SEMI ANNUAL REPORT
JUNE 30, 1999
MUTUAL BEACON FUND
[LOGO(R)]
Franklin(R) Templeton(R)
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 of Peter A. Langerman]
PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual Advisers, Inc.
[Photo of Robert L. Friedman]
ROBERT L. FRIEDMAN
Chief Investment Officer
Franklin Mutual Advisers, Inc.
SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to bring you this semiannual report of the Mutual Beacon Fund for
the six months ended June 30, 1999, during which the fund's Class Z shares
appreciated 17.78%. And we are also pleased to report that all of our Mutual
Series funds delivered results for the period under review that compared very
favorably to commonly cited indexes.
Throughout the first few months of 1999, conventional wisdom still largely
favored growth investors versus value investors such as ourselves. Stocks of
companies with the biggest capitalizations and ".com" stocks seemed to go up
largely without regard to fundamental valuations. One only had to listen to
tales from the growing legion of day traders to be convinced that a so-called
"new paradigm" had taken hold. However, beginning in April, internet stocks lost
a bit of their luster, some large-cap growth names sputtered, and media pundits
(who love to perceive new trends) began to declare that value was back in vogue.
We even received a number of calls from reporters asking whether we felt
vindicated about the market's "return to value."
As you know, we have never been slaves to conventional wisdom, nor wavered in
our belief that fundamental research,
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Shareholder Letter...................................................... 1
Fund Report............................................................. 4
Performance Summary..................................................... 8
Financial Highlights &
Statement of Investments................................................ 10
Financial Statements.................................................... 24
Notes to Financial Statements........................................... 28
</TABLE>
FUND CATEGORY
[pyramid graphic]
Although pure theme or momentum investing may work in the short term, it is not,
in our opinion, sustainable over the long term.
solid underlying valuations, and good stock picking always have and always will
make a real difference. Although pure theme or momentum investing may work in
the short term, it is not, in our opinion, sustainable over the long term. Our
value investing philosophy embodies this approach, and we believe that we will
make money for our shareholders over time by sticking to our discipline, whether
value investing is "in" or "out." We need, of course, to be mindful of changes
in society and of how business valuations change, but the biggest mistake we
could make would be to try to follow the latest investment fad. We always try to
buy stocks that others have given up on because of a short-term problem that
masks fundamental strengths or just because the stocks "aren't moving."
One outgrowth of investors' increasing accessibility to information and their
ability to react to such information has been greater market volatility, at
least in the short term. We like volatility in the markets, although not in our
performance, because it creates opportunity for contrarian investors like us to
capitalize on someone else's overreaction, and it often works to our advantage.
Our performance this year does not merely reflect value's being back in style.
In fact, markets may be only at the early stages of a rebalancing in favor of
value and the medium- or smaller-cap companies. You may recall that late last
year we appointed specific portfolio managers for each of our funds, to improve
the day-to-day implementation of our investing philosophy. The revised portfolio
management structure is working very well. Driven by an intensive focus on
bottom-up stock picking, our portfolio managers and research team are
responsible for the fund's strong performance record during the period under
review.
2
In June, Mutual Shares, our oldest fund, celebrated its 50th anniversary, and
our underlying investment discipline for all our funds remains the same as
always - buy stocks at discounts to asset value in order to produce steady,
absolute returns over long periods with minimal risk and volatility. Through
strong as well as rocky markets, we pay attention to the fundamentals because
that is what matters. This gives us the conviction to buy stocks that we believe
have value even when conventional wisdom may say otherwise.
On the following pages, you'll find a report from Lawrence Sondike and David
Winters, Mutual Beacon Fund's portfolio managers, with specific comments about
portfolio developments this year. We welcome your comments, either through
regular mail or by email at [email protected].
Sincerely,
/s/PETER A. LANGERMAN
- --------------------------
Peter A. Langerman
Chief Executive Officer
Franklin Mutual Advisers, Inc.
/s/ROBERT L. FRIEDMAN
- --------------------------
Robert L. Friedman
Chief Investment Officer
Franklin Mutual Advisers, Inc.
Through strong as well as rocky markets, we pay attention to the fundamentals
because that is what matters.
3
U.S. EXPOSURE
BASED ON TOTAL NET ASSETS
6/30/99
[ This chart shows in pie format the U.S. exposure of Mutual Beacon Fund, based
on the total net assets as of 6/30/99.]
United States 69.1%
Other Countries 30.9%
FUND REPORT
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.
During the first six months of 1999, which were marked by low inflation, rising
interest rates, and moderate economic growth, Mutual Beacon Fund's Class Z
shares produced a cumulative total return of 17.78%, as shown in the Performance
Summary on page 9. This compares favorably to most of the broader market
indexes, including the unmanaged Standard & Poor's(R) 500 Composite Index, which
rose 12.38%, and the unmanaged S&P Mid-Cap 400 Index, up 6.83%. The strong
performance of the fund was due largely to our disciplined value and special
situations approach.
Several of our largest positions, including Lucas Varity PLC, Morton
International Inc., Telcom Italia SpA, di Risp, and MediaOne Group Inc.,
received takeover bids in the first half of the year, at significant premiums to
the prices at which the stocks had been trading. We had identified these
investments previously through detailed, fundamental analysis of companies with
attractive assets whose stocks were trading at large discounts to our assessment
of their true worth. Two more of our big gainers were Canary Wharf Group PLC and
Telephone & Data Systems Inc., both of which are in the special situations
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 14 of
this report.
4
CATEGORY. Canary Wharf Group PLC owns an extensive real estate project in
London. The fund initially invested in the project more than three years ago. In
March of this year, the company completed its initial public offering, and its
stock has performed very well. Telephone & Data Systems Inc., a wireless and
wireline telephone company, was trading at 50% of its intrinsic value; the
company's announcement to sell or spin off one of its assets helped narrow this
discount.
In the U.S., undervalued asset plays we favored included Bank One Corp.,
Lockheed Martin Corp., and Washington Post Co. Bank One Corp. owns First USA, an
outstanding credit card and consumer banking business which is not fully
reflected in its share price. Lockheed Martin Corp., the nation's largest
defense company, generates substantial free cash flow, while Washington Post
Co., a well-respected media company, owns attractive, and we believe
underappreciated, cable assets.
In Europe, we purchased shares in Lagardere SCA and Invensys PLC because we felt
they were undervalued. Lagardere SCA, the French media and aerospace
conglomerate, has taken significant steps to improve values, while Invensys PLC,
the product of the merger between BTR PLC and Siebe PLC, is a world leader in
automation and controls.
Looking forward, we believe that both domestic and foreign markets should
continue to present us with profitable investment opportunities. We are
experienced at recognizing opportunity where others may see only bad news. We
also expect to profit from the stocks of companies undergoing corporate change,
such as the purchase or sale of assets, spinoffs, and share buybacks. In our
opinion, this favorable merger and acquisition environment may very well lead to
bids for some of our
TOP 10 HOLDINGS
6/30/99
[This chart lists the top 10 holdings, including industry and country, of
Mutual Beascon Fund, based on total net assets as of 6/30/99.]
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -----------------------------------------------
Canary Wharf Group PLC,
Real Estate,
United Kingdom 3.1%
Investor AB, A&B,
Multi-Industry, Sweden 2.6%
Telephone & Data
Systems Inc,
Telecommunications, U.S. 2.5%
Bank One Corp.,
Banking, U.S. 2.4%
United Asset Management,
Financial Services, U.S. 1.4%
Philip Morris Cos., Inc.,
Beverages & Tobacco, U.S. 1.3%
Lockheed Martin Corp.,
Aerospace & Military
Technology, U.S. 1.2%
Lagardere SCA,
Multi-Industry, France 1.2%
Florida East Coast Industries
Inc., Transportation, U.S. 1.2%
First Union Corp.,
Banking, U.S. 1.2%
5
holdings, as well as opportunities to profit by arbitraging the deals. We expect
to profit by investing in bankruptcy and distressed companies, a strategy we
have long successfully employed. Of course, past results cannot guarantee future
performance, and as always, we are mindful of the risks of each investment,
focusing on the downside as well as upside potential.
