6.90% 23.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $164,989 $78,249
Ratios to average net assets:
Expenses................................................... 1.35% 1.35%**
Expenses, excluding waiver and payments by affiliate....... 1.44% 1.97%**
Net investment income...................................... 1.42% 1.02%**
Portfolio turnover rate..................................... 136.76% 42.26%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period August 19, 1997 (commencement of operations) to December 31,
1997.
117
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Highlights (continued)
MUTUAL FINANCIAL SERVICES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1997+
------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $12.26 $10.00
------------------------
Income from investment operations:
Net investment income...................................... .08 .01
Net realized and unrealized gains.......................... .68 2.35
------------------------
Total from investment operations............................ .76 2.36
------------------------
Less distributions from:
Net investment income...................................... (.08) (.01)
Net realized gains......................................... (.11) (.09)
------------------------
Total distributions......................................... (.19) (.10)
------------------------
Net asset value, end of year................................ $12.83 $12.26
------------------------
------------------------
Total Return*............................................... 6.13% 23.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $127,717 $43,207
Ratios to average net assets:
Expenses................................................... 2.00% 2.00%**
Expenses, excluding waiver and payments by affiliate....... 2.09% 2.62%**
Net investment income...................................... .77% .37%**
Portfolio turnover rate..................................... 136.76% 42.26%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period August 19, 1997 (commencement of operations) to December 31,
1997.
See Notes to Financial Statements.
118
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL FINANCIAL SERVICES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 87.7%
BANKING 51.1%
*Associated Banc Corp. ..................................... United States 54,400 $ 1,859,800
Banca Nazionale del Lavoro SpA, di Risp..................... Italy 4,530,000 12,681,150
*Banco Bansud SA, B......................................... Argentina 188,000 807,247
Banco Latinoamericano de Exportaciones SA, E................ Panama 167,500 2,784,688
Bank of Commerce............................................ United States 78,900 1,321,575
Bank One Corp. ............................................. United States 363,100 18,540,794
Bankamerica Corp. .......................................... United States 81,184 4,881,188
Banque Cantonale de Geneve, br. ............................ Switzerland 23,020 5,782,235
Banque Cantonale Vaudoise................................... Switzerland 9,400 3,196,068
*Boston Private Financial Holdings Inc. .................... United States 248,500 2,112,250
Chase Manhattan Corp. ...................................... United States 100,000 6,806,250
+*Civic Bancorp............................................. United States 263,709 3,494,144
Countrywide Credit Industries Inc. ......................... United States 60,000 3,011,250
Credicorp Ltd. ............................................. Peru 200,000 1,800,000
Crestar Financial Corp. .................................... United States 28,800 2,073,600
*First Commonwealth Financial Corp. ........................ United States 80,000 1,960,000
First Union Corp. .......................................... United States 207,655 12,628,020
Fleet Financial Group Inc. ................................. United States 62,800 2,806,375
*Golden State Bancorp Inc., wts. ........................... United States 937,500 4,277,344
Imperial Bancorp............................................ United States 582,700 9,687,388
Jeffbanks Inc. ............................................. United States 180,166 3,558,279
Kapital Holding............................................. Denmark 48,123 2,381,765
M & T Bank Corp. ........................................... United States 6,900 3,580,669
Mercantile Bancorporation Inc. ............................. United States 35,000 1,614,375
Merita Ltd., A.............................................. Finland 272,900 1,735,470
Mid-State Bancshares........................................ United States 8,200 229,600
National City Corp. ........................................ United States 62,900 4,560,250
+Pacific Bank NA............................................ United States 266,231 11,614,327
PNC Bank Corp. ............................................. United States 68,200 3,691,325
*Prime Bancshares Inc. ..................................... United States 90,000 1,552,500
+Professional Bancorp Inc. ................................. United States 155,616 2,723,280
*Prosperity Bancshares Inc. ................................ United States 143,800 1,779,525
+Rancho Santa Fe National Bank.............................. United States 347,223 5,208,345
*Regency Bancorp............................................ United States 100,000 1,355,625
*Regency Bancorp, wts....................................... United States 10,000 35,563
*Silicon Valley Bancshares.................................. United States 160,000 2,725,000
(R)+*State National Bancshares Inc. ........................ United States 285,714 3,999,996
Texas Regional Bancshares Inc., A........................... United States 177,200 4,441,075
Union Bank of Norway, Primary Capital Cert. 144A............ Norway 267,660 5,199,328
+Unionbancorp Inc. ......................................... United States 220,100 3,714,188
*United Security Bancorporation............................. United States 38,350 580,044
UST Corp., Inc. ............................................ United States 698,059 16,448,015
*Vail Banks Inc............................................. United States 100,000 1,218,750
Vermont Financial Services Corp. ........................... United States 510,000 16,957,500
Warren Bancorp Inc. ........................................ United States 230,300 2,087,094
Western Bancorp............................................. United States 585,721 17,132,339
------------
222,635,593
------------
</TABLE>
119
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL FINANCIAL SERVICES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
DATA PROCESSING & REPRODUCTION .2%
*National Processing Inc. .................................. United States 117,600 $ 646,800
------------
FINANCIAL SERVICES 31.2%
Advanta Corp., B............................................ United States 213,231 2,358,868
*Amerin Corp. .............................................. United States 5,000 118,125
Baker Fentress & Co. ....................................... United States 247,829 3,794,882
Bankers Trust Corp. ........................................ United States 9,300 794,569
*Bank of NT Butterfield & Son Ltd. ......................... Bermuda 40,000 620,000
Bankatlantic Bancorp Inc., A................................ United States 402,600 2,591,738
+Broadway Financial Corp. .................................. United States 56,662 393,093
CIT Group Inc., A........................................... United States 88,000 2,799,500
Citizens Bancorp Indiana.................................... United States 7,200 89,100
Commercial Federal Corp. ................................... United States 375,602 8,709,271
Commonwealth Bancorp Inc. .................................. United States 123,500 1,921,969
Cowlitz Bancorporation...................................... United States 192,100 1,512,788
First Essex Bancorp Inc. ................................... United States 64,500 1,161,000
*First Sierra Financial Inc. ............................... United States 292,600 3,584,350
(R)+*Gateway American Bank of Florida....................... United States 225,000 1,096,875
Greenpoint Financial Corp. ................................. United States 275,600 9,680,450
Household International Inc. ............................... United States 174,870 6,929,224
Hubco Inc. ................................................. United States 150,000 4,518,750
*Imperial Credit Commercial Mortgage Investment Corp. ...... United States 250,000 2,343,750
Indymac Mortgage Holdings Inc. ............................. United States 210,100 2,219,181
Klamath First Bancorp Inc. ................................. United States 205,300 3,977,688
(R)*Laser Mortgage Management Inc. ......................... United States 212,300 1,154,381
Laurentian Bank of Canada................................... Canada 173,100 3,268,164
Liberty Financial Companies Inc. ........................... United States 30,300 818,100
*Life Financial Corp. ...................................... United States 264,600 1,223,775
*Long Beach Financial Corp. ................................ United States 548,900 4,116,750
Metris Cos. Inc. ........................................... United States 138,900 6,988,406
Peoples Bancorp Inc. ....................................... United States 1,133,099 12,322,452
Pioneer Group Inc. ......................................... United States 247,100 4,880,225
+*Pointe Financial Corp. ................................... United States 122,500 1,263,281
Sunamerica Inc. ............................................ United States 25,000 2,028,125
(R)*Superior Financial Corp. ............................... United States 550,000 6,050,000
TCF Financial Corp. ........................................ United States 412,300 9,972,506
Timberland Bancorp Inc. .................................... United States 216,600 2,653,350
United Asset Management Corp. .............................. United States 522,600 13,587,600
Webster Financial Corp. .................................... United States 163,600 4,488,775
------------
136,031,061
------------
INSURANCE 5.2%
Argonaut Group Inc. ........................................ United States 18,050 442,225
Berkeley W R Corp. ......................................... United States 92,900 3,164,406
CMAC Investment Corp. ...................................... United States 141,300 6,490,969
*Companhia de Seguros Imperio SA............................ Portugal 239,900 1,954,531
</TABLE>
120
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
MUTUAL FINANCIAL SERVICES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
*Companhia de Seguros Mundial Confianca SA.................. Portugal 28,000 $ 890,519
Sampo Insurance Co. Plc., A................................. Finland 59,000 2,248,884
*Scottish Annuity & Life Holdings Ltd. ..................... United States 195,000 2,681,250
Selective Insurance Group Inc. ............................. United States 242,408 4,878,461
------------
22,751,245
------------
TOTAL COMMON STOCKS (COST $373,918,824)..................... 382,064,699
------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS .9%
Matrix Capital Corp., 11.50%, 9/30/04....................... United States $ 3,200,000 2,784,000
(R)Source Capital Corp., 7.50%, 3/01/08..................... United States 1,400,000 1,154,706
------------
TOTAL BONDS (COST $4,570,000)............................... 3,938,706
------------
BONDS & NOTES IN REORGANIZATION .7%
Mercury Finance Co., bank claim, MTN, 7.42%, 6/29/00........ United States 151,528 136,375
Mercury Finance Co., Commercial Paper:
2/11/97................................................... United States 1,015,351 913,816
2/18/97................................................... United States 2,467,612 2,220,851
------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $3,206,643)..... 3,271,042
------------
SHORT TERM INVESTMENTS 9.0%
Fannie Mae, 4.249% to 5.37%, with maturities to 12/23/99.... United States 30,400,000 29,503,090
Federal Home Loan Bank, 4.44% to 5.28%, with maturities to
11/12/99.................................................. United States 9,000,000 8,790,668
Federal Home Loan Mortgage Corp., 4.31%, 7/21/99............ United States 1,000,000 973,210
------------
TOTAL SHORT TERM INVESTMENTS (COST $39,290,216)............. 39,266,968
------------
TOTAL INVESTMENTS (COST $420,985,683) 98.3%................. 428,541,415
SECURITIES SOLD SHORT (.9%)................................. (4,179,175)
NET EQUITY IN FORWARD CONTRACTS (.3%)....................... (1,181,546)
OTHER ASSETS, LESS LIABILITIES 2.9%......................... 12,657,027
------------
TOTAL NET ASSETS 100.0%..................................... $435,837,721
------------
------------
SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
Suntrust Banks Inc. ........................................ United States 27,600 $ 2,111,400
American International Group Inc. .......................... United States 21,400 2,067,775
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $3,992,947)........... $ 4,179,175
------------
------------
</TABLE>
*Non-income producing
**Securities traded in U.S. dollars.
(R)Restricted securities (see note 6).
+Affiliated issuers (see note 7).
See Notes to Financial Statements.
121
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL SHARES MUTUAL QUALIFIED MUTUAL BEACON
FUND FUND FUND
----------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities, at cost:
Unaffiliated issuers...................................... $6,755,812,449 $3,795,857,198 $4,470,538,130
Controlled affiliates..................................... 83,329,160 32,384,178 35,849,103
Non controlled affiliates................................. 421,694,626 239,526,171 106,925,393
----------------------------------------------------
Investments in securities, at value:
Unaffiliated issuers...................................... 7,995,667,019 4,477,107,169 5,246,158,014
Controlled affiliates..................................... 139,122,318 52,903,549 61,442,585
Non controlled affiliates................................. 646,313,396 256,623,017 95,478,716
----------------------------------------------------
Total Investments in securities, at value.................. $8,781,102,733 $4,786,633,735 $5,403,079,315
Repurchase agreement, at value and cost.................... -- 1,800,000 --
Cash....................................................... 62,248,713 59,049,029 75,591,611
Receivables:
Investment securities sold................................ 89,282,099 70,982,463 82,087,482
Capital shares sold....................................... 7,840,712 5,644,850 5,261,558
Dividends and interest.................................... 23,322,253 12,101,407 18,288,482
From affiliates........................................... 533,209 324,856 434,470
Unrealized gain on forward exchange contracts (Note 8)..... 14,265,700 9,144,053 14,834,317
Deposits with broker for securities sold short............. 265,426,790 183,450,062 155,175,674
----------------------------------------------------
Total assets.......................................... 9,244,022,209 5,129,130,455 5,754,752,909
----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased........................... 65,474,863 43,942,720 38,473,861
Capital shares redeemed................................... 38,028,125 35,719,160 28,847,618
To affiliates............................................. 8,309,835 4,329,966 5,306,189
Options written, at value (premiums received $89,525,
$49,246, $55,609)......................................... 17,275 9,375 10,637
Securities sold short, at value (proceeds $281,794,891,
$168,918,800, $153,247,075)............................... 332,167,328 195,841,330 181,183,305
Unrealized loss on forward exchange contracts (Note 8)..... 16,607,628 10,681,265 20,884,590
Due to broker-variation margin............................. 124,632 2,843,385 1,149,204
Accrued expenses........................................... 688,956 492,281 532,384
----------------------------------------------------
Total liabilities..................................... 461,418,642 293,859,482 276,387,788
----------------------------------------------------
Net assets, at value........................................ $8,782,603,567 $4,835,270,973 $5,478,365,121
----------------------------------------------------
----------------------------------------------------
Net assets consist of:
Undistributed net investment income........................ $ 5,008,347 $ -- $ --
Accumulated distributions in excess of net investment
income................................................... -- (6,722,046) (26,929,334)
Net unrealized appreciation................................ 1,467,499,751 690,144,908 755,569,747
Accumulated net realized gain.............................. 133,700,373 121,302,119 93,627,496
Capital shares............................................. 7,176,395,096 4,030,545,992 4,656,097,212
----------------------------------------------------
Net assets, at value........................................ $8,782,603,567 $4,835,270,973 $5,478,365,121
----------------------------------------------------
----------------------------------------------------
</TABLE>
122
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL SHARES MUTUAL QUALIFIED MUTUAL BEACON
FUND FUND FUND
----------------------------------------------------
<S> <C> <C> <C>
CLASS Z:
Net assets, at value....................................... $6,279,026,201 $3,942,518,632 $4,030,517,115
----------------------------------------------------
----------------------------------------------------
Shares outstanding......................................... 321,254,341 239,532,404 307,102,017
----------------------------------------------------
----------------------------------------------------
Net asset value and maximum offering price per share....... $19.55 $16.46 $13.12
----------------------------------------------------
----------------------------------------------------
CLASS I:
Net assets, at value....................................... $1,509,646,854 $ 570,142,830 $ 947,443,695
----------------------------------------------------
----------------------------------------------------
Shares outstanding......................................... 77,429,363 34,721,323 72,362,807
----------------------------------------------------
----------------------------------------------------
Net asset value per share.................................. $19.50 $16.42 $13.09
----------------------------------------------------
----------------------------------------------------
Maximum offering price per share (net asset value /
94.25%).................................................. $20.69 $17.42 $13.89
----------------------------------------------------
----------------------------------------------------
CLASS II:
Net assets, at value....................................... $ 993,930,512 $ 322,609,511 $ 500,404,311
----------------------------------------------------
----------------------------------------------------
Shares outstanding......................................... 51,209,632 19,725,821 38,365,916
----------------------------------------------------
----------------------------------------------------
Net asset value per share*................................. $19.41 $16.35 $13.04
----------------------------------------------------
----------------------------------------------------
Maximum offering price per share (net asset value /
99.00%).................................................. $19.61 $16.52 $13.17
----------------------------------------------------
----------------------------------------------------
</TABLE>
*Redemption price is equal to net asset value less any applicable sales charge.
