SEMI ANNUAL REPORT
MUTUAL QUALIFIED FUND
JUNE 30, 1999
[LOGO]
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 Qualified Fund
for the six months ended June 30, 1999, during which the fund's Class Z shares
appreciated 16.72%. 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
CONTENTS
Shareholder Letter ............................................. 1
Fund Report .................................................... 4
Performance Summary ............................................ 8
Financial Highlights & Statement of Investments ................ 10
Financial Statements ........................................... 24
Notes to Financial Statements .................................. 28
[FUND CATEGORY PYRAMID]
Although pure theme or momentum investing may work in the short term, it is not,
in our opinion, sustainable over the long term.
research, 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 values 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 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 Raymond Garea and Jeff
Diamond, Mutual Qualified Fund's portfolio managers, with specific comments
about portfolio developments this year. We welcome your comments, either through
regular mail or by email to [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 Qualified Fund,
based on total net assets as of 6/30/99.]
United States 74.7%
Other Countries 25.3%
FUND REPORT
- --------------------------------------------------------------------------------
YOUR FUND'S GOAL: MUTUAL QUALIFIED FUND SEEKS CAPITAL APPRECIATION, WITH INCOME
AS A SECONDARY OBJECTIVE, BY INVESTING PRIMARILY IN COMMON AND PREFERRED STOCKS,
BONDS, AND CONVERTIBLE SECURITIES. THE FUND MAY ALSO INVEST IN FOREIGN
SECURITIES.
- --------------------------------------------------------------------------------
It's a pleasure to report that, during the six months under review,
Mutual Qualified Fund's Class Z shares produced a 16.72% cumulative total
return, as shown in the Performance Summary on page 9, while the Standard &
Poor's(R) 500 Composite Index returned 12.38% during the same period. In our
opinion, a more relevant comparison would be the S&P(R) Mid-Cap 400 Index, the
Russell 2000(R) Index, and the Philadelphia Value Line Index because the stocks
which comprise these indexes more closely resemble the holdings of the fund.
Their six-month returns were only 6.87%, 9.28%, and 13.21%, respectively.
The fund's performance benefited significantly from several factors. First, some
of the fund's holdings, such as Lucas Varity PLC, Morton International Inc., and
Telecom Italia SpA, di Risp, were taken over at substantial premiums to the
levels at which the shares were trading. Also helping our performance was the
fact that at the beginning of 1999, we felt that medium- and
small-capitalization financial companies offered some of the most attractive
values in the equity market. Two such positions in the fund, Metris Cos. Inc.
and Western Bancorp, appreciated considerably during the six months under
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
review, as the former rebounded from a rumor and panic-driven selloff during the
first quarter of the year and U.S. Bancorp announced the acquisition of the
latter. Another example of sound value investing was our purchase of shares of
mortgage insurance companies. The group sold off dramatically after an
announcement by Fannie Mae regarding a reduction in the use of mortgage
insurance. The subsequent rebound in the prices of these stocks illustrates how
important it is to have the courage and confidence to buy when most others seem
to be selling. (Of course, it also helps to be right.)
By the end of the reporting period, we were finding a great deal of value in the
mid-cap sector of the U.S. market. The market's bias for larger capitalization
stocks had led investors to overlook many companies that we believe have strong
businesses and attractive valuations, such as Promus Hotel Corp. and Tenet
Healthcare Corp. (a hospital company). In our opinion, the health care services
group is an arena offering tremendous investment opportunities, and as of June
30, the fund had significant positions in hospital companies, health maintenance
organizations, and several other entities within the health care sector.
In the large-cap arena, we added significantly to our position in Lockheed
Martin Corp. following the firm's falling out of favor with much of Wall Street.
We also added to our European holdings by initiating positions in large
capitalization companies such as Rhone-Poulenc SA and Invensys PLC that traded
at attractive valuations.
As we look forward, we have concerns about some economic variables. In June, the
Federal Reserve Board increased its short-term lending rate and shifted its
policy stance on future rate changes to neutral. The market reacted with what
can be characterized as its usual 1990s-style euphoria. Notwithstanding the
Fed's ostensible shift to a neutral stance, any sign of a
TOP 10 HOLDINGS
6/30/99
[This chart lists the top 10 holdings, including industry and country, of
Mutual Qualifed Fund, based on total net assets as of 6/30/99.]
COMPANY, INDUSTRY, COUNTRY % OF TOTAL
NET ASSETS
Investor AB, A&B, Multi-Industry, Sweden ........................ 3.1%
Canary Wharf Group PLC, Real Estate, United Kingdom ............. 2.9%
Telephone & Data Systems Inc., Telecommunications, U.S. ......... 2.5%
Bank One Corp., Banking, U.S. ................................... 2.5%
Western Bancorp, Banking, U.S. .................................. 1.4%
Suez Lyonnaise des Eaux SA, Business & Public Services, France .. 1.4%
Invensys PLC, Machinery & Engineering, United Kingdom ........... 1.3%
Florida East Coast Industries Inc., Transportation, U.S. ........ 1.2%
Railtrack Group PLC, Transportation, United Kingdom ............. 1.2%
Chase Manhattan Corp., Banking, U.S. ........................... 1.2%
5
strengthening of the economy or a whiff of inflation may prompt the Fed to
tighten monetary policy further. We also are concerned about expectations for
corporate earnings growth, particularly for companies characterized as cyclical.
We believe that any earnings rebound will be much slower than the market has
priced into those stocks. At the same time, the market's overall valuation
remains high.
Regardless of the state of the economy or the direction of interest rates, we
remain disciplined in our approach to stock selection. As value investors, our
objective is to invest in stocks offering us the opportunity to buy corporate
assets for sixty cents on the dollar and sell them as they approach our
assessment of full, intrinsic value. Our assessment is based on a company's
earnings, cash flow, and assets. We expect to participate in bull markets and
outperform in bear markets owing to the downside protection afforded by our
valuation discipline. By adhering to this strategy, we expect to provide our
shareholders with an attractive, long-term compound return, with less risk and
volatility than the overall markets.
We appreciate your participation in Mutual Qualified Fund and welcome your
comments and suggestions.