We appreciate your participation in Mutual Beacon Fund and will strive to
provide the best risk-adjusted returns possible.
[Photo of Lawrence Sondike]
/s/LAWRENCE SONDIKE
- ----------------------
Lawrence Sondike
[Photo of David Winters]
/s/DAVID WINTERS
- ---------------------
David Winters
Portfolio Managers
6
It is important to remember that the fund 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 fund generally expects to
hedge against currency risk where feasible and to the extent possible. The
fund's value-oriented strategy may include investments in companies involved in
mergers, reorganizations, restructurings or liquidations.
It is also important to note 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 should review before making an investment
decision.
This discussion reflects our views, opinions and portfolio holdings as of June
30, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our 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.
7
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 A (formerly Class I):
Subject to the maximum 5.75% initial sales charge.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A 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 6/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each share class's expenses. Past distributions are not indicative of
future trends. All total returns include reinvested distributions at net asset
value.
PRICE AND DISTRIBUTION INFORMATION
CLASS Z CHANGE 6/30/99 12/31/98
- ---------------------------------------------------------------------
Net Asset Value +$2.02 $15.14 $13.12
DISTRIBUTIONS (1/1/99 - 6/30/99)
-------------------------------------
Dividend Income $0.0427
Long-Term Capital Gain $0.2675
-------
TOTAL $0.3102
=======
CLASS A CHANGE 6/30/99 12/31/98
- ---------------------------------------------------------------
Net Asset Value +$2.00 $15.09 $13.09
DISTRIBUTIONS (1/1/99 - 6/30/99)
--------------------------------
Dividend Income $0.0312
Long-Term Capital Gain $0.2675
-------
TOTAL $0.2987
=======
CLASS B CHANGE 6/30/99 1/1/99
- --------------------------------------------------------------
Net Asset Value +$1.91 $15.00 $13.09
DISTRIBUTIONS (1/1/99 - 6/30/99)
--------------------------------
Dividend Income $0.0368
Long-Term Capital Gain $0.2675
-------
TOTAL $0.3043
=======
CLASS C CHANGE 6/30/99 12/31/98
- ----------------------------------------------------------------
Net Asset Value +$1.97 $15.01 $13.04
DISTRIBUTIONS (1/1/99 - 6/30/99)
---------------------------------
Dividend Income $0.0077
Long-Term Capital Gain $0.2675
-------
TOTAL $0.2752
=======
Past performance is not predictive of future results.
8
PERFORMANCE
<TABLE>
<CAPTION>
CLASS Z 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 17.78% 9.34% 132.34% 302.54%
Average Annual Total Return(2) 17.78% 9.34% 18.37% 14.94%
Value of $10,000 Investment(3) $11,778 $10,934 $23,234 $40,254
</TABLE>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
---------------------------------------------------
One-Year
Total Return(4) 16.34% 22.59% 23.37% 20.77% 9.34%
INCEPTION
CLASS A 6-MONTH 1-YEAR (11/1/96)
- ----------------------------------------------------------------
Cumulative Total Return(1) 17.58% 8.97% 56.55%
Average Annual Total Return(2) 10.81% 2.68% 15.74%
Value of $10,000 Investment(3) $11,081 $10,268 $14,754
INCEPTION
CLASS B 6-MONTH (1/1/99)
- -------------------------------------------------------------------
Cumulative Total Return(1) 16.93% 16.93%
Aggregate Total Return(2) 12.93% 12.93%
Value of $10,000 Investment(3) $11,293 $11,293
INCEPTION
CLASS C 6-MONTH 1-YEAR (11/1/96)
- -------------------------------------------------------------------
Cumulative Total Return(1) 17.23% 8.31% 53.93%
Average Annual Total Return(2) 15.09% 6.23% 17.16%
Value of $10,000 Investment(3) $11,509 $10,623 $15,240
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. Since Class B shares have existed for
less than one year, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
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 specified dates 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.
9
MUTUAL BEACON FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS Z
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ------------------------------------------------------------------
(UNAUDITED)++ 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $13.12 $14.12 $12.98 $11.98 $10.34 $10.36
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income................ .13 .33 .31 .40 .29 .15
Net realized and unrealized gains
(losses)........................... 2.20 (.01) 2.63 2.08 2.36 .43
-----------------------------------------------------------------------------------
Total from investment operations...... 2.33 .32 2.94 2.48 2.65 .58
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income................ (.04) (.45) (.54) (.35) (.28) (.15)
Net realized gains................... (.27) (.87) (1.26) (1.13) (.73) (.45)
-----------------------------------------------------------------------------------
Total distributions................... (.31) (1.32) (1.80) (1.48) (1.01) (.60)
-----------------------------------------------------------------------------------
Net asset value, end of period........ $15.14 $13.12 $14.12 $12.98 $11.98 $10.34
===================================================================================
Total Return*......................... 17.78% 2.37% 23.03% 21.19% 25.89% 5.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..... $3,518,020 $4,030,517 $5,678,822 $4,920,388 $3,573,297 $2,060,453
Ratios to average net assets:
Expenses............................. .77%** .76% .74% .73% .72% .75%
Expenses, excluding waiver and
payments by affiliate.............. .82%** .79% .77% .75% .72% .75%
Net investment income................ 1.87%** 2.28% 1.92% 3.21% 2.89% 1.96%
Portfolio turnover rate............... 32.15% 65.27% 54.72% 66.87% 73.18% 70.63%
</TABLE>
* Total return is not annualized.
** Annualized.
+ 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.
++ Based on average weighted shares outstanding.
10
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------------------
(UNAUDITED)+++ 1998+++ 1997+++ 1996+
---------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period..................... $13.09 $14.09 $12.98 $13.21
----------------------------------------------------------
Income from investment operations:
Net investment income................................... .11 .27 .23 .16
Net realized and unrealized gains....................... 2.19 -- 2.65 .69
----------------------------------------------------------
Total from investment operations......................... 2.30 .27 2.88 .85
----------------------------------------------------------
Less distributions from:
Net investment income................................... (.03) (.40) (.51) (.33)
Net realized gains...................................... (.27) (.87) (1.26) (.75)
----------------------------------------------------------
Total distributions...................................... (.30) (1.27) (1.77) (1.08)
----------------------------------------------------------
Net asset value, end of period........................... $15.09 $13.09 $14.09 $12.98
==========================================================
Total Return*............................................ 17.58% 2.02% 22.52% 6.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................ $966,757 $947,444 $753,519 $52,070
Ratios to average net assets:
Expenses................................................ 1.11%** 1.11% 1.09% 1.03%**
Expenses, excluding waiver and payments by affiliate.... 1.16%** 1.14% 1.12% 1.13%**
Net investment income................................... 1.56%** 1.89% 1.58% 1.33%**
Portfolio turnover rate.................................. 32.15% 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.
11
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
----------------
SIX MONTHS ENDED
JUNE 30, 1999
(UNAUDITED)+
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $13.09
----------------
Income from investment operations:
Net investment income...................................... .09
Net realized and unrealized gains.......................... 2.13
----------------
Total from investment operations............................ 2.22
----------------
Less distributions from:
Net investment income...................................... (.04)
Net realized gains......................................... (.27)
----------------
Total distributions......................................... (.31)
----------------
Net asset value, end of period.............................. $15.00
================
Total Return*............................................... 16.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $4,242
Ratios to average net assets:
Expenses................................................... 1.78%**
Expenses, excluding waiver and payments by affiliate....... 1.83%**
Net investment income...................................... 1.25%**
Portfolio turnover rate..................................... 32.15%
</TABLE>
* Total return does not reflect the contingent deferred sales charge and is not
annualized.
** Annualized.
+ Effective date of Class B shares was January 1, 1999. Based on average
weighted shares outstanding.