See Notes to Financial Statements.
123
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL DISCOVERY MUTUAL EUROPEAN MUTUAL FINANCIAL
FUND FUND SERVICES FUND
-------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities, at cost:
Unaffiliated issuers...................................... $3,275,074,160 $687,321,383 $388,046,107
Controlled affiliates..................................... 34,928,856 -- --
Non controlled affiliates................................. 283,336,812 11,388,198 32,939,576
-------------------------------------------------------
Investments in securities, at value:
Unaffiliated issuers...................................... 3,581,703,478 746,503,719 395,033,886
Controlled affiliates..................................... 43,763,629 -- --
Non controlled affiliates................................. 224,458,657 8,007,146 33,507,529
-------------------------------------------------------
Total Investments in securities, at value.................. $3,849,925,764 $754,510,865 $428,541,415
Repurchase agreement, at value and cost.................... 15,500,000 7,000,000 --
Cash....................................................... 142,274,885 26,790,206 3,775,091
Receivables:
Investment securities sold................................ 79,347,616 12,390,130 14,103,407
Capital shares sold....................................... 5,165,486 2,719,787 700,256
Dividends and interest.................................... 12,266,335 2,237,404 1,156,327
From affiliates........................................... 323,113 -- --
Unrealized gain on forward exchange contracts (Note 8)..... 20,162,476 5,807,794 855,799
Deposits with broker for securities sold short............. 74,925,551 -- 493,455
Other assets............................................... 1,585,033 -- --
-------------------------------------------------------
Total assets.......................................... 4,201,476,259 811,456,186 449,625,750
-------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased........................... 17,201,387 23,400,926 3,251,441
Capital shares redeemed................................... 30,566,687 5,033,659 3,232,429
To affiliates............................................. 5,059,890 913,735 975,741
Options written, at value (premiums received $46,106)...... 9,112 -- --
Securities sold short, at value (proceeds $142,482,346,
$16,176,469, $3,992,947).................................. 169,346,714 19,634,252 4,179,175
Unrealized loss on forward exchange contracts (Note 8)..... 39,974,772 10,956,133 2,037,345
Due to broker-variation margin............................. 973,140 478,181 --
Accrued expenses........................................... 591,785 125,073 111,898
-------------------------------------------------------
Total liabilities..................................... 263,723,487 60,541,959 13,788,029
-------------------------------------------------------
Net assets, at value........................................ $3,937,752,772 $750,914,227 $435,837,721
-------------------------------------------------------
-------------------------------------------------------
Net assets consist of:
Undistributed net investment income........................ $ -- $ -- $ 662,433
Accumulated distributions in excess of net investment
income................................................... (45,045,911) (2,431,378) --
Net unrealized appreciation................................ 211,246,260 46,944,662 6,187,958
Accumulated net realized gain.............................. 49,435,922 4,578,672 --
Accumulated distributions in excess of net realized gain... -- -- (1,779,073)
Capital shares............................................. 3,722,116,501 701,822,271 430,766,403
-------------------------------------------------------
Net assets, at value........................................ $3,937,752,772 $750,914,227 $435,837,721
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
124
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL DISCOVERY MUTUAL EUROPEAN MUTUAL FINANCIAL
FUND FUND SERVICES FUND
-------------------------------------------------------
<S> <C> <C> <C>
CLASS Z:
Net assets, at value....................................... $2,514,144,362 $483,873,208 $143,131,554
-------------------------------------------------------
-------------------------------------------------------
Shares outstanding......................................... 145,619,362 38,578,050 11,137,627
-------------------------------------------------------
-------------------------------------------------------
Net asset value and maximum offering price per share....... $17.27 $12.54 $12.85
-------------------------------------------------------
-------------------------------------------------------
CLASS I:
Net assets, at value....................................... $ 859,847,661 $170,486,038 $164,989,419
-------------------------------------------------------
-------------------------------------------------------
Shares outstanding......................................... 50,016,964 13,668,766 12,824,019
-------------------------------------------------------
-------------------------------------------------------
Net asset value per share.................................. $17.19 $12.47 $12.87
-------------------------------------------------------
-------------------------------------------------------
Maximum offering price per share (net asset value /
94.25%).................................................. $18.24 $13.23 $13.65
-------------------------------------------------------
-------------------------------------------------------
CLASS II:
Net assets, at value....................................... $ 563,760,749 $ 96,554,981 $127,716,748
-------------------------------------------------------
-------------------------------------------------------
Shares outstanding......................................... 32,864,405 7,753,961 9,952,021
-------------------------------------------------------
-------------------------------------------------------
Net asset value per share*................................. $17.15 $12.45 $12.83
-------------------------------------------------------
-------------------------------------------------------
Maximum offering price per share (net asset value /
99.00%).................................................. $17.32 $12.58 $12.96
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
*Redemption price is equal to net asset value less any applicable sales charge.
See Notes to Financial Statements.
125
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL SHARES MUTUAL QUALIFIED MUTUAL BEACON
FUND FUND FUND
--------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Dividends*................................................. $ 148,728,155 $ 95,702,048 $ 128,502,085
Interest................................................... 134,618,671 66,745,646 71,470,992
--------------------------------------------------
Total investment income............................... 283,346,826 162,447,694 199,973,077
--------------------------------------------------
Expenses:
Management fees (Note 3)................................... 59,068,503 34,762,293 39,589,767
Administrative fees (Note 3)............................... 7,602,885 4,477,006 5,096,295
Distribution fees (Note 3)
Class I................................................... 5,206,450 2,033,096 3,290,086
Class II.................................................. 9,481,190 3,176,738 4,816,118
Transfer agent fees (Note 3)............................... 6,253,487 4,777,882 4,949,218
Custodian fees............................................. 618,323 490,466 720,806
Reports to shareholders.................................... 531,631 341,046 185,576
Registration and filing fees............................... 756,362 448,023 744,808
Professional fees.......................................... 314,748 246,693 406,941
Directors' fees and expenses............................... 265,486 154,635 179,013
Other...................................................... 173,935 122,967 168,473
--------------------------------------------------
Total expenses........................................ 90,273,000 51,030,845 60,147,101
Expenses waived/paid by affiliate (Note 3)............ (3,300,571) (1,841,738) (1,939,861)
--------------------------------------------------
Net expenses....................................... 86,972,429 49,189,107 58,207,240
--------------------------------------------------
Net investment income............................ 196,374,397 113,258,587 141,765,837
--------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 574,917,347 444,641,369 400,494,391
Foreign currency transactions............................. 8,264,870 (3,919,894) (9,429,581)
--------------------------------------------------
Net realized gain..................................... 583,182,217 440,721,475 391,064,810
Net unrealized depreciation on:
Investments............................................... (807,826,169) (555,979,666) (406,624,373)
Translation of assets and liabilities denominated in
foreign currencies....................................... (19,475,349) (13,621,805) (21,347,030)
--------------------------------------------------
Net unrealized depreciation........................... (827,301,518) (569,601,471) (427,971,403)
--------------------------------------------------
Net realized and unrealized loss............................ (244,119,301) (128,879,996) (36,906,593)
--------------------------------------------------
Net increase (decrease) in net assets resulting from
operations................................................ $ (47,744,904) $ (15,621,409) $ 104,859,244
--------------------------------------------------
--------------------------------------------------
</TABLE>
*Net of foreign taxes of $6,933,282, $5,637,998, and $10,742,506 for Mutual
Shares Fund, Mutual Qualified Fund and Mutual Beacon Fund, respectively.
See Notes to Financial Statements.
126
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL DISCOVERY MUTUAL EUROPEAN MUTUAL FINANCIAL
FUND FUND SERVICES FUND
-------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Dividends*................................................. $ 92,844,164 $ 17,964,517 $ 8,645,374
Interest................................................... 51,195,695 8,279,189 4,311,789
-------------------------------------------------------
Total investment income............................... 144,039,859 26,243,706 12,957,163
-------------------------------------------------------
Expenses:
Management fees (Note 3)................................... 41,019,712 6,843,216 3,742,268
Administrative fees (Note 3)............................... 3,963,633 662,299 359,815
Distribution fees (Note 3)
Class I.................................................. 3,165,116 567,837 556,658
Class II................................................. 5,586,320 890,040 1,058,630
Transfer agent fees (Note 3)............................... 5,093,322 875,635 683,000
Custodian fees............................................. 867,543 287,985 85,613
Reports to shareholders.................................... 368,895 42,744 95,575
Registration and filing fees............................... 597,795 188,602 116,700
Professional fees.......................................... 340,443 31,680 19,300
Directors' fees and expenses............................... 141,780 23,813 11,800
Other...................................................... 200,894 593 4,191
-------------------------------------------------------
Total expenses........................................ 61,345,453 10,414,444 6,733,550
Expenses waived/paid by affiliate (Note 3)............ (1,283,861) -- (435,798)
-------------------------------------------------------
Net expenses....................................... 60,061,592 10,414,444 6,297,752
-------------------------------------------------------
Net investment income............................ 83,978,267 15,829,262 6,659,411
-------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 190,671,157 17,474,693 (2,325,831)
Foreign currency transactions............................. (25,966,485) (11,191,693) 651,035
-------------------------------------------------------
Net realized gain (loss).............................. 164,704,672 6,283,000 (1,674,796)
Net unrealized depreciation on:
Investments............................................... (385,821,443) (11,034,440) (8,160,917)
Translation of assets and liabilities denominated in
foreign currencies....................................... (48,189,632) (10,517,767) (2,514,341)
-------------------------------------------------------
Net unrealized depreciation........................... (434,011,075) (21,552,207) (10,675,258)
-------------------------------------------------------
Net realized and unrealized loss............................ (269,306,403) (15,269,207) (12,350,054)
-------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations................................................ $(185,328,136) $ 560,055 $ (5,690,643)
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
*Net of foreign taxes of $12,044,314, $2,728,344, and $359,513 for Mutual
Discovery Fund, Mutual European Fund and Mutual Financial Services Fund,
respectively.
See Notes to Financial Statements.
