SEMI ANNUAL REPORT
JUNE 30, 2000
MUTUAL BEACON FUND
[FRANKLIN TEMPLETON LOGO]
Franklin(R) Templeton(R)
Investments
<PAGE>
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
[PHOTO OF LAWRENCE SONDIKE]
LAWRENCE SONDIKE
Portfolio Managers
Mutual Beacon Fund
PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual Advisers, LLC
[PHOTO OF DAVID J. WINTERS]
DAVID J. WINTERS
WE'RE ON THE WEB --
Now you can access online information about your fund, including this
shareholder report. Find our Web site at franklintempleton.com, your online
resource for fund , prices and performance, investor information and
around-the-clock account services.
<PAGE>
SHAREHOLDER LETTER
Your Fund's Goal: Mutual Beacon Fund seeks capital appreciation, with income as
a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities in the U.S. and other countries.
Dear Shareholder:
This semiannual report for Mutual Beacon Fund covers the six months ended June
30, 2000. For most of this time, the U.S. economy continued to grow at a robust
pace. Concerned about the possibility of future inflation, the U.S. Federal
Reserve Board (the Fed) raised the federal funds target rate three times, and by
June the red-hot economy showed signs of cooling down. U.S. and European equity
markets experienced extreme volatility throughout the reporting period. For
example, the Standard & Poor's(R) 500 Composite Index (S&P 500(R)) declined by
7.00% from January through February, rallied nearly 10% in March, then dropped
9.48% from the end of March through mid-April before rebounding to end the
six-month period at -0.42%.(1)
1. The S&P 500 Composite Index consists of 500 domestic stocks, consisting of
four broad sectors: industrials, utilities, financials and transportation. The
S&P 500 serves as a standard for measuring large-cap U.S. stock market
performance. Since some industries are characterized by companies of relatively
small stock capitalization, the Index is not composed of the 500 largest
companies on the New York Stock Exchange. The Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 14.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .............. 1
Performance Summary ............. 8
Financial Highlights &
Statement of Investments ........ 10
Financial Statements ............ 24
Notes to Financial Statements ... 28
</TABLE>
[FUND CATEGORY PYRAMID GRAPHIC]
<PAGE>
The technology-heavy Nasdaq Composite Index was even more volatile.(2) Whipsawed
by investor concerns over such issues as historically high valuations and the
federal district court's anti-monopoly ruling against technology bellwether
Microsoft, the Nasdaq(R) soared 24.07% through mid-March, then plummeted 37.32%
in the succeeding two and a half months before rebounding in June to end the
six-month period at -2.02%.
INDEX COMPARISON (BASED ON DAILY PRICE CHANGE)*
S&P 500 vs. Nasdaq Composite vs. MSCI All Countries-Europe (12/31/99-6/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
S&P NASDAQ MSCI ALL
500 COMPOSITE COUNTRIES- S&P MSCI AC -
DATE INDEX INDEX EUROPE INDEX 500 NASDAQ Europe
---- ----- --------- ------------ --- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
12/31/99 100.0 100.0 100.0
1/3/00 99.0 101.5 100.8 -0.95% 1.52% 0.76%
1/4/00 95.2 95.9 98.4 -3.83% -5.55% -2.33%
1/5/00 95.4 95.3 96.3 0.19% -0.62% -2.18%
1/6/00 95.5 91.6 95.9 0.10% -3.88% -0.37%
1/7/00 98.1 95.4 97.5 2.71% 4.17% 1.62%
1/10/00 99.2 99.5 98.6 1.12% 4.30% 1.18%
1/11/00 97.9 96.4 98.3 -1.31% -3.17% -0.35%
1/12/00 97.5 94.6 98.0 -0.44% -1.82% -0.31%
1/13/00 98.7 97.2 98.6 1.22% 2.78% 0.67%
1/14/00 99.7 99.9 99.6 1.07% 2.71% 1.00%
1/18/00 99.0 101.5 98.0 -0.68% 1.64% -1.66%
1/19/00 99.1 102.0 97.5 0.05% 0.50% -0.47%
1/20/00 98.4 103.0 97.3 -0.71% 0.92% -0.15%
1/21/00 98.1 104.1 96.7 -0.29% 1.10% -0.67%
1/24/00 95.4 100.7 96.5 -2.76% -3.29% -0.18%
1/25/00 96.0 102.4 95.1 0.61% 1.74% -1.42%
1/26/00 95.6 100.0 95.7 -0.42% -2.34% 0.63%
1/27/00 95.2 99.3 95.9 -0.39% -0.75% 0.14%
1/28/00 92.6 95.5 94.9 -2.75% -3.77% -1.01%
1/31/00 94.9 96.8 92.9 2.52% 1.37% -2.14%
2/1/00 95.9 99.6 93.9 1.06% 2.83% 1.07%
2/2/00 95.9 100.1 95.1 -0.01% 0.54% 1.26%
2/3/00 97.0 103.5 97.5 1.12% 3.36% 2.61%
2/4/00 96.9 104.3 97.3 -0.04% 0.79% -0.28%
2/7/00 96.9 106.2 96.3 -0.01% 1.83% -1.04%
2/8/00 98.1 108.8 99.2 1.23% 2.45% 3.10%
2/9/00 96.1 107.2 99.7 -2.08% -1.45% 0.44%
2/10/00 96.4 110.2 98.9 0.36% 2.81% -0.74%
2/11/00 94.4 108.0 98.7 -2.10% -2.01% -0.21%
2/14/00 94.6 108.6 97.4 0.20% 0.53% -1.35%
2/15/00 95.4 108.6 96.0 0.87% 0.05% -1.42%
2/16/00 94.4 108.8 97.2 -1.03% 0.16% 1.23%
2/17/00 94.5 111.8 98.2 0.04% 2.74% 1.07%
2/18/00 91.6 108.4 97.7 -3.04% -3.02% -0.55%
2/22/00 92.0 107.7 98.4 0.45% -0.67% 0.69%
2/23/00 92.6 111.8 99.5 0.63% 3.84% 1.12%
2/24/00 92.1 113.5 98.9 -0.53% 1.48% -0.53%
2/25/00 90.8 112.8 99.1 -1.48% -0.59% 0.16%
2/28/00 91.8 112.5 96.8 1.10% -0.28% -2.33%
2/29/00 93.0 115.4 97.5 1.36% 2.60% 0.78%
3/1/00 93.9 117.6 99.3 0.93% 1.86% 1.86%
3/2/00 94.0 116.8 101.2 0.19% -0.62% 1.89%
3/3/00 95.9 120.8 101.8 1.98% 3.37% 0.56%
3/6/00 94.7 120.5 102.6 -1.27% -0.20% 0.78%
3/7/00 92.3 119.1 101.4 -2.56% -1.16% -1.17%
3/8/00 93.0 120.3 100.2 0.82% 1.02% -1.19%
3/9/00 95.4 124.0 101.7 2.56% 3.06% 1.51%
3/10/00 95.0 124.1 102.1 -0.47% 0.03% 0.38%
3/13/00 94.2 120.6 99.9 -0.82% -2.80% -2.11%
3/14/00 92.5 115.7 99.7 -1.77% -4.09% -0.25%
3/15/00 94.8 112.6 98.0 2.43% -2.63% -1.68%
3/16/00 99.3 115.9 99.9 4.76% 2.94% 1.93%
3/17/00 99.7 117.9 100.2 0.41% 1.71% 0.31%
3/20/00 99.1 113.3 101.3 -0.54% -3.92% 1.14%
3/21/00 101.7 115.8 101.5 2.56% 2.21% 0.13%
3/22/00 102.1 119.5 100.7 0.45% 3.25% -0.70%
3/23/00 104.0 121.4 101.1 1.78% 1.56% 0.39%
3/24/00 104.0 122.0 103.4 0.01% 0.45% 2.23%
3/27/00 103.7 121.9 103.1 -0.24% -0.09% -0.28%
3/28/00 102.6 118.8 103.0 -1.06% -2.51% -0.11%
3/29/00 102.7 114.1 101.3 0.05% -3.91% -1.63%
3/30/00 101.3 109.5 99.0 -1.37% -4.02% -2.23%
3/31/00 102.0 112.4 99.7 0.72% 2.58% 0.72%
4/3/00 102.5 103.8 98.0 0.49% -7.64% -1.75%
4/4/00 101.7 102.0 98.3 -0.75% -1.77% 0.34%
4/5/00 101.2 102.5 97.3 -0.49% 0.49% -1.10%
4/6/00 102.2 104.9 98.8 0.94% 2.36% 1.55%
4/7/00 103.2 109.3 99.9 1.00% 4.19% 1.17%
4/10/00 102.4 102.9 99.9 -0.78% -5.81% 0.02%
4/11/00 102.1 99.7 98.3 -0.26% -3.16% -1.64%
4/12/00 99.9 92.6 97.8 -2.23% -7.06% -0.53%
4/13/00 98.0 90.4 97.6 -1.82% -2.46% -0.13%
4/14/00 92.3 81.6 95.1 -5.83% -9.67% -2.60%
4/17/00 95.4 87.0 93.5 3.31% 6.56% -1.66%
4/18/00 98.1 93.2 93.4 2.87% 7.19% -0.17%
4/19/00 97.2 91.1 94.6 -0.98% -2.30% 1.28%
4/20/00 97.6 89.5 95.1 0.50% -1.69% 0.55%
4/24/00 97.3 85.6 95.1 -0.33% -4.43% 0.02%
4/25/00 100.6 91.2 94.8 3.33% 6.57% -0.29%
4/26/00 99.4 89.2 95.4 -1.11% -2.19% 0.59%
4/27/00 99.7 92.7 93.4 0.27% 3.97% -2.04%
4/28/00 98.9 94.9 95.3 -0.85% 2.30% 1.94%
5/1/00 99.9 97.3 94.9 1.09% 2.52% -0.33%
5/2/00 98.4 93.0 96.7 -1.50% -4.36% 1.81%
5/3/00 96.3 91.1 93.7 -2.16% -2.06% -3.11%
5/4/00 95.9 91.4 93.4 -0.39% 0.35% -0.25%
5/5/00 97.5 93.8 93.7 1.64% 2.60% 0.32%
5/8/00 96.9 90.2 93.2 -0.59% -3.86% -0.57%
5/9/00 96.1 88.1 92.6 -0.84% -2.30% -0.67%
5/10/00 94.1 83.2 91.6 -2.06% -5.59% -1.02%
5/11/00 95.8 86.0 92.4 1.79% 3.39% 0.89%
5/12/00 96.7 86.7 93.9 0.93% 0.84% 1.57%
5/15/00 98.9 88.7 93.9 2.21% 2.23% -0.03%
5/16/00 99.8 91.4 94.7 0.94% 3.05% 0.90%
5/17/00 98.5 89.6 92.0 -1.24% -1.95% -2.88%
5/18/00 97.8 87.0 92.3 -0.73% -2.91% 0.39%
5/19/00 95.8 83.3 89.5 -2.11% -4.19% -3.10%
5/22/00 95.3 82.7 89.0 -0.44% -0.77% -0.56%
5/23/00 93.5 77.8 89.9 -1.92% -5.93% 1.00%
5/24/00 95.2 80.4 88.9 1.83% 3.35% -1.07%
5/25/00 94.0 78.8 90.8 -1.25% -2.00% 2.09%
5/26/00 93.8 78.8 91.6 -0.25% -0.01% 0.95%
5/30/00 96.8 85.0 94.3 3.22% 7.94% 2.98%