12
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------------------
(UNAUDITED)+++ 1998+++ 1997+++ 1996+
---------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period..................... $13.04 $14.04 $12.98 $13.21
----------------------------------------------------------
Income from investment operations:
Net investment income................................... .06 .18 .14 .13
Net realized and unrealized gains....................... 2.19 .01 2.63 .71
----------------------------------------------------------
Total from investment operations......................... 2.25 .19 2.77 .84
----------------------------------------------------------
Less distributions from:
Net investment income................................... (.01) (.32) (.45) (.32)
Net realized gains...................................... (.27) (.87) (1.26) (.75)
----------------------------------------------------------
Total distributions...................................... (.28) (1.19) (1.71) (1.07)
----------------------------------------------------------
Net asset value, end of period........................... $15.01 $13.04 $14.04 $12.98
==========================================================
Total Return*............................................ 17.23% 1.40% 21.65% 6.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................ $498,308 $500,404 $362,425 $16,263
Ratios to average net assets:
Expenses................................................ 1.76%** 1.76% 1.74% 1.75%**
Expenses, excluding waiver and payments by affiliate.... 1.81%** 1.79% 1.77% 1.85%**
Net investment income................................... .90%** 1.24% .92% .84%**
Portfolio turnover rate.................................. 32.15% 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.
13
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 83.1%
AEROSPACE & MILITARY TECHNOLOGY 2.3%
*Coltec Industries Inc. .................................... United States 971,100 $ 21,060,731
*Hexcel Corp. .............................................. United States 991,880 10,042,785
Lockheed Martin Corp. ...................................... United States 1,666,700 62,084,575
Northrop Grumman Corp. ..................................... United States 322,300 21,372,519
--------------
114,560,610
--------------
AUTOMOBILES 3.3%
Borg-Warner Automotive Inc. ................................ United States 389,200 21,406,000
Delphi Automotive Systems Corp. ............................ United States 1,505,911 27,953,473
General Motors Corp. ....................................... United States 624,100 41,190,600
*Lear Corp. ................................................ United States 893,500 44,451,625
TRW Inc. ................................................... United States 539,300 29,594,087
--------------
164,595,785
--------------
BANKING 5.6%
Bank One Corp. ............................................. United States 2,041,854 121,617,929
*BHF-Bank AG................................................ Germany 509,000 17,321,852
Chase Manhattan Corp. ...................................... United States 635,380 55,039,792
First American Corp. Tennessee.............................. United States 344,600 14,322,437
First Union Corp. .......................................... United States 1,222,604 57,462,388
Hibernia Corp., A........................................... United States 445,600 6,990,350
U.S. Bancorp................................................ United States 183,900 6,252,600
--------------
279,007,348
--------------
BEVERAGES & TOBACCO 5.8%
Allied Domecq PLC........................................... United Kingdom 2,553,921 24,697,055
Austria Tabak AG............................................ Austria 251,455 14,651,137
Brown-Forman Corp., A....................................... United States 125,200 7,465,050
Brown-Forman Corp., B....................................... United States 228,580 14,900,559
Coca-Cola West Japan Co. Ltd. .............................. Japan 511,200 29,056,973
+Farmer Brothers Co. ....................................... United States 93,286 18,890,415
Gallaher Group PLC.......................................... United Kingdom 2,954,989 18,165,343
Gallaher Group PLC, ADR..................................... United Kingdom 146,400 3,577,650
Mikuni Coca-Cola Bottling Co. .............................. Japan 507,400 10,312,326
Molson Co. Ltd., A.......................................... Canada 1,882,375 34,341,929
Molson Co. Ltd., B.......................................... Canada 22,700 418,791
Nabisco Group Holdings Corp. ............................... United States 519,485 10,162,425
Philip Morris Cos. Inc. .................................... United States 1,606,700 64,569,256
Swedish Match AB............................................ Sweden 2,440,800 8,698,687
UST Inc. ................................................... United States 977,100 28,580,175
--------------
288,487,771
--------------
</TABLE>
14
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING 7.1%
*AT&T Corp. - Liberty Media Group, A........................ United States 689,808 $ 25,350,444
Daily Mail & General Trust PLC, A........................... United Kingdom 212,300 11,745,736
Dow Jones & Co. Inc. ....................................... United States 848,200 45,007,612
*Hearst-Argyle Television Inc. ............................. United States 491,805 11,803,320
*MediaOne Group Inc. ....................................... United States 733,500 54,554,062
Meredith Corp. ............................................. United States 414,900 14,365,912
*Modern Times Group AB, A................................... Sweden 287,550 5,749,647
*Modern Times Group AB, B................................... Sweden 777,552 16,873,482
Nippon Television Network Corp. ............................ Japan 10,200 4,213,483
NV Holdingsmig de Telegraaf................................. Netherlands 2,208,400 43,498,443
R. H. Donnelly Corp. ....................................... United States 1,196,072 23,398,157
Scripps Co., A.............................................. United States 1,163,500 55,338,969
Washington Post Co., B...................................... United States 80,800 43,450,200
--------------
355,349,467
--------------
BUILDING MATERIALS & COMPONENTS .6%
*American Standard Cos. Inc. ............................... United States 588,800 28,262,400
--------------
BUSINESS & PUBLIC SERVICES 1.9%
Hillenbrand Industries Inc. ................................ United States 720,000 31,140,000
*Republic Services Inc., A.................................. United States 290,400 7,187,400
Suez Lyonnaise des Eaux SA.................................. France 312,252 56,319,351
--------------
94,646,751
--------------
CHEMICALS 1.1%
Arch Chemicals Inc. ........................................ United States 596,300 14,497,544
Bayer AG, Br. .............................................. Germany 545,750 22,709,098
Olin Corp. ................................................. United States 1,235,600 16,294,475
--------------
53,501,117
--------------
DATA PROCESSING & REPRODUCTION .1%
*Cadence Design Systems Inc. ............................... United States 445,500 5,680,125
*Tecnost Mael SpA........................................... Italy 673,020 1,662,249
--------------
7,342,374
--------------
ELECTRICAL & ELECTRONICS .1%
Honeywell Inc. ............................................. United States 16,900 1,958,287
*Level One Communications Inc. ............................. United States 43,700 2,138,569
--------------
4,096,856
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
*Amphenol Corp., A.......................................... United States 544,466 21,642,523
*Quantum Corp. ............................................. United States 320,300 7,727,237
--------------
29,369,760
--------------
</TABLE>
15
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY EQUIPMENT & SERVICES .8%
*Cooper Cameron Corp. ...................................... United States 581,900 $ 21,566,669
*Weatherford International Inc. ............................ United States 508,121 18,609,932
--------------
40,176,601
--------------
ENERGY SOURCES 2.2%
Atlantic Richfield Co. ..................................... United States 132,400 11,063,675
Royal Dutch Petroleum Co., N.Y. shs. ....................... Netherlands 124,800 7,519,200
Shell Transport & Trading Co. PLC........................... United Kingdom 1,394,500 10,446,331
Societe Elf Aquitaine SA, Br. .............................. France 231,913 34,032,402
USEC Inc. .................................................. United States 3,074,100 45,727,237
--------------
108,788,845
--------------
FINANCIAL SERVICES 8.9%
Bear Stearns Co. Inc. ...................................... United States 840,150 39,277,012
CIT Group Inc., A........................................... United States 865,000 24,976,875
Commercial Federal Corp. ................................... United States 2,161,342 50,116,118
