Annual Report
DECEMBER 31, 1999
MUTUAL SHARES FUND
[FRANKLIN(R) TEMPLETON(R) LOGO]
<PAGE>
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
[PICTURE OF LAWRENCE SONDIKE]
LAWRENCE SONDIKE
Portfolio Manager, Mutual Shares Fund
PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual Advisers, LLC
ROBERT L. FRIEDMAN
Chief Investment Officer
Franklin Mutual Advisers, LLC
<PAGE>
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Mutual Shares Fund seeks capital appreciation, with income as
a secondary objective, by investing primarily in common and preferred stocks,
bonds, and convertible securities. The fund may also invest in foreign
securities.
- --------------------------------------------------------------------------------
Dear Shareholder:
This annual report of the Mutual Shares Fund covers the year ended December 31,
1999. During the year under review, the U.S. economy experienced unusually
strong growth in a low-inflation environment. Global economies generally
followed suit, and stock markets around the world sprang back to life in a
broad-based rally. In the process, the market became increasingly two-tiered,
and a select group of about 40 companies achieved over-the-top success while
most publicly traded equities languished. Share prices for a majority of
companies listed on the New York Stock Exchange (NYSE) actually declined in
1999, while a relatively small number of white-hot technology stocks pushed most
of the indexes, especially the Nasdaq Composite(R) Index(1), to new highs.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .......... 1
Performance Summary ......... 6
Financial Highlights &
Statement of Investments ....11
Financial Statements ........25
Notes to Financial
Statements ..................29
Independent Auditors'
Report ......................38
Tax Designation .............39
</TABLE>
FUND CATEGORY
[PYRAMID GRAPH]
1. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on The Nasdaq Stock Market. The Index is market-value
weighted and includes over 5,000 companies (as of 12/31/99).
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 15 of
this report.
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
United States 59.8%
France 6.2%
United Kingdom 4.8%
Sweden 4.0%
Netherlands 1.1%
Spain 1.0%
Other Countries 1.8%
Fixed-Income Securities 5.8%
Government Agencies
& Other Net Assets 15.5%
</TABLE>
Within this environment, Mutual Shares Fund - Class Z provided a 14.95% one-year
cumulative total return as shown in the Performance Summary on page 6. The
Lipper(R) Multi-Cap Value Funds Average(2) rose 7.76%, the Standard & Poor's(R)
(S&P) MidCap 400(R) Index appreciated 14.72%, and the S&P 500(R) Composite Index
(which is heavily weighted in technology stocks) climbed 21.04% during the same
period.(3)
We achieved our results by sticking to our longstanding value and special
situation approach. Although many market participants were interested only in
positive momentum (buying what's hot) and were unconcerned about valuation, we
continued to conduct fundamental analysis and bought securities only when we saw
substantial upside potential with relatively little risk. In our opinion, risk
still matters.
Several stocks contributed significantly to the fund's strong performance.
Telephone & Data Systems Inc., a wireless and wireline telephone company, almost
tripled during the 12 months under review due to fast growth and the announced
merger of one of its affiliates. Canary Wharf Group PLC, an owner of a large
London office development, had a successful public offering in March 1999 and
continued to perform well
2. The Lipper Multi-Cap Value Funds Average is an equally-weighted average
consisting of 518 mutual funds (including Mutual Shares Fund) within the
Multi-Cap Value investment objective. Returns are adjusted for the reinvestment
of capital gains distributions and income dividends.
3. Sources: Standard & Poor's Micropal.
The S&P MidCap 400 Index consists of 400 domestic stocks with a median market
capitalization of $676 million. It is a market-value weighted index, where stock
price is multiplied by the number of shares outstanding, with each stock
affecting the Index in proportion to its market value. The Index, calculated by
Standard & Poor's, is a total return index with dividends reinvested.
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.
2
<PAGE>
throughout the year. We invested in Canary Wharf in the latter half of 1995,
after the company had emerged from bankruptcy, and have made several times our
initial investment since then. Finally, one of the fund's larger positions,
Compagnie Financiere Richemont AG, a Swiss holding company primarily involved in
luxury goods, almost doubled in price in 1999 as the market came to appreciate
its strong brand names.
The year was not without disappointment, however. While certain investments in
financial stocks, including brokers Lehman Brothers Holdings Inc. and Morgan
Stanley Dean Witter & Co. were profitable, some of our bank and finance company
investments, including Bank One Corp. and First Union Corp., were not. Despite
these setbacks, the fund's overall performance was good for a value fund during
a year in which our style generally remained out of favor.