[PHOTO OF RAYMOND GAREA]
/s/RAYMOND GAREA
- ----------------------
Raymond Garea
Portfolio Manager
[PHOTO OF JEFF DIAMOND]
/s/JEFF DIAMOND
- -----------------------
Jeff Diamond
Assistant Portfolio Manager
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
<TABLE>
<CAPTION>
CLASS Z CHANGE 6/30/99 12/31/98
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$2.18 $18.64 $16.46
</TABLE>
DISTRIBUTIONS (1/1/99 - 6/30/99)
-------------------------------
Dividend Income $0.0481
Long-Term Capital Gain $0.5191
--------
TOTAL $0.5672
=======
CLASS A CHANGE 6/30/99 12/31/98
- -------------------------------------------------------------------------
Net Asset Value +$2.16 $18.58 $16.42
DISTRIBUTIONS (1/1/99 - 6/30/99)
-------------------------------
Dividend Income $0.0349
Long-Term Capital Gain $0.5191
-------
TOTAL $0.5540
=======
CLASS B CHANGE 6/30/99 1/1/99
- -------------------------------------------------------------------------
Net Asset Value +$2.09 $18.51 $16.42
DISTRIBUTIONS (1/1/99 - 6/30/99)
-------------------------------
Dividend Income $0.0412
Long-Term Capital Gain $0.5191
-------
TOTAL $0.5603
=======
CLASS C CHANGE 6/30/99 12/31/98
- ------------------------------------------------------------------------
Net Asset Value +$2.12 $18.47 $16.35
DISTRIBUTIONS (1/1/99 - 6/30/99)
-------------------------------
Dividend Income $0.0034
Long-Term Capital Gain $0.5191
-------
TOTAL $0.5225
=======
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) 16.72% 8.20% 136.98% 298.71%
Average Annual Total Return(2) 16.72% 8.20% 18.83% 14.83%
Value of $10,000 Investment(3) $11,672 $10,820 $23,698 $39,871
</TABLE>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
-------------------------------------------------------
One-Year
Total Return(4) 19.88% 21.58% 26.24% 19.04% 8.20%
INCEPTION
CLASS A 6-MONTH 1-YEAR (11/1/96)
- ------------------------------------------------------------------------
Cumulative Total Return(1) 16.56% 7.93% 54.66%
Average Annual Total Return(2) 9.87% 1.71% 15.22%
Value of $10,000 Investment(3) $10,987 $10,171 $14,577
INCEPTION
CLASS B 6-MONTH (1/1/99)
- ----------------------------------------------------------------
Cumulative Total Return(1) 16.17% 16.17%
Aggregate Total Return(2) 12.17% 12.17%
Value of $10,000 Investment(3) $11,217 $11,217
INCEPTION
CLASS C 6-MONTH 1-YEAR (11/1/96)
- ------------------------------------------------------------------------
Cumulative Total Return(1) 16.19% 7.11% 51.94%
Average Annual Total Return(2) 14.00% 5.09% 16.59%
Value of $10,000 Investment(3) $11,400 $10,509 $15,042
(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.
BEGIN CALLOUT
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.
END CALLOUT
Past performance is not predictive of future results.
9
MUTUAL QUALIFIED 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........ $16.46 $18.19 $16.24 $14.87 $13.34 $13.50
------------------------------------------------------------------------------
Income from investment operations:
Net investment income...................... .13 .43 .37 .47 .33 .22
Net realized and unrealized gains
(losses)................................. 2.62 (.38) 3.62 2.62 3.17 .55
------------------------------------------------------------------------------
Total from investment operations............ 2.75 .05 3.99 3.09 3.50 .77
------------------------------------------------------------------------------
Less distributions from:
Net investment income...................... (.05) (.45) (.64) (.43) (.33) (.21)
Net realized gains......................... (.52) (1.33) (1.40) (1.29) (1.64) (.72)
------------------------------------------------------------------------------
Total distributions......................... (.57) (1.78) (2.04) (1.72) (1.97) (.93)
------------------------------------------------------------------------------
Net asset value, end of period.............. $18.64 $16.46 $18.19 $16.24 $14.87 $13.34
==============================================================================
Total Return*............................... 16.72% .45% 24.95% 21.19% 26.60% 5.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........... $3,514,003 $3,942,519 $5,239,947 $4,287,975 $3,002,132 $1,791,940
Ratios to average net assets:
Expenses................................... .78%** .76% .75% .75% .72% .73%
Expenses, excluding waiver and payments by
affiliate................................ .82%** .79% .78% .78% .72% .73%
Net investment income...................... 1.54%** 2.05% 1.85% 3.06% 2.71% 1.91%
Portfolio turnover rate..................... 28.71% 66.84% 52.76% 65.03% 75.59% 67.65%
</TABLE>
* Total return is not annualized.
** Annualized.
+ Per share amounts for all periods prior to December 31, 1996, have been
restated to reflect a 2-for-1 stock split effective February 3, 1997.
++ Based on average weighted shares outstanding.
10
MUTUAL QUALIFIED 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........................ $16.42 $18.14 $16.23 $16.40
-------------------------------------------------
Income from investment operations:
Net investment income...................................... .11 .35 .28 .16
Net realized and unrealized gains (losses)................. 2.60 (.35) 3.63 .89
-------------------------------------------------
Total from investment operations............................ 2.71 0.00 3.91 1.05
-------------------------------------------------
Less distributions from:
Net investment income...................................... (.03) (.39) (.60) (.41)
Net realized gains......................................... (.52) (1.33) (1.40) (.81)
-------------------------------------------------
Total distributions......................................... (.55) (1.72) (2.00) (1.22)
-------------------------------------------------
Net asset value, end of period.............................. $18.58 $16.42 $18.14 $16.23
=================================================
Total Return*............................................... 16.56% .15% 24.44% 6.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $546,263 $570,143 $452,590 $20,381
Ratios to average net assets:
Expenses................................................... 1.10%** 1.11% 1.10% 1.13%**
Expenses, excluding waiver and payments by affiliate....... 1.14%** 1.14% 1.13% 1.28%**
Net investment income...................................... 1.22%** 1.66% 1.48% 3.19%**
Portfolio turnover rate..................................... 28.71% 66.84% 52.76% 65.03%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for all periods prior to December 31, 1996, have been
restated to reflect a 2-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
11
MUTUAL QUALIFIED 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........................ $16.42
----------------
Income from investment operations:
Net investment income...................................... .06
Net realized and unrealized gains.......................... 2.59
----------------
Total from investment operations............................ 2.65
----------------
Less distributions from:
Net investment income...................................... (.04)
Net realized gains......................................... (.52)
----------------
Total distributions......................................... (.56)
----------------
Net asset value, end of period.............................. $18.51
================
Total Return*............................................... 16.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $2,062
Ratios to average net assets:
Expenses................................................... 1.78%**
Expenses, excluding waiver and payments by affiliate....... 1.83%**
Net investment income...................................... .67%**
Portfolio turnover rate..................................... 28.71%
</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 QUALIFIED 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........................ $16.35 $18.09 $16.23 $16.40
------------------------------------------------
Income from investment operations:
Net investment income...................................... .05 .24 .16 .13
Net realized and unrealized gains (losses)................. 2.59 (.37) 3.63 .91
------------------------------------------------
Total from investment operations............................ 2.64 (.13) 3.79 1.04
------------------------------------------------
Less distributions from:
Net investment income...................................... -- (.28) (.53) (.39)
Net realized gains......................................... (.52) (1.33) (1.40) (.82)
------------------------------------------------
Total distributions......................................... (.52) (1.61) (1.93) (1.21)
------------------------------------------------
Net asset value, end of period.............................. $18.47 $16.35 $18.09 $16.23
================================================
Total Return*............................................... 16.19% (.58)% 23.66% 6.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $309,264 $322,609 $231,721 $9,963
Ratios to average net assets:
Expenses................................................... 1.76%** 1.76% 1.75% 1.78%**
Expenses, excluding waiver and payments by affiliate....... 1.81%** 1.79% 1.78% 1.93%**
Net investment income...................................... .56%** 1.01% .84% 2.59%**
Portfolio turnover rate..................................... 28.71% 66.84% 52.76% 65.03%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
** Annualized.
+ For the period November 1, 1996 (effective date) to December 31, 1996.