5/31/00 96.7 83.6 94.3 -0.13% -1.69% -0.06%
6/1/00 98.6 88.0 95.8 1.99% 5.34% 1.61%
6/2/00 100.5 93.7 99.5 1.96% 6.44% 3.85%
6/5/00 99.9 93.9 98.7 -0.65% 0.22% -0.85%
6/6/00 99.2 92.3 99.4 -0.67% -1.71% 0.76%
6/7/00 100.1 94.3 98.6 0.93% 2.21% -0.86%
6/8/00 99.5 94.0 98.3 -0.66% -0.36% -0.21%
6/9/00 99.2 95.2 98.0 -0.32% 1.29% -0.40%
6/12/00 98.4 92.6 98.2 -0.75% -2.76% 0.27%
6/13/00 100.0 94.6 98.6 1.62% 2.21% 0.36%
6/14/00 100.1 93.3 99.4 0.07% -1.39% 0.88%
6/15/00 100.6 94.5 98.2 0.56% 1.27% -1.20%
6/16/00 99.7 94.9 98.6 -0.97% 0.39% 0.34%
6/19/00 101.1 98.0 98.2 1.47% 3.35% -0.36%
6/20/00 100.5 98.6 98.6 -0.68% 0.59% 0.43%
6/21/00 100.7 99.9 96.9 0.22% 1.26% -1.80%
6/22/00 98.8 96.7 95.9 -1.82% -3.13% -1.03%
6/23/00 98.1 94.5 95.4 -0.74% -2.32% -0.45%
6/26/00 99.0 96.1 95.5 0.96% 1.74% 0.02%
6/27/00 98.7 94.8 95.4 -0.32% -1.36% 0.00%
6/28/00 99.0 96.8 96.0 0.29% 2.11% 0.53%
6/29/00 98.2 95.3 94.3 -0.85% -1.60% -1.69%
6/30/00 99.0 97.5 96.0 0.85% 2.29% 1.72%
</TABLE>
* Index performance shown represents percentage deviations from a base of 100.
Within this environment, Mutual Beacon Fund - Class Z shares provided a 3.11%
six-month cumulative total return as shown in the Performance Summary on page 8.
This return compares favorably to the S&P 500 Index, which declined 0.42%, and
to the Lipper Multi-Cap Value Funds Average, which declined 0.47% during the
same period.(3)
2. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on the Nasdaq Stock Market(R). The Index is market-value
weighted and includes over 5,000 companies (as of 6/30/00).
3. Source: Standard & Poor's Micropal. The Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
The Lipper Multi-Cap Value Funds Average is an equally weighted average
consisting of 518 mutual funds (including Mutual Beacon Fund) within the
Multi-Cap Value investment objective. Returns are adjusted for the reinvestment
of capital gains distributions and income dividends.
2
<PAGE>
The Fund's favorable performance relative to its benchmarks was due largely to
our disciplined value and special situations approach. As the Fed waged a war
against inflation by raising interest rates, prices of some equities fell to
levels we have not seen for many years. Although this adversely affected some of
our holdings, it also provided us with opportunities to purchase high-quality
stocks that we believed had been unduly neglected by the marketplace.
The largest contributor to Mutual Beacon's half-year performance was Lagardere,
a French media and defense company in the process of restructuring itself into a
media powerhouse. Two other strong performers in the portfolio were Ono
Pharmaceutical, a Japanese drug company that was trading at a fraction of the
valuation of its global peer group when we bought it, and Starwood Hotels &
Resorts, a hotel chain whose stock has appreciated significantly following
strong operating performance and extensive restructuring.
We also had some disappointments. Weak business conditions in South America and
Eastern Europe resulted in lowered earnings expectations at packaging company
Owens Illinois, crimping its stock price. And Lear, an automotive parts company,
has suffered from investor assumptions that auto sales have peaked and that the
initiation of business-to-business commerce will result in lower margins for
suppliers.
Merger activity, just one of many catalysts we look for, accelerated recently as
corporate buyers have been able to opportunistically bid for undervalued,
publicly traded assets. For example, CTV, a free-to-air broadcaster in Canada,
was taken over during the reporting period. Another Fund holding, United Asset
Management, has also received a cash offer for all of its shares from Old Mutual
PLC.
We believe fundamental analysis matters more than ever, especially in down and
sideways stock markets like we've recently witnessed. At
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
6/30/00
[BAR CHART]
United States - 56.2%
United Kingdom - 10.1%
France - 3.1%
Sweden - 3.1%
Japan - 2.4%
Netherlands - 2.2%
Canada - 1.2%
Other Countries - 3.2%
Fixed-Income Securities - 6.6%
Government Agencies & Other Net Assets - 11.9%
3
<PAGE>
TOP 10 HOLDINGS
6/30/00
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
SECTOR, COUNTRY NET ASSETS
--------------- ----------
<S> <C>
Canary Wharf Group PLC, 3.2%
Real Estate, United Kingdom
Telephone & Data Systems Inc., 2.8%
Diversified Telecommunication
Services, United States
Railtrack Group PLC, 2.0%
Road & Rail, United Kingdom
Investor AB, 2.0%
Industrial Conglomerates,
Sweden
AT&T Corp., 2.0%
Diversified Telecommunication
Services, United States
United Asset 1.8%
Management Corp.,
Diversified Financials,
United States
Lagardere SCA, 1.5%
Media, France
Washington Post Co., 1.5%
Media, United States
Scripps Co., A, 1.5%
Media, United States
Federated Department Stores, 1.4%
Multiline Retail, United States
</TABLE>
period's end, we believe our portfolio contained many undervalued, special
situation stocks that could provide excellent risk-adjusted returns over time.
One example is Telephone and Data Systems (TDS), which at period's end was our
largest domestic holding. On June 30, TDS was trading at a 35% discount to the
public market value of its businesses. Management has recently undertaken steps
to enhance shareholder value, including the merger of its Aerial Communications
unit into VoiceStream Wireless.
The Washington Post Company is a second example where we believe stock market
valuation does not fully reflect the intrinsic worth of the company. We are
attracted by the company's strong operating performance and reputation for
integrity. Washington Post's management, which has a substantial personal
investment in the company, is developing "new media" platforms to capitalize on
their strengths in education, recruiting and must-have daily information. Yet
this diversified media company trades at what we believe is a significant
discount to both its underlying intrinsic value and the tender price at which
the company recently repurchased a significant amount of its own shares. We view
The Washington Post as an excellent investment that permits us to purchase
first-class assets at a very cheap price.
One advantage of our three-pronged investment style -- consisting of undervalued
stocks, bankruptcy investing and deal arbitrage -- is that it provides us the
flexibility to own and profit from companies during all phases of their life
cycle. For example, our initial investments in distressed bank debt of then
bankrupt Canary Wharf, a London real estate development, became a valuable
equity in the reorganized company.
4
<PAGE>
Another investment indicative of our unique approach has been our long-term
holding in MediaOne, which has been acquired by AT&T for cash and stock. Our
initial investment in MediaOne came to us through a spin-off made by its parent
company, U.S West. As owners of U.S. West stock, we had successfully encouraged
its management to separate the media assets now known as MediaOne. When MediaOne
became an acquisition target of AT&T, not only did we benefit from the initial
stock appreciation upon announcement of the deal, but we also benefited as our
arbitrage expertise enabled us to increase our position and profit during the
reporting period. We believe the shares of AT&T we will receive are
significantly undervalued at current levels. AT&T's share price at the end of
June reflected the value of its wireless and broadband holdings alone. We
believe opportunity for significant profit exists because management is under
pressure to realize the intrinsic value of the company.