Greenpoint Financial Corp. ................................. United States 1,101,708 36,149,794
Heller Financial Inc. ...................................... United States 618,800 17,210,375
Household International Inc. ............................... United States 1,095,181 51,884,200
(R)Laser Mortgage Management Inc. .......................... United States 221,500 761,406
Lehman Brothers Holdings Inc. .............................. United States 591,600 36,827,100
Liberty Financial Cos. Inc. ................................ United States 1,844,711 53,727,208
*MFN Financial Corp. ....................................... United States 380,720 3,783,405
Morgan Stanley, Dean Witter & Co. .......................... United States 251,200 25,748,000
Newcourt Credit Group Inc. ................................. Canada 55,200 722,296
Newcourt Credit Group Inc., fgn. ........................... Canada 1,397,300 18,077,569
Power Financial Corp. ...................................... Canada 111,400 2,131,329
Takefuji Corp. ............................................. Japan 129,100 13,343,035
+United Asset Management Corp. ............................. United States 3,105,000 70,638,750
--------------
445,374,472
--------------
FOOD & HOUSEHOLD PRODUCTS 2.3%
*Fine Host Corp. ........................................... United States 507,977 5,587,747
Kikkoman Corp. ............................................. Japan 1,794,700 15,198,013
Seaboard Corp. ............................................. United States 5,350 1,819,000
(R)*Sunbeam Corp. .......................................... United States 1,480,670 10,577,536
U.S. Industries Inc. ....................................... United States 1,825,000 31,025,000
+Van Melle NV............................................... Netherlands 397,084 25,490,852
Weetabix Ltd., A............................................ United Kingdom 433,025 23,889,340
--------------
113,587,488
--------------
FOREST PRODUCTS & PAPER .7%
Rayonier Inc. .............................................. United States 429,300 21,384,506
St. Joe Co. ................................................ United States 476,698 12,870,846
--------------
34,255,352
--------------
</TABLE>
16
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE 4.8%
*Beverly Enterprises Inc. .................................. United States 1,759,600 $ 14,186,775
*Foundation Health Systems, A............................... United States 1,371,040 20,565,600
*Healthsouth Corp. ......................................... United States 1,608,200 24,022,487
McKesson HBOC Inc. ......................................... United States 365,500 11,741,687
*Pacificare Health Systems Inc. ............................ United States 373,390 26,860,743
*Quorum Health Group Inc. .................................. United States 2,639,200 33,154,950
Rhone-Poulenc SA, A......................................... France 1,126,461 51,473,122
Rhone-Poulenc SA, ADR....................................... France 7,550 348,244
Sankyo Co. Ltd. ............................................ Japan 501,600 12,639,458
Santen Pharmaceutical Co. Ltd. ............................. Japan 862,900 17,109,716
*Tenet Healthcare Corp. .................................... United States 1,460,800 27,116,100
Ventas Inc. ................................................ United States 307,900 1,654,962
--------------
240,873,844
--------------
INDUSTRIAL COMPONENTS 1.7%
Gencorp Inc. ............................................... United States 1,175,400 29,678,850
(R)*Lancer Industries Inc., B............................... United States 1 1,145,967
*Owens-Illinois Inc. ....................................... United States 1,634,000 53,411,375
--------------
84,236,192
--------------
INSURANCE 2.3%
Allmerica Financial Corp. .................................. United States 468,100 28,466,331
American Bankers Insurance Group Inc. ...................... United States 124,300 6,766,581
Assurances Generales de France AGF.......................... France 404,542 19,482,429
Horace Mann Educators Corp. ................................ United States 702,400 19,096,500
*Old Republic International Corp. .......................... United States 110,500 1,913,031
Provident Companies Inc. ................................... United States 134,800 5,392,000
Sampo Insurance Co. PLC, A.................................. Finland 326,350 9,456,982
White Mountain Insurance Group Inc. ........................ United States 165,711 23,365,251
--------------
113,939,105
--------------
LEISURE & TOURISM 1.9%
*Park Place Entertainment Corp. ............................ United States 2,908,200 28,173,187
*Promus Hotel Corp. ........................................ United States 1,412,400 43,784,400
Starwood Hotels & Resorts Worldwide Inc. ................... United States 710,100 21,702,431
--------------
93,660,018
--------------
MACHINERY & ENGINEERING 2.0%
Case Corp. ................................................. United States 80,200 3,859,625
FKI PLC..................................................... United Kingdom 10,209,600 31,541,906
Invensys PLC................................................ United Kingdom 11,801,508 55,899,139
Toyoda Automatic Loom Works Ltd. ........................... Japan 650,200 11,039,004
--------------
102,339,674
--------------
</TABLE>
17
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 3.8%
*Federated Department Stores Inc. .......................... United States 577,900 $ 30,592,581
*Homeland Holdings Corp. ................................... United States 59,798 125,576
J.C. Penney Co. Inc. ....................................... United States 778,100 37,786,481
*Neiman-Marcus Group Inc. .................................. United States 968,800 24,886,050
*Payless Shoesource Inc. ................................... United States 786,300 42,067,050
Rite Aid Corp. ............................................. United States 1,286,400 31,677,600
*Toys R Us Inc. ............................................ United States 1,192,985 24,679,877
--------------
191,815,215
--------------
METALS & MINING .3%
Allegheny Teledyne Inc. .................................... United States 749,660 16,961,057
Central Steel & Wire Co. ................................... United States 959 700,070
--------------
17,661,127
--------------
MISC MATERIALS & COMMODITIES .1%
Agrium Inc. ................................................ Canada 100,000 881,449
Agrium Inc., fgn. .......................................... Canada 448,200 3,949,763
--------------
4,831,212
--------------
MULTI-INDUSTRY 8.4%
*Alleghany Corp. ........................................... United States 122,864 22,729,840
*Berkshire-Hathaway Inc., A................................. United States 628 43,269,200
Compagnie Financiere Richemont AG, Br., A................... Switzerland 29,391 56,528,425
Compagnie Generale D'Industrie et de Participation.......... France 315,826 15,275,074
Imasco Ltd. ................................................ Canada 1,113,700 30,211,063
Investor AB, A.............................................. Sweden 4,091,600 44,997,012
Investor AB, B.............................................. Sweden 7,537,300 84,220,595
Invik & Co. AB, B........................................... Sweden 16,355 960,871
Kansas City Southern Industries Inc. ....................... United States 263,000 16,782,687
Kinnevik AB, B.............................................. Sweden 1,923,102 36,191,052
Lagardere SCA............................................... France 1,623,590 60,443,023
Power Corp. of Canada....................................... Canada 305,000 5,877,007
--------------
417,485,849
--------------
REAL ESTATE 4.0%
*Alexander's Inc. .......................................... United States 46,300 3,420,411
*Al-Zar Ltd. LP............................................. United States 12 2,671
*Cadillac Fairview Corp. ................................... Canada 658,972 12,495,028
*Cadillac Fairview Corp., wts. ............................. Canada 112,599 719,372
(R)*Canary Wharf Group PLC.................................. United Kingdom 26,929,163 152,426,822
*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 205,135 102,567
</TABLE>
18
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
(R)*Security Capital European Realty........................ United States 416,875 $ 7,223,277
+*Wellsford Real Properties Inc. ........................... United States 1,583,221 17,019,626
--------------
198,628,998
--------------
RECREATION & OTHER CONSUMER GOODS .4%
*Gtech Holdings Corp. ...................................... United States 886,800 20,895,225
--------------
TELECOMMUNICATIONS 4.7%
BCE Inc. ................................................... Canada 1,017,950 49,906,329
*CTV Inc. .................................................. Canada 1,252,880 19,261,906
*Telecom Italia SpA, di Risp. .............................. Italy 4,901,400 26,662,767