127
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MUTUAL SHARES FUND MUTUAL QUALIFIED FUND
-----------------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income......................... $ 196,374,397 $ 151,211,050 $ 113,258,587 $ 94,485,016
Net realized gain from investments and foreign
currency transactions........................ 583,182,217 763,745,787 440,721,475 500,461,624
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign
currencies................................... (827,301,518) 932,565,733 (569,601,471) 533,777,454
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations................. (47,744,904) 1,847,522,570 (15,621,409) 1,128,724,094
Distributions to shareholders from:
Net investment income:
Class Z...................................... (164,855,136) (186,061,271) (104,418,623) (168,780,477)
Class I...................................... (33,970,722) (20,965,055) (12,591,220) (12,569,160)
Class II..................................... (16,236,799) (10,947,344) (5,201,123) (5,635,204)
Net realized gains:
Class Z...................................... (405,815,356) (544,604,116) (311,180,836) (369,181,157)
Class I...................................... (95,152,617) (64,397,717) (43,430,197) (29,093,524)
Class II..................................... (62,745,269) (38,739,615) (24,765,851) (14,664,407)
Capital share transactions (Note 2):
Class Z...................................... (1,084,039,468) 410,817,174 (887,186,415) 425,302,131
Class I...................................... 628,757,143 994,313,815 184,555,922 430,616,322
Class II..................................... 465,320,320 617,578,010 130,852,525 222,220,146
-----------------------------------------------------------------------
Net increase (decrease) in net assets....... (816,482,808) 3,004,516,451 (1,088,987,227) 1,606,938,764
Net assets:
Beginning of year.............................. $ 9,599,086,375 $6,594,569,924 $ 5,924,258,200 $4,317,319,436
-----------------------------------------------------------------------
End of year.................................... $ 8,782,603,567 $9,599,086,375 $ 4,835,270,973 $5,924,258,200
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Undistributed net investment
income/(Distributions in excess of net
investment income) included in net assets:
End of year.................................... $ 5,008,347 $ 18,844,839 $ (6,722,046) $ (9,120,509)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
128
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MUTUAL BEACON FUND MUTUAL DISCOVERY FUND
-----------------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income......................... $ 141,765,837 $ 112,721,352 $ 83,978,267 $ 72,518,685
Net realized gain from investments and foreign
currency transactions........................ 391,064,810 659,094,557 164,704,672 452,571,045
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign
currencies................................... (427,971,403) 443,470,119 (434,011,075) 289,296,043
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations................. 104,859,244 1,215,286,028 (185,328,136) 814,385,773
Distributions to shareholders from:
Net investment income:
Class Z...................................... (137,278,406) (198,852,305) (74,719,859) (152,494,403)
Class I...................................... (27,206,575) (22,305,892) (20,468,910) (23,444,470)
Class II..................................... (11,323,821) (9,409,819) (9,767,282) (12,030,869)
Net realized gains:
Class Z...................................... (268,697,611) (463,412,045) (138,830,937) (256,049,659)
Class I...................................... (59,012,359) (56,734,666) (40,521,871) (42,486,398)
Class II..................................... (31,235,735) (27,054,167) (25,858,757) (24,238,635)
Capital share transactions (Note 2):
Class Z...................................... (1,347,918,137) 306,526,781 (1,059,140,516) 587,412,816
Class I...................................... 276,437,276 709,709,228 279,367,028 670,558,331
Class II..................................... 184,975,294 352,291,753 236,895,123 390,977,659
-----------------------------------------------------------------------
Net increase (decrease) in net assets....... (1,316,400,830) 1,806,044,896 (1,038,374,117) 1,952,590,145
Net assets:
Beginning of year.............................. $ 6,794,765,951 $4,988,721,055 $ 4,976,126,889 $3,023,536,744
-----------------------------------------------------------------------
End of year.................................... $ 5,478,365,121 $6,794,765,951 $ 3,937,752,772 $4,976,126,889
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Distributions in excess of net investment income
included in net assets:
End of year.................................... $ (26,929,334) $ (13,240,115) $ (45,045,911) $ (31,183,193)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
129
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND MUTUAL FINANCIAL SERVICES FUND
-----------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................................ $ 15,829,262 $ 16,130,376 $ 6,659,411 $ 586,662
Net realized gain (loss) from investments and foreign
currency transactions............................... 6,283,000 74,561,133 (1,674,796) 5,249,927
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies....... (21,552,207) 40,060,817 (10,675,258) 16,863,216
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations.................................. 560,055 130,752,326 (5,690,643) 22,699,805
Distributions to shareholders from:
Net investment income:
Class Z............................................. (13,601,975) (34,010,794) (2,372,985) (312,463)
Class I............................................. (3,913,014) (5,190,859) (1,942,133) (127,466)
Class II............................................ (1,783,371) (2,628,833) (823,564) (17,029)
Net realized gains:
Class Z............................................. (17,368,914) (22,774,808) (1,988,317) (937,387)
Class I............................................. (5,010,752) (3,590,901) (1,546,395) (541,128)
Class II............................................ (2,814,880) (1,912,553) (1,039,797) (289,180)
Capital share transactions (Note 2):
Class Z............................................. (43,585,595) 36,143,016 8,045,868 124,473,660
Class I............................................. 91,968,786 83,196,564 94,697,681 72,594,863
Class II............................................ 57,278,350 46,753,423 90,692,510 40,261,821
----------------------------------------------------------------
Net increase in net assets......................... 61,728,690 226,736,581 178,032,225 257,805,496
Net assets:
Beginning of year..................................... $689,185,537 $462,448,956 $257,805,496 $ --
----------------------------------------------------------------
End of year........................................... $750,914,227 $689,185,537 $435,837,721 $257,805,496
----------------------------------------------------------------
----------------------------------------------------------------
Undistributed net investment income/(Distributions in
excess of net investment income) included in net
assets:
End of year........................................... $ (2,431,378) $ 119,297 $ 662,433 $ 108,579
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
130
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Mutual Series Fund, Inc. (the Series Fund) is registered under the
Investment Company Act of 1940 as an open-end, diversified investment company,
consisting of six series (the Funds). The Funds and their investment objectives
are:
Mutual Shares Fund, Mutual Qualified Fund and Mutual Beacon Fund seek long-term
capital appreciation and income through a flexible policy of investing in stocks
and corporate debt securities.
Mutual Discovery Fund seeks long-term capital appreciation by investing in small
capitalization companies.
Mutual European Fund seeks long-term capital appreciation and income through a
flexible policy of investing at least 65% of its invested assets in stocks and
corporate debt securities of European countries.
Mutual Financial Services Fund seeks long-term capital appreciation by investing
approximately 65% of its assets in securities issued by companies in the
financial services industries.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do 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.
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 currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
131
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. INCOME TAXES:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
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.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
Common expenses incurred by the Series Fund are allocated among the funds
comprising the Series Fund based on the ratio of net assets of each fund to the
combined net assets. Other expenses are charged to each fund on a specific
identification basis.
e. FORWARD EXCHANGE CONTRACTS:
The Funds may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Funds' equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
f. OPTION CONTRACTS:
Options purchased are recorded as investments; options written (sold) are
recorded as liabilities. When an option expires, the premium (original option
value) is realized as a gain if the option was written or as a loss if the
option was purchased. When the exercise of an option results in a cash
settlement, the difference between the premium and the settlement proceeds is
realized as a gain or loss. When securities are acquired or delivered upon
exercise of an option, the acquisition cost or sale proceeds are adjusted by the
amount of the premium. When an option is closed, the difference between the
premium and the cost to close the position is realized as a gain or loss.
g. CONTRACTS FOR DIFFERENCES:
Short contracts for differences are contracts entered into between a broker and
the Fund under which the parties agree to make payments to each other so as to
replicate the economic consequences that would apply had a short sale of the
underlying security taken place. Upon entering into short contracts for
differences, the Funds are required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount
("initial margin"). Subsequent payments known as "variation margin", are made or
received by the Funds periodically, depending on fluctuations in the value of
the underlying security. When the contract is closed, the
132
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. CONTRACTS FOR DIFFERENCES (CONT.)
Funds record a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed. Should market conditions move unexpectedly, the Funds may not achieve
the anticipated benefits of the contracts for difference and may realize a loss.
h. SECURITIES SOLD SHORT:
The Funds are engaged in selling securities short, which obligates each Fund to
replace a security borrowed by purchasing the same security at the current
market value. The Funds would incur a loss if the price of the security
increases between the date of the short sale and the date on which the Funds
replace the borrowed security. The Funds would realize a gain if the price of
the security declines between those dates.
The Funds are required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale. The Funds must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.
i. SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED BASIS:
The Funds may trade securities on a when-issued or delayed basis, with payment
and delivery scheduled for a future date. These transactions are subject to
market fluctuations and are subject to the risk that the value at delivery may
be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of acquiring such
securities, it may sell such securities before the settlement date.
j. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles 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 expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
During the year ended December 31, 1998, the Funds offered three classes of
shares: Class Z, Class I and Class II. Effective January 1, 1999, Class I and
Class II were renamed Class A and Class C, respectively, and the Funds began
offering a new class of shares, Class B. The shares differ by their initial
sales load, distribution fees, voting rights on matters affecting a single class
and the exchange privilege of each class.
133
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
Effective February 3, 1997, the shares of the Mutual Shares Fund, Mutual
Qualified Fund, and Mutual Beacon Fund were split on a 5-for-1, 2-for-1, and
3-for-1 basis, respectively. All previously reported per share data for these
Funds have been restated to give effect to the splits.
At December 31, 1998, the following Fund shares were authorized ($0.001 par
value) and designated as Class Z, Class I and Class II shares:
<TABLE>
<CAPTION>
MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL FINANCIAL
SHARES FUND QUALIFIED FUND BEACON FUND DISCOVERY FUND EUROPEAN FUND SERVICES FUND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class Z.............. 1 Billion 750 Million 750 Million 200 Million 200 Million 200 Million
Class I.............. 250 Million 200 Million 300 Million 100 Million 100 Million 100 Million
Class II............. 250 Million 200 Million 300 Million 100 Million 100 Million 100 Million
</TABLE>
Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
MUTUAL SHARES FUND MUTUAL QUALIFIED FUND
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold.............. 19,502,032 $ 413,844,106 6,313,080 $ 551,052,039 24,990,204 $ 453,463,894
Shares issued on
reinvestment of
distributions............ 25,912,149 507,736,078 32,082,168 672,754,666 24,296,181 400,283,129
Shares issued on 5-for-1
stock split.............. -- -- 297,727,890 -- -- --
Shares issued on 2-for-1
stock split.............. -- -- -- -- -- --
Shares redeemed.......... (95,950,368) (2,005,619,652) (34,805,380) (812,989,531) (97,884,948) (1,740,933,438)
----------------------------------------------------------------------------------------------
Net increase (decrease)... (50,536,187) $(1,084,039,468) 301,317,758 $ 410,817,174 (48,598,563) $ (887,186,415)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
MUTUAL QUALIFIED FUND
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS Z SHARES:
Shares sold.............. 28,947,428 $ 555,692,495
Shares issued on
reinvestment of
distributions............ 29,019,596 520,410,337
Shares issued on 5-for-1
stock split.............. -- --
Shares issued on 2-for-1
stock split.............. 131,387,870 --
Shares redeemed.......... (33,248,338) (650,800,701)
Net increase (decrease)... 156,106,556 $ 425,302,131
</TABLE>
134
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND MUTUAL QUALIFIED FUND
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold.............. 46,308,752 $ 1,006,489,888 45,117,270 $ 988,714,584 18,574,657 $ 343,918,754
Shares issued on
reinvestment of
distributions............ 6,240,384 121,708,309 3,784,679 79,046,346 3,214,074 52,672,488
Shares issued on 5-for-1
stock split.............. -- -- 3,159,210 -- -- --
Shares issued on 2-for-1
stock split.............. -- -- -- -- -- --
Shares redeemed.......... (24,191,574) (499,441,054) (3,362,536) (73,447,115) (12,017,429) (212,035,320)
----------------------------------------------------------------------------------------------
Net increase............. 28,357,562 $ 628,757,143 48,698,623 $ 994,313,815 9,771,302 $ 184,555,922
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
MUTUAL QUALIFIED FUND
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS I SHARES:
Shares sold.............. 22,087,534 $ 422,773,720
Shares issued on
reinvestment of
distributions............ 2,193,149 39,101,823
Shares issued on 5-for-1
stock split.............. -- --
Shares issued on 2-for-1
stock split.............. 1,682,112 --
Shares redeemed.......... (1,640,674) (31,259,221)
Net increase............. 24,322,121 $ 430,616,322
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold.............. 28,245,508 $ 612,709,669 26,987,282 $ 593,740,934 9,583,122 $ 177,957,854
Shares issued on
reinvestment of
distributions............ 3,814,215 74,005,389 2,226,926 46,322,849 1,662,767 27,085,606
Shares issued on 5-for-1
stock split.............. -- -- 1,696,268 -- -- --
Shares issued on 2-for-1
stock split.............. -- -- -- -- -- --
Shares redeemed.......... (10,921,730) (221,394,738) (1,020,690) (22,485,773) (4,328,390) (74,190,935)
----------------------------------------------------------------------------------------------
Net increase............. 21,137,993 $ 465,320,320 29,889,786 $ 617,578,010 6,917,499 $ 130,852,525
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS II SHARES:
Shares sold.............. 11,295,820 $ 212,817,722
Shares issued on
reinvestment of
distributions............ 1,021,520 18,141,902
Shares issued on 5-for-1
stock split.............. -- --
Shares issued on 2-for-1
stock split.............. 655,259 --
Shares redeemed.......... (471,298) (8,739,478)
Net increase............. 12,501,301 $ 222,220,146
</TABLE>
135
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND MUTUAL DISCOVERY FUND
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold.............. 29,538,240 $ 423,539,531 40,718,198 $ 643,612,541 25,432,957 $ 499,887,354
Shares issued on
reinvestment of
distributions............ 28,882,302 383,214,544 44,736,434 624,735,916 11,109,339 203,205,264
Shares issued on 3-for-1
stock split.............. -- -- 251,723,338 -- -- --
Shares redeemed.......... (153,566,842) (2,154,672,212) (61,246,008) (961,821,676) (96,260,843) (1,762,233,134)
----------------------------------------------------------------------------------------------
Net increase
(decrease)............... (95,146,300) $(1,347,918,137) 275,931,962 $ 306,526,781 (59,718,547) $(1,059,140,516)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
MUTUAL DISCOVERY FUND
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS Z SHARES:
Shares sold.............. 47,155,697 $ 889,024,565
Shares issued on
reinvestment of
distributions............ 21,035,553 392,413,165
Shares issued on 3-for-1
stock split.............. -- --
Shares redeemed.......... (36,032,508) (694,024,914)
Net increase
(decrease)............... 32,158,742 $ 587,412,816
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold.............. 33,023,123 $ 478,615,148 46,602,413 $ 703,348,818 34,825,153 $ 677,130,211
Shares issued on
reinvestment of
distributions............ 6,172,882 81,129,419 5,286,745 73,347,433 3,160,927 56,769,299
Shares issued on 3-for-1
stock split.............. -- -- 4,753,265 -- -- --
Shares redeemed.......... (20,320,000) (283,307,291) (4,493,034) (66,987,023) (24,829,893) (454,532,482)
----------------------------------------------------------------------------------------------
Net increase............. 18,876,005 $ 276,437,276 52,149,389 $ 709,709,228 13,156,187 $ 279,367,028
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS I SHARES:
Shares sold.............. 37,372,698 $ 718,827,317
Shares issued on
reinvestment of
distributions............ 3,305,160 61,218,966
Shares issued on 3-for-1
stock split.............. -- --
Shares redeemed.......... (5,560,327) (109,487,952)
Net increase............. 35,117,531 $ 670,558,331
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold.............. 17,229,777 $ 250,063,188 22,074,280 $ 332,928,600 16,896,047 $ 334,831,778
Shares issued on
reinvestment of
distributions............ 2,985,265 39,075,561 2,401,998 33,244,103 1,822,933 32,679,296
Shares issued on 3-for-1
stock split.............. -- -- 1,840,112 -- -- --
Shares redeemed.......... (7,656,767) (104,163,455) (926,529) (13,880,950) (7,286,338) (130,615,951)
----------------------------------------------------------------------------------------------
Net increase............. 12,558,275 $ 184,975,294 25,389,861 $ 352,291,753 11,432,642 $ 236,895,123
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS II SHARES:
Shares sold.............. 19,338,609 $ 372,551,484
Shares issued on
reinvestment of
distributions............ 1,797,068 33,203,387
Shares issued on 3-for-1
stock split.............. -- --
Shares redeemed.......... (754,555) (14,777,212)
Net increase............. 20,381,122 $ 390,977,659
</TABLE>
136
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold.............. 23,594,141 $ 332,563,913 19,930,968 $ 248,766,946
Shares issued on
reinvestment of
distributions............ 1,732,106 23,749,949 3,501,875 43,592,209
Shares redeemed.......... (30,159,934) (399,899,457) (19,568,039) (256,216,139)
------------------------------------------------------------
Net increase
(decrease)............... (4,833,687) $ (43,585,595) 3,864,804 $ 36,143,016
------------------------------------------------------------
------------------------------------------------------------
<CAPTION>
MUTUAL FINANCIAL SERVICES FUND
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold.............. 15,667,428 $ 213,263,852 12,843,692 $ 144,526,424
Shares issued on
reinvestment of
distributions............ 304,189 4,142,921 99,632 1,204,770
Shares redeemed.......... (15,948,655) (209,360,905) (1,828,659) (21,257,534)
Net increase
(decrease)............... 22,962 $ 8,045,868 11,114,665 $ 124,473,660
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold.............. 30,432,242 $ 417,377,402 9,533,956 $ 121,476,325 15,112,548 $ 208,570,095
Shares issued on
reinvestment of
distributions............ 579,768 7,868,775 620,677 7,685,745 238,174 3,224,346
Shares redeemed.......... (24,763,667) (333,277,391) (3,542,483) (45,965,506) (8,903,051) (117,096,760)
----------------------------------------------------------------------------------------------
Net increase............. 6,248,343 $ 91,968,786 6,612,150 $ 83,196,564 6,447,671 $ 94,697,681
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS I SHARES:
Shares sold.............. 7,251,035 $ 82,848,856
Shares issued on
reinvestment of
distributions............ 49,165 593,254
Shares redeemed.......... (923,852) (10,847,247)
Net increase............. 6,376,348 $ 72,594,863
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1998
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold.............. 6,416,186 $ 90,539,295 3,726,239 $ 47,508,558 8,626,732 $ 117,975,100
Shares issued on
reinvestment of
distributions............ 314,472 4,301,048 346,987 4,280,950 127,437 1,745,319
Shares redeemed.......... (2,903,661) (37,561,993) (388,267) (5,036,085) (2,326,399) (29,027,909)
----------------------------------------------------------------------------------------------
Net increase............. 3,826,997 $ 57,278,350 3,684,959 $ 46,753,423 6,427,770 $ 90,692,510
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS II SHARES:
Shares sold.............. 3,598,172 $ 41,112,595
Shares issued on
reinvestment of
distributions............ 23,523 283,691
Shares redeemed.......... (97,444) (1,134,465)
Net increase............. 3,524,251 $ 40,261,821
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Series Fund are also officers and/or directors of
Franklin Mutual Advisers, Inc. (Franklin Mutual) and Franklin Templeton
Services, Inc. (FT Services), the Fund's investment manager and administrative
manager, respectively. Franklin/Templeton Investor Services, Inc. (Investor
Services) and Franklin/Templeton Distributors, Inc. (Distributors), are the
Funds' transfer agent and principal underwriter, respectively.