Looking forward, the Fed's interest rates hikes may begin to slow the economy.
Although some of the speculative activity in technology and Internet stocks has
diminished, many of these "new economy" securities continue to trade at
astronomical valuations. In contrast, we believe many "old economy" stocks are
trading at very low price levels. This two-tiered market should provide Mutual
Beacon with excellent opportunities.
Recent economic trends could also provide Mutual Beacon with a fertile supply of
distressed debt to mine as more companies default on their financial
obligations. Historically, bankruptcy has been an excellent area for us to
explore for good risk/reward opportunities. From an arbitrage angle, a slowing
economy may provide us with even more merger opportunities in which to invest as
corporations try to offset declining organic growth with additional acquisition
activity.
<TABLE>
<CAPTION>
TOP 10 SECTORS*
6/30/00
% OF TOTAL
SECTOR NET ASSETS
------ ----------
<S> <C>
Media 10.6%
Diversified Financials 8.2%
Diversified Telecommunication
Services 7.3%
Insurance 5.9%
Real Estate 4.1%
Road & Rail 3.8%
Multiline Retail 3.7%
Auto Components 3.4%
Banks 3.0%
Commercial Services &
Supplies 3.0%
</TABLE>
*Based on equity securities.
5
<PAGE>
Overall, we believe Mutual Beacon is well positioned to capitalize on what may
lie ahead. We shall continue to search for companies that are selling at a big
discount to what we believe to be their intrinsic value, and that possess the
catalyst to unlock those values. With our strong analytical expertise, we are
prepared to identify compelling undervalued situations in cheap stocks,
distressed securities and merger arbitrage for the benefit of the Fund's
shareholders.
Thank you for your participation in Mutual Beacon Fund. We welcome
your comments and suggestions, either through regular mail or by email at
[email protected].
Sincerely,
/s/ Lawrence Sondike
Lawrence Sondike
/s/ David J. Winters
David J. Winters
Co-Portfolio Managers
Mutual Beacon Fund
6
<PAGE>
The Fund's value-oriented strategy may include investments in companies involved
in mergers, reorganizations, restructurings or liquidations. 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.
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, 2000, 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
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY AS OF 6/30/00
Six-month total return does not include sales charges. 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 operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS Z: No initial sales charge or Rule 12b-1 fees and are available only to
certain investors, as described in the prospectus.
CLASS A: Subject to the current, 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: 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.
<TABLE>
<CAPTION>
CLASS Z
<S> <C> <C>
Six-Month Total Return 3.11%
Net Asset Value (NAV) $13.36 (6/30/00) $13.84 (12/31/99)
Change in NAV - $0.48
Distributions (1/1/00 - 6/30/00) Dividend Income $0.2509
Short-Term Capital Gain $0.2421
Long-Term Capital Gain $0.4222
---------------------- -------
Total $0.9152
CLASS A
Six-Month Total Return 2.88%
Net Asset Value (NAV) $13.31 (6/30/00) $13.81 (12/31/99)
Change in NAV - $0.50
Distributions (1/1/00 - 6/30/00) Dividend Income $0.2380
Short-Term Capital Gain $0.2421
Long-Term Capital Gain $0.4222
---------------------- -------
Total $0.9023
CLASS B
Six-Month Total Return 2.66%
Net Asset Value (NAV) $13.17 (6/30/00) $13.69 (12/31/99)
Change in NAV - $0.52
Distributions (1/1/00 - 6/30/00) Dividend Income $0.2236
Short-Term Capital Gain $0.2421
Long-Term Capital Gain $0.4222
---------------------- -------
Total $0.8879
CLASS C
Six-Month Total Return 2.57%
Net Asset Value (NAV) $13.23 (6/30/00) $13.75 (12/31/99)
Change in NAV - $0.52
Distributions (1/1/00 - 6/30/00) Dividend Income $0.2139
Short-Term Capital Gain $0.2421
Long-Term Capital Gain $0.4222
---------------------- -------
Total $0.8782
</TABLE>
Past performance does not guarantee future results.
8
<PAGE>
ADDITIONAL PERFORMANCE AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS Z 1-YEAR 5-YEAR 10-YEAR (6/29/62)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 2.25% 104.21% 295.27% 2,587.65%
Average Annual Total Return(2) 2.25% 15.35% 14.73% 9.05%
Value of $10,000 Investment(3) $10,225 $20,421 $39,527 $268,765
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (11/1/96)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 1.85% 33.54% 59.15%
Average Annual Total Return(2) -4.00% 7.96% 12.12%
Value of $10,000 Investment(3) $9,600 $12,584 $15,199
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
----------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 1.25% 18.40%
Average Annual Total Return(2) -2.26% 9.43%
Value of $10,000 Investment(3) $9,774 $11,440
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (11/1/96)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 1.18% 30.99% 55.48%
Average Annual Total Return(2) -0.69% 9.04% 12.51%
Value of $10,000 Investment(3) $9,931 $12,964 $15,393
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of the countries where the Fund invests. You may
have a gain or loss when you sell your shares.
Past performance does not guarantee future results.
9
<PAGE>
MUTUAL BEACON FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS Z
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 --------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $13.84 $13.12 $14.12 $12.98 $11.98 $10.34
------------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .11 .22 .33 .31 .40 .29
Net realized and unrealized gains
(losses)............................... .33 1.95 (.01) 2.63 2.08 2.36
------------------------------------------------------------------------------
Total from investment operations.......... .44 2.17 .32 2.94 2.48 2.65
------------------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.26) (.27) (.45) (.54) (.35) (.28)
Net realized gains....................... (.66) (1.18) (.87) (1.26) (1.13) (.73)
------------------------------------------------------------------------------
Total distributions....................... (.92) (1.45) (1.32) (1.80) (1.48) (1.01)
------------------------------------------------------------------------------
Net asset value, end of period............ $13.36 $13.84 $13.12 $14.12 $12.98 $11.98
==============================================================================
Total Return*............................. 3.11% 16.79% 2.37% 23.03% 21.19% 25.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $2,911,421 $3,217,509 $4,030,517 $5,678,822 $4,920,388 $3,573,297
Ratios to average net assets:
Expenses(a).............................. .80%** .79% .78% .79% .73% .75%
Expenses, excluding waiver and payments
by affiliate(a)........................ .85%** .83% .81% .82% .75% .75%
Net investment income.................... 1.55%** 1.52% 2.28% 1.92% 3.21% 2.89%
Portfolio turnover rate................... 31.07% 67.61% 65.27% 54.72% 66.87% 73.18%
(a)Excluding dividend expense on
securities sold short, the ratios of
expenses and expenses, excluding waiver
and payments by affiliate to average net
assets would have been:
Expenses.................................. .77%** .78% .76% .74% .73% .72%
Expenses, excluding waiver and payments by
affiliate................................. .82%** .82% .79% .77% .75% .72%
</TABLE>
*Total return is not annualized.
**Annualized.
+Per share amounts for all periods prior to December 31, 1996 have been restated
to reflect a 3-for-1 stock split effective February 3, 1997. Based on average
weighted shares outstanding effective year ended December 31, 1999.
10
<PAGE>
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996+
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........... $13.81 $13.09 $14.09 $12.98 $13.21
---------------------------------------------------------------------
Income from investment operations:
Net investment income......................... .08 .17 .27 .23 .16
Net realized and unrealized gains............. .32 1.95 -- 2.65 .69
---------------------------------------------------------------------
Total from investment operations............... .40 2.12 .27 2.88 .85
---------------------------------------------------------------------
Less distributions from:
Net investment income......................... (.24) (.21) (.40) (.51) (.33)
Net realized gains............................ (.66) (1.19) (.87) (1.26) (.75)
---------------------------------------------------------------------
Total distributions............................ (.90) (1.40) (1.27) (1.77) (1.08)
---------------------------------------------------------------------
Net asset value, end of period................. $13.31 $13.81 $13.09 $14.09 $12.98
=====================================================================
Total Return*.................................. 2.88% 16.40% 2.02% 22.52% 6.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).............. $706,506 $760,769 $947,444 $753,519 $52,070
Ratios to average net assets:
Expenses(a)................................... 1.15%** 1.14% 1.13% 1.14% 1.03%**
Expenses, excluding waiver and payments by
affiliate(a)................................ 1.20%** 1.18% 1.16% 1.17% 1.13%**
Net investment income......................... 1.20%** 1.18% 1.89% 1.58% 1.33%**
Portfolio turnover rate........................ 31.07% 67.61% 65.27% 54.72% 66.87%
(a)Excluding dividend expense on securities
sold short, the ratios of expenses and
expenses, excluding waiver and payments by
affiliate to average net assets would have
been:
Expenses....................................... 1.12%** 1.13% 1.11% 1.09% 1.03%**
Expenses, excluding waiver and payments by
affiliate...................................... 1.17%** 1.17% 1.14% 1.12% 1.13%**
</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 3-for-1 stock split effective February 3, 1997. Based on
average weighted shares outstanding effective year ended December 31, 1997.