Telephone & Data Systems Inc. .............................. United States 1,713,100 125,163,369
Telesp Participacoes SA..................................... Brazil 158,444,300 2,060,454
*Vodafone AirTouch PLC, ADR................................. United Kingdom 55,850 11,002,450
--------------
234,057,275
--------------
TEXTILES & APPAREL .6%
+*Nautica Enterprises Inc. ................................. United States 1,830,600 30,891,375
--------------
TRANSPORTATION 3.4%
+ASG AB, B.................................................. Sweden 1,296,489 40,410,443
Burlington Northern Santa Fe Corp. ......................... United States 427,900 13,264,900
Florida East Coast Industries Inc. ......................... United States 1,315,100 58,193,175
(R)*Golden Ocean Group Ltd., wts., 8/31/01.................. United States 3,010 0
Railtrack Group PLC......................................... United Kingdom 2,778,645 56,806,257
--------------
168,674,775
--------------
UTILITIES ELECTRICAL & GAS 1.3%
*Citizens Utilities Co., B.................................. United States 3,223,182 35,857,900
The McClatchy Company, A.................................... United States 105,200 3,484,750
Veba AG..................................................... Germany 390,800 23,052,243
--------------
62,394,893
--------------
TOTAL COMMON STOCKS (COST $3,185,816,802)................... 4,143,787,774
--------------
PREFERRED STOCKS .8%
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 378,200 5,247,525
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 192,200 10,667,100
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 942,900 17,502,581
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 315,900 7,226,212
--------------
TOTAL PREFERRED STOCKS (COST $39,253,822)................... 40,643,418
--------------
</TABLE>
19
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES 3.1%
Abraxas Petroleum Corp., Series D, 11.50%, 11/01/04......... United States $ 4,157,000 $ 2,618,910
Eurotunnel Finance Ltd.:
Equity Note, 12/31/03..................................... United Kingdom 6,927,387GBP 5,350,430
Participating Loan Note, 4/30/40.......................... United Kingdom 3,200,000GBP 2,168,910
Eurotunnel PLC:
12/31/12, Tier 1.......................................... United Kingdom 5,145,315GBP 6,650,418
12/31/18, Tier 2.......................................... United Kingdom 13,192,620GBP 15,388,132
12/31/25, Tier 3.......................................... United Kingdom 3,979,941GBP 4,077,680
12/31/50, Resettable Advance R5........................... United Kingdom 4,999,646GBP 3,349,279
Eurotunnel SA:
12/31/12, Tier 1 (Libor).................................. France 4,304,934EUR 3,595,954
12/31/12, Tier 1 (Pibor).................................. France 122,451EUR 102,285
12/31/18, Tier 2 (Libor).................................. France 9,184,183EUR 6,961,302
12/31/18, Tier 2 (Pibor).................................. France 1,733,689EUR 1,323,017
12/31/25, Tier 3 (Libor).................................. France 7,529,525EUR 4,969,471
12/31/25, Tier 3 (Pibor).................................. France 1,651,056EUR 1,089,694
12/31/50, Resettable Advance R4........................... France 8,501,252EUR 3,638,259
Stabilization Advance, S6 tier 1 (Pibor).................. France 200,533EUR 49,632
Stabilization Advance, S6, tier 2......................... France 607,945EUR 125,388
Stabilization Advance, S7, tier 1 (Libor)................. France 494,243EUR 122,325
Stabilization Advance, S8, tier 1......................... United Kingdom 856,619GBP 324,057
Stabilization Advance, S8, tier 2......................... United Kingdom 863,018GBP 209,016
Federal Home Loan Bank:
5.39%, 10/06/00........................................... United States 20,000,000 19,912,480
5.35%, 4/12/01............................................ United States 25,000,000 24,786,275
Federal Home Loan Mortgage Corp., 5.635%, 10/01/01.......... United States 12,500,000 12,407,175
(R)*Golden Ocean Group Ltd., 10.00%, 8/31/01................ United States 7,190,000 790,900
*Great Trust Services, Series A, zero coupon, 1/15/02....... United States 212,017 106,008
Heilman Acquisition Corp., 9.625%, 1/31/04.................. United States 15,000,000 1,500
Hvide Marine Inc., 8.375%, 2/15/08.......................... United States 1,715,000 831,775
Kelley Oil & Gas Corp.:
10.375%, 10/15/06......................................... United States 1,180,000 678,500
Series D, 10.375%, 10/15/06............................... United States 1,480,000 851,000
144A, 14.00%, 4/15/03..................................... United States 2,240,000 2,307,200
MFN Financial Corp.:
Series A, 10.00%, 4/23/01................................. United States 1,575,174 1,488,539
Series B, FRN, 9.495%, 4/23/01............................ United States 2,700,174 2,551,664
R.H. Cement Finance PLC, 144A, FRN, 14.40%, 3/10/00......... Irish Republic 4,800,000 4,800,000
Southwest Royalties Inc., B 10.50%, 10/15/04................ United States 17,331,000 8,405,535
Specialty Foods Corp.:
13.25%, 8/15/03........................................... United States 8,140,000 6,349,200
11.00%, 8/15/09........................................... United States 767,754 78
TFM SA de CV:
144A, 10.25%, 6/15/07..................................... Mexico 400,000 355,000
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 5,450,000 3,297,250
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11........... Mexico 2,115,854 1,100,244
--------------
TOTAL BONDS & NOTES (COST $162,689,598)..................... 153,134,482
--------------
</TABLE>
20
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION 3.1%
*Acme Metals Inc., Term Loan................................ United States $ 2,872,000 $ 2,168,360
*Aiken Cnty S C Indl Rev Ref Belott, 6.00%, 12/01/11........ United States 420,000 256,200
*Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01..................................... Mexico 200,000 80,000
Series A, 11.375%, 4/30/02................................ Mexico 900,000 405,000
Series B, 11.875%, 4/15/04................................ Mexico 620,000 279,000
*Barings BV, zero coupon 1/22/01............................ Netherlands 25,350,000 15,970,500
*Breed Technologies Inc., Tranche B, Term Loan.............. United States 219,543 141,605
*Brunos Inc.:
Revolver.................................................. United States 2,531,800 1,455,785
Tranche A, Term Loan...................................... United States 4,424,500 2,389,230
Tranche B, Term Loan...................................... United States 3,640,000 1,965,600
*Crown Leasing, Bank Claim.................................. Japan 1,048,052,471JPY 1,374,573
*Decision One Corp.:
Revolver.................................................. 3,187,428 1,394,500
Tranche A, Term Loan...................................... United States 5,640,915 2,467,900
Tranche B, Term Loan...................................... United States 1,649,614 721,706
*Dictaphone Corporation:
Revolver.................................................. United States 4,831,566 4,203,462
Tranche B, Term Loan...................................... United States 3,108,875 2,735,810
Tranche C, Term Loan...................................... United States 2,811,500 2,474,120
*Dow Corning Corp.:
bank debt #1.............................................. United States 2,850,000 3,655,125
bank debt #2.............................................. United States 2,070,704 2,655,678
swap...................................................... United States 7,677,843 9,846,834
9.30%, 1/27/98............................................ United States 1,835,000 2,353,387
9.50%, 8/10/99............................................ United States 350,000 448,875
8.55%, 3/01/01............................................ United States 1,100,000 1,410,750
9.375%, 2/01/08........................................... United States 790,000 1,013,175
8.15%, 10/15/29........................................... United States 7,050,000 9,041,625
*Eli Jacobs, bank claim..................................... United States 25,305,910 253,059
*Foxmeyer Health Corp.:
Reclaimation trade claim.................................. United States 5,488,844 1,427,099
Trade Claim............................................... United States 610,315 457,736
*Harnischfeger Industries Inc.:
8.90%, 3/01/22............................................ United States 2,905,000 1,772,050
8.70%, 6/15/22............................................ United States 1,455,000 887,550
6.875%, 2/15/27........................................... United States 3,580,000 2,183,800
*Integrated Health Services Inc., Tranche B, Term Loan...... United States 2,792,911 2,583,443
*Koninklijke Ned Vlieg Fokker NV, trade claim............... Netherlands 6,467,457EUR 5,335,635
*Loewen Group Inc., Series 5, 6.10%, 10/02/02............... Canada 2,580,000 1,066,553
</TABLE>
21
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Loewen Group International Inc.