++ Per share amounts for all periods prior to December 31, 1996, have been
restated to reflect a 2-for-1 stock split effective February 3, 1997.
+++ Based on average weighted shares outstanding.
See Notes to Financial Statements.
13
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 84.0%
AEROSPACE & MILITARY TECHNOLOGY .9%
*Hexcel Corp. .............................................. United States 843,498 $ 8,540,417
Lockheed Martin Corp. ...................................... United States 856,244 31,895,089
--------------
40,435,506
--------------
AUTOMOBILES 3.5%
Borg-Warner Automotive Inc. ................................ United States 447,800 24,629,000
Delphi Automotive Systems Corp. ............................ United States 759,036 14,089,606
General Motors Corp. ....................................... United States 474,000 31,284,000
*Lear Corp. ................................................ United States 840,300 41,804,925
Meritor Automotive Inc. .................................... United States 669,900 17,082,450
TRW Inc. ................................................... United States 481,000 26,394,875
--------------
155,284,856
--------------
BANKING 7.6%
Bank One Corp. ............................................. United States 1,802,556 107,364,742
*BHF Bank AG................................................ Germany 154,400 5,254,409
Chase Manhattan Corp. ...................................... United States 589,844 51,095,237
First American Corp. Tennessee.............................. United States 305,600 12,701,500
First Union Corp. .......................................... United States 1,019,820 47,931,540
Hibernia Corp., A........................................... United States 396,000 6,212,250
*Imperial Bancorp........................................... United States 884,028 17,514,805
M & T Bank Corp. ........................................... United States 41,999 23,099,450
+Western Bancorp............................................ United States 1,393,873 60,633,476
--------------
331,807,409
--------------
BEVERAGES & TOBACCO 3.1%
Allied Domecq PLC........................................... United Kingdom 1,693,729 16,378,783
Brown-Forman Corp., A....................................... United States 18,700 1,114,988
Brown-Forman Corp., B....................................... United States 172,300 11,231,806
Gallaher Group PLC.......................................... United Kingdom 2,615,000 16,075,313
Gallaher Group PLC, ADR..................................... United Kingdom 130,200 3,181,763
Genesee Corp., A............................................ United States 6,700 177,550
Genesee Corp., B............................................ United States 27,141 719,237
Pepsi Bottling Group Inc. .................................. United States 1,000,000 23,062,500
Philip Morris Companies Inc. ............................... United States 1,036,300 41,646,306
UST Inc. ................................................... United States 797,450 23,325,413
--------------
136,913,659
--------------
BROADCASTING & PUBLISHING 6.3%
*AT&T Corp., Liberty Media Group, A......................... United States 341,912 12,565,266
*Capstar Broadcasting Corp., A.............................. United States 437,600 11,979,300
*Chancellor Media Corp., A.................................. United States 431,300 23,775,413
Daily Mail & General Trust PLC, A........................... United Kingdom 588,285 32,547,529
Dow Jones & Co. Inc. ....................................... United States 768,700 40,789,144
*Hearst-Argyle Television Inc. ............................. United States 374,062 8,977,488
*MediaOne Group Inc. ....................................... United States 524,200 38,987,375
</TABLE>
14
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING (CONT.)
Meredith Corp. ............................................. United States 364,200 $ 12,610,425
NV Holdingsmig de Telegraaf................................. Netherlands 1,841,454 36,270,776
Scripps Co., A.............................................. United States 1,073,300 51,048,831
Washington Post Co., B...................................... United States 12,500 6,721,875
--------------
276,273,422
--------------
BUILDING MATERIALS & COMPONENTS 1.2%
*American Standard Cos. Inc. ............................... United States 418,300 20,078,400
Hussman International Inc. ................................. United States 680,000 11,262,500
Lone Star Industries Inc. .................................. United States 518,910 19,491,557
--------------
50,832,457
--------------
BUSINESS & PUBLIC SERVICES 1.4%
Suez Lyonnaise des Eaux SA.................................. France 333,606 60,170,867
--------------
CHEMICALS 2.0%
Arch Chemicals Inc. ........................................ United States 621,750 15,116,297
Bayer AG, Br. .............................................. Germany 413,800 17,218,552
+Chemfirst Inc. ............................................ United States 974,000 23,680,375
Geon Co. ................................................... United States 492,000 15,867,000
Olin Corp. ................................................. United States 1,198,100 15,799,944
--------------
87,682,168
--------------
DATA PROCESSING & REPRODUCTION .2%
*Cadence Design Systems Inc. ............................... United States 396,200 5,051,550
*Tecnost Mael SpA........................................... Italy 1,933,260 4,774,835
--------------
9,826,385
--------------
ELECTRICAL & ELECTRONICS .6%
Honeywell Inc. ............................................. United States 15,100 1,749,713
*Level One Communications Inc. ............................. United States 38,700 1,893,881
Varian Medical Systems Inc. ................................ United States 364,300 9,198,575
*Varian Semiconductor Equipment Associates Inc. ............ United States 859,100 14,604,700
--------------
27,446,869
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .5%
*Amphenol Corp., A.......................................... United States 216,573 8,608,777
*Quantum Corp. ............................................. United States 561,400 13,543,775
--------------
22,152,552
--------------
ENERGY EQUIPMENT & SERVICES 1.1%
*Cooper Cameron Corp. ...................................... United States 421,100 15,607,019
*Varian Inc. ............................................... United States 807,300 10,898,550
*Weatherford International Inc. ............................ United States 538,705 19,730,071
--------------
46,235,640
--------------
</TABLE>
15
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 2.1%
Atlantic Richfield Co. ..................................... United States 117,000 $ 9,776,813
Royal Dutch Petroleum Co. .................................. Netherlands 384,800 23,184,200
Shell Transport & Trading Co. PLC........................... United Kingdom 2,065,500 15,472,855
Societe Elf Aquitaine SA, Br. .............................. France 295,446 43,355,642
--------------
91,789,510
--------------
FINANCIAL SERVICES 10.4%
CIT Group Inc., A........................................... United States 842,900 24,338,738
*Coast Federal Litigation Contingent Pymt Rts Trust, rts.... United States 1,115,600 1,185,325
Commercial Federal Corp. ................................... United States 1,919,510 44,508,638
Finova Group Inc. .......................................... United States 276,400 14,545,550
*Golden State Bancorp Inc., Litigation wts. ................ United States 3,387,400 4,445,963
Greenpoint Financial Corp. ................................. United States 1,420,800 46,620,000
Heller Financial Inc. ...................................... United States 548,200 15,246,813
Household International Inc. ............................... United States 1,049,973 49,742,471
+*ITLA Capital Corporation.................................. United States 689,000 10,851,750
(R)Laser Mortgage Management Inc. .......................... United States 191,000 656,563
Lehman Brothers Holdings Inc. .............................. United States 162,800 10,134,300
+*Long Beach Financial Corp. ............................... United States 1,687,300 24,782,219
Metris Cos. Inc. ........................................... United States 1,141,600 46,520,200
*MFN Financial Corp. ....................................... United States 337,480 3,353,708
Morgan Stanley, Dean Witter & Co. .......................... United States 204,500 20,961,250
Newcourt Credit Group Inc. ................................. Canada 48,800 638,551
Newcourt Credit Group Inc., fgn. ........................... Canada 1,238,600 16,024,388
Peoples Bancorp Inc. ....................................... United States 679,100 6,769,778
Power Financial Corp. ...................................... Canada 97,100 1,857,738
TCF Financial Corp. ........................................ United States 1,225,500 34,160,813