11
<PAGE>
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999+
------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $13.69 $13.09
--------------------------------------
Income from investment operations:
Net investment income...................................... .04 .05
Net realized and unrealized gains.......................... .33 1.93
--------------------------------------
Total from investment operations............................ .37 1.98
--------------------------------------
Less distributions from:
Net investment income...................................... (.23) (.19)
Net realized gains......................................... (.66) (1.19)
--------------------------------------
Total distributions......................................... (.89) (1.38)
--------------------------------------
Net asset value, end of period.............................. $13.17 $13.69
======================================
Total Return*............................................... 2.66% 15.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $13,158 $8,956
Ratios to average net assets:
Expenses(a)................................................ 1.80%** 1.79%
Expenses, excluding waiver and payments by affiliate(a).... 1.85%** 1.84%
Net investment income...................................... .60%** .37%
Portfolio turnover rate..................................... 31.07% 67.61%
(a)Excluding dividend expense on securities sold short, the
ratios of expenses and expenses, excluding waiver and
payments by affiliates to average net assets would have
been:
Expenses.................................................... 1.77%** 1.78%
Expenses, excluding waiver and payments by affiliate........ 1.82%** 1.83%
</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 effective year ended December 31,
1999.
12
<PAGE>
MUTUAL BEACON FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996+
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........... $13.75 $13.04 $14.04 $12.98 $13.21
---------------------------------------------------------------------
Income from investment operations:
Net investment income......................... .04 .07 .18 .14 .13
Net realized and unrealized gains............. .32 1.94 .01 2.63 .71
---------------------------------------------------------------------
.36 2.01 .19 2.77 .84
---------------------------------------------------------------------
Less distributions from:
Net investment income......................... (.22) (.12) (.32) (.45) (.32)
Net realized gains............................ (.66) (1.18) (.87) (1.26) (.75)
---------------------------------------------------------------------
Total distributions............................ (.88) (1.30) (1.19) (1.71) (1.07)
---------------------------------------------------------------------
Net asset value, end of period................. $13.23 $13.75 $13.04 $14.04 $12.98
=====================================================================
Total Return*.................................. 2.57% 15.65% 1.40% 21.65% 6.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).............. $405,078 $459,807 $500,404 $362,425 $16,263
Ratios to average net assets:
Expenses(a)................................... 1.79%** 1.78% 1.78% 1.79% 1.75%**
Expenses, excluding waiver and payments by
affiliate(a)................................ 1.84%** 1.83% 1.81% 1.82% 1.85%**
Net investment income......................... .56%** .52% 1.24% .92% .84%**
Portfolio turnover rate........................ 31.07% 67.61% 65.27% 54.72% 66.87%
(a)Excluding dividend expense on securities
sold short, the ratios of expenses and
expenses, excluding waiver and payments by
affiliates to average net assets would have
been:
Expenses....................................... 1.76%** 1.77% 1.76% 1.74% 1.75%**
Expenses, excluding waiver and payments by
affiliate...................................... 1.81%** 1.82% 1.79% 1.77% 1.85%**
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 3-for-1 stock split effective February 3, 1997. Based on average
weighted shares outstanding effective year ended December 31, 1997.
See Notes to Financial Statements.
13
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 82.1%
AEROSPACE & DEFENSE 1.7%
B.F. Goodrich Co. .......................................... United States 1,541,236 $ 52,498,351
Gencorp Inc. ............................................... United States 777,495 6,219,960
*Hexcel Corp. .............................................. United States 991,880 9,422,860
--------------
68,141,171
--------------
AUTO COMPONENTS 3.4%
Borg Warner Inc. ........................................... United States 443,925 15,592,866
Delphi Automotive Systems Corp. ............................ United States 3,442,611 50,133,023
*Lear Corp. ................................................ United States 1,533,900 30,678,000
TRW Inc. ................................................... United States 914,700 39,675,113
--------------
136,079,002
--------------
AUTOMOBILES .5%
General Motors Corp. ....................................... United States 315,481 18,317,616
--------------
BANKS 3.0%
Bank of Ireland............................................. Irish Republic 2,037,514 12,890,219
Chase Manhattan Corp. ...................................... United States 497,970 22,937,743
Commercial Federal Corp. ................................... United States 2,161,342 33,635,885
Greenpoint Financial Corp. ................................. United States 1,068,808 20,040,150
National City Corp. ........................................ United States 435,000 7,422,188
U.S. Bancorp................................................ United States 1,297,070 24,968,598
--------------
121,894,783
--------------
BEVERAGES 2.6%
Brown-Forman Corp., A....................................... United States 130,500 6,883,875
Brown-Forman Corp., B....................................... United States 449,180 24,143,426
Coca-Cola West Japan Co. Ltd. .............................. Japan 464,000 14,691,177
Fraser and Neave Ltd. ...................................... Singapore 1,604,200 5,706,090
Heineken Holding NV, A...................................... Netherlands 578,384 22,619,979
Mikuni Coca-Cola Bottling Co. .............................. Japan 1,053,900 15,329,636
Pepsi Bottling Group Inc. .................................. United States 553,300 16,149,443
--------------
105,523,626
--------------
BUILDING PRODUCTS .6%
*American Standard Cos. Inc. ............................... United States 537,000 22,017,000
--------------
CHEMICALS 1.7%
Agrium Inc. ................................................ Canada 783,400 6,714,706
Agrium Inc., fgn. .......................................... Canada 953,300 8,222,213
*Henkel KGAA, pfd. ......................................... Germany 33,600 1,932,441
Nippon Sanso Corp. ......................................... Japan 2,142,400 7,471,723
Omnova Solutions Inc. ...................................... United States 1,375,100 8,594,375
Union Carbide Corp. ........................................ United States 482,050 23,861,476
*W.R. Grace & Co. .......................................... United States 1,100,600 13,344,775
--------------
70,141,709
--------------
</TABLE>
14
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
COMMERCIAL SERVICES & SUPPLIES 3.0%
Dun & Bradstreet Corp. ..................................... United States 1,014,300 $ 29,034,339
Galileo International Inc. ................................. United States 1,345,785 28,093,262
*Philip Services Corp. ..................................... Canada 223,833 1,405,951
Rentokil Initial PLC........................................ United Kingdom 6,425,900 14,640,355
Williams PLC................................................ United Kingdom 8,360,650 48,665,091
--------------
121,838,998
--------------
COMMUNICATIONS EQUIPMENT .2%
*General Motors Corp., H.................................... United States 110,742 9,717,610
--------------
CONTAINERS & PACKAGING .5%
*Owens-Illinois Inc. ....................................... United States 1,800,916 21,048,206
--------------
DIVERSIFIED FINANCIALS 8.2%
Bear Stearns Cos. Inc. ..................................... United States 1,139,072 47,413,872
CIT Group Inc., A........................................... United States 2,155,070 35,019,888
+Heller Financial Inc. ..................................... United States 2,316,000 47,478,000
Household International Inc. ............................... United States 812,681 33,777,054
Kansas City Southern Industries Inc. ....................... United States 137,200 12,167,925
Lehman Brothers Holdings Inc. .............................. United States 167,600 15,848,675
Liberty Financial Cos. Inc. ................................ United States 1,651,846 36,237,372
*MFN Financial Corp. ....................................... United States 380,744 2,355,854
Rembrandt Controlling Investments Ltd. ..................... South Africa 2,464,700 16,940,268
St. Joe Co. ................................................ United States 401,898 12,056,940
+United Asset Management Corp. ............................. United States 3,105,000 72,579,375
--------------
331,875,223
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES 7.3%
AT&T Corp. ................................................. United States 948,010 29,980,816
AT&T Corp., W/I............................................. United States 1,515,231 50,002,623
British Telecommunications PLC.............................. United Kingdom 2,027,425 26,180,322
Centurytel Inc. ............................................ United States 752,610 21,637,538
*Citizens Communications Co., B............................. United States 1,279,482 22,071,065
SBC Communications Inc. .................................... United States 315,700 13,654,025
Sprint Corp Fon Group....................................... United States 17,785 907,035
Telephone & Data Systems Inc. .............................. United States 1,141,225 114,407,806
Telus Corp., A.............................................. Canada 638,800 17,007,937
--------------
295,849,167
--------------
ELECTRIC UTILITIES .6%
E.On AG..................................................... Germany 474,100 22,949,705
--------------
</TABLE>
15
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRICAL EQUIPMENT 1.6%
Hubbell Inc., B............................................. United States 409,835 $ 10,450,792
Rockwell International Corp. ............................... United States 497,595 15,674,242
*Thermo Electron Corp. ..................................... United States 1,891,600 39,841,825
--------------
65,966,859
--------------
FOOD & DRUG RETAILING .2%
*Brunos Inc. ............................................... United States 62,735 5,959,825
*Homeland Holdings Corp. ................................... United States 48,591 127,551
--------------
6,087,376
--------------
FOOD PRODUCTS 2.3%