137
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Mutual Shares, Mutual Qualified, and Mutual Beacon Funds each pay an investment
management fee to Franklin Mutual of 0.60% per year of the average daily net
assets of the Fund. Mutual Discovery, Mutual European, and Mutual Financial
Services Funds each pay an investment management fee to Franklin Mutual of 0.80%
per year of the average daily net assets of the Fund.
Franklin Mutual agreed, through October 31, 1999, to limit the expense ratio of
Mutual Shares, Mutual Qualified, Mutual Beacon, Mutual Discovery, and Mutual
European Funds to be no higher than expected for each Fund's 1996 fiscal year,
except that increases in expenses will be permitted if the Fund's Board of
Directors determines that such expenses would have been higher had the merger
between Franklin Mutual and the Funds' former investment adviser not taken
place. This expense limitation does not include items such as litigation
expenses, interest, taxes, insurance, brokerage commissions, and expenses of an
extraordinary nature. The expense reduction is set forth in the Statement of
Operations.
Franklin Mutual agreed in advance to reduce fees of Mutual Financial Services to
the extent necessary to limit total expenses to an annual rate of 1.00%, 1.35%,
and 2.00% of the average daily net assets of Class Z, Class I, and Class II
shares, respectively, through August 19, 1999, as reflected in the Statement of
Operations.
Each Fund pays its allocated share of an administrative fee to FT Services based
on the Series Fund's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
Each Fund reimburses Distributors up to 0.35% and 1.00% per year of the average
daily net asset of Class I and Class II shares, respectively, for costs incurred
in marketing the Fund's Class I and Class II shares. Distributors received net
commissions from sales of those shares and received contingent deferred sales
charges for the year as follows:
<TABLE>
<CAPTION>
MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL FINANCIAL
SHARES FUND QUALIFIED FUND BEACON FUND DISCOVERY FUND EUROPEAN FUND SERVICES FUND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions Received........ $1,026,189 $141,818 $421,852 $672,944 $81,459 $402,189
CDSC Received............... $ 986,303 $279,352 $392,395 $486,178 $92,458 $131,584
</TABLE>
138
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
4. INCOME TAXES
At December 31, 1998, the Mutual European Fund and Mutual Financial Services
Fund had tax basis capital losses of $256,594 and $102,727, respectively, which
may be carried over to offset future capital gains. Such losses expire in 2006.
At December 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL FINANCIAL
SHARES FUND QUALIFIED FUND BEACON FUND DISCOVERY FUND EUROPEAN FUND SERVICES FUND
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at cost........ $7,267,738,048 $4,079,038,127 $4,643,615,898 $3,656,264,972 $711,932,705 $422,670,765
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Unrealized appreciation.... 1,954,181,415 1,029,582,521 1,080,177,224 599,213,575 94,501,194 34,270,768
Unrealized depreciation.... (440,816,730) (320,186,913) (320,713,807) (390,052,783) (44,923,033) (28,400,118)
----------------------------------------------------------------------------------------------------
Net unrealized
appreciation.............. $1,513,364,685 $ 709,395,608 $ 759,463,417 $ 209,160,792 $ 49,578,161 $ 5,870,650
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies and foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL MUTUAL FINANCIAL
SHARES FUND QUALIFIED FUND BEACON FUND DISCOVERY FUND EUROPEAN FUND SERVICES FUND
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases.................. $6,382,678,512 $3,308,983,984 $3,642,903,135 $3,658,048,556 $806,937,026 $733,142,355
Sales...................... $5,671,869,684 $3,471,703,780 $4,177,014,304 $4,102,295,307 $689,002,834 $532,088,861
</TABLE>
Transactions in options written during the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
MUTUAL SHARES FUND MUTUAL QUALIFIED FUND
--------------------------------------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
--------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1997.................... -- -- -- --
Options written............................................. 41,077 $ 455,275 920 $132,846
Options expired............................................. (40,700) (365,750) (710) (83,600)
Options terminated in closing transactions.................. -- -- -- --
Options exercised........................................... -- -- -- --
--------------------------------------------------------
Options outstanding at December 31, 1998.................... 377 $ 89,525 210 $ 49,246
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
139
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND MUTUAL DISCOVERY FUND
--------------------------------------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
--------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1997.................... -- -- -- --
Options written............................................. 726 $ 115,634 789 $116,731
Options expired............................................. (490) (60,025) (600) (70,625)
Options terminated in closing transactions.................. -- -- -- --
Options exercised........................................... -- -- -- --
--------------------------------------------------------
Options outstanding at December 31, 1998.................... 236 $ 55,609 189 $ 46,106
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
6. RESTRICTED SECURITIES
The Funds may purchase securities through private offerings that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at December 31, 1998 are as follows:
MUTUAL SHARES FUND
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
316,331 Environmental Credits LLC................................... 3/9/98 $ 56,781,415
750,000 FBR Asset Investment Corp. ................................. 12/12/97 9,375,000
10,275,000 Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.............. 8/26/97 2,877,000
4,030 Golden Ocean Group Ltd., wts., 8/31/01...................... 8/26/97 0
2,450 Interlake Corp., Series A3, 9.00%, cvt., pfd. .............. 6/17/92 4,685,792
379 Kendall International Inc., Residual Ownership Certif. ..... 7/06/92 4,548
3 Lancer Industries Inc., B................................... 8/11/89 9,737,540
332,200 Laser Mortgage Management Inc. ............................. 11/26/97 1,806,338
40,500,000 MSCW Investors I, LLC....................................... 12/27/95 82,340,903
7,830,000 Roil Limited, 144A, 12.779%, 12/05/02....................... 5/8/98 2,427,300
585,075 Security Capital European Realty............................ 4/8/98 11,701,500
11,260,174 Sunbeam Corp. .............................................. 2/23/90 70,939,096
32,816 Viasystems Inc., B, pfd. ................................... 12/12/97 492,238
------------
TOTAL RESTRICTED SECURITIES (COST $162,481,900) (2.88% OF NET ASSETS)............. $253,168,670
------------
------------
</TABLE>
140
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
6. RESTRICTED SECURITIES (CONT.)
MUTUAL QUALIFIED FUND
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
139,785 CGA Group Ltd. ............................................. 6/10/97 0
286,630 CGA Group, Ltd., A, pfd. ................................... 6/10/97 0
28,571 CGA Group, Ltd., B, pfd. ................................... 6/10/97 0
1,071,425 CGA Private Trustee Company, Ltd., FRN, 6/10/99............. 6/10/97 $ 160,714
15,357 Cobalt Holdings LLC......................................... 6/10/97 1,536
6,250,000 Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.............. 8/26/97 1,750,000
2,565 Golden Ocean Group Ltd., wts., 8/31/01...................... 8/26/97 0
1,050 Interlake Corp., Series A3, 9.00%, cvt., pfd. .............. 6/17/92 2,008,197
444 Kendall International, Inc., Residual Ownership Certif. .... 7/6/92 5,328
4 Lancer Industries Inc., B................................... 8/11/89 11,456,492
220,000 Laser Mortgage Management Inc. ............................. 11/26/97 1,196,250
23,562,000 MSCW Investors II LLC....................................... 12/27/95 47,904,108
362,500 Security Capital European Realty............................ 11/2/98 7,250,000
4,999,441 S.H. Mortgage Acquisition LLC............................... 8/17/95 4,999,441
152,073 St. George Holdings Ltd., A................................. 6/10/97 15,207
1,495 St. George Holdings Ltd., B................................. 6/10/97 150
4,800,554 Sunbeam Corp. .............................................. 2/23/90 30,243,490
52,081 Viasystems Inc., B, pfd. ................................... 12/12/97 781,221
------------
TOTAL RESTRICTED SECURITIES (COST $71,370,052) (2.23% OF NET ASSETS).............. $107,772,134
------------
------------
</TABLE>
MUTUAL BEACON FUND
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
7,190,000 Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.............. 8/26/97 $ 2,013,200
3,010 Golden Ocean Group Ltd., wts., 8/31/01...................... 8/26/97 0
400 Interlake Corp., Series A3, 9.00%, cvt. pfd. ............... 6/17/92 765,027
49 Kendall International Inc., Residual Ownership Certif. ..... 7/06/92 588
1 Lancer Industries Inc., B................................... 8/11/89 1,145,967
255,000 Laser Mortgage Management Inc. ............................. 11/26/97 1,386,563
3,043,906 MB Metropolis LLC........................................... 12/07/94 3,759,224
28,372,000 MSCW Investors III, LLC..................................... 12/27/95 57,683,361
900,000 Resurgence Properties Inc., Restricted...................... 4/06/95 40,500
416,875 Security Capital European Realty............................ 4/08/98 8,337,500
1,480,670 Sunbeam Corp. .............................................. 2/23/90 9,328,221
42,143 Viasystems Inc., B, pfd. ................................... 12/12/97 632,139
------------
TOTAL RESTRICTED SECURITIES (COST $58,176,123) (1.55% OF NET ASSETS).............. $ 85,092,290
------------
------------
</TABLE>
141
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
6. RESTRICTED SECURITIES (CONT.)
MUTUAL DISCOVERY FUND
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,670,389 Cape Ann Investors LLC...................................... 09/09/97 $ 611,597
139,785 CGA Group Ltd. ............................................. 06/10/97 0
286,630 CGA Group Ltd., A, pfd. .................................... 06/10/97 0
28,572 CGA Group Ltd., B, pfd. .................................... 06/10/97 0
240,000 CGA Group Ltd., wts. ....................................... 06/10/97 0
1,071,425 CGA Private Trust Company Ltd., FRN, 6/10/99................ 06/10/97 160,714
15,357 Cobalt Holdings LLC......................................... 06/10/97 1,536
500 Distribution Systems SpA.................................... 09/27/96 20,669
5,150,000 Golden Ocean Group Ltd., 144A, 10.00%, 8/31/01.............. 08/26/97 1,442,000
2,110 Golden Ocean Group Ltd., wts., 8/31/01...................... 08/26/97 0
8,426,332 Hancock LLC................................................. 03/06/97 8,426,332
1,141,933 Laser Mortgage Management Inc. ............................. 11/26/97 6,209,261
557,863 MB-Motori LLC............................................... 12/07/94 500,001
10,438,000 MSCW Investors II, LLC...................................... 12/27/95 21,221,589
69,056 MWCR Elettronica SRL........................................ 09/27/95 69,056
13,505,313 MWCR LLC.................................................... 02/21/95 13,505,313
304,500 Security Capital European Realty............................ 04/08/98 6,090,000
152,074 St. George Holdings Ltd., A................................. 06/10/97 15,207
1,495 St. George Holdings Ltd., B................................. 06/10/97 150
500 Sweda Industrie Elettroniche SpA............................ 09/27/96 20,669
21,909 Viasystems Inc., B, pfd. ................................... 12/12/97 328,628
------------
TOTAL RESTRICTED SECURITIES (COST $73,240,452) (1.49% OF NET ASSETS).............. $ 58,622,722
------------
------------
</TABLE>
MUTUAL EUROPEAN FUND
<TABLE>
<CAPTION>
ACQUISITION
NUMBER OF SHARES ISSUER DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
108,750 Security Capital European Realty............................ 4/8/98 $ 2,175,000
------------
------------
TOTAL RESTRICTED SECURITIES (COST $2,175,000) (0.29% OF NET ASSETS)...............