The PMI Group Inc. ......................................... United States 494,200 31,041,938
United Asset Management Corp. .............................. United States 2,011,100 45,752,525
--------------
454,139,219
--------------
FOOD & HOUSEHOLD PRODUCTS 2.1%
CKE Restaurants Inc. ....................................... United States 409,600 6,656,000
*Fine Host Corp. ........................................... United States 452,571 4,978,281
Seaboard Corp. ............................................. United States 10,100 3,434,000
(R)*Sunbeam Corp. .......................................... United States 4,800,554 34,293,958
U.S. Industries Inc. ....................................... United States 695,500 11,823,500
+Van Melle NV............................................... Netherlands 476,517 30,590,062
--------------
91,775,801
--------------
FOREST PRODUCTS & PAPER .5%
+*Fibermark Inc. ........................................... United States 754,400 9,948,650
Rayonier Inc. .............................................. United States 242,800 12,094,475
--------------
22,043,125
--------------
</TABLE>
16
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE 7.8%
*Beverly Enterprises Inc. .................................. United States 1,813,300 $ 14,619,731
*Foundation Health Systems, A............................... United States 2,084,830 31,272,450
*Healthsouth Corp. ......................................... United States 2,309,600 34,499,650
+*Maxicare Health Plans Inc. ............................... United States 1,748,679 8,306,225
McKesson HBOC Inc. ......................................... United States 279,300 8,972,513
+*Mid Atlantic Medical Services Inc. ....................... United States 4,031,400 39,810,075
*Pacificare Health Systems Inc. ............................ United States 654,232 47,063,815
*PSS World Medical Inc. .................................... United States 1,075,900 27,194,575
*Quorum Health Group Inc. .................................. United States 2,467,200 30,994,200
Rhone-Poulenc SA, A......................................... France 906,905 41,440,611
Sankyo Co. Ltd. ............................................ Japan 373,100 9,401,479
*Tenet Healthcare Corp. .................................... United States 2,399,300 44,537,006
Ventas Inc. ................................................ United States 276,000 1,483,500
--------------
339,595,830
--------------
INDUSTRIAL COMPONENTS 2.8%
Gencorp Inc. ............................................... United States 1,385,000 34,971,250
(R)+*Lancer Industries Inc., B.............................. United States 4 11,456,492
Mark IV Industries Inc. .................................... United States 815,200 17,221,100
*Owens-Illinois Inc. ....................................... United States 1,172,900 38,339,169
*Thermo Electron Corp. ..................................... United States 1,130,400 22,678,650
--------------
124,666,661
--------------
INSURANCE 2.1%
Allmerica Financial Corp. .................................. United States 385,300 23,431,056
American Bankers Insurance Group Inc. ...................... United States 108,800 5,922,800
*Old Republic International Corp. .......................... United States 98,700 1,708,744
Radian Group Inc. .......................................... United States 552,300 26,959,144
Sampo Insurance Co. PLC, A.................................. Finland 302,000 8,751,366
Provident Corp. ............................................ United States 120,300 4,812,000
White Mountain Insurance Group Inc. ........................ United States 141,876 20,004,516
--------------
91,589,626
--------------
LEISURE & TOURISM 1.6%
*Park Place Entertainment Corp. ............................ United States 2,016,600 19,535,813
*Prime Hospitality Corp. ................................... United States 1,566,000 18,792,000
*Promus Hotel Corp. ........................................ United States 1,075,900 33,352,900
--------------
71,680,713
--------------
MACHINERY & ENGINEERING 1.4%
Case Corp. ................................................. United States 71,500 3,440,938
Invensys PLC................................................ United Kingdom 12,072,873 57,184,489
--------------
60,625,427
--------------
</TABLE>
17
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 3.1%
+*Dress Barn Inc. .......................................... United States 1,595,800 $ 25,532,800
*Federated Department Stores Inc. .......................... United States 187,300 9,915,194
J.C. Penney Co. Inc. ....................................... United States 578,500 28,093,406
*Payless Shoesource Inc. ................................... United States 492,100 26,327,350
Rite Aid Corp. ............................................. United States 688,500 16,954,313
Signet Group PLC............................................ United Kingdom 12,091,667 10,196,781
*Toys R Us Inc. ............................................ United States 814,275 16,845,314
--------------
133,865,158
--------------
METALS & MINING 1.2%
Allegheny Teledyne Inc. .................................... United States 565,000 12,783,125
*Ucar International Inc. ................................... United States 1,553,600 39,228,400
--------------
52,011,525
--------------
MULTI-INDUSTRY 7.5%
*Alleghany Corp. ........................................... United States 107,724 19,928,940
*Berkshire-Hathaway Inc., A................................. United States 425 29,282,500
Compagnie Financiere Richemont AG, Br., A................... Switzerland 22,285 42,861,283
Imasco Ltd. ................................................ Canada 884,600 23,996,324
Investor AB, A.............................................. Sweden 3,551,600 39,058,410
Investor AB, B.............................................. Sweden 8,540,500 95,430,193
Invik & Co. AB, B........................................... Sweden 4,306 252,981
Kinnevik AB, B.............................................. Sweden 430,600 8,103,505
Lagardere SCA............................................... France 1,096,576 40,823,341
Ogden Corp. ................................................ United States 795,500 21,428,781
Power Corp. of Canada....................................... Canada 265,600 5,117,813
--------------
326,284,071
--------------
REAL ESTATE 4.2%
*Alexander's Inc. .......................................... United States 132,890 9,817,249
*Al-Zar Ltd. LP............................................. United States 59 13,132
*Cadillac Fairview Corp. ................................... Canada 666,735 12,642,225
*Cadillac Fairview Corp., wts. ............................. Canada 126,360 807,288
(R)*Canary Wharf Group PLC.................................. United Kingdom 22,363,772 126,585,393
*Excel Legacy Corp. ........................................ United States 199,007 945,283
+MBO Properties Inc. ....................................... United States 412,418 206,209
(R)+*S.H. Mortgage Acquisition LLC.......................... United States 387,991 387,991
(R)*Security Capital European Realty........................ United States 362,500 6,281,110
+*Wellsford Real Properties Inc. ........................... United States 2,404,348 25,846,741
--------------
183,532,621
--------------
RECREATION & OTHER CONSUMER GOODS .6%
*Gtech Holdings Corp. ...................................... United States 1,134,400 26,729,300
--------------
</TABLE>
18
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 4.5%
BCE Inc. ................................................... Canada 698,250 $ 34,232,619
General Motors Corp., H..................................... United States 285,700 16,070,625
*Telecom Italia SpA, di Risp................................ Italy 4,315,800 23,477,204
Telephone & Data Systems Inc. .............................. United States 1,502,400 109,769,100
Telesp Participacoes SA..................................... Brazil 137,193,100 1,784,097
*Vodafone AirTouch PLC, ADR................................. United Kingdom 72,430 9,757,410
--------------
195,091,055
--------------
TRANSPORTATION 2.5%
Airborne Freight Corp. ..................................... United States 221,000 6,118,938
Florida East Coast Industries Inc. ......................... United States 1,176,800 52,073,400
(R)*Golden Ocean Group Ltd., wts., 8/31/01.................. United States 2,565 0
Railtrack Group PLC......................................... United Kingdom 2,543,138 51,991,583
--------------
110,183,921
--------------
UTILITIES ELECTRICAL & GAS 1.2%
*Citizens Utilities Co., B.................................. United States 2,709,179 30,139,616
Veba AG..................................................... Germany 342,900 20,226,751
--------------
50,366,367
--------------
TOTAL COMMON STOCKS (COST $2,721,432,260)................... 3,671,031,720
--------------
PREFERRED STOCKS .8%