Associated British Foods PLC................................ United Kingdom 2,154,528 14,872,985
Bestfoods................................................... United States 50,710 3,511,667
CSM NV...................................................... Netherlands 667,688 13,184,284
+Farmer Brothers Co. ....................................... United States 93,286 16,325,050
Kikkoman Corp. ............................................. Japan 896,500 6,922,551
+Van Melle NV............................................... Netherlands 821,500 22,442,343
Weetabix Ltd., A............................................ United Kingdom 433,025 16,388,309
--------------
93,647,189
--------------
HEALTH CARE EQUIPMENT & SUPPLIES .5%
Santen Pharmaceutical Co. Ltd. ............................. Japan 862,900 20,878,257
--------------
HOTELS RESTAURANTS & LEISURE 2.1%
Carnival Corp. ............................................. United States 610,770 11,910,015
+*Fine Host Corp. .......................................... United States 507,977 5,028,972
*Park Place Entertainment Corp. ............................ United States 2,678,400 32,643,000
Starwood Hotels & Resorts Worldwide Inc. ................... United States 1,102,020 35,884,526
--------------
85,466,513
--------------
HOUSEHOLD DURABLES .6%
Maytag Corp. ............................................... United States 566,485 20,889,134
(R)*Sunbeam Corp. .......................................... United States 1,480,670 4,580,823
--------------
25,469,957
--------------
INDUSTRIAL CONGLOMERATES 2.5%
Compagnie Generale D'Industrie et de Participation.......... France 188,920 8,076,600
Investor AB, A.............................................. Sweden 3,801,600 51,577,973
Investor AB, B.............................................. Sweden 2,146,466 29,489,129
U.S. Industries Inc. ....................................... United States 991,500 12,021,937
--------------
101,165,639
--------------
INSURANCE 5.9%
*Alleghany Corp. ........................................... United States 136,337 22,904,616
Allmerica Financial Corp. .................................. United States 499,800 26,177,025
</TABLE>
16
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
Ambac Financial Group Inc. ................................. United States 252,800 $ 13,856,600
*Berkshire-Hathaway Inc., A................................. United States 628 33,786,400
*Berkshire Hathaway Inc., B................................. United States 900 1,584,000
Financial Security Assurance Holdings Ltd. ................. United States 39,200 2,974,300
Irish Life & Permanent PLC.................................. Irish Republic 390,480 3,295,527
Jefferson-Pilot Corp. ...................................... United States 148,400 8,375,325
MBIA Inc. .................................................. United States 847,500 40,838,906
*MetLife Inc. .............................................. United States 561,700 11,830,806
Old Republic International Corp. ........................... United States 1,329,490 21,936,585
White Mountain Insurance Group Inc. ........................ United States 165,711 26,513,760
XL Capital Ltd., A.......................................... Bermuda 454,830 24,617,674
--------------
238,691,524
--------------
IT CONSULTING & SERVICES .4%
*DecisionOne Corp. ......................................... United States 262,902 1,183,059
*Unisys Corp. .............................................. United States 976,125 14,214,820
--------------
15,397,879
--------------
LEISURE EQUIPMENT & PRODUCTS .3%
Hasbro Inc. ................................................ United States 919,325 13,847,333
--------------
MACHINERY .4%
Invensys PLC................................................ United Kingdom 3,804,371 14,254,081
(R)*Lancer Industries Inc., B............................... United States 1 1,436,306
--------------
15,690,387
--------------
MARINE .4%
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 1,642,462 13,998,608
--------------
MEDIA 10.6%
*AT&T Corp. - Liberty Media Group, A........................ United States 1,379,616 33,455,688
Dow Jones & Co. Inc. ....................................... United States 187,600 13,741,700
*Fox Entertainment Group Inc., A............................ United States 369,620 11,227,208
Kinnevik AB, B.............................................. Sweden 1,235,453 31,692,728
Knight-Ridder Inc. ......................................... United States 306,330 16,292,927
Lagardere SCA............................................... France 813,229 62,361,796
McClatchy Co., A............................................ United States 283,200 9,381,000
Meredith Corp. ............................................. United States 677,200 22,855,500
*Modern Times Group AB, A................................... Sweden 287,550 13,113,670
NV Holdingsmig de Telegraaf................................. Netherlands 1,313,853 30,225,520
*R. H. Donnelley Corp. ..................................... United States 900,072 17,438,895
Scripps Co., A.............................................. United States 1,189,400 58,577,950
*Trinity Mirror PLC......................................... United Kingdom 1,097,675 9,804,082
True North Communications Inc. ............................. United States 780,100 34,324,400
Washington Post Co., B...................................... United States 130,322 62,293,916
--------------
426,786,980
--------------
</TABLE>
17
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING .1%
Central Steel & Wire Co. ................................... United States 959 $ 499,639
*Minerals Technologies Inc. ................................ United States 117,915 5,424,090
--------------
5,923,729
--------------
MULTILINE RETAIL 3.7%
*Federated Department Stores Inc. .......................... United States 1,733,290 58,498,537
May Department Stores Co. .................................. United States 1,424,660 34,191,840
*Neiman-Marcus Group Inc., A................................ United States 236,835 7,149,456
*Neiman-Marcus Group Inc., B................................ United States 318,900 8,849,475
*Saks Inc. ................................................. United States 1,940,000 20,370,000
Sears, Roebuck & Co. ....................................... United States 629,700 20,543,963
--------------
149,603,271
--------------
MULTI-UTILITIES .5%
Suez Lyonnaise des Eaux SA.................................. France 123,152 21,661,738
--------------
MUTUAL FUNDS & UNIT TRUSTS .2%
JZ Equity Partners PLC...................................... United Kingdom 2,347,200 7,248,722
--------------
OFFICE ELECTRONICS .4%
Xerox Corp. ................................................ United States 872,915 18,112,986
--------------
OIL & GAS .9%
*Abraxas Petroleum Corp. ................................... United States 247,833 371,750
*Abraxas Petroleum Corp., rts., 11/01/04.................... United States 247,833 123,917
Burlington Resources Inc. .................................. United States 920,940 35,225,955
--------------
35,721,622
--------------
PAPER & FOREST PRODUCTS 2.2%
Abitibi-Consolidated Inc. .................................. Canada 1,551,955 14,401,958
International Paper Co. .................................... United States 1,107,715 33,023,753
Mead Corp. ................................................. United States 1,229,545 31,046,011
Rayonier Inc. .............................................. United States 248,900 8,929,288
--------------
87,401,010
--------------
PHARMACEUTICALS 1.9%
Aventis SA.................................................. France 446,491 32,719,448
Aventis SA, ADR............................................. France 7,550 547,847
Banyu Pharmaceutical Co. Ltd. .............................. Japan 137,400 3,369,907
Bristol-Myers Squibb Co. ................................... United States 206,060 12,002,995
Ono Pharmaceutical Co Ltd. ................................. Japan 618,600 26,602,050
--------------
75,242,247
--------------
REAL ESTATE 4.1%
*Alexander's Inc. .......................................... United States 46,300 3,391,475
*Al-Zar Ltd. LP............................................. United States 12 60
*Canary Wharf Group PLC..................................... United Kingdom 22,958,463 128,074,142
</TABLE>
18
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Cheung Kong Holdings Ltd. .................................. Hong Kong 1,241,390 $ 13,735,185
*HomeFed Corp. ............................................. United States 269,405 180,501
(R)+*MB Metropolis LLC...................................... United States 8,589 0
*MBO Properties Inc. ....................................... United States 205,135 102,568
(R)*Security Capital European Realty........................ United States 488,750 7,206,619
*Ventas Inc. ............................................... United States 863,600 2,752,725
+*Wellsford Real Properties Inc. ........................... United States 791,610 11,973,101
--------------
167,416,376
--------------
ROAD & RAIL 3.8%
Burlington Northern Santa Fe Corp. ......................... United States 854,200 19,593,213
Florida East Coast Industries Inc. ......................... United States 1,268,700 50,748,000
Railtrack Group PLC......................................... United Kingdom 5,270,491 81,941,267
--------------
152,282,480
--------------
SOFTWARE .3%
*Network Associates Inc. ................................... United States 569,000 11,593,375
--------------
SPECIALTY RETAIL .8%
*Payless Shoesource Inc. ................................... United States 393,405 20,162,006
Sherwin-Williams Co. ....................................... United States 590,615 12,513,655
--------------
32,675,661
--------------
TEXTILES & APPAREL .4%
*Nautica Enterprises Inc. .................................. United States 1,491,300 15,938,269
--------------
TOBACCO 1.6%
Compagnie Financiere Richemont AG, Br., A................... Switzerland 11,885 32,122,609
Gallaher Group PLC.......................................... United Kingdom 4,860,165 26,579,085
Gallaher Group PLC, ADR..................................... United Kingdom 177,500 3,805,156
--------------
62,506,850
--------------
WIRELESS TELECOMMUNICATION SERVICES .1%
*U.S. Cellular Corp. ....................................... United States 61,700 3,887,100
--------------
TOTAL COMMON STOCKS (COST $2,798,458,336)................... 3,315,703,753
--------------
PRINCIPAL
AMOUNT**
------
<S> <C> <C> <C>
CORPORATE BONDS & NOTES 2.8%
Abraxas Petroleum Corp., Series A, 11.50%, 11/01/04......... United States $ 2,909,900 2,458,866
DecisiononOne Corp., Term Loan.............................. United States 9,932,782 8,442,864
Eurotunnel Finance Ltd.:
Equity Note, 12/31/03..................................... United Kingdom 4,047,387 GBP 2,328,303
Participating Loan Note, 4/30/40.......................... United Kingdom 858,000 GBP 519,551
</TABLE>
19
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS & NOTES (CONT.)