</TABLE>
142
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
6. RESTRICTED SECURITIES (CONT.)
MUTUAL FINANCIAL SERVICES FUND
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
225,000 Gateway American Bank of Florida............................ 5/4/98 $ 1,096,875
212,300 Laser Mortgage Management Inc. ............................. 11/26/97 1,154,381
1,400,000 Source Capital Corp., 7.50%, 3/01/08........................ 2/6/98 1,154,706
285,714 State National Bancshares Inc. ............................. 6/8/98 3,999,996
550,000 Superior Financial Corp. ................................... 3/27/98 6,050,000
-----------
TOTAL RESTRICTED SECURITIES (COST $14,984,496) (3.09% OF NET ASSETS).............. $13,455,958
-----------
-----------
</TABLE>
7. INVESTMENT IN AFFILIATES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which each Fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies", dividend income from
"affiliated companies", and net realized gains from the disposition of
"affiliated companies" at December 31, 1998 were as follows:
MUTUAL SHARES FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
Environmental Credits LLC........... -- 360,048 (43,717) 316,331 $ 56,781,415 --
MSCW Investors I, LLC............... 40,500,000 -- -- 40,500,000 82,340,903 --
-------------------------------
TOTAL CONTROLLED AFFILIATES......... $139,122,318 --
-------------------------------
-------------------------------
NON CONTROLLED AFFILIATES
Alexander's Inc..................... 386,000 -- (2,800) 383,200 $ 29,961,450 --
BHC Communications Inc., A.......... 283,317 -- (283,317) -- ** $ 283,317
City Investing Co., Liquidating
Trust.............................. 4,314,037 -- -- 4,314,037 5,527,360 --
Fab Industries Inc.................. 331,100 -- (331,100) -- ** 219,083
Florida East Coast Industries
Inc................................ 513,000 1,553,800 (38,900) 2,027,900 71,356,731 206,253
Fund American Enterprises Holdings
Inc................................ 674,084 -- -- 674,084 94,413,890 1,078,535
Genesee Corp., A.................... 15,911 -- -- 15,911 369,931 28,640
Kreisler Manufacturing Corp......... 184,480 -- (40,000) 144,480 586,950 --
Lancer Industries Inc., B........... 3 -- -- 3 9,737,540 --
MBO Properties Inc.................. 574,712 -- -- 574,712 4,382,179 --
Metallurg Inc....................... 589,939 -- (589,939) -- ** --
Seaboard Corp....................... 76,450 1,600 -- 78,050 32,937,100 460,450
Southam Inc......................... 3,996,700 -- (3,996,700) -- ** 399,670
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
CONTROLLED AFFILIATES*
Environmental Credits LLC........... $ 2,135,351
MSCW Investors I, LLC............... --
-----------
TOTAL CONTROLLED AFFILIATES......... $ 2,135,351
-----------
-----------
NON CONTROLLED AFFILIATES
Alexander's Inc..................... $ 111,712
BHC Communications Inc., A.......... 15,788,164
City Investing Co., Liquidating
Trust.............................. --
Fab Industries Inc.................. (1,302,746)
Florida East Coast Industries
Inc................................ 307,735
Fund American Enterprises Holdings
Inc................................ --
Genesee Corp., A.................... --
Kreisler Manufacturing Corp......... 333,040
Lancer Industries Inc., B........... --
MBO Properties Inc.................. --
Metallurg Inc....................... 13,178,813
Seaboard Corp....................... --
Southam Inc......................... 16,541,370
</TABLE>
143
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND (CONT.)
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sunbeam Corp........................ 11,260,174 -- -- 11,260,174 70,939,096 225,203
Telephone & Data Systems Inc........ 2,224,600 688,800 -- 2,913,400 130,920,913 282,524
United Asset Management Corp........ 2,102,900 1,333,000 -- 3,435,900 89,333,400 1,374,360
Van Melle NV........................ 925,076 14,231 -- 939,307 63,564,762 1,080,092
Ventas Inc.......................... -- 3,469,300 -- 3,469,300 42,282,094 --
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $646,313,396 $5,638,127
-------------------------------
-------------------------------
<CAPTION>
MUTUAL SHARES FUND (CONT.)
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
Sunbeam Corp........................ --
Telephone & Data Systems Inc........ --
United Asset Management Corp........ --
Van Melle NV........................ --
Ventas Inc.......................... --
-----------
TOTAL NON CONTROLLED AFFILIATES..... $44,958,088
-----------
-----------
</TABLE>
MUTUAL QUALIFIED FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
MSCW Investors II LLC............... 23,562,000 -- -- 23,562,000 $ 47,904,108 --
S.H. Mortgage Acquisition LLC....... 6,048,555 -- (1,049,114) 4,999,441 4,999,441 --
-------------------------------
TOTAL CONTROLLED AFFILIATES......... $ 52,903,549 --
-------------------------------
-------------------------------
NON CONTROLLED AFFILIATES
Chemfirst Inc. ..................... 898,400 75,600 -- 974,000 $ 19,236,500 $ 359,360
Dress Barn Inc. .................... -- 1,486,600 -- 1,486,600 22,577,738 --
Esselte AB, A Shares................ 1,375,000 -- (1,375,000) -- ** 766,452
Esselte AB, B Shares................ 233,600 -- (233,600) -- ** --
Fibermark Inc. ..................... 475,000 256,800 -- 731,800 9,970,775 --
ITLA Capital Corporation............ 709,000 -- -- 709,000 10,723,625 --
Lancer Industries Inc., B........... 4 -- -- 4 11,456,492 --
Long Beach Financial Corp. ......... 1,409,500 144,000 -- 1,553,500 11,651,250 --
Maxicare Health Plans Inc. ......... 564,744 1,204,035 -- 1,768,779 9,507,187 --
MBO Properties Inc. ................ 160,917 251,501 -- 412,418 3,144,687 --
Mid-Atlantic Medical Services
Inc. .............................. 1,036,400 3,267,800 (57,800) 4,246,400 41,667,800 --
Metallurg Inc. ..................... 378,138 7,314 (385,452) -- ** --
Physicians Health Services, A....... 340,400 -- (340,400) -- ** --
Provigo, Inc. ...................... 5,390,800 -- (5,390,800) -- ** --
Regent Kingpin Chile Value Fund..... 80,180 -- (80,180) -- ** --
Sunbeam Corp. ...................... 4,800,554 -- -- 4,800,554 ** 96,011
Van Melle NV........................ 461,477 7,099 -- 468,576 31,709,464 581,068
Vencor Inc.......................... -- 6,737,400 (473,000) 6,264,400 28,189,800 --
Wellsford Real Properties Inc. ..... 2,277,184 127,164 -- 2,404,348 24,794,839 --
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
CONTROLLED AFFILIATES*
MSCW Investors II LLC............... --
S.H. Mortgage Acquisition LLC....... $(1,569,911)
-----------
TOTAL CONTROLLED AFFILIATES......... $(1,569,911)
-----------
-----------
NON CONTROLLED AFFILIATES
Chemfirst Inc. ..................... --
Dress Barn Inc. .................... --
Esselte AB, A Shares................ $ 4,676,973
Esselte AB, B Shares................ 554,408
Fibermark Inc. ..................... --
ITLA Capital Corporation............ --
Lancer Industries Inc., B........... --
Long Beach Financial Corp. ......... --
Maxicare Health Plans Inc. ......... --
MBO Properties Inc. ................ --
Mid-Atlantic Medical Services
Inc. .............................. (457,304)
Metallurg Inc. ..................... 8,256,384
Physicians Health Services, A....... 683,322
Provigo, Inc. ...................... 7,431,949
Regent Kingpin Chile Value Fund..... 198,611
Sunbeam Corp. ...................... --
Van Melle NV........................ --
Vencor Inc.......................... (2,719,550)
Wellsford Real Properties Inc. ..... --
</TABLE>
144
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND (CONT.)
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Western Bancorp..................... -- 1,093,773 -- 1,093,773 31,992,860 191,604
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $256,623,017 $1,994,495
-------------------------------
-------------------------------
<CAPTION>
MUTUAL QUALIFIED FUND (CONT.)
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
Western Bancorp..................... --
-----------
TOTAL NON CONTROLLED AFFILIATES..... $18,624,793
-----------
-----------
</TABLE>
MUTUAL BEACON FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
MB Metropolis LLC................... 5,375,561 -- (2,331,655) 3,043,906 $ 3,759,224 --
MSCW Investors III, LLC............. 28,372,000 -- -- 28,372,000 57,683,361 --
Value Property Trust***............. 3,880,280 -- (3,880,280) -- ** --
Value Property Trust, wts.***....... 24,222 -- (24,222) -- ** --
-------------------------------
TOTAL CONTROLLED AFFILIATES......... $ 61,442,585 --
-------------------------------
-------------------------------
NON CONTROLLED AFFILIATES
ASG AB, B........................... -- 1,466,689 -- 1,466,689 $ 27,774,774 $ 724,935
Essex International Inc. ........... -- 1,701,600 (1,701,600) -- ** --
Gulfmark Offshore Inc. ............. 642,074 -- -- 642,074 10,112,665 --
MEI Diversified Inc., CBI........... 13,957,852 -- (13,957,852) -- ** --
Metallurg Inc. ..................... 404,958 7,654 (412,612) -- ** --
National Security Group Inc. ....... 174,977 -- (174,977) -- ** 99,737
Old Dominion Freight Line Inc. ..... 419,000 -- (15,100) 403,900 ** --
Puerto Rican Cement Co. Inc. ....... 279,800 -- (31,400) 248,400 ** 209,133
R H Donnelly Corp. ................. -- 1,914,772 1,914,772 27,883,867 335,085
Resurgence Properties Inc. ......... 591,900 -- -- 591,900 26,636 --
Resurgence Properties Inc.,
Restricted......................... 900,000 -- -- 900,000 40,500 --
Servico Inc......................... 693,000 -- (693,000) -- ** --
Spectra Physics AB, A............... 1,130,000 -- -- 1,130,000 13,313,307 445,572
Toro Co. ........................... 648,700 -- (648,700) -- ** 155,688
Wellsford Real Properties Inc....... -- 1,583,221 -- 1,583,221 16,326,967 --
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $ 95,478,716 $1,970,150
-------------------------------
-------------------------------
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
CONTROLLED AFFILIATES*
MB Metropolis LLC................... $ 670,938
MSCW Investors III, LLC............. --
Value Property Trust***............. --
Value Property Trust, wts.***....... --
-----------
TOTAL CONTROLLED AFFILIATES......... $ 670,938
-----------
-----------
NON CONTROLLED AFFILIATES
ASG AB, B........................... --
Essex International Inc. ........... $(1,406,888)
Gulfmark Offshore Inc. ............. --
MEI Diversified Inc., CBI........... 203,862
Metallurg Inc. ..................... 8,819,182
National Security Group Inc. ....... 19,270
Old Dominion Freight Line Inc. ..... 431
Puerto Rican Cement Co. Inc. ....... 122,075
R H Donnelly Corp. ................. --
Resurgence Properties Inc. ......... --
Resurgence Properties Inc.,
Restricted......................... --
Servico Inc......................... 546,798
Spectra Physics AB, A............... --
Toro Co. ........................... (16,204)
Wellsford Real Properties Inc....... --
TOTAL NON CONTROLLED AFFILIATES..... $ 8,288,526
</TABLE>
145
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
MUTUAL DISCOVERY FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
Distribution Systems SpA............ 500 -- -- 500 $ 20,669 --
Hancock LLC......................... 5,542,938 2,883,394 -- 8,426,332 8,426,332 --
MB-Motori LLC....................... 557,863 -- -- 557,863 500,001 --
MSCW Investors II, LLC.............. 10,438,000 -- -- 10,438,000 21,221,589 --
MWCR Elettronica SRL................ 69,056 -- -- 69,056 69,056 --
MWCR LLC............................ 13,505,313 -- -- 13,505,313 13,505,313 --
RE Acquisition LLC.................. 12,047,306 -- (12,047,306) -- ** --
Regent Kingpin Chile Value Fund..... 212,505 -- (212,505) -- ** --
Sweda Industrie Elettroniche SpA.... 500 -- -- 500 20,669 --
-------------------------------
TOTAL CONTROLLED AFFILIATES......... $ 43,763,629 --
-------------------------------
-------------------------------
NON CONTROLLED AFFILIATES
Alliance Bancorp of New England
Inc. .............................. 133,733 66,866 (200,599) -- ** $ 13,373
Alma Media OYJ, Series 2............ 633,950 112,750 -- 746,700 $ 24,332,563 377,123
Ambassador Apartments Inc. ......... 787,500 -- (787,500) -- ** 658,508
A-Pressen AS........................ 590,000 -- (590,000) -- ** 77,963
Bank Rhode Island................... 228,300 -- (228,300) -- ** --
Cellular Communications
International Inc. ................ 449,000 -- (449,000) -- ** --
Chicago Bridge and Iron Company..... 775,600 -- (775,600) -- ** 30
Civic Bancorp....................... 289,709 -- (289,709) -- ** --
Continental Information Systems
Inc. .............................. 498,209 30,295 (528,504) -- ** --
Corporate Services Group Plc, A..... -- 17,697,482 -- 17,697,482 44,608,078 --
DII Group Inc. ..................... -- 1,685,900 (1,685,900) -- ** --
DT Industries Inc. ................. 1,130,300 510,030 (296,800) 1,343,530 21,160,598 94,565
First Union Real Estate Equity &
Mtg. Investments, SBI.............. 554,000 2,141,232 (94,500) 2,600,732 15,279,301 256,498
Gendis Inc., A...................... 1,567,500 -- (1,016,300) 551,200 ** 111,824
Inso Corporation.................... 961,500 -- (961,500) -- ** --
Laser Mortgage Management Inc. ..... 1,691,833 13,000 (562,900) 1,141,933 6,209,261 2,637,687
Little Falls Bancorp................ 170,000 (170,000) -- ** --
LNR Property Corp. ................. 708,600 245,500 -- 954,100 19,022,369 47,563
LNR Property Corp., B............... 638,100 -- -- 638,100 12,722,119 28,714
Mark Centers Trust.................. 463,400 -- (463,400) -- ** --
North Central Bancshares Inc. ...... 323,500 -- (145,500) 178,000 3,003,750 91,680
Pacific Bank N.A. .................. 196,231 55,000 (251,231) -- ** 102,841
Rancho Santa Fe National Bank....... 347,223 -- (347,223) -- ** 20,833
Regent Bancshares Corp. ............ 155,832 -- (155,832) -- ** --
Scientific Games Holdings Corp. .... 785,700 -- (785,700) -- ** --
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
CONTROLLED AFFILIATES*
Distribution Systems SpA............ --
Hancock LLC......................... --
MB-Motori LLC....................... $ 531,418
MSCW Investors II, LLC.............. --
MWCR Elettronica SRL................ --
MWCR LLC............................ --
RE Acquisition LLC.................. 1,937,754
Regent Kingpin Chile Value Fund..... 526,391
Sweda Industrie Elettroniche SpA.... --
-----------
TOTAL CONTROLLED AFFILIATES......... $ 2,995,563
-----------
-----------
NON CONTROLLED AFFILIATES
Alliance Bancorp of New England
Inc. .............................. $ 2,008,069
Alma Media OYJ, Series 2............ --
Ambassador Apartments Inc. ......... --
A-Pressen AS........................ (4,411,716)
Bank Rhode Island................... 507,176
Cellular Communications
International Inc. ................ 2,263,932
Chicago Bridge and Iron Company..... (1,171,006)
Civic Bancorp....................... 3,394,881
Continental Information Systems
Inc. .............................. (217,323)
Corporate Services Group Plc, A..... --
DII Group Inc. ..................... (4,845,539)
DT Industries Inc. ................. 1,729,955
First Union Real Estate Equity &
Mtg. Investments, SBI.............. (369,513)
Gendis Inc., A...................... (3,330,981)
Inso Corporation.................... 1,854,509
Laser Mortgage Management Inc. ..... 516,898
Little Falls Bancorp................ --
LNR Property Corp. ................. --
LNR Property Corp., B............... --
Mark Centers Trust.................. --
North Central Bancshares Inc. ...... 937,245
Pacific Bank N.A. .................. (1,768,624)
Rancho Santa Fe National Bank....... 4,305,565
Regent Bancshares Corp. ............ --
Scientific Games Holdings Corp. .... (2,971,011)
</TABLE>
146
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND (CONT.)