Looking forward, we believe domestic and foreign markets should again present us
with profitable investment opportunities in the year 2000. As a number of "new
economy" securities have risen to dizzying heights, the stocks of many solid
companies have languished, creating investment opportunities for Mutual Shares
Fund. A number of industries feature attractive companies trading at low
multiples and big discounts to our appraisal of their intrinsic value, and we
shall concentrate our efforts on mining these overlooked sectors for what we
believe will be tomorrow's gems. Among the areas in which we see compelling
value are financials, where rising interest rates have sent many companies'
share prices sharply lower. Other sectors where we see opportunity include "old
TOP 10 INDUSTRIES*
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
--------------------------------
<S> <C>
Multi-Industry 12.3%
Broadcasting & Publishing 8.5%
Financial Services 8.1%
Telecommunications 4.8%
Automobiles 4.7%
Insurance 4.0%
Real Estate 3.9%
Banking 3.8%
Merchandising 3.5%
Business & Public Services 3.0%
</TABLE>
*Based on equity securities.
3
<PAGE>
TOP 10 HOLDINGS
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
-------------------------------------
<S> <C>
Investor AB, A&B, 4.0%
Multi-Industry, Sweden
Telephone & Data Systems Inc., 3.3%
Telecommunications,
United States
Canary Wharf Group PLC, 3.0%
Real Estate, United Kingdom
MediaOne Group Inc., 2.4%
Broadcasting & Publishing,
United States
General Motors Corp., 1.6%
Automobiles, United States
Bear Stearns Cos. Inc., 1.5%
Financial Services,
United States
Delphi Automotive 1.5%
Systems Corp.,
Automobiles, United States
Washington Post Co. B, 1.5%
Broadcasting & Publishing,
United States
Lagardere SCA, 1.5%
Multi-Industry, France
B.F. Goodrich Co., 1.3%
Aerospace & Military
Technology, United States
</TABLE>
media" (i.e., newspapers, television broadcasting), auto parts suppliers, and
lodging. We also expect to profit by investing in bankrupt and distressed
companies, a strategy we have long successfully employed.
While acknowledging the significant innovations brought about by technology and
the Internet, we are unwilling to pay the unprecedented market valuations these
companies now command. We realize that many once-great technology companies have
vanished over the years, and that the technological winners of today may not
sustain their leadership in the years ahead. With the Nasdaq 100(R) trading at
over 100 times earnings(4), the optimism built into current prices does not
allow for error or disappointment. We will not engage in speculative investing,
but shall continue to focus on determining the true present value of a business
while attempting to purchase its securities at a meaningful discount. Of course,
past results do not guarantee future performance. As always, we are mindful of
the risks of each investment, and will continue to focus on the downside as well
as the upside potential while striving to provide shareholders with the best
risk-adjusted returns possible.
4. Source: Nasdaq. The Nasdaq 100 Index represents 100 of the largest
non-financial U.S. and non-U.S. companies listed on the National Market tier of
The Nasdaq Stock Market, and reflects Nasdaq's largest companies across major
industry groups, including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology. The Nasdaq 100 Index is a modified
capitalization-weighted index, which is designed to limit domination of the
Index by a few large stocks while generally retaining the ranking of companies.
Almost all of the companies now in the Index are over $1 billion in market
value, with $6 billion as the average (as of 12/31/99).
Indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index.
4
<PAGE>
We appreciate your participation in the Mutual Shares Fund and welcome your
comments and suggestions, either through regular mail or by e-mail at
[email protected].
Sincerely,
/s/ Lawrence Sondike
Lawrence Sondike*
Portfolio Manager
*In February 2000, Lawrence Sondike assumed primary responsibility for
investments in Mutual Shares Fund.
The fund generally expects to hedge against currency risk where feasible and
to the extent possible. The fund's value-oriented strategy may include
investments in companies involved in mergers, reorganizations, restructurings
or liquidations. It is 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
December 31, 1999, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and the fund's portfolio composition. Although past performance is not
predictive of future results, these insights may help you understand our
investment and management philosophy.
5
<PAGE>
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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 (formerly Class I): 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 (formerly Class II): Subject to 1% initial sales charge and 1% CDSC for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
For all share classes, the fund's manager has agreed in advance to waive a
portion of its management fees, which increases total return to shareholders. If
the manager had not taken this action, the fund's total returns would have been
lower.
- --------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 12/31/99
One-year 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. Past distributions are not indicative of future
trends. All total returns include reinvested distributions at net asset value.