bank claim, revolver...................................... Canada $ 1,648,043 $ 1,030,027
144A, 6.70%, 10/01/99..................................... Canada 3,580,000 2,165,900
Series 3, 7.50%, 4/15/01.................................. Canada 960,000 604,800
Series 6, 7.20%, 6/01/03.................................. Canada 15,460,000 9,894,400
Series 4, 8.25%, 10/15/03................................. Canada 5,385,000 3,365,625
Series 7, 7.60%, 6/01/08.................................. Canada 12,070,000 7,664,450
Series 3, 7.75%, 10/15/01................................. Canada 1,960,000 1,234,800
Series 2, 8.25%, 4/15/03.................................. Canada 1,900,000 1,187,500
*Nippon Credit Bank Ltd., Bank Claim........................ Japan 533,496,043JPY 704,260
*Nippon Total Finance, Bank Claim........................... Japan 540,865,459JPY 265,817
*Philip Services Corporation:
Revolver tranche 1........................................ United States 3,791,139 1,630,190
Revolver tranche 2........................................ United States 3,507,626 1,508,279
Revolver tranche 3........................................ United States 1,761,086 757,267
*Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17.... United States 225,000 137,250
*Pratama Datakom Asia BV:
Reg S, 12.75%, 7/15/05.................................... Indonesia 1,730,000 406,550
144A, 12.75%, 7/15/05..................................... Indonesia 7,795,000 1,831,825
*Ritvik Holdings:
Term Loan B............................................... United States 676,000 574,600
Term Loan C............................................... United States 1,692,000 1,438,200
*Southeast Banking Corp.:
zero coupon, 12/18/96..................................... United States 5,270,000 1,317,500
zero coupon, 11/12/97..................................... United States 6,880,000 1,720,000
10.50%, 4/11/01........................................... United States 15,840,000 3,960,000
*United Companies Financial Corp, revolver.................. United States 22,379,000 12,532,240
*Vencor Inc.:
revolver.................................................. United States 782,000 664,700
term loan A............................................... United States 4,325,792 3,568,787
term loan B............................................... United States 573,999 483,594
9.875%, 5/01/05........................................... United States 16,360,000 4,989,800
*Ventas Inc.:
Tranche A, Bridge Loan.................................... United States 788,000 732,840
Tranche B, revolver....................................... United States 1,900,683 1,767,636
Tranche C, Term Loan A.................................... United States 747,850 702,979
Tranche D, Term Loan B.................................... United States 262,096 214,919
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $131,939,215)... 155,932,460
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C> <C>
COMPANIES IN LIQUIDATION
*City Investing Company Liquidating Trust................... United States $ 389,587 $ 511,333
*Kendall International Inc., Residual Ownership Cert. ...... United States 49 511
*MCorp. Financial Trust, claim units........................ United States 13,334 16,301
*MCorp. Trust Units, claim units............................ United States 13,327 133
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $92,264)............... 528,278
--------------
</TABLE>
22
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 7.6%
Fannie Mae, 4.49% to 5.26% with maturities to 6/19/00....... United States $ 189,800,000 $ 185,308,350
Federal Home Loan Bank, 4.51% to 5.11% with maturities to
6/02/00................................................... United States 169,500,000 165,131,460
Federal Home Loan Mortgage Corp., 5.12% to 5.28% with
maturities to 6/22/00..................................... United States 30,000,000 28,532,690
--------------
TOTAL SHORT TERM INVESTMENTS (COST $379,263,210)............ 378,972,500
--------------
TOTAL INVESTMENTS (COST $3,899,054,911) 97.7%............... 4,872,998,912
SECURITIES SOLD SHORT (1.1)%................................ (53,670,747)
NET EQUITY IN FORWARD CONTRACTS 1.0%........................ 50,299,430
OTHER ASSETS, LESS LIABILITIES 2.4%......................... 117,699,723
--------------
TOTAL NET ASSETS 100.0%..................................... $4,987,327,318
==============
SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
*Allied Signal Inc. ........................................ United States 31,700 $ 1,997,100
*BP Amoco PLC, ADR.......................................... United Kingdom 51,200 5,555,200
*DST Systems Inc. .......................................... United States 54,700 3,439,263
*Intel Corp. ............................................... United States 37,400 2,225,300
*Nortel Networks Corp. ..................................... Canada 407,300 35,066,484
*Unum Corp. ................................................ United States 98,400 5,387,400
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $47,687,274).......... $ 53,670,747
==============
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
SECURITY COUNTRY SHARES 6/30/99 LOSS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*BP Amoco PLC, cfd. 10.3574................................ United Kingdom 162,900 $ 2,922,042 $ (262,573)
*BP Amoco PLC, cfd. 10.945................................. United Kingdom 63,500 1,139,040 (43,540)
*BP Amoco PLC, cfd. 11.2992................................ United Kingdom 122,000 2,188,393 (15,538)
*Vodafone Group PLC, cfd. 11.2893.......................... United Kingdom 335,000 6,589,956 (628,739)
*Vodafone Group PLC, cfd. 12.272........................... United Kingdom 223,000 4,386,747 (73,112)
----------- -----------
TOTAL CONTRACTS FOR DIFFERENCES............................ $14,304,136 $(1,023,502)
=========== ===========
</TABLE>
CURRENCY ABBREVIATIONS:
EUR -- European Unit
GBP -- British Pounds
JPY -- Japanese Yen
* Non income producing
** Securities denominated in U.S. dollars unless otherwise indicated.
(R) Restricted securities (see note 6).
+ Affiliated issuers (see note 7).
See Notes to Financial Statements.
23
MUTUAL BEACON FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value:
Unaffiliated issuers (cost $3,709,288,822)................ $4,665,898,227
Controlled affiliates (cost $3,194,872)................... 3,759,224
Non controlled affiliates (cost $186,571,217)............. 203,341,461 $4,872,998,912
--------------
Cash....................................................... 35,015,490
Receivables:
Investment securities sold................................ 54,957,865
Capital shares sold....................................... 5,629,781
Dividends and interest.................................... 16,397,937
From affiliates........................................... 188,699
Unrealized gain on forward exchange contracts (Note 8)..... 53,011,182
Deposits with broker for securities sold short............. 93,839,933
--------------
Total assets.......................................... 5,132,039,799
--------------
Liabilities:
Payables:
Investment securities purchased........................... 69,444,180
Capital shares redeemed................................... 12,835,396
To affiliates............................................. 4,523,861
Securities sold short, at value (proceeds $47,687,274)..... 53,670,747
Unrealized loss on forward exchange contracts (Note 8)..... 2,711,752
Due to broker-variation margin............................. 858,766
Accrued expense............................................ 667,779
--------------
Total liabilities..................................... 144,712,481
--------------
Net assets, at value........................................ $4,987,327,318
==============
Net assets consist of:
Undistributed net investment income........................ $ 3,613,403
Net unrealized appreciation................................ 1,017,236,456
Accumulated net realized gain.............................. 502,904,734
Capital shares............................................. 3,463,572,725
--------------
Net assets, at value........................................ $4,987,327,318
==============
</TABLE>
24
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
CLASS Z:
Net asset value and maximum offering price per share
($3,518,020,417 / 232,319,716 shares outstanding)........ $15.14
==============
CLASS A:
Net asset value per share ($966,757,259 / 64,062,559 shares
outstanding).............................................. $15.09
==============
Maximum offering price per share ($15.09 / 94.25%)......... $16.01
==============
CLASS B:
Net asset value and maximum offering price per share
($4,241,954 / 282,793 shares outstanding)*................ $15.00
==============
CLASS C:
Net asset value per share ($498,307,688 / 33,203,050 shares
outstanding)*............................................. $15.01
==============
Maximum offering price per share ($15.01 / 99.00%)......... $15.16
==============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
25
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,485,405)
Dividends.................................................. $ 44,376,339
Interest................................................... 21,244,681
------------
Total investment income............................... $ 65,621,020
------------
Expenses:
Management fees (Note 3)................................... 14,845,475
Administrative fees (Note 3)............................... 1,903,714
Distribution fees (Note 3)
Class A................................................... 1,558,320
Class B................................................... 7,247
Class C................................................... 2,358,148
Transfer agent fees (Note 3)............................... 2,514,139
Custodian fees............................................. 182,129
Reports to shareholders.................................... 210,414
Registration and filing fees............................... 156,652
Professional fees.......................................... 236,792
Directors' fees and expenses............................... 60,763
Other...................................................... 149,523
------------
Total expenses........................................ 24,183,316
Expenses waived/paid by affiliate (Note 3)............ (1,091,892)
------------
Net expenses...................................... 23,091,424
------------
Net investment income........................... 42,529,596
------------
Realized and unrealized gains:
Net realized gain from:
Investments............................................... 464,473,834
Foreign currency transactions............................. 31,863,225
------------
Net realized gain..................................... 496,337,059
Net unrealized appreciation on:
Investments............................................... 205,317,006
Translation of assets and liabilities denominated in
foreign currencies...................................... 56,349,703
------------
Net unrealized appreciation........................... 261,666,709
------------
Net realized and unrealized gain............................ 758,003,768
------------
Net increase in net assets resulting from operations........ $800,533,364
============
</TABLE>
See Notes to Financial Statements.