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 312,500 4,335,938
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 160,200 8,891,100
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 779,500 14,469,469
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 258,100 5,904,038
*Wundies Industries Inc., 11.25%, pfd. ..................... United States 12,168 73,769
--------------
TOTAL PREFERRED STOCKS (COST $32,826,565)................... 33,674,314
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 2.4%
Abraxas Petroleum Corp., Series D, 11.50%, 11/01/04......... United States $ 3,695,000 2,327,850
Eurotunnel Finance Ltd.:
Equity Note 12/31/03...................................... United Kingdom 7,945,253GBP 6,136,588
Participating Loan Note 4/30/40........................... United Kingdom 3,800,000GBP 2,575,581
Eurotunnel PLC:
12/31/12, tier 1.......................................... United Kingdom 3,216,833GBP 4,157,818
12/31/18, tier 2.......................................... United Kingdom 9,298,020GBP 10,845,394
12/31/25, tier 3.......................................... United Kingdom 2,605,435GBP 2,669,419
12/31/50, Resettable Advance R5........................... United Kingdom 3,100,187GBP 2,076,825
Stabilization Advance S8 tier 1........................... United Kingdom 527,500GBP 199,552
Stabilization Advance S8 tier 2........................... United Kingdom 408,485GBP 128,774
</TABLE>
19
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
Eurotunnel SA:
12/31/12, tier 1 (Libor).................................. France 8,267,314EUR $ 6,905,769
12/31/12, tier 1 (Pibor).................................. France 1,350,451EUR 1,128,045
12/31/18, tier 2 (Libor).................................. France 14,087,268EUR 10,677,675
12/31/18, tier 2 (Pibor).................................. France 3,830,475EUR 2,923,122
12/31/25, tier 3 (Libor).................................. France 13,615,089EUR 8,985,930
12/31/25, tier 3 (Pibor).................................. France 5,586,345EUR 3,686,976
12/31/50, Resettable Advance R4........................... France 17,436,446EUR 7,462,231
Stabilization Advance S6 tier 1 (Pibor)................... France 521,074EUR 128,965
Stabilization Advance S7 tier 1 (Libor)................... France 786,821EUR 194,738
Stabilization Advance S6 tier 2........................... France 1,154,151EUR 238,043
(R)*Golden Ocean Group Ltd., 10.00%, 8/31/01................ United States 6,250,000 687,500
*Great Trust Services, Series A, zero coupon, 1/15/02....... United States 185,168 92,584
*MFN Financial Corp.:
Series A, 10.00%, 4/23/01................................. United States 1,402,107 1,324,991
Series B, FRN, 9.495%, 4/23/01............................ United States 2,377,107 2,246,366
Hvide Marine Inc., 8.375%, 2/15/08.......................... United States 1,520,000 737,200
Kelley Oil & Gas Corp.:
144A, 14.00%, 4/15/03..................................... United States 1,970,000 2,029,100
10.375%, 10/15/06......................................... United States 975,000 560,625
Series D, 10.375%, 10/15/06............................... United States 1,300,000 747,500
R.H. Cement Finance PLC, 144A, FRN, 14.40%, 3/10/00......... Irish Republic 4,200,000 4,200,000
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States 15,297,000 7,419,045
Specialty Foods Corp.:
13.25%, 8/15/03........................................... United States 7,100,000 5,538,000
11.00%, 8/15/09........................................... United States 669,672 67
TFM SA de CV:
144A, 10.25%, 6/15/07..................................... Mexico 350,000 310,625
144A, zero coupon to 6/15/02, 11.75%, 6/15/09............. Mexico 4,850,000 2,934,250
Tribasa Toll Road Trust I, 144A 10.50%, 12/01/11............ Mexico 1,885,870 980,652
--------------
TOTAL CORPORATE BONDS AND NOTES (COST $112,786,211)......... 103,257,800
--------------
BONDS & NOTES IN REORGANIZATION 2.7%
*Acme Metals Inc., term loan................................ United States 2,531,000 1,910,905
*Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11........ United States 375,000 228,750
*Altos Hornas de Mexico SA:
Cvt. 5.50%, 12/15/01...................................... Mexico 180,000 72,000
Series A, 11.375%, 4/30/02................................ Mexico 800,000 360,000
Series B, 11.875%, 4/15/04................................ Mexico 550,000 247,500
*Breed Technologies Inc., bank claim........................ United States 192,542 124,190
*Brunos Inc.:
revolver.................................................. United States 2,243,400 1,289,955
Tranche A, Term Loan...................................... United States 3,937,600 2,126,304
Tranche B, Term Loan...................................... United States 3,178,000 1,716,120
*Crown Leasing, bank claim.................................. Japan 929,473,897JPY 1,219,051
*Decision One Corp. ........................................ United States 9,232,374 4,039,164
</TABLE>
20
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Dictaphone Corporation:
revolver.................................................. United States $ 4,223,585 $ 3,674,519
Tranche B, Term Loan...................................... United States 2,747,500 2,417,800
Tranche C, Term Loan...................................... United States 2,503,000 2,202,640
*Dow Corning Corp.:
bank debt................................................. United States 1,801,364 2,310,249
bank debt #1.............................................. United States 2,850,000 3,655,125
9.30%, 1/27/98............................................ United States 1,835,000 2,353,388
8.55%, 3/01/01............................................ United States 1,000,000 1,282,500
9.375%, 2/01/08........................................... United States 735,000 942,638
8.15%, 10/15/29........................................... United States 5,150,000 6,604,875
swap...................................................... United States 7,437,830 9,539,017
*Harnischfeger Industries Inc.:
8.90%, 3/01/22............................................ United States 2,580,000 1,573,800
8.70%, 6/15/22............................................ United States 1,295,000 789,950
6.875%, 2/15/27........................................... United States 3,185,000 1,942,850
*Integrated Health Services Inc., bank claim................ United States 2,433,823 2,251,286
*Koninklijke Ned Vlieg Fokker NV, trade claim............... Netherlands 5,699,298EUR 4,701,906
*Loewen Group Inc., Series 5, 6.10%, 10/02/02............... Canada 2,285,000CAD 944,602
*Loewen Group International Inc.:
bank claim, revolver...................................... Canada 1,464,162 915,101
144A, 6.70%, 10/01/99..................................... Canada 3,170,000 1,917,850
Series 7, 7.60%, 6/01/08.................................. Canada 10,735,000 6,816,725
Series 3, 7.50%, 4/15/01.................................. Canada 850,000 535,500
Series 3, 7.75%, 10/15/01................................. Canada 1,730,000 1,089,900
Series 2, 8.25%, 4/15/03.................................. Canada 1,680,000 1,050,000
Series 6, 7.20%, 6/01/03.................................. Canada 13,695,000 8,764,800
Series 4, 8.25%, 10/15/03................................. Canada 4,820,000 3,012,500
*Nippon Credit Bank Ltd., bank claim........................ Japan 473,135,325JPY 624,579
*Nippon Total Finance, bank claim........................... Japan 479,670,951JPY 235,742
*Philip Services Corporation:
revolver, tranche 1....................................... United States 3,349,789 1,440,409
revolver, tranche 2....................................... United States 3,099,242 1,332,674
revolver, tranche 3....................................... United States 1,555,775 668,983
*Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17.... United States 200,000 122,000
*Pratama Datakom Asia BV:
144A, 12.75%, 7/15/05..................................... Indonesia 6,855,000 1,610,925
Reg S, 12.75%, 7/15/05.................................... Indonesia 1,520,000 357,200
*Ritvik Holdings:
bank claim................................................ United States 1,489,000 1,265,650
bank claim, term loan B................................... United States 595,000 505,750
*Southeast Banking Corp.:
zero coupon, 12/18/96..................................... United States 2,000,000 500,000
4.75%, 10/15/97........................................... United States 2,200,000 1,100,000
zero coupon, 11/12/97..................................... United States 750,000 187,500
10.50%, 4/11/01........................................... United States 3,875,000 968,750
*United Companies Financial Corp, revolver.................. United States 19,770,800 11,071,648
</TABLE>
21
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Vencor Inc.:
revolver.................................................. United States $ 697,500 $ 592,875