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Smithway Motor Xpress Corp., A...... 235,000 -- (235,000) -- ** --
Summit Care Corp.................... 887,300 -- (887,300) -- ** --
Tecnost Mael SpA.................... 3,801,000 20,000 -- 3,821,000 12,605,805 432,768
Transport Corp. of America Inc. .... 385,000 -- (385,000) -- ** --
TT Group Plc. ...................... 4,530,000 6,196,480 -- 10,726,480 38,101,713 759,209
United Dental Care Inc. ............ 534,300 -- (534,300) -- ** --
Value Property Trust................ 1,101,955 -- (1,101,955) -- ** --
Value Property Trust, wts. ......... 6,879 -- (6,879) -- ** --
Veritas DGC Inc. ................... 558,800 1,761,700 (211,800) 2,108,700 27,413,100 --
Western Bancorp..................... 586,638 -- (586,638) -- ** 200,929
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $224,458,657 $5,912,108
-------------------------------
-------------------------------
<CAPTION>
MUTUAL DISCOVERY FUND (CONT.)
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
Smithway Motor Xpress Corp., A...... 1,098,891
Summit Care Corp.................... 6,740,012
Tecnost Mael SpA.................... --
Transport Corp. of America Inc. .... 133,936
TT Group Plc. ...................... --
United Dental Care Inc. ............ 1,608,240
Value Property Trust................ 8,421,859
Value Property Trust, wts. ......... 39,554
Veritas DGC Inc. ................... --
Western Bancorp..................... --
-----------
TOTAL NON CONTROLLED AFFILIATES..... $16,475,009
-----------
-----------
</TABLE>
MUTUAL EUROPEAN FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON CONTROLLED AFFILIATES
Geveko AB, B........................ 552,134 -- -- 552,134 $ 5,789,853 $ 502,286
Uniholding Corp..................... 581,585 -- -- 581,585 2,217,293 --
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $ 8,007,146 $ 502,286
-------------------------------
-------------------------------
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
NON CONTROLLED AFFILIATES
Geveko AB, B........................ --
Uniholding Corp..................... --
-----------
TOTAL NON CONTROLLED AFFILIATES..... --
-----------
-----------
</TABLE>
MUTUAL FINANCIAL SERVICES FUND
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON CONTROLLED AFFILIATES
Broadway Financial Corp. ........... -- 56,662 -- 56,662 $ 393,093 $ 7,789
Civic BanCorp....................... -- 263,709 -- 263,709 3,494,144 --
Gateway American Bank of Florida.... -- 225,000 -- 225,000 1,096,875 --
Pacific Bank NA..................... -- 266,231 -- 266,231 11,614,327 --
Pointe Financial Corp. ............. -- 122,500 -- 122,500 1,263,281 --
Professional Bancorp Inc. .......... -- 155,616 -- 155,616 2,723,280 15,562
Rancho Sante Fe National Bank....... -- 347,223 -- 347,223 5,208,345 20,833
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
NON CONTROLLED AFFILIATES
Broadway Financial Corp. ........... --
Civic BanCorp....................... --
Gateway American Bank of Florida.... --
Pacific Bank NA..................... --
Pointe Financial Corp. ............. --
Professional Bancorp Inc. .......... --
Rancho Sante Fe National Bank....... --
</TABLE>
147
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
MUTUAL FINANCIAL SERVICES FUND (CONT.)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/98-
NAME OF ISSUER DEC. 31, 1997 ADDITIONS REDUCTIONS DEC. 31, 1998 DEC. 31, 1998 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
State National Bancshares Inc. ..... -- 285,714 -- 285,714 3,999,996 --
UnionBancorp Inc. .................. 67,500 152,600 -- 220,100 3,714,188 16,287
-------------------------------
TOTAL NON CONTROLLED AFFILIATES..... $ 33,507,529 $ 60,471
-------------------------------
-------------------------------
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- ------------------------------------
<S> <C>
State National Bancshares Inc. ..... --
UnionBancorp Inc. .................. --
-----------
TOTAL NON CONTROLLED AFFILIATES..... --
-----------
-----------
</TABLE>
*Issuer in which the Fund owns 25% or more of the outstanding voting securities.
**As of December 31, 1998, no longer an affiliate.
***Merged into Wellsford Real Properties effective February 23, 1998.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Funds have been a party to financial instruments with off-balance-sheet
risk, primarily forward exchange contracts, in order to minimize the impact on
the Funds from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values and interest rates and contract positions
that are not exact offsets. The contract amount indicates the extent of the
Funds' involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at each Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
At December 31, 1998, the Funds had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
MUTUAL SHARES FUND
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
80,155,340 Canadian Dollars.................................. U.S. $ 51,741,121 1/13/99 U.S. $ 444,965
67,299,899 Canadian Dollars.................................. 43,577,041 1/29/99 241,030
56,216,825 Finnish Markka.................................... 11,112,680 2/3/99 8,938
20,808,293,354 Italian Lira...................................... 11,899,365 4/2/99 777,552
-------------- ------------
U.S. $ 118,330,207 1,472,485
-------------- ------------
--------------
</TABLE>
148
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
76,510,995 Canadian Dollars.................................. U.S. $ 51,878,351 1/13/99 U.S. $ 2,064,960
1,637,267,479 Spanish Peseta.................................... 11,637,246 1/19/99 71,208
482,621,496 French Francs..................................... 87,964,814 1/19/99 1,485,476
28,258,488 British Pounds.................................... 47,427,630 1/20/99 444,736
215,005,338 Swedish Krona..................................... 27,621,446 1/21/99 1,071,579
186,687,824 Canadian Dollars.................................. 124,057,430 1/29/99 2,507,464
510,849,372 French Francs..................................... 91,714,429 2/11/99 74,069
434,205,708 Swedish Krona..................................... 53,883,323 2/17/99 203,722
42,104,751 French Francs..................................... 7,629,193 2/26/99 70,795
49,793,816 Swiss Francs...................................... 36,707,568 3/10/99 199,134
656,522,338 Swedish Krona..................................... 81,950,561 3/15/99 689,751
110,890,042 Dutch Guilders.................................... 59,618,302 3/17/99 308,348
31,937,260 British Pounds.................................... 53,047,789 3/18/99 32,937
289,177,446 Swedish Krona..................................... 37,116,859 3/18/99 1,318,710
22,856,597,034 Italian Lira...................................... 14,030,400 4/2/99 105,606
23,000,000 British Pounds.................................... 38,751,550 4/15/99 588,783
457,751,023 Swedish Krona..................................... 57,820,475 4/19/99 1,071,589
74,293,499 British Pounds.................................... 123,624,382 5/20/99 396,572
8,146,051 British Pounds.................................... 13,595,351 6/18/99 87,776
-------------- ------------
U.S. $1,020,077,099 12,793,215
-------------- ------------
--------------
Unrealized gain on forward exchange contracts................. 14,265,700
------------
CONTRACTS TO BUY:
- --------------
21,387,135 Canadian Dollars.................................. U.S. $ 13,978,520 1/13/99 (54,171)
24,471,485 Finnish Markka.................................... 4,876,489 2/3/99 (35,189)
700,000 British Pounds.................................... 1,163,680 3/18/99 (1,702)
-------------- ------------
U.S. $ 20,018,689 (91,062)
-------------- ------------
--------------
</TABLE>
149
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
101,473,349 Dutch Guilders.................................... U.S. $ 53,774,960 1/11/99 U.S. $ (325,578)
57,520,662 Canadian Dollars.................................. 37,314,734 1/13/99 (134,776)
749,977 German Marks...................................... 449,088 1/19/99 (1,623)
336,492,469 Spanish Peseta.................................... 2,368,874 1/19/99 (8,187)
370,349,053 French Francs..................................... 61,972,733 1/19/99 (4,388,880)
14,282,386 British Pounds.................................... 23,166,029 1/20/99 (580,033)
100,000,000 French Francs..................................... 17,537,706 1/27/99 (388,301)
263,391,630 Finnish Markka.................................... 51,635,293 2/3/99 (472,611)
51,000,000 British Pounds.................................... 81,987,600 2/17/99 (2,731,697)
141,969,996 French Francs..................................... 23,987,237 2/26/99 (1,498,383)
684,025,313 Japanese Yen...................................... 5,968,164 3/23/99 (163,000)
127,896,956,725 Italian Lira...................................... 73,853,403 4/2/99 (4,064,068)
20,000,000 British Pounds.................................... 31,900,000 5/20/99 (1,273,242)
-------------- ------------
U.S. $ 465,915,821 (16,030,379)
--------------
--------------
Net unrealized loss on offsetting forward exchange
contracts......................................................... (486,187)
------------
Unrealized loss on forward exchange contracts............... (16,607,628)
------------
Net unrealized loss on forward exchange contracts......... U.S. $ (2,341,928)
------------
------------
</TABLE>
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
42,178,963 Canadian Dollars.................................. U.S. $ 27,359,182 1/29/99 U.S. $ 102,982
25,806,051 Finnish Markka.................................... 5,101,220 2/3/99 4,103
13,273,245,161 Italian Lira...................................... 7,631,666 4/2/99 454,717
26,254,775 Danish Krone...................................... 4,119,042 4/27/99 19,315
-------------- ------------
U.S. $ 44,211,110 581,117
-------------- ------------
--------------
</TABLE>
150
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
474,500,348 French Francs..................................... U.S. $ 85,516,344 1/19/99 U.S. $ 492,207
6,578,116 British Pounds.................................... 11,136,126 1/20/99 199,273
279,030,723 Swedish Krona..................................... 35,846,701 1/21/99 1,390,679
87,100,650 Canadian Dollars.................................. 57,879,955 1/29/99 1,169,877
233,557,152 French Francs..................................... 41,931,266 2/11/99 33,864
400,302,096 Swedish Krona..................................... 49,736,576 2/17/99 248,381
31,551,071 Swiss Francs...................................... 23,259,175 3/10/99 126,178
480,051,963 Swedish Krona..................................... 59,922,604 3/15/99 504,349
97,541,005 Dutch Guilders.................................... 52,441,401 3/17/99 271,229
23,732,497 British Pounds.................................... 39,419,678 3/18/99 24,475
61,480,342 Swedish Krona..................................... 7,891,200 3/18/99 280,363
9,775,153,341 Italian Lira...................................... 6,065,702 4/2/99 110,441
12,000,000 British Pounds.................................... 20,218,200 4/15/99 307,191
364,207,771 Swedish Krona..................................... 45,955,195 4/19/99 803,171
187,881,053 Danish Krone...................................... 30,254,598 4/27/99 640,214
27,342,389 British Pounds.................................... 45,497,735 5/20/99 145,951
35,330,249 British Pounds.................................... 58,964,419 6/18/99 380,695
-------------- ------------
U.S. $ 671,936,875 7,128,538
--------------
--------------
Net unrealized gain on offsetting forward exchange
contracts......................................................... 1,434,398
------------
Unrealized gain on forward exchange contracts............... 9,144,053
------------
CONTRACTS TO BUY:
- --------------
3,375,000 British Pounds.................................... U.S. $ 5,698,181 1/20/99 (86,867)
12,133,274 Finnish Markka.................................... 2,417,833 2/3/99 (17,454)
2,471,015 British Pounds.................................... 4,133,956 3/18/99 (32,149)
83,341,826 Danish Krone...................................... 13,201,879 4/27/99 (65,287)
6,783,568 British Pounds.................................... 11,303,130 5/20/99 (51,482)
-------------- ------------
U.S. $ 36,754,979 (253,239)
-------------- ------------
--------------
</TABLE>
151
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL QUALIFIED FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
51,762,910 Dutch Guilders.................................... U.S. $ 27,431,325 1/11/99 U.S. $ (166,082)
411,072 German Marks...................................... 246,151 1/19/99 (890)
217,578,320 French Francs..................................... 36,464,599 1/19/99 (2,522,535)
9,252,089 British Pounds.................................... 15,006,888 1/20/99 (375,743)
135,000,000 French Francs..................................... 23,675,903 1/27/99 (524,207)
128,479,696 Finnish Markka.................................... 25,187,159 2/3/99 (230,535)
86,700,258 Dutch Guilders.................................... 46,138,019 2/10/99 (155,062)
32,812,069 British Pounds.................................... 52,748,681 2/17/99 (1,757,502)
18,757,856 Canadian Dollars.................................. 12,202,216 2/26/99 (11,807)
134,457,708 French Francs..................................... 22,420,828 2/26/99 (1,716,231)
60,207,755,743 Italian Lira...................................... 34,806,649 4/2/99 (1,873,095)
15,000,000 British Pounds.................................... 23,925,000 5/20/99 (954,931)
-------------- ------------
U.S. $ 320,253,418 (10,288,620)
--------------
--------------
Net unrealized loss on offsetting forward exchange
contracts........................................................... (139,406)
------------
Unrealized loss on forward exchange contracts............... (10,681,265)
------------
Net unrealized loss on forward exchange contracts......... U.S. $ (1,537,212)
------------
------------
</TABLE>
<TABLE>
<CAPTION>
MUTUAL BEACON FUND
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
34,473,231 Canadian Dollars.................................. U.S. $ 22,272,277 1/13/99 U.S. $ 171,930
10,073,487 British Pounds.................................... 16,635,497 1/20/99 112,801
39,714,142 Canadian Dollars.................................. 25,701,183 1/29/99 156,168
494,314 Swiss Francs...................................... 362,373 3/10/99 17
17,265,748,700 Italian Lira...................................... 9,819,073 4/2/99 699,640
23,918,310 Danish Krone...................................... 3,752,480 4/27/99 17,596
3,432,635 British Pounds.................................... 5,677,579 5/20/99 16,003