Eurotunnel PLC:
12/31/18, Tier 2.......................................... United Kingdom 13,192,620 GBP $ 13,780,383
12/31/25, Tier 3.......................................... United Kingdom 10,314,941 GBP 9,056,823
12/31/50, Resettable Advance R5........................... United Kingdom 4,158,272 GBP 2,329,141
Stabilization Advance S8, Tier 1.......................... United Kingdom 3,025,319 GBP 1,190,764
Stabilization Advance S8, Tier 2.......................... United Kingdom 2,372,569 GBP 826,091
Eurotunnel SA:
12/31/12, Tier 1 (Libor).................................. France 756,258 EUR 558,183
12/31/12, Tier 1 (Pibor).................................. France 122,451 EUR 90,379
12/31/18, Tier 2 (Libor).................................. France 8,543,897 EUR 5,569,044
12/31/18, Tier 2 (Pibor).................................. France 1,733,689 EUR 1,130,045
12/31/25, Tier 3 (Libor).................................. France 11,765,016 EUR 6,428,108
12/31/25, Tier 3 (Pibor).................................. France 2,995,199 EUR 1,636,501
12/31/50, Resettable Advance R4........................... France 6,453,441 EUR 2,257,875
Stabilization Advance S6, Tier 1 (Pibor).................. France 903,652 EUR 225,211
Stabilization Advance S7, Tier 1 (Pibor).................. France 1,875,101 EUR 467,319
Stabilization Advance S6, Tier 2.......................... France 2,566,359 EUR 541,198
Finova Capital Corp.:
6.11%, 2/18/03............................................ United States 3,070,000 2,647,286
6.15%, 3/31/03............................................ United States 545,000 461,725
7.25%, 11/08/04........................................... United States 1,850,000 1,621,063
La Quinta Inns Inc.:
7.25%, 3/15/04............................................ United States 871,000 653,250
7.33%, 4/01/08............................................ United States 1,950,000 1,306,500
Laidlaw Inc.:
7.70%, 8/15/02............................................ Canada 720,000 212,400
7.05%, 5/15/03............................................ Canada 215,000 63,963
6.65%, 10/01/04........................................... Canada 2,175,000 522,000
7.875%, 4/15/05........................................... Canada 2,170,000 640,150
7.65%, 5/15/06............................................ Canada 1,960,000 470,400
8.75%, 4/15/25............................................ Canada 3,259,000 961,405
6.72%, 10/01/27........................................... Canada 5,220,000 1,291,950
Levi Straus & Co.:
6.80%, 11/01/03........................................... United States 215,000 176,300
7.00%, 11/01/06........................................... United States 850,000 646,000
Meditrust Corp.:
7.00%, 8/15/07............................................ United States 1,680,000 1,125,600
7.82%, 9/10/26............................................ United States 6,580,000 5,066,600
MFN Financial Corp.:
Series A, 10.00%, 3/23/01................................. United States 1,130,122 1,082,092
Series B, FRN, 11.26%, 3/23/01............................ United States 1,355,119 1,311,078
Philip Services Corp.:
PIK, 10.00%, 5/01/05...................................... Canada 1,024,879 819,903
Senior Term Debt, 9.00%, 5/01/05.......................... Canada 1,955,013 1,759,512
</TABLE>
20
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS & NOTES (CONT.)
Rite Aid Corp.:
7.125%, 1/15/07........................................... United States $ 1,380,000 $ 683,100
144A, 6.125%, 12/15/08.................................... United States 440,000 213,400
6.875%, 8/15/13........................................... United States 550,000 264,000
7.70%, 2/15/27............................................ United States 650,000 292,500
Service Corp. International:
7.375%, 4/15/04........................................... United States 3,495,000 2,149,425
6.00%, 12/15/05........................................... United States 810,000 441,450
7.70%, 4/15/09............................................ United States 405,000 212,625
SFC New Holdings Inc., PIK, 13.25%, 8/15/03................. United States 13,295,000 10,636,000
Southwest Royalties Inc., B, 10.50%, 10/15/04............... United States 8,826,000 5,692,770
TFM SA de CV:
senior disc. note, zero cpn. ............................. Mexico 1,625,000 1,125,313
10.25%, 6/15/07........................................... Mexico 400,000 350,000
Ventas Inc.:
Tranche A, Term Loan, 12/31/02............................ United States 1,425,535 1,285,358
Tranche B, Term Loan, 12/31/05............................ United States 5,401,122 4,725,982
Tranche C, Term Loan, 12/31/07............................ United States 1,616,242 1,414,212
Vlasic Foods International Inc., 10.25%, 7/01/09............ United States 4,808,000 1,706,840
--------------
TOTAL CORPORATE BONDS & NOTES (COST $113,269,893)........... 113,868,801
--------------
BONDS & NOTES IN REORGANIZATION 3.8%
*Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11........ United States 420,000 160,650
*Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01..................................... Mexico 200,000 71,000
Series A, 11.375%, 4/30/02................................ Mexico 3,851,000 1,367,105
Series B, 11.875%, 4/30/04................................ Mexico 4,600,000 1,587,000
Tranche A, Term Loan...................................... United States 1,158,150 474,841
*Barings BV, zero cpn., 1/22/01............................. Netherlands 25,350,000 15,590,250
*Crown Leasing, Bank Claim.................................. Japan 933,197,455 JPY 617,398
*Dow Corning Corp.:
9.30%, 1/27/98............................................ United States 1,835,000 2,614,875
8.55%, 3/01/01............................................ United States 1,100,000 1,471,250
9.375%, 2/01/08........................................... United States 790,000 1,125,750
8.15%, 10/15/29........................................... United States 7,050,000 9,429,375
9.50%, 8/10/49............................................ United States 350,000 498,750
Bank Debt #1.............................................. United States 2,850,000 3,876,000
Bank Debt................................................. United States 2,070,704 2,816,157
Bank Claim................................................ United States 7,677,843 10,441,867
*Eli Jacobs, Bank Claim..................................... United States 25,305,910 253,059
*Genesis Health Ventures Inc.:
Revolver.................................................. United States 7,176,865 4,492,718
Term Loan A............................................... United States 393,679 242,507
Term Loan B............................................... United States 773,881 483,676
Term Loan C............................................... United States 775,255 484,535
</TABLE>
21
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Harnischfeger Industries Inc.:
8.90%, 3/01/22............................................ United States $ 3,690,000 $ 1,411,425
8.70%, 6/15/22............................................ United States 2,580,000 986,850
7.25%, 12/15/25........................................... United States 6,260,000 2,394,450
6.875%, 2/15/27........................................... United States 3,580,000 1,369,350
*Heilman Acquisition Corp., 9.625%, 1/31/04................. United States 15,000,000 1,500
*Integrated Health Services Inc.:
Revolver.................................................. United States 1,939,000 620,480
Tranche B, Term Loan...................................... United States 5,707,223 1,826,311
Tranche C, Term Loan...................................... United States 5,185,329 1,659,305
*Loewen Group Inc., Series 5, 6.10%, 10/01/02............... Canada 4,285,000 CAD 1,590,572
*Loewen Group International Inc.:
144A, 6.70%, 10/01/99..................................... Canada 10,455,000 3,659,250
Revolver.................................................. United States 1,608,590 868,639
Series 3, 7.50%, 4/15/01.................................. Canada 3,505,000 1,927,750
Series 3, 7.75%, 10/15/01................................. Canada 2,620,000 1,205,200
Series 2, 8.25%, 4/15/03.................................. Canada 2,670,000 1,468,500
Series 6, 7.20%, 6/01/03.................................. Canada 17,605,000 6,161,750
Series 4, 8.25%, 10/15/03................................. Canada 3,475,000 1,598,500
Series 7, 7.60%, 6/01/08.................................. Canada 13,065,000 4,311,450
*Multicare Companies Inc.:
Revolver.................................................. United States 396,823 218,252
Term Loan A............................................... United States 471,363 259,250
Term Loan B............................................... United States 729,619 401,290
Term Loan C............................................... United States 241,951 133,073
*Nippon Credit Bank Ltd., Bank Claim........................ Japan 482,686,016 JPY 729,925
*Nippon Total Finance, Bank Claim........................... Japan 520,938,665 JPY 295,414
*Optel Inc.:
13.00%, 2/15/02........................................... United States 7,135,000 4,994,500
11.50%, 7/01/08........................................... United States 275,000 192,500
*Paging Network Inc.:
Revolver A................................................ United States 12,376,652 9,945,518
10.125%, 8/01/07.......................................... United States 972,000 413,100
10.00%, 10/15/08.......................................... United States 1,300,000 552,500
*Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17.... United States 225,000 86,063
*Pratama Datakom Asia BV:
144A, 12.75%, 7/15/05..................................... Indonesia 7,795,000 1,247,200
Reg S, 12.75%, 7/15/05.................................... Indonesia 1,730,000 276,800
*Safety Kleen Corp.:
9.25%, 5/15/09............................................ United States 30,000 750
Term Loan A............................................... United States 1,280,017 473,606
Term Loan B............................................... United States 646,470 239,194
Term Loan C............................................... United States 646,470 239,194
*Safety Kleen Services, 9.25%, 6/01/08...................... United States 50,000 2,375
*United Companies Financial Corp., Revolver................. United States 27,939,000 19,277,911
</TABLE>
22
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Vencor Inc.:
9.875%, 5/01/05........................................... United States $ 16,360,000 $ 1,472,400
Revolver.................................................. United States 3,267,745 2,418,131
Term Loan A............................................... United States 13,325,818 9,861,105
Term Loan B............................................... United States 7,403,547 5,478,625
Tranche A, DIP Revolver, Term Loan 9/30/00................ United States 1,702,177 1,685,155
Tranche B, DIP Revolver, Term Loan 9/30/00................ United States 675,000 668,250
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $161,556,090)... 152,722,126
--------------
<CAPTION>
SHARES
------
<S> <C> <C> <C>
COMPANIES IN LIQUIDATION (COST $91,757)
*City Investing Company Liquidating Trust................... United States 389,587 499,158
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
------
<S> <C> <C> <C>
GOVERNMENT AGENCIES 9.0%
Fannie Mae, 5.55% to 6.66%, with maturities to 6/07/01...... United States $ 181,000,000 174,887,836
Federal Home Loan Bank, 5.57% to 6.68%, with maturities to
5/11/01................................................... United States 150,558,000 146,745,999
Federal Home Loan Mortgage Corp., 5.635% to 6.570%, with
maturities to 10/01/01.................................... United States 41,100,000 39,993,954
--------------
TOTAL GOVERNMENT AGENCIES (COST $362,118,723)............... 361,627,789
--------------
TOTAL INVESTMENTS (COST $3,435,494,799) 97.7%............... 3,944,421,627
SECURITIES SOLD SHORT (.6%)................................. (23,411,946)