Term Loan A............................................... United States 3,857,331 3,182,298
Term Loan B............................................... United States 512,096 431,441
9.875%, 5/01/05........................................... United States 14,540,000 4,434,700
*Ventas Inc.:
Tranche A, bridge loan.................................... United States 702,000 652,860
Tranche B, revolver....................................... United States 1,692,353 1,573,888
Tranche C, term loan A.................................... United States 665,200 625,288
Tranche D, term loan B.................................... United States 232,975 191,039
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $105,652,525)... 118,299,659
--------------
SHARES
------
COMPANIES IN LIQUIDATION
*City Investing Company Liquidating Trust................... United States 1,579,485 2,073,061
*Kendall International Inc., Residual Ownership Certif. .... United States 444 4,631
*MCorp. Financial Trust, claim units........................ United States 27,617 33,761
*MCorp. Trust Units......................................... United States 27,611 276
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $102,005).............. 2,111,729
--------------
PRINCIPAL
AMOUNT**
--------
SHORT TERM INVESTMENTS 8.4%
Fannie Mae, 4.51% to 5.26%, with maturities to 6/19/00...... United States $103,700,000 101,475,680
Federal Home Loan Bank, 4.66% to 5.11%, with maturities to
6/02/00................................................... United States 231,100,000 225,082,221
Federal Home Loan Mortgage Corp., 4.68% to 5.27%, with
maturities to 6/22/00..................................... United States 42,500,000 41,191,750
--------------
TOTAL SHORT TERM INVESTMENTS (COST $368,560,442)............ 367,749,651
--------------
TOTAL INVESTMENTS (COST $3,341,360,008) 98.3%............... 4,296,124,873
SECURITIES SOLD SHORT (1.0%)................................ (44,026,147)
NET EQUITY IN FORWARD CONTRACTS .8%......................... 37,348,199
OTHER ASSETS, LESS LIABILITIES 1.9%......................... 82,145,262
--------------
TOTAL NET ASSETS 100.0%..................................... $4,371,592,187
==============
</TABLE>
22
MUTUAL QUALIFIED FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Allied Signal Inc. ........................................ United States 28,300 $ 1,782,900
*BP Amoco PLC, ADR.......................................... United Kingdom 44,600 4,839,100
*Intel Corp. ............................................... United States 33,000 1,963,500
*Nortel Networks Corp. ..................................... Canada 279,300 24,046,327
*Sovereign Bancorp Inc. .................................... United States 543,280 6,587,270
*Unum Corp. ................................................ United States 87,800 4,807,050
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $43,914,164).......... $ 44,026,147
==============
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 6/30/99 LOSS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*BP Amoco PLC, cfd 10.9450................................. United Kingdom 56,100 $ 1,006,302 $ (38,466)
*BP Amoco PLC, cfd 11.2992................................. United Kingdom 108,000 1,937,266 (13,755)
*BP Amoco PLC, cfd 10.3574................................. United Kingdom 142,800 2,561,496 (230,174)
*Vodafone Group PLC, cfd 11.2893........................... United Kingdom 297,000 5,842,439 (557,419)
*Vodafone Group PLC, cfd 12.272............................ United Kingdom 198,800 3,910,696 (65,178)
----------- ---------
TOTAL CONTRACTS FOR DIFFERENCES............................ $15,258,199 $(904,992)
=========== =========
</TABLE>
CURRENCY ABBREVIATIONS:
CAD -- Canadian Dollar
GBP -- British Pound
EUR -- European Unit
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 QUALIFIED 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 $3,123,539,610)................ $4,024,091,808
Controlled affiliates (cost $408,673)..................... 387,991
Non controlled affiliates (cost $217,411,725)............. 271,645,074 $4,296,124,873
--------------
Cash....................................................... 24,739,955
Receivables:
Investment securities sold................................ 47,863,322
Capital shares sold....................................... 1,611,901
Dividends and interest.................................... 10,649,542
From affiliates........................................... 198,637
Unrealized gain on forward exchange contracts (Note 8)..... 38,755,406
Deposits with broker for securities sold short............. 77,585,070
--------------
Total assets.......................................... 4,497,528,706
--------------
Liabilities:
Payables:
Investment securities purchased........................... 35,166,768
Capital shares redeemed................................... 40,339,805
To affiliates............................................. 3,645,272
Securities sold short, at value (proceeds $43,914,164)..... 44,026,147
Unrealized loss on forward exchange contracts (Note 8)..... 1,407,207
Due to broker-variation margin............................. 780,913
Accrued expenses........................................... 570,407
--------------
Total liabilities..................................... 125,936,519
--------------
Net assets, at value........................................ $4,371,592,187
==============
Net assets consist of:
Undistributed net investment income........................ $ 14,638,450
Net unrealized appreciation................................ 991,096,088
Accumulated net realized gain.............................. 327,093,566
Capital shares............................................. 3,038,764,083
--------------
Net assets, at value........................................ $4,371,592,187
==============
</TABLE>
24
MUTUAL QUALIFIED FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
CLASS Z:
Net asset value per share and maximum offering price
($3,514,002,593 / 188,514,045 shares outstanding)........ $18.64
==============
CLASS A:
Net asset value per share ($546,263,300 / 29,402,826 shares
outstanding).............................................. $18.58
==============
Maximum offering price per share ($18.58 / 94.25%)......... $19.71
==============
CLASS B:
Net asset value and maximum offering price per share
($2,061,900 / 111,383 shares outstanding)*................ $18.51
==============
CLASS C:
Net asset value per share ($309,264,394 / 16,745,539 shares
outstanding)*............................................. $18.47
==============
Maximum offering price per share ($18.47 / 99.00%)......... $18.66
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
25
MUTUAL QUALIFIED 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 $1,618,058)
Dividends.................................................. $ 31,250,746
Interest................................................... 19,322,125
------------
Total investment income............................... $ 50,572,871
------------
Expenses:
Management fees (Note 3)................................... 13,093,257
Administrative fees (Note 3)............................... 1,682,786
Distribution fees (Note 3)
Class A................................................... 858,672
Class B................................................... 4,019
Class C................................................... 1,492,060
Transfer agent fees (Note 3)............................... 2,357,946
Custodian fees............................................. 115,430
Reports to shareholders.................................... 212,269
Registration and filing fees............................... 134,575
Professional fees.......................................... 113,857
Directors' fees and expenses............................... 54,084
Other...................................................... 117,874
------------
Total expenses........................................ 20,236,829
Expenses waived/paid by affiliate (Note 3)............ (976,708)
------------
Net expenses...................................... 19,260,121
------------
Net investment income........................... 31,312,750
------------
Realized and unrealized gains:
Net realized gain from:
Investments............................................... 302,985,082
Foreign currency transactions............................. 22,752,559
------------
Net realized gain..................................... 325,737,641
Net unrealized appreciation on:
Investments............................................... 262,065,769
Translation of assets and liabilities denominated in
foreign currencies...................................... 38,885,411
------------
Net unrealized appreciation........................... 300,951,180
------------
Net realized and unrealized gain............................ 626,688,821
------------
Net increase in net assets resulting from operations........ $658,001,571
============
</TABLE>
See Notes to Financial Statements.