27,494,983 Finnish Markka.................................... 5,435,080 2/8/99 90,279
-------------- ------------
U.S. $ 89,655,542 1,264,434
-------------- ------------
--------------
</TABLE>
152
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
55,257,951 Canadian Dollars.................................. U.S. $ 37,471,652 1/13/99 U.S. $ 1,495,307
246,619,141 French Francs..................................... 45,134,392 1/19/99 943,530
24,687,599 British Pounds.................................... 41,793,760 1/20/99 747,868
52,087,176 Swedish Krona..................................... 6,691,569 1/21/99 259,601
116,450,163 Canadian Dollars.................................. 77,383,236 1/29/99 1,564,079
522,448,727 French Francs..................................... 93,796,899 2/11/99 75,751
951,290,956 Swedish Krona..................................... 118,065,169 2/17/99 459,807
75,069,068 Swiss Francs...................................... 55,340,264 3/10/99 300,215
35,336,239 Norwegian Krone................................... 4,758,000 3/10/99 147,562
243,713,336 Swedish Krona..................................... 30,421,577 3/15/99 256,049
109,409,076 Dutch Guilders.................................... 58,822,084 3/17/99 304,230
50,987,906 British Pounds.................................... 84,690,912 3/18/99 52,584
702,852,114 Swedish Krona..................................... 90,213,338 3/18/99 3,205,153
9,209,465,356 Italian Lira...................................... 5,711,973 4/2/99 101,344
46,000,000 British Pounds.................................... 77,503,100 4/15/99 1,177,566
625,662,111 Swedish Krona..................................... 78,980,584 4/19/99 1,415,212
149,486,437 Danish Krone...................................... 24,071,890 4/27/99 509,383
5,154,467 British Pounds.................................... 8,577,033 5/20/99 27,514
48,919,887 British Pounds.................................... 81,644,845 6/18/99 527,128
-------------- ------------
--------------
U.S. $1,021,072,277 13,569,883
-------------- ------------
--------------
Unrealized gain on forward exchange contracts................. 14,834,317
------------
CONTRACTS TO BUY:
- --------------
30,000,000 Canadian Dollars.................................. U.S. $ 19,607,843 1/13/99 (75,987)
6,250,000 British Pounds.................................... 10,552,188 1/20/99 (160,864)
13,101,102 Finnish Markka.................................... 2,610,685 2/3/99 (18,838)
416,230 Swiss Francs...................................... 307,953 3/10/99 (2,777)
365,146,320 Norwegian Krone................................... 48,097,463 3/10/99 (455,597)
12,370,016 British Pounds.................................... 20,942,233 3/18/99 (408,393)
72,032,737 Danish Krone...................................... 11,405,319 4/27/99 (51,300)
20,554,335 British Pounds.................................... 34,248,174 5/20/99 (155,477)
6,382,179 British Pounds.................................... 10,664,620 6/18/99 (81,854)
-------------- ------------
U.S. $ 158,436,478 (1,411,087)
-------------- ------------
--------------
</TABLE>
153
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL BEACON FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
29,544,555 Dutch Guilders.................................... U.S. $ 15,656,892 1/11/99 U.S. $ (94,794)
17,120,170 Canadian Dollars.................................. 11,106,176 1/13/99 (40,114)
475,016 German Marks...................................... 284,441 1/19/99 (1,028)
379,865,426 French Francs..................................... 63,565,165 1/19/99 (4,501,655)
21,701,881 British Pounds.................................... 35,200,451 1/20/99 (881,351)
270,000,000 French Francs..................................... 47,351,806 1/27/99 (1,048,414)
138,817,581 Finnish Markka.................................... 27,213,797 2/3/99 (249,084)
97,976,790 Dutch Guilders.................................... 52,138,887 2/10/99 (175,229)
42,622,311 British Pounds.................................... 68,519,627 2/17/99 (2,282,965)
27,132,575 Canadian Dollars.................................. 17,650,073 2/26/99 (17,078)
299,279,429 French Francs..................................... 49,904,857 2/26/99 (3,820,030)
474,584,851 Norwegian Krone................................... 60,666,878 3/10/99 (1,253,801)
3,591,994,149 Japanese Yen...................................... 31,357,878 3/23/99 (838,451)
66,727,119,972 Italian Lira...................................... 38,291,916 4/2/99 (2,359,646)
30,000,000 British Pounds.................................... 47,850,000 5/20/99 (1,909,863)
-------------- ------------
U.S. $ 566,758,844 (19,473,503)
-------------- ------------
--------------
Unrealized loss on forward exchange contracts................. (20,884,590)
------------
Net unrealized loss on forward exchange contracts........... U.S. $ (6,050,273)
------------
------------
</TABLE>
MUTUAL DISCOVERY FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
1,359,094 Canadian Dollars.................................. U.S. $ 875,000 1/13/99 U.S. $ 9,854
515,582,244 French Francs..................................... 92,174,974 1/19/99 210,491
31,648,329 British Pounds.................................... 52,024,099 1/20/99 594,785
8,000,000 New Zealand Dollars............................... 4,165,360 2/17/99 63,421
7,274,014 Canadian Dollars.................................. 4,692,670 2/26/99 43,744
14,569,660 Norwegian Krone................................... 1,884,869 3/10/99 16,084
701,940,051 Portuguese Escudo................................. 4,116,950 3/17/99 9,845
100,018,571,282 Italian Lira...................................... 59,449,222 4/2/99 1,484,517
31,630,427 Danish Krone...................................... 4,962,414 4/27/99 23,270
21,571,763 British Pounds.................................... 35,631,127 5/20/99 149,139
-------------- ------------
U.S. $ 259,976,685 2,605,150
-------------- ------------
--------------
</TABLE>
154
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
1,678,307 Canadian Dollars.................................. U.S. $ 1,138,144 1/13/99 U.S. $ 45,462
9,580,286 German Marks...................................... 5,767,088 1/19/99 9,652
2,615,991,930 Spanish Peseta.................................... 18,976,783 1/19/99 496,809
412,946,025 French Francs..................................... 74,884,008 1/19/99 889,586
45,937,389 British Pounds.................................... 77,767,636 1/20/99 1,391,593
71,024,598 Swedish Krona..................................... 9,124,434 1/21/99 353,984
501,801,214 French Francs..................................... 90,089,984 2/11/99 72,757
48,057,206 New Zealand Dollars............................... 25,864,869 2/17/99 461,942
976,413,262 Swedish Krona..................................... 121,358,467 2/17/99 647,307
102,289,285 Swiss Francs...................................... 75,547,172 3/10/99 549,475
271,866,913 Swedish Krona..................................... 33,935,854 3/15/99 285,627
132,210,162 Dutch Guilders.................................... 71,080,732 3/17/99 367,632
57,186,902 British Pounds.................................... 94,987,445 3/18/99 58,977
934,164,579 Swedish Krona..................................... 119,903,039 3/18/99 4,259,987
38,401,846,612 Italian Lira...................................... 23,746,967 4/2/99 351,631
94,000,000 British Pounds.................................... 158,375,900 4/15/99 2,406,331
553,478,336 Swedish Krona..................................... 70,093,410 4/19/99 1,476,897
476,930,105 Danish Krone...................................... 76,800,339 4/27/99 1,625,164
40,843,763 British Pounds.................................... 67,964,021 5/20/99 218,020
104,496,829 British Pounds.................................... 174,399,982 6/18/99 1,125,989
-------------- ------------
U.S. $1,391,806,274 17,094,822
--------------
--------------
Net unrealized gain on offsetting forward exchange
contracts........................................................... 462,504
------------
Unrealized gain on forward exchange contracts............... 20,162,476
------------
CONTRACTS TO BUY:
- --------------
32,336,817 Australian Dollars................................ U.S. $ 20,465,734 1/6/99 (630,651)
12,625,000 British Pounds.................................... 21,315,419 1/20/99 (324,946)
1,345,999 Finnish Markka.................................... 268,985 2/3/99 (2,700)
330,994,224 Norwegian Krone................................... 43,661,786 3/10/99 (475,858)
4,700,000 British Pounds.................................... 7,813,280 3/18/99 (11,427)
131,003,204 Danish Krone...................................... 20,758,722 4/27/99 (109,598)
36,162,584 British Pounds.................................... 60,185,910 5/20/99 (204,403)
11,608,557 British Pounds.................................... 19,388,785 6/18/99 (139,770)
-------------- ------------
U.S. $ 193,858,621 (1,899,353)
-------------- ------------
--------------
</TABLE>
155
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
46,161,149 Australian Dollars................................ U.S. $ 27,448,342 1/6/99 U.S. $ (866,448)
2,792,579 Dutch Guilders.................................... 1,479,904 1/11/99 (8,960)
2,275,341,993 Belgian Francs.................................... 65,775,327 1/12/99 (461,441)
327,737 German Marks...................................... 196,250 1/19/99 (709)
418,637,479 French Francs..................................... 70,094,805 1/19/99 (4,919,450)
28,227,268 British Pounds.................................... 45,784,628 1/20/99 (1,146,358)
452,390,791 French Francs..................................... 79,338,967 1/27/99 (1,756,640)
264,937,734 Finnish Markka.................................... 51,938,391 2/3/99 (475,385)
88,271,751 Dutch Guilders.................................... 46,974,297 2/10/99 (157,872)
44,072,198 British Pounds.................................... 70,850,466 2/17/99 (2,360,625)
52,420,876 Canadian Dollars.................................. 34,100,424 2/26/99 (32,995)
677,492,305 French Francs..................................... 112,971,870 2/26/99 (8,647,574)
610,606,203 Norwegian Krone................................... 78,054,687 3/10/99 (1,613,155)
2,351,762,196 Portuguese Escudo................................. 13,693,690 3/17/99 (132,619)
3,729,745,010 Japanese Yen...................................... 32,531,503 3/23/99 (899,536)
347,108,591,084 Italian Lira...................................... 199,110,249 4/2/99 (12,355,558)
5,408,772 Swedish Krona..................................... 658,622 4/19/99 (11,921)
35,000,000 British Pounds.................................... 55,825,000 5/20/99 (2,228,173)
-------------- ------------
U.S. $ 986,827,422 (38,075,419)
--------------
--------------
Unrealized loss on forward exchange contracts................. (39,974,772)
------------
Net unrealized loss on forward exchange contracts........... U.S. $(19,812,296)
------------
------------
</TABLE>
MUTUAL EUROPEAN FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
1,700,000 German Marks...................................... U.S. $ 1,017,051 1/19/99 U.S. $ 4,593
26,060,887 French Francs..................................... 4,659,304 1/19/99 10,459
13,574,145 British Pounds.................................... 22,331,825 1/20/99 236,708
34,090,604 Portuguese Escudo................................. 199,432 2/17/99 706
7,246,565 Norwegian Krone................................... 937,484 3/10/99 8,000
414,342,506 Portuguese Escudo................................. 2,426,945 3/17/99 9,028
17,591,931,140 Italian Lira...................................... 10,613,717 4/2/99 103,714
4,278,770 Danish Krone...................................... 671,285 4/27/99 3,148
-------------- ------------
U.S. $ 42,857,043 376,356
-------------- ------------
--------------
</TABLE>
156
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
83,783,297 Austrian Schilling................................ U.S. $ 7,191,699 1/12/99 U.S. $ 37,589
15,641,912 German Marks...................................... 9,416,032 1/19/99 15,760
1,243,113,271 Spanish Peseta.................................... 9,021,141 1/19/99 239,501
118,668,285 French Francs..................................... 21,566,251 1/19/99 302,476
13,099,840 British Pounds.................................... 22,176,785 1/20/99 396,837
496,219 Swedish Krona..................................... 63,749 1/21/99 2,473
93,948,222 French Francs..................................... 16,866,826 2/11/99 13,622
29,472,493 New Zealand Dollars............................... 15,862,390 2/17/99 283,300
392,219,991 Swedish Krona..................................... 48,760,064 2/17/99 271,036
34,435,776 Swiss Francs...................................... 25,413,326 3/10/99 165,287
45,862,912 Norwegian Krone................................... 6,172,448 3/10/99 188,560
163,561,240 Swedish Krona..................................... 20,416,572 3/15/99 171,840
32,127,673 Dutch Guilders.................................... 17,272,942 3/17/99 89,336
259,562,194 Swedish Krona..................................... 33,293,508 3/18/99 1,161,521
13,589,457,290 Italian Lira...................................... 8,416,915 4/2/99 137,888
25,000,000 British Pounds.................................... 42,121,250 4/15/99 639,982
223,751,913 Swedish Krona..................................... 28,297,211 4/19/99 557,957
121,372,932 Danish Krone...................................... 19,544,756 4/27/99 413,584
22,232,967 British Pounds.................................... 37,105,711 6/18/99 239,568
-------------- ------------
U.S. $ 388,979,576 5,328,117
--------------
--------------
Net unrealized gain on offsetting forward exchange
contracts........................................................... 103,321
------------
Unrealized gain on forward exchange contracts............... 5,807,794
------------
CONTRACTS TO BUY:
- --------------
1,875,000 British Pounds.................................... U.S. $ 3,165,656 1/20/99 (48,259)
1,336,801 Swiss Francs...................................... 988,792 3/10/99 (8,660)
40,420,100 Norwegian Krone................................... 5,338,911 3/10/99 (65,165)
140,061,058 Portuguese Escudo................................. 852,991 3/17/99 (29,554)
20,095,981 Danish Krone...................................... 3,176,091 4/27/99 (8,502)
844,141 British Pounds.................................... 1,409,370 6/18/99 (9,636)
-------------- ------------
U.S. $ 14,931,811 (169,776)
-------------- ------------
--------------
</TABLE>
157
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
MUTUAL EUROPEAN FUND (CONT.)