NET EQUITY IN FORWARD CONTRACTS .4%......................... 15,599,873
OTHER ASSETS, LESS LIABILITIES 2.5%......................... 99,553,588
--------------
TOTAL NET ASSETS 100.0%..................................... $4,036,163,142
==============
SECURITIES SOLD SHORT (PROCEEDS $29,843,636)
<CAPTION>
ISSUER COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Dow Chemical Co. .......................................... United States 775,551 $ 23,411,946
==============
</TABLE>
CURRENCY ABBREVIATION:
CAD -- Canadian Dollar
EUR -- European Unit
GBP -- British Pound
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
<PAGE>
MUTUAL BEACON FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value:
Unaffiliated issuers (cost $3,252,263,721)................ $3,768,594,786
Non controlled affiliates (cost $183,231,078)............. 175,826,841 $3,944,421,627
--------------
Cash....................................................... 26,186,613
Receivables:
Investment securities sold................................ 97,122,537
Capital shares sold....................................... 2,245,887
Dividends and interest.................................... 10,869,108
From affiliates........................................... 157,194
Unrealized gain on forward exchange contracts (Note 8)..... 18,742,432
Deposits with broker for securities sold short............. 27,817,198
--------------
Total assets.......................................... 4,127,562,596
--------------
Liabilities:
Payables:
Investment securities purchased........................... 54,463,043
Capital shares redeemed................................... 6,304,304
To affiliates............................................. 3,423,892
Securities sold short, at value (proceeds $29,843,636)..... 23,411,946
Unrealized loss on forward exchange contracts (Note 8)..... 3,142,559
Accrued expenses........................................... 653,710
--------------
Total liabilities..................................... 91,399,454
--------------
Net assets, at value........................................ $4,036,163,142
==============
Net assets consist of:
Distributions in excess of net investment income........... $ (31,132,474)
Net unrealized appreciation................................ 530,958,391
Accumulated net realized gain.............................. 478,613,901
Capital shares............................................. 3,057,723,324
--------------
Net assets, at value........................................ $4,036,163,142
==============
</TABLE>
24
<PAGE>
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
CLASS Z:
Net asset value and maximum offering price per share
($2,911,420,661 / 217,931,199 shares outstanding)........ $13.36
==============
CLASS A:
Net asset value per share ($706,506,061 / 53,065,973 shares
outstanding).............................................. $13.31
==============
Maximum offering price per share ($13.31 / 94.25%)......... $14.12
==============
CLASS B:
Net asset value and maximum offering price per share
($13,158,310 / 999,377 shares outstanding)*............... $13.17
==============
CLASS C:
Net asset value per share ($405,078,110 / 30,608,682 shares
outstanding)*............................................. $13.23
==============
Maximum offering price per share ($13.23 / 99.00%)......... $13.36
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
25
<PAGE>
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,742,939)
Dividends.................................................. $ 29,664,498
Interest................................................... 19,108,074
-------------
Total investment income............................... $ 48,772,572
-------------
Expenses:
Management fees (Note 3)................................... 12,433,913
Administrative fees (Note 3)............................... 1,617,797
Distribution fees (Note 3)
Class A................................................... 1,260,867
Class B................................................... 56,472
Class C................................................... 2,102,780
Transfer agent fees (Note 3)............................... 2,004,757
Custodian fees............................................. 162,512
Reports to shareholders.................................... 207,917
Registration and filing fees............................... 71,130
Professional fees.......................................... 375,169
Directors' fees and expenses............................... 63,534
Dividends for securities sold short........................ 570,247
Other...................................................... 36,653
-------------
Total expenses........................................ 20,963,748
Expenses waived/paid by affiliate (Note 3)............ (935,713)
-------------
Net expenses...................................... 20,028,035
-------------
Net investment income........................... 28,744,537
-------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 436,373,067
Foreign currency transactions............................. 71,185,520
-------------
Net realized gain..................................... 507,558,587
Net unrealized depreciation on:
Investments............................................... (417,494,950)
Translation of assets and liabilities denominated in
foreign currencies...................................... (2,117,386)
-------------
Net unrealized depreciation........................... (419,612,336)
-------------
Net realized and unrealized gain............................ 87,946,251
-------------
Net increase in net assets resulting from operations........ $ 116,690,788
=============
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
MUTUAL BEACON FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
----------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 28,744,537 $ 64,588,209
Net realized gain from investments and foreign currency
transactions............................................. 507,558,587 476,729,237
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (419,612,336) 195,000,980
----------------------------------------
Net increase in net assets resulting from operations.... 116,690,788 736,318,426
Distributions to shareholders from:
Net investment income:
Class Z.................................................. (51,629,603) (58,214,981)
Class A.................................................. (11,960,948) (11,231,337)
Class B.................................................. (208,869) (98,872)
Class C.................................................. (6,194,028) (3,686,185)
Net realized gains:
Class Z.................................................. (136,735,899) (261,175,450)
Class A.................................................. (33,186,405) (64,460,771)
Class B.................................................. (621,021) (592,992)
Class C.................................................. (19,236,738) (37,603,206)
Capital share transactions (Note 2):
Class Z.................................................. (203,962,452) (1,029,066,183)
Class A.................................................. (29,120,836) (243,947,992)
Class B.................................................. 4,705,552 9,305,143
Class C.................................................. (39,417,897) (66,869,223)
----------------------------------------
Net decrease in net assets.............................. (410,878,356) (1,031,323,623)
Net assets:
Beginning of period........................................ 4,447,041,498 5,478,365,121
----------------------------------------
End of period.............................................. $4,036,163,142 $ 4,447,041,498
========================================
Undistributed net investment income/(Distributions in excess
of net investment income) included in net assets:
End of period.............................................. $ (31,132,474) $ 10,116,437
========================================
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mutual Beacon Fund (the Fund) is a separate, diversified series of Franklin
Mutual Series Fund, Inc. (the Series Fund), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks
long-term capital appreciation and income through a flexible policy of investing
in stocks and corporate debt securities. The following summarizes the Fund's
significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
28
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
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.
d. 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.
e. 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.
f. 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.
29
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. 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 price.
h. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
The Fund offers four classes of shares: Class Z, Class A, Class B, and Class C.
Effective January 1, 1999, Class I and Class II shares were renamed Class A and
Class C, respectively, and a fourth class of shares, Class B was established.
The shares differ by their initial sales load, distribution fees, voting rights
on matters affecting a single class and the exchange privilege of each class.
At June 30, 2000, there were 1.55 billion Fund shares authorized ($0.001 par
value) of which 750 million, 300 million, 200 million, and 300 million were
designated as Class Z, Class A, Class B, and Class C shares, respectively.
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold.......................................... 6,270,962 $ 87,154,372 14,294,251 $ 203,778,297
Shares issued on reinvestment of distributions....... 13,046,087 175,078,613 21,701,674 298,880,423
Shares redeemed...................................... (33,899,144) (466,195,437) (110,584,648) (1,531,724,903)
--------------------------------------------------------------------
Net decrease......................................... (14,582,095) $(203,962,452) (74,588,723) $(1,029,066,183)
====================================================================
</TABLE>
30
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold.......................................... 5,583,346 $ 77,313,875 17,264,722 $ 244,961,039
Shares issued on reinvestment of distributions....... 3,192,496 42,683,649 5,191,215 71,522,375
Shares redeemed...................................... (10,809,755) (149,118,360) (39,718,858) (560,431,406)
--------------------------------------------------------------------
Net decrease......................................... (2,033,913) $ (29,120,836) (17,262,921) $ (243,947,992)
====================================================================
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999+
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold.......................................... 357,720 $ 4,896,315 635,040 $ 9,062,055
Shares issued on reinvestment of distributions....... 58,854 778,638 47,918 644,821
Shares redeemed...................................... (71,243) (969,401) (28,912) (401,733)
--------------------------------------------------------------------
Net increase......................................... 345,331 $ 4,705,552 654,046 $ 9,305,143
====================================================================
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold.......................................... 1,928,107 $ 26,533,671 5,279,318 $ 74,740,313
Shares issued on reinvestment of distributions....... 1,753,432 23,320,644 2,778,323 37,970,523
Shares redeemed...................................... (6,520,736) (89,272,212) (12,975,678) (179,580,059)
--------------------------------------------------------------------
Net decrease......................................... (2,839,197) $ (39,417,897) (4,918,037) $ (66,869,223)
====================================================================
</TABLE>
+Effective date of Class B shares was January 1, 1999.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Series Fund are also officers or directors of Franklin
Mutual Advisers, Inc. (Franklin Mutual) and Franklin Templeton Services, Inc.