26
MUTUAL QUALIFIED 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..................................... $ 31,312,750 $ 113,258,587
Net realized gain from investments and foreign currency
transactions............................................. 325,737,641 440,721,475
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 300,951,180 (569,601,471)
----------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 658,001,571 (15,621,409)
Distributions to shareholders from:
Net investment income:
Class Z.................................................. (8,881,485) (104,418,623)
Class A.................................................. (1,006,039) (12,591,220)
Class B.................................................. (4,067) --
Class C.................................................. (60,663) (5,201,123)
Net realized gains:
Class Z.................................................. (96,370,861) (311,180,836)
Class A.................................................. (15,020,659) (43,430,197)
Class B.................................................. (51,239) --
Class C.................................................. (8,503,435) (24,765,851)
Capital share transactions (Note 2):
Class Z.................................................. (856,917,711) (887,186,415)
Class A.................................................. (87,328,275) 184,555,922
Class B.................................................. 1,966,114 --
Class C.................................................. (49,502,037) 130,852,525
----------------------------------------
Net decrease in net assets.............................. (463,678,786) (1,088,987,227)
Net assets:
Beginning of period........................................ 4,835,270,973 5,924,258,200
----------------------------------------
End of period.............................................. $4,371,592,187 $4,835,270,973
========================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ 14,638,450 $ (6,722,046)
========================================
</TABLE>
See Notes to Financial Statements.
27
MUTUAL QUALIFIED FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mutual Qualified 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 QUALIFIED 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. 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 QUALIFIED 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
shares. 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 QUALIFIED FUND
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
At June 30, 1999, there were 1.00 billion shares authorized ($0.001 par value)
of which 500 million, 200 million, 100 million and 200 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......................................... 8,808,669 $ 155,217,949 24,990,204 $ 453,463,894
Shares issued on reinvestment of distributions...... 5,489,096 101,441,210 24,296,181 400,283,129
Shares redeemed..................................... (65,316,124) (1,113,576,870) (97,884,948) (1,740,933,438)
---------------------------------------------------------------------
Net decrease........................................ (51,018,359) $ (856,917,711) (48,598,563) $ (887,186,415)
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold......................................... 4,332,970 $ 76,760,229 18,574,657 $ 343,918,754
Shares issued on reinvestment of distributions...... 819,809 15,103,386 3,214,074 52,672,488
Shares redeemed..................................... (10,471,276) (179,191,890) (12,017,429) (212,035,320)
---------------------------------------------------------------------
Net increase (decrease)............................. (5,318,497) $ (87,328,275) 9,771,302 $ 184,555,922
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999+
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C> <C>
CLASS B SHARES:
Shares sold......................................... 110,898 $ 1,955,419
Shares issued on reinvestment of distributions...... 2,894 53,115
Shares redeemed..................................... (2,409) (42,420)
------------------------------
Net increase........................................ 111,383 $ 1,966,114
==============================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold......................................... 1,075,433 $ 18,629,777 9,583,122 $ 177,957,854
Shares issued on reinvestment of distributions...... 429,355 7,859,546 1,662,767 27,085,606
Shares redeemed..................................... (4,485,070) (75,991,360) (4,328,390) (74,190,935)
---------------------------------------------------------------------
Net increase (decrease)............................. (2,980,282) $ (49,502,037) 6,917,499 $ 130,852,525
=====================================================================
</TABLE>
+Effective date of Class B shares was January 1, 1999.
31
MUTUAL QUALIFIED FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Series Fund are also officers and/or directors of
Franklin Mutual Advisers, Inc. (Franklin Mutual) and Franklin Templeton
Services, Inc. (FT Services), the Fund's investment manager and administrative
manager, respectively. Franklin/Templeton Investor Services, Inc. (Investor
Services) and Franklin/Templeton Distributors, Inc. (Distributors) are the
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 Series 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 .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 Fund shares, and received contingent deferred
sales charges for the period ended of $12,264 and $243,749, respectively.
4. INCOME TAXES
At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,343,147,871 was as follows:
Unrealized appreciation..................................... $1,077,065,829
Unrealized depreciation..................................... (124,088,827)
--------------
Net unrealized appreciation................................. $ 952,977,002
==============
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies and foreign currency transactions.
32
MUTUAL QUALIFIED 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 $1,169,441,032 and $1,974,228,804
respectively.
Transactions in options written during the six months ended June 30, 1999 were
as follows:
<TABLE>
<CAPTION>
NUMBER
CONTRACTS PREMIUM
--------- ----------
<S> <C> <C>
Options outstanding at December 31, 1998.................... 210 $ 49,246
Options written............................................. 333 134,334
Options expired............................................. (471) (155,096)
Options terminated in closing transactions.................. (72) (28,484)
Options exercised........................................... 0 0
-------------------------
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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
22,363,772 Canary Wharf Group PLC...................................... 5/06/99 $126,585,393
6,250,000 Golden Ocean Group Ltd., 10.00%, 8/31/01.................... 8/26/97 687,500
2,565 Golden Ocean Group Ltd., wts., 8/31/01...................... 8/26/97 0
4 Lancer Industries Inc., B................................... 8/11/89 11,456,492
191,000 Laser Mortgage Management Inc. ............................. 11/26/97 656,563
362,500 Security Capital European Realty............................ 11/02/98 6,281,110
387,991 S.H. Mortgage Acquisition LLC............................... 8/17/95 387,991
4,800,554 Sunbeam Corp. .............................................. 2/23/90 34,293,958
------------
TOTAL RESTRICTED SECURITIES (COST $26,639,137) (4.13% OF NET ASSETS).............. $180,349,007
============
</TABLE>
33
MUTUAL QUALIFIED FUND
Notes to Financial Statements (unaudited) (continued)
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 $272,033,065, dividend income from "affiliated persons", was
$1,207,060 and net realized losses from the disposition of "affiliated persons"
were $10,252,152.