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
61,960,325 Austrian Schilling................................ U.S. $ 5,235,622 1/12/99 U.S. $ (55,062)
551,877,940 Belgian Francs.................................... 15,953,336 1/12/99 (112,209)
1,916,584 German Marks...................................... 1,147,655 1/19/99 (4,149)
171,449,750 French Francs..................................... 28,689,717 1/19/99 (2,031,792)
11,605,015 British Pounds.................................... 18,915,629 1/20/99 (379,005)
22,872,119 French Francs..................................... 4,011,245 1/27/99 (88,813)
48,220,714 Finnish Markka.................................... 9,476,660 2/3/99 (63,039)
26,811,278 Dutch Guilders.................................... 14,267,769 2/10/99 (47,951)
14,691,353 British Pounds.................................... 23,617,819 2/17/99 (786,908)
189,897,095 French Francs..................................... 31,665,349 2/26/99 (2,423,864)
121,731,712 Norwegian Krone................................... 15,561,143 3/10/99 (321,602)
2,349,866,063 Portuguese Escudo................................. 13,669,960 3/17/99 (145,202)
87,032,773,942 Italian Lira...................................... 50,036,751 4/2/99 (2,985,348)
1,185,349 Swedish Krona..................................... 145,185 4/19/99 (1,767)
-------------- ------------
U.S. $ 232,393,840 (9,446,711)
--------------
Net unrealized loss on offsetting forward exchange
contracts........................................................... (1,339,646)
------------
Unrealized loss on forward exchange contracts............... (10,956,133)
------------
Net unrealized loss on forward exchange contracts......... U.S. $ (5,148,339)
------------
------------
</TABLE>
MUTUAL FINANCIAL SERVICES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY:
- --------------
9,860,861 Canadian Dollars.................................. U.S. $ 6,411,483 1/29/99 U.S. $ 8,793
4,738,592 Finnish Markka.................................... 933,584 2/3/99 3,872
74,822,428 Portuguese Escudo................................. 438,841 3/17/99 1,049
18,737,900,157 Italian Lira...................................... 11,010,127 4/2/99 405,456
629,482 Danish Krone...................................... 98,758 4/27/99 463
-------------- ------------
U.S. $ 18,892,793 419,633
-------------- ------------
--------------
</TABLE>
158
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL FINANCIAL SERVICES FUND (CONT.)
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL:
- --------------
11,971,595 Canadian Dollars.................................. U.S. $ 7,955,341 1/29/99 U.S. $ 160,794
14,740,877 Swiss Francs...................................... 10,866,846 3/10/99 58,951
9,966,631 Norwegian Krone................................... 1,342,000 3/10/99 41,620
46,529,129 Danish Krone...................................... 7,492,613 4/27/99 158,550
-------------- ------------
U.S. $ 27,656,800 419,915
--------------
--------------
Net unrealized gain on offsetting forward exchange
contracts.......................................................... 16,251
------------
Unrealized gain on forward exchange contracts.............. 855,799
------------
CONTRACTS TO BUY:
- --------------
3,529,436 Australian Dollars................................ U.S. $ 2,233,754 1/6/99 (68,834)
2,968,793 Swiss Francs...................................... 2,190,295 3/10/99 (13,599)
28,370,828 Norwegian Krone................................... 3,772,905 3/10/99 (71,269)
3,800,000,000 Italian Lira...................................... 2,335,558 4/2/99 (20,506)
30,315,494 Danish Krone...................................... 4,805,436 4/27/99 (27,015)
-------------- ------------
U.S. $ 15,337,948 (201,223)
-------------- ------------
--------------
CONTRACTS TO SELL:
- --------------
5,673,978 Australian Dollars................................ U.S. $ 3,373,861.00 1/6/99 (106,501)
25,130,390 Finnish Markka.................................... 4,926,561 2/3/99 (45,092)
55,641,293 Norwegian Krone................................... 7,112,708 3/10/99 (146,998)
806,910,371 Portuguese Escudo................................. 4,694,068 3/17/99 (49,860)
42,008,474,515 Italian Lira...................................... 24,169,500 4/2/99 (1,423,081)
-------------- ------------
U.S. $ 44,276,698 (1,771,532)
--------------
--------------
Net unrealized loss on offsetting forward exchange
contracts.......................................................... (64,590)
------------
Unrealized loss on forward exchange contracts.............. (2,037,345)
------------
Net unrealized loss on forward exchange contracts........ U.S. $ (1,181,546)
------------
------------
</TABLE>
159
PAGE
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Franklin Mutual Series Fund Inc.
We have audited the accompanying statements of assets and liabilities of
Franklin Mutual Series Fund Inc. ("Fund") (comprising, respectively, Mutual
Shares Fund, Mutual Qualified Fund, Mutual Beacon Fund, Mutual Discovery Fund,
Mutual European Fund, and Mutual Financial Services Fund), including the
statements of investments, as of December 31, 1998, the related statements of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers, or other appropriate auditing procedures when replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Franklin Mutual Series Fund Inc., at
December 31, 1998, the results of their operations for the year then ended, and
the changes in their net assets and their financial highlights for the periods
indicated therein, in conformity with generally accepted accounting principles.
[ERNST & YOUNG LLP SIGNATURE]
Boston, Massachusetts
January 29, 1999
160
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL SHARES FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Mutual Shares Fund
hereby designates $571,848,650 as a capital gain dividend for the fiscal year
ended December 31, 1998.
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual Shares Fund
hereby designates 45.69% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.
161
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL QUALIFIED FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Mutual Qualified
Fund hereby designates $426,182,513 as a capital gain dividend for the fiscal
year ended December 31, 1998.
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual Qualified Fund
hereby designates 44.94% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.
162
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL BEACON FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Mutual Beacon Fund
hereby designates $357,564,409 as a capital gain dividend for the fiscal year
ended December 31, 1998.
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual Beacon Fund
hereby designates 35.36% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.
163
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL DISCOVERY FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Mutual Discovery
Fund hereby designates $138,018,714 as a capital gain dividend for the fiscal
year ended December 31, 1998.
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual Discovery Fund
hereby designates 12.99% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.
At December 31, 1998, more than 50% of the Mutual Discovery Fund's total assets
were invested in securities of foreign issuers. In most instances, foreign taxes
were withheld from dividends paid to the fund on these investments. As in prior
years, the Fund intends to make an election under Section 853 of the Internal
Revenue Code. This election will allow shareholders to treat their proportionate
share of foreign taxes paid by the Fund as having been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV, which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to Class Z, Class I, and Class II shareholders in December
1998.
<TABLE>
<CAPTION>
CLASS-Z CLASS-I
--------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia............ $0.0001 $0.0011 $0.0001 $0.0010
Austria.............. 0.0000 0.0003 0.0000 0.0003
Belgium.............. 0.0015 0.0067 0.0015 0.0059
Brazil............... 0.0000 0.0002 0.0000 0.0002
Canada............... 0.0012 0.0101 0.0012 0.0090
Denmark.............. 0.0015 0.0069 0.0015 0.0062
Finland.............. 0.0024 0.0106 0.0024 0.0094
France............... 0.0051 0.0342 0.0051 0.0304
Germany.............. 0.0009 0.0071 0.0009 0.0063
Hong Kong............ 0.0000 0.0007 0.0000 0.0006
Ireland.............. -0.0005 0.0002 -0.0005 0.0001
Italy................ 0.0017 0.0094 0.0017 0.0084
Japan................ 0.0003 0.0012 0.0003 0.0010
Mexico............... 0.0000 0.0002 0.0000 0.0001
Netherlands.......... 0.0017 0.0088 0.0017 0.0078
New Zealand.......... 0.0003 0.0016 0.0003 0.0014
Norway............... 0.0038 0.0176 0.0038 0.0157
Panama............... 0.0000 0.0005 0.0000 0.0004
South Africa......... 0.0000 0.0008 0.0000 0.0007
Spain................ 0.0001 0.0007 0.0001 0.0006
Sweden............... 0.0106 0.0291 0.0106 0.0258
Switzerland.......... 0.0008 0.0059 0.0008 0.0053
United Kingdom....... 0.0216 0.1122 0.0216 0.0997
--------------------------------------------------------------------------------
TOTAL................ $0.0531 $0.2661 $0.0531 $0.2363
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
CLASS II
-------------------------------------
FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE
- ----------------------------------------------------------
<S> <C> <C>
Australia............ $0.0001 $0.0008
Austria.............. 0.0000 0.0002
Belgium.............. 0.0015 0.0047
Brazil............... 0.0000 0.0001
Canada............... 0.0012 0.0071
Denmark.............. 0.0015 0.0049
Finland.............. 0.0024 0.0074
France............... 0.0051 0.0239
Germany.............. 0.0009 0.0050
Hong Kong............ 0.0000 0.0005
Ireland.............. -0.0005 0.0001
Italy................ 0.0017 0.0066
Japan................ 0.0003 0.0008
Mexico............... 0.0000 0.0001
Netherlands.......... 0.0017 0.0061
New Zealand.......... 0.0003 0.0011
Norway............... 0.0038 0.0123
Panama............... 0.0000 0.0003
South Africa......... 0.0000 0.0006
Spain................ 0.0001 0.0005
Sweden............... 0.0106 0.0203
Switzerland.......... 0.0008 0.0041
United Kingdom....... 0.0216 0.0784
TOTAL................-------------------------------------
$0.0531 $0.1859
-------------------------------------
-------------------------------------
</TABLE>
164
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL EUROPEAN FUND
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual European Fund
hereby designates 0.01% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.
At December 31, 1998, more than 50% of the Mutual European Fund's total assets
were invested in securities of foreign issuers. In most instances, foreign taxes
were withheld from dividends paid to the fund on these investments. As in prior
years, the Fund intends to make an election under Section 853 of the Internal
Revenue Code. This election will allow shareholders to treat their proportionate
share of foreign taxes paid by the Fund as having been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV, which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to Class Z, Class I, and Class II shareholders in December
1998.
<TABLE>
<CAPTION>
CLASS-Z CLASS-I
--------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia............ $0.0001 $0.0007 $0.0001 $0.0007
Austria.............. 0.0005 0.0024 0.0005 0.0022
Belgium.............. 0.0015 0.0068 0.0015 0.0061
Canada............... 0.0001 0.0007 0.0001 0.0006
Denmark.............. 0.0015 0.0068 0.0015 0.0060
Finland.............. 0.0018 0.0082 0.0018 0.0073
France............... 0.0066 0.0419 0.0066 0.0374
Germany.............. 0.0004 0.0033 0.0004 0.0029
Italy................ 0.0015 0.0074 0.0015 0.0066
Netherlands.......... 0.0010 0.0075 0.0010 0.0067
Norway............... 0.0010 0.0051 0.0010 0.0046
Spain................ 0.0002 0.0012 0.0002 0.0011
Sweden............... 0.0088 0.0384 0.0088 0.0342
Switzerland.......... 0.0006 0.0061 0.0006 0.0055
United Kingdom....... 0.0205 0.1057 0.0205 0.0940
--------------------------------------------------------------------------------
TOTAL................ $0.0461 $0.2422 $0.0461 $0.2159
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
CLASS II
-------------------------------------
FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE
- ----------------------------------------------------------
<S> <C> <C>
Australia............ $0.0001 $0.0005
Austria.............. 0.0005 0.0017
Belgium.............. 0.0015 0.0049
Canada............... 0.0001 0.0005
Denmark.............. 0.0015 0.0049
Finland.............. 0.0018 0.0059
France............... 0.0066 0.0300
Germany.............. 0.0004 0.0023
Italy................ 0.0015 0.0053
Netherlands.......... 0.0010 0.0054
Norway............... 0.0010 0.0037
Spain................ 0.0002 0.0009
Sweden............... 0.0088 0.0275
Switzerland.......... 0.0006 0.0044
United Kingdom....... 0.0205 0.0755
TOTAL................-------------------------------------
$0.0461 $0.1734
-------------------------------------
-------------------------------------
</TABLE>
165
PAGE
FRANKLIN MUTUAL SERIES FUND INC.
MUTUAL FINANCIAL SERVICES FUND
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Mutual Financial
Services Fund hereby designates 48.20% of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
December 31, 1998.
166
PAGE
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PAGE
This page intentionally left blank.
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. 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 determined by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global
Currency Fund
Franklin Templeton Hard
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government
Securities Fund
Franklin Federal Money Fund
Franklin Money Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
California**
Colorado
Connecticut
Florida**
Georgia
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan+
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+Portfolio of insured municipal securities.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin
Valuemark Funds are managed by Franklin Advisers, Inc. and its Templeton and
Franklin affiliates.
01/99
PAGE
[FRANKLIN TEMPLETON LOGO] Bulk Rate
U. S. Postage
ANNUAL REPORT PAID
Permit #75
INVESTMENT MANAGER Bell, CA
FRANKLIN MUTUAL ADVISERS, INC.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
SHAREHOLDER SERVICES
1-800/632-2301-(Class I & II)
1-800/448-FUND-(Class Z)
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current Franklin Mutual
Series Fund Inc. prospectus, which contains more complete information including
risk factors, charges and expenses.
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
determined by the presence of a regular beeping tone.
MS A98 02/99
Printed on recycled paper.