(FT Services), the Fund's investment manager and administrative manager,
respectively. Franklin/Templeton Investor Services, Inc. (Investor Services) and
Franklin/Templeton Distributors, Inc. (Distributors), are the Fund's transfer
agent and principal underwriter, respectively.
The Fund pays an investment management fee to Franklin Mutual of 0.60% per year
of the average daily net assets of the Fund. Franklin Mutual agreed, through
June 30, 2000, to limit the expense ratio of the Fund to be no higher than
expected for the Fund's 1996 fiscal year, except that increases in expenses will
be permitted if the Fund's Board of Directors determines that such expenses
would have been higher had the merger 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.
31
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.35%, 1.00%, and 1.00% per year of the average daily net asset of
Class A, Class B, and Class C shares, respectively. Distributors received net
commissions from sales of those shares and received contingent deferred sales
charges for the period of $100,209 and $53,641, respectively.
4. 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.
At June 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,479,808,364 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 750,396,572
Unrealized depreciation..................................... (285,783,309)
-------------
Net unrealized appreciation................................. $ 464,613,263
=============
</TABLE>
Net investment income and net realized capital gains differ for financial
statements and tax purposes primarily due to differing treatments of passive
foreign investment companies, wash sales, and foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 2000 aggregated $1,192,699,877 and $1,677,306,749,
respectively.
32
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
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, 2000 are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1 Lancer Industries Inc., B................................... 8/11/89 $ 1,436,306
8,589 MB Metropolis LLC........................................... 12/07/94 0
488,750 Security Capital European Realty............................ 4/08/98 7,206,619
1,480,670 Sunbeam Corp. .............................................. 3/13/90 4,580,823
-----------
TOTAL RESTRICTED SECURITIES (COST $13,639,433) (.33% OF NET ASSETS)............... $13,223,748
===========
</TABLE>
7. INVESTMENT IN AFFILIATES
The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at June 30,
2000 were $175,826,841. For the six months ended June 30, 2000, dividend income
from "affiliated persons" was $2,309,091.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF DIVIDEND INCOME REALIZED
SHARES HELD GROSS GROSS SHARES HELD VALUE 1/01/00- CAPITAL
NAME OF ISSUER DEC. 31, 1999 ADDITIONS REDUCTIONS JUNE 30, 2000 JUNE 30, 2000 6/30/00 GAINS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
MB Metropolis LLC......... 8,589 -- -- 8,589 -- -- --
NON CONTROLLED AFFILIATES
Farmer Brothers Co. ...... 93,286 -- -- 93,286 $ 16,325,050 $ 139,929 --
Fine Host Corp. .......... 507,977 -- -- 507,977 5,028,972 -- --
Heller Financial Inc. .... 2,202,400 113,600 -- 2,316,000 47,478,000 463,200 --
United Asset Management
Corp. ................... 3,105,000 -- -- 3,105,000 72,579,375 1,242,000 --
Van Melle NV.............. 403,144 418,356 -- 821,500 22,442,343 463,962 --
Wellsford Real Properties
Inc. .................... 1,583,221 -- (791,611) 791,610 11,973,101 -- --
--------------------------------------------
TOTAL NON CONTROLLED
AFFILIATES............... $175,826,841 $2,309,091 --
============================================
</TABLE>
*Issuer in which the Fund owns 25% or more of the outstanding voting securities.
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
33
<PAGE>
MUTUAL BEACON FUND
Notes to Financial Statements (unaudited) (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
contracts. Risks arise from the possible inability of counterparties to meet the
terms of their contracts, future movement in currency values and interest rates
and contract positions that are not exact offsets. The contract amount indicates
the extent of the Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of June 30, 2000, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY: EXCHANGE FOR DATE GAIN/(LOSS)
------------------ ------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
14,200,000 European Unit......................................... U.S. $ 13,364,892 7/07/00 U.S. $ 253,007
14,516,967 Canadian Dollars...................................... 9,699,521 7/31/00 106,073
29,300,000 Swedish Krona......................................... 3,330,757 8/21/00 23,426
------------ -----------
U.S. $ 26,395,170 382,506
============ -----------
<CAPTION>
CONTRACTS TO SELL:
------------------
<C> <S> <C> <C> <C> <C> <C>
7,975,000 European Unit......................................... U.S. $ 8,381,616 7/07/00 733,536
34,000,000 European Unit......................................... 32,862,360 7/12/00 245,072
29,654,639 Hong Kong Dollars..................................... 3,805,503 7/19/00 82
145,934,851 Canadian Dollars...................................... 100,766,984 7/31/00 2,194,191
8,500,000 European Unit......................................... 8,244,320 8/15/00 72,416
259,134,292 Swedish Krona......................................... 30,144,162 8/21/00 479,192
47,800,000 European Unit......................................... 48,327,163 8/24/00 2,348,086
33,119,716 European Unit......................................... 32,152,620 9/12/00 258,653
8,504,459 Singapore Dollars..................................... 4,985,906 9/14/00 24,472
123,938,793 Swedish Krona......................................... 14,468,014 9/15/00 254,586
330,184,399 Swedish Krona......................................... 38,296,543 9/18/00 422,601
75,478,467 British Pounds........................................ 118,565,935 9/25/00 4,114,101
8,961,037,500 Japanese Yen.......................................... 87,403,050 9/27/00 1,317,257
74,458,076 British Pounds........................................ 118,075,852 10/17/00 5,115,239
299,171,879 Swedish Krona......................................... 34,638,861 10/20/00 250,779
22,500,000 European Unit......................................... 21,894,150 10/30/00 165,563
22,500,000 European Unit......................................... 21,903,563 11/21/00 146,984
10,107,916 British Pounds........................................ 15,415,453 11/22/00 67,937
32,337,086 European Unit......................................... 31,455,016 12/20/00 133,193
6,800,000 British Pounds........................................ 10,347,560 12/20/00 15,986
------------ -----------
U.S. $782,134,631 18,359,926
============ -----------
Unrealized gain on forward exchange contracts.................... 18,742,432
-----------
</TABLE>
34
<PAGE>
MUTUAL BEACON 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)
------------------ ------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
69,063,339 Canadian Dollars...................................... U.S. $ 47,282,173 7/31/00 U.S. $ (632,820)
81,868,111 Swedish Krona......................................... 9,528,735 8/21/00 (156,704)
------------ -----------
U.S. $ 56,810,908 (789,524)
============ -----------
<CAPTION>
CONTRACTS TO SELL:
------------------
<C> <S> <C> <C> <C> <C> <C>
19,870,359 European Unit......................................... U.S. $ 18,506,259 7/07/00 (549,553)
72,094,750 Hong Kong Dollars..................................... 9,250,102 7/19/00 (1,431)
8,750,000 Canadian Dollars...................................... 5,892,303 7/31/00 (17,951)
12,589,300 European Unit......................................... 12,017,756 8/15/00 (85,602)
9,304,997 British Pounds........................................ 13,827,120 8/22/00 (273,511)
21,341,331 European Unit......................................... 20,436,459 9/12/00 (115,037)
47,457,709 Swiss Francs.......................................... 29,124,986 9/13/00 (269,055)
750,000 Singapore Dollars..................................... 435,489 9/14/00 (2,055)
157,295 British Pounds........................................ 238,161 10/17/00 (472)
82,500,000 Swedish Krona......................................... 9,367,694 10/20/00 (115,206)
24,800,000 European Unit......................................... 23,386,760 10/30/00 (562,971)
9,285,480 British Pounds........................................ 13,815,401 11/22/00 (283,355)
75,047,179 British Pounds........................................ 113,946,033 12/20/00 (76,836)
------------ -----------
U.S. $270,244,523 (2,353,035)
============ -----------
Unrealized loss on forward exchange contracts.................... (3,142,559)
-----------
Net unrealized gain on forward exchange contracts.............. U.S. $15,599,873
===========
</TABLE>
35
<PAGE>
This page intentionally left blank.
<PAGE>
[FRANKLIN TEMPLETON
INVESTMENTS LOGO]
MUTUAL BEACON FUND
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
SEMIANNUAL REPORT
CHAIRMAN OF THE BOARD
Michael F. Price
OFFICERS
Peter A. Langerman
Robert L. Friedman
Jeffery Altman
Raymond Garea
Lawrence Sondike
David J. Winters
INVESTMENT MANAGER
Franklin Mutual Advisers, LLC
51 John F. Kennedy Parkway
Short Hills, NJ 07078
DISTRIBUTOR
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301 - (Class A, B, & C)
1-800/448-FUND - (Class Z)
This report must be preceded or accompanied by the current Mutual Beacon Fund
prospectus, which contains more complete information including risk factors,
charges and expenses.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
476 S00 08/00 [RECYCLING ARROWS GRAPHIC] Printed on recycled paper