<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*
MSCW Investors II LLC........... 23,562,000 -- (23,562,000) -- ** --
S.H. Mortgage Acquisition LLC... 4,999,441 -- (4,611,450) 387,991 $ 387,991 --
-------------------------------
TOTAL CONTROLLED AFFILIATES..... $ 387,991 --
===============================
NON CONTROLLED AFFILIATES
Chemfirst Inc. ................. 974,000 -- -- 974,000 $ 23,680,375 $ 194,800
Dress Barn Inc. ................ 1,486,600 109,200 -- 1,595,800 25,532,800 --
Fibermark Inc. ................. 731,800 22,600 -- 754,400 9,948,650 --
ITLA Capital Corporation........ 709,000 -- (20,000) 689,000 10,851,750 --
Lancer Industries Inc., B....... 4 -- -- 4 11,456,492 --
Long Beach Financial Corp. ..... 1,553,500 133,800 -- 1,687,300 24,782,219 --
Maxicare Health Plans Inc. ..... 1,768,779 -- (20,100) 1,748,679 8,306,225 --
MBO Properties Inc. ............ 412,418 -- -- 412,418 206,209 --
Mid Atlantic Medical Services
Inc. .......................... 4,246,400 25,000 (240,000) 4,031,400 39,810,075 --
Van Melle NV.................... 468,576 7,941 -- 476,517 30,590,062 427,047
Vencor Inc. .................... 6,264,400 (6,264,400) -- ** --
Wellsford Real Properties
Inc. .......................... 2,404,348 -- -- 2,404,348 25,846,741 --
Western Bancorp. ............... 1,093,773 300,100 -- 1,393,873 60,633,476 585,213
-------------------------------
TOTAL NON CONTROLLED
AFFILIATES..................... $271,645,074 $1,207,060
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSS)
- --------------------------------
<S> <C>
CONTROLLED AFFILIATES*
MSCW Investors II LLC........... $ 4,740,098
S.H. Mortgage Acquisition LLC... (245,814)
------------
TOTAL CONTROLLED AFFILIATES..... $ 4,494,284
============
NON CONTROLLED AFFILIATES
Chemfirst Inc. ................. --
Dress Barn Inc. ................ --
Fibermark Inc. ................. --
ITLA Capital Corporation........ $ 23,490
Lancer Industries Inc., B....... --
Long Beach Financial Corp. ..... --
Maxicare Health Plans Inc. ..... (307,320)
MBO Properties Inc. ............ --
Mid Atlantic Medical Services
Inc. .......................... (2,041,303)
Van Melle NV.................... --
Vencor Inc. .................... (12,421,303)
Wellsford Real Properties
Inc. .......................... --
Western Bancorp. ............... --
------------
TOTAL NON CONTROLLED
AFFILIATES..................... $(14,746,436)
============
</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.
34
MUTUAL QUALIFIED FUND
Notes to Financial Statements (unaudited) (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At June 30,
1999, the Fund has outstanding forward exchange contracts for the sale of
currencies as set out below. 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.
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>
1,703,585 Canadian Dollar......................................... U.S. $ 1,125,117 08/31/99 U.S. $ 39,962
18,819,398 Canadian Dollar......................................... 12,415,041 10/29/99 465,971
------------ -----------
U.S. $ 13,540,158 505,933
============ -----------
CONTRACTS TO SELL:
- ------------------
45,614,213 European Unit........................................... U.S. $ 53,035,504 07/19/99 U.S. $ 5,928,927
17,031,627 British Pounds.......................................... 28,204,374 07/20/99 1,354,726
279,030,723 Swedish Krona........................................... 36,237,756 07/21/99 3,375,856
18,378,397 British Pounds.......................................... 29,927,603 08/17/99 948,737
185,745,438 Swedish Krona........................................... 23,661,839 08/17/99 1,749,601
27,991,204 European Unit........................................... 31,119,207 08/31/99 2,116,565
70,865,792 European Unit........................................... 77,896,061 09/10/99 4,410,966
56,535,770 Swiss Franc............................................. 38,657,541 09/10/99 1,980,440
235,726,811 Swedish Krona........................................... 29,176,090 09/15/99 1,315,370
957,430,350 Japanese Yen............................................ 8,150,332 09/24/99 137,044
48,122,558 European Unit........................................... 52,465,980 10/12/99 2,437,480
235,792,469 Swedish Krona........................................... 28,800,839 10/19/99 867,733
42,668,871 European Unit........................................... 48,009,413 10/27/99 3,576,994
37,668,033 Canadian Dollar......................................... 25,825,325 10/29/99 43,289
18,488,952 British Pounds.......................................... 30,126,284 11/16/99 937,407
194,545,438 Swedish Krona........................................... 24,825,688 11/17/99 1,732,536
39,661,279 European Unit........................................... 41,849,291 11/29/99 459,760
27,222,400 British Pounds.......................................... 43,810,785 12/15/99 814,334
30,977,431 European Unit........................................... 32,778,944 12/17/99 405,311
21,849,956 British Pounds.......................................... 35,444,147 12/20/99 930,454
37,812,871 British Pounds.......................................... 60,954,347 01/18/00 1,200,397
43,077,927 British Pounds.......................................... 69,710,055 05/22/00 1,525,546
------------ -----------
U.S. $850,667,405 38,249,473
============ -----------
Unrealized gain on forward exchange contracts...................... 38,755,406
-----------
</TABLE>
35
MUTUAL QUALIFIED FUND
Notes to Financial Statements (unaudited) (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY: EXCHANGE FOR DATE Gain/(Loss
- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
16,628,853 Canadian Dollars........................................ U.S. $ 11,394,973 10/29/99 U.S. $ (13,288)
============ -----------
CONTRACTS TO SELL:
- ------------------
2,668,552 Canadian Dollars........................................ U.S. $ 1,776,016 08/31/99 (49,003)
36,050,200 Swedish Krona........................................... 4,250,000 09/15/99 (10,799)
36,250,000 Japanese Yen............................................ 299,934 09/24/99 (3,463)
73,419,095 Canadian Dollars........................................ 48,921,340 10/29/99 (1,330,654)
------------ -----------
U.S. $ 55,247,290 (1,393,919)
============ -----------
Unrealized loss on forward exchange contracts...................... (1,407,207)
-----------
Net unrealized gain on forward exchange contracts................ U.S. $37,348,199
===========
</TABLE>
36
SEMIANNUAL REPORT
CHAIRMAN OF THE BOARD
Michael F. Price
OFFICERS
Peter A. Langerman
Robert L. Friedman
Jeffrey 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 Qualified 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.
475 S99 08/99 [LOGO] Printed on recycled paper