26
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
----------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 42,529,596 $ 141,765,837
Net realized gain from investments and foreign currency
transactions............................................. 496,337,059 391,064,810
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 261,666,709 (427,971,403)
----------------------------------------
Net increase in net assets resulting from operations.... 800,533,364 104,859,244
Distributions to shareholders from:
Net investment income:
Class Z.................................................. (9,764,423) (137,278,406)
Class A.................................................. (1,965,565) (27,206,575)
Class B.................................................. (8,756) --
Class C.................................................. (248,115) (11,323,821)
Net realized gains:
Class Z.................................................. (61,362,164) (268,697,611)
Class A.................................................. (16,900,902) (59,012,359)
Class B.................................................. (63,647) --
Class C.................................................. (8,733,108) (31,235,735)
Capital share transactions (Note 2):
Class Z.................................................. (1,016,509,729) (1,347,918,137)
Class A.................................................. (111,408,004) 276,437,276
Class B.................................................. 4,079,059 --
Class C.................................................. (68,685,813) 184,975,294
----------------------------------------
Net decrease in net assets.............................. (491,037,803) (1,316,400,830)
Net assets:
Beginning of period........................................ 5,478,365,121 6,794,765,951
----------------------------------------
End of period.............................................. $ 4,987,327,318 $ 5,478,365,121
========================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ 3,613,403 $ (26,929,334)
========================================
</TABLE>
See Notes to Financial Statements.
27
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mutual Beacon Fund (the Fund) is a separate, diversified series of Franklin
Mutual Series Fund, Inc. (the Series Fund), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks
long-term capital appreciation and income through a flexible policy of investing
in stocks and corporate debt securities. The following summarizes the Fund's
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 Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
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.
c. INCOME TAXES:
No provision has been made for income taxes because the 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
28
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
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 Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's 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. CURRENCY 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 Fund is 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 Fund periodically, depending on fluctuations in the value of the
underlying security. When the contract is closed, the Fund records 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 Fund may not achieve the anticipated benefits
of the contracts for difference and may realize a loss.
29
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
h. SECURITIES SOLD SHORT:
The Fund is engaged in selling securities short, which obligates the Fund to
replace a security borrowed. The Fund would incur a loss if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund would realize a gain if the price
of the security declines between those dates.
The Fund is 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 Fund 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 Fund 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 Fund 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
The Fund offers four classes of shares: Class Z, Class A, Class B, and Class C.
Effective January 1, 1999, Class I and Class II shares were renamed Class A and
Class C, respectively, and a fourth class of shares, Class B was established.
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.
30
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
At June 30, 1999, there were 1.55 billion Fund shares authorized ($0.001 par
value) of which 750 million, 300 million, 200 million, and 300 million were
designated as Class Z, Class A, Class B, and Class C shares, respectively.
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold........................................ 8,562,196 $ 120,820,415 29,538,240 $ 423,539,531
Shares issued on reinvestment of distributions..... 4,452,466 66,878,576 28,882,302 383,214,544
Shares redeemed.................................... (87,796,963) (1,204,208,720) (153,566,842) (2,154,672,212)
----------------------------------------------------------------------
Net decrease....................................... (74,782,301) $(1,016,509,729) (95,146,300) $(1,347,918,137)
======================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
CLASS A SHARES:
Shares sold........................................ 10,385,154 $ 146,002,097 33,023,123 $ 478,615,148
Shares issued on reinvestment of distributions..... 1,198,564 17,941,569 6,172,882 81,129,419
Shares redeemed.................................... (19,883,966) (275,351,670) (20,320,000) (283,307,291)
----------------------------------------------------------------------
Net increase (decrease)............................ (8,300,248) $ (111,408,004) 18,876,005 $ 276,437,276
======================================================================
SIX MONTHS ENDED
JUNE 30, 1999+
------------------------------
SHARES AMOUNT
------------------------------
CLASS B SHARES:
Shares sold........................................ 284,566 $ 4,098,332
Shares issued on reinvestment of distributions..... 4,477 66,618
Shares redeemed.................................... (6,250) (85,891)
------------------------------
Net increase....................................... 282,793 $ 4,079,059
==============================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
CLASS C SHARES:
Shares sold........................................ 2,753,712 $ 38,803,543 17,229,777 $ 250,063,188
Shares issued on reinvestment of distributions..... 557,037 8,294,102 2,985,265 39,075,561
Shares redeemed.................................... (8,473,615) (115,783,458) (7,656,767) (104,163,455)
----------------------------------------------------------------------
Net increase (decrease)............................ (5,162,866) $ (68,685,813) 12,558,275 $ 184,975,294
======================================================================
</TABLE>
+ Effective date of Class B shares was January 1, 1999.
31
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Series Fund are also officers 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 Fund's transfer
agent and principal underwriter, respectively.
The Fund pays an investment management fee to Franklin Mutual of 0.60% per year
of the average daily net assets of the Fund. Franklin Mutual agreed, through
June 30, 2000, to limit the expense ratio of the Fund to be no higher than
expected for the 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 Fund's
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.
The 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:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
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
The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.35%, 1.00%, and 1.00% per year of the average daily net assets of
Class A, Class B, and Class C shares, respectively. Distributors received net
commissions from sales of those shares and received contingent deferred sales
charges for the period of $120,065 and $353,929, respectively.
4. INCOME TAXES
At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,900,829,030 was as follows:
Unrealized appreciation..................................... $1,078,109,062
Unrealized depreciation..................................... (105,939,180)
--------------
Net unrealized appreciation................................. $ 972,169,882
==============
32
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $1,460,545,385 and $2,417,176,871,
respectively
Transactions in options written during the six months ended June 30, 1999 were
as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
-------- ---------
<S> <C> <C>
Options outstanding at December 31, 1998.................... 236 $ 55,609
Options written............................................. 376 151,867
Options expired............................................. (530) (175,022)
Options terminated in closing transactions.................. (82) (32,454)
-------------------------
Options outstanding at June 30, 1999........................ 0 $ 0
=========================
</TABLE>
6. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering 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 June 30, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
26,929,163 Canary Wharf Group PLC...................................... 5/06/99 $152,426,822
7,190,000 Golden Ocean Group, 10.00%, 8/31/01......................... 8/26/97 790,900
3,010 Golden Ocean Group Ltd., wts., 8/31/01...................... 8/26/97 0
1 Lancer Industries Inc., B................................... 8/11/89 1,145,967
221,500 Laser Mortgage Management Inc............................... 11/26/97 761,406
3,043,906 MB Metropolis LLC........................................... 12/07/94 3,759,224
416,875 Security Capital European Realty............................ 4/08/98 7,223,277
1,480,670 Sunbeam Corp................................................ 2/23/90 10,577,536
------------
TOTAL RESTRICTED SECURITIES (COST $22,831,270) (3.54% OF NET ASSETS).............. $176,685,132
============
</TABLE>
7. INVESTMENT IN AFFILIATES
The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at June 30,
1999 were $207,100,685. For the six months ended June 30, 1999, dividend income
from "affiliated persons" was $2,384,180 and net realized gains from the
disposition of "affiliated persons" were $10,084,293.
33
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
7. INVESTMENT IN AFFILIATES (CONT.)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/1/99-
NAME OF ISSUER DEC. 31, 1998 ADDITIONS REDUCTIONS JUNE 30, 1999 JUNE 30, 1999 6/30/99
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
MB Metropolis LLC............. 3,043,906 -- -- 3,043,906 $ 3,759,224 --
MSCW Investors III, LLC....... 28,372,000 -- (28,372,000) -- ** --
-------------------------------
TOTAL CONTROLLED AFFILIATES... $ 3,759,224 --
===============================
NON CONTROLLED AFFILIATES
ASG AB, B..................... 1,466,689 -- (170,200) 1,296,489 $ 40,410,443 $ 655,720
Farmer Bros. Co. ............. 93,286 -- -- 93,286 18,890,415 130,600
Gulfmark Offshore Inc. ....... 642,074 -- (642,074) -- ** --
Nautica Enterprises Inc....... 1,493,500 429,900 (92,800) 1,830,600 30,891,375 --
R H Donnelly Corp............. 1,914,772 -- (718,700) 1,196,072 ** --
Resurgence Properties Inc..... 591,900 -- (591,900) -- ** --
Resurgence Properties Inc.,
Restricted................... 900,000 -- (900,000) -- ** --
Spectra Physics AB, A......... 1,130,000 -- (1,130,000) -- ** --
United Asset Management
Corporation.................. 3,105,000 -- -- 3,105,000 70,638,750 1,242,000
Van Melle NV.................. 282,037 115,047 -- 397,084 25,490,852 355,860
Wellsford Real Properties
Inc. ........................ 1,583,221 -- -- 1,583,221 17,019,626 --
-------------------------------
TOTAL NON CONTROLLED
AFFILIATES................... $203,341,461 $2,384,180
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAINS
- ------------------------------ ----------
<S> <C>
CONTROLLED AFFILIATES*
MB Metropolis LLC............. --
MSCW Investors III, LLC....... $5,707,741
----------
TOTAL CONTROLLED AFFILIATES... $5,707,741
==========
NON CONTROLLED AFFILIATES
ASG AB, B..................... $ (283,791)
Farmer Bros. Co. ............. --
Gulfmark Offshore Inc. ....... 1,169,746
Nautica Enterprises Inc....... 183,763
R H Donnelly Corp............. 210,529
Resurgence Properties Inc..... 41,433
Resurgence Properties Inc.,
Restricted................... 63,000
Spectra Physics AB, A......... 2,991,872
United Asset Management
Corporation.................. --
Van Melle NV.................. --
Wellsford Real Properties
Inc. ........................ --
----------
TOTAL NON CONTROLLED
AFFILIATES................... $4,376,552
==========
</TABLE>
*Issuer in which the Fund owns 25% or more of the outstanding voting securities.
**As of June 30, 1999, no longer an affiliate.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the functional currency
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 Fund's 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 the 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.
34
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
As of June 30, 1999, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
CONTRACTS TO BUY: --------------------------------------------------
- ------------------
<S> <C> <C> <C> <C> <C> <C>
646,280 Canadian Dollars................................... U.S. $ 429,336 07/13/99 U.S. $ 12,345
116,449,650 Norwegian Krone.................................... 14,650,000 09/10/99 110,454
12,729,479 Canadian Dollars................................... 8,469,156 10/29/99 243,587
-------------- -----------
U.S. $ 23,548,492 366,386
============== ===========
CONTRACTS TO SELL:
- ------------------
44,243,185 European Unit...................................... U.S. $ 51,206,509 07/19/99 5,515,812
52,087,176 Swedish Krona...................................... 6,764,568 07/21/99 630,177
24,891,575 British Pounds..................................... 40,536,188 08/17/99 1,287,411
448,998,523 Swedish Krona...................................... 57,197,264 08/17/99 4,229,275
52,765,832 European Unit...................................... 58,649,897 08/31/99 3,977,417
63,816,007 European Unit...................................... 70,269,869 09/10/99 4,095,129
97,671,840 Norwegian Krone.................................... 12,475,000 09/10/99 94,708
74,122,054 Swiss Franc........................................ 50,732,236 09/10/99 2,646,183
83,179,245 Swedish Krona...................................... 9,979,532 09/15/99 148,518
75,644,076 Swedish Krona...................................... 9,272,954 09/20/99 329,559
11,031,299,736 Japanese Yen....................................... 216,198,605 09/24/99 2,092,587
85,383,514 European Unit...................................... 93,402,305 10/12/99 4,637,093
554,662,111 Swedish Krona...................................... 67,749,128 10/19/99 2,041,197
78,225,001 European Unit...................................... 87,869,913 10/27/99 6,449,955
31,937,039 Canadian Dollars................................... 21,905,746 10/29/99 46,312
24,584,982 British Pounds..................................... 40,073,521 11/16/99 1,260,718
476,298,523 Swedish Krona...................................... 60,739,415 11/17/99 4,201,291
38,498,670 European Unit...................................... 40,899,039 11/29/99 722,778
25,306,183 British Pounds..................................... 40,720,457 12/15/99 750,577
32,250,788 European Unit...................................... 34,126,014 12/17/99 421,631
38,833,026 British Pounds..................................... 63,019,300 12/20/99 1,679,535
59,521,237 British Pounds..................................... 95,948,234 01/18/00 1,889,545
14,455,469 British Pounds..................................... 23,404,941 05/22/00 524,569
37,374,310 British Pounds..................................... 61,891,857 07/20/00 2,972,819
-------------- -----------
U.S. $1,315,032,492 52,644,796
============== -----------
Unrealized gain on forward exchange contracts................. 53,011,182
===========
</TABLE>
35
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS)
CONTRACTS TO BUY: --------------------------------------------------
- ------------------
<S> <C> <C> <C> <C> <C> <C>
1,151,751 Canadian Dollars................................... U.S. $ 790,441 07/13/99 U.S. $ (3,310)
78,029,999 Norwegian Krone.................................... 9,907,313 09/10/99 (16,702)
10,307,500 Canadian Dollars................................... 7,058,487 10/29/99 (3,477)
-------------- -----------
U.S. $ 17,756,241 (23,489)
============== ===========
CONTRACTS TO SELL:
- ------------------
1,914,176 Canadian Dollars................................... U.S. $ 1,270,189 07/13/99 (37,998)
16,482,929 Canadian Dollars................................... 10,969,970 08/31/99 (302,680)
82,511,500 Norwegian Krone.................................... 10,402,357 09/10/99 (56,302)
222,663,000 Swedish Krona...................................... 26,250,000 09/15/99 (66,699)
1,679,616,338 Japanese Yen....................................... 13,892,439 09/24/99 (165,242)
16,007,958 Swedish Krona...................................... 1,887,241 10/19/99 (9,138)
103,057,075 Canadian Dollars................................... 68,487,623 10/29/99 (2,050,204)
-------------- -----------
U.S. $ 133,159,819 (2,688,263)
============== -----------
Unrealized loss on forward exchange contracts................. (2,711,752)
-----------
Net unrealized gain on forward exchange contracts........... U.S. $50,299,430
===========
</TABLE>
36
SEMIANNUAL REPORT
CHAIRMAN OF THE BOARD
Michael F. Price
OFFICERS
Peter A. Langerman
Robert L. Friedman
Jeffery Altman
Raymond Garea
David E. Marcus
Larry Sondike
David Winters
INVESTMENT MANAGER
Franklin Mutual Advisers, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
DISTRIBUTOR
Franklin/Templeton Distributors, Inc.
1-800-DIAL-BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800-632-2301 - (Class A, B, & C)
1-800-448-FUND - (Class Z)
FUND INFORMATION
1-800-342-5236
This report must be preceded or accompanied by the current Mutual Beacon Fund
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.
476 S99 08/99 [recycle logo] Printed on recycled paper]