<TABLE>
CLASS Z
<S> <C> <C> <C>
One-Year Total Return 14.95%
Net Asset Value (NAV) (12/31/99) $20.43 (12/31/98) $19.55
Change in NAV +$0.88
Distributions (1/1/99 - 12/31/99) Dividend Income $0.4189
Long-Term Capital Gain $1.5756
--------------------------------
Total $1.9945
<CAPTION>
CLASS A
<S> <C> <C> <C>
One-Year Total Return 14.57%
Net Asset Value (NAV) (12/31/99) $20.38 (12/31/98) $19.50
Change in NAV +$0.88
Distributions (1/1/99 - 12/31/99) Dividend Income $0.3406
Long-Term Capital Gain $1.5756
--------------------------------
Total $1.9162
<CAPTION>
CLASS B
<S> <C> <C> <C>
One-Year Total Return 13.76%
Net Asset Value (NAV) (12/31/99) $20.26 (1/1/99) $19.50
Change in NAV +$0.76
Distributions (1/1/99 - 12/31/99) Dividend Income $0.3064
Long-Term Capital Gain $1.5756
--------------------------------
Total $1.8820
<CAPTION>
CLASS C
<S> <C> <C> <C>
One-Year Total Return 13.87%
Net Asset Value (NAV) (12/31/99) $20.29 (12/31/98) $19.41
Change in NAV +$0.88
Distributions (1/1/99 - 12/31/99) Dividend Income $0.1966
Long-Term Capital Gain $1.5756
--------------------------------
Total $1.7722
</TABLE>
Mutual Shares Fund paid distributions derived from long-term capital gains
totaling $1.5756 per share in June and December 1999. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
Past performance is not predictive of future results.
6
<PAGE>
ADDITIONAL PERFORMANCE
AS OF QUARTER ENDED 12/31/99
<TABLE>
<CAPTION>
CLASS Z 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 14.95% 127.61% 281.10%
Average Annual Total Return(2) 14.95% 17.88% 14.32%
Value of $10,000 Investment(3) $11,495 $22,761 $38,110
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (11/1/96)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 14.57% 44.46% 54.07%
Average Annual Total Return(2) 7.98% 10.84% 12.51%
Value of $10,000 Investment(3) $10,798 $13,616 $14,521
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 13.76% 13.76%
Average Annual Total Return(2) 9.76% 9.76%
Value of $10,000 Investment(3) $10,976 $10,976
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (11/1/96)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 13.87% 41.72% 51.03%
Average Annual Total Return(2) 11.72% 11.95% 13.55%
Value of $10,000 Investment(3) $11,172 $14,030 $14,951
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic, and political climates of countries where the fund invests. You may
have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
For updated performance figures, see the fund's "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
7
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<TABLE>
<CAPTION>
CLASS Z
- -----------------------------------------
<S> <C>
1-Year 14.95%
5-Year 17.88%
10-Year 14.32%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index. As a
result of changes to the Lipper domestic equity fund classifications during the
reporting period, performance for the Lipper Growth & Income Funds Average will
not be provided in the future. The fund has been reclassified by Lipper and is
currently categorized as a Multi-Cap Value Fund. Performance for both averages
has been provided for comparison purposes during this transitional period only.
Future reports will include performance information for the Lipper Multi-Cap
Funds Average, but not for the Lipper Growth & Income Funds Average.
CLASS Z (1/1/90-12/31/99)
This graph compares the performance of Mutual Shares Fund - Class Z, as tracked
by the growth in value of a $10,000 investment, to that of the S&P 500, Lipper
Growth & Income Funds Average, and Lipper Multi-Cap Value Funds Average Indexes
from 1/1/90-12/31/99.
<TABLE>
<CAPTION>
MUTUAL SHARES LIPPER GROWTH & INCOME LIPPER MULTI-CAP VALUE
DATE FUND - CLASS Z S&P 500* FUNDS AVERAGE** FUNDS AVERAGE**
---- -------------- ------- ------------- -------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
12/31/1990 $ 9,018 $ 9,690 $ 9,555 $ 9,376
12/31/1991 $10,910 $12,643 $12,354 $12,051
12/31/1992 $13,237 $13,606 $13,467 $13,377
12/31/1993 $16,015 $14,977 $15,118 $15,212
12/31/1994 $16,743 $15,175 $14,995 $15,154
12/31/1995 $21,618 $20,878 $19,711 $19,922
12/31/1996 $26,105 $25,671 $23,922 $24,147
12/31/1997 $32,990 $34,235 $30,397 $30,447
12/31/1998 $33,138 $44,020 $35,200 $33,193
12/31/1999 $38,110 $53,282 $40,051 $35,769
</TABLE>
Past performance does not guarantee future results.
8
<PAGE>
CLASS A (11/1/96-12/31/99)
This graph compares the performance of Mutual Shares Fund - Class A, as tracked
by the growth in value of a $10,000 investment, to that of the S&P 500, Lipper
Growth & Income Funds Average, and Lipper Multi-Cap Value Funds Average Indexes
from 11/1/96 -12/31/99.
<TABLE>
<CAPTION>
MUTUAL SHARES LIPPER GROWTH & INCOME LIPPER MULTI-CAP VALUE
DATE FUND- CLASS A S&P 500* FUNDS AVERAGE** FUNDS AVERAGE**
---- ------------- ------- ------------- -------------
<S> <C> <C> <C> <C>
11/01/1996 $ 9,425 $10,000 $10,000 $10,000
11/30/1996 $ 9,968 $10,756 $10,668 $10,664
12/31/1996 $10,077 $10,543 $10,557 $10,620
01/31/1997 $10,390 $11,202 $11,019 $11,028
02/28/1997 $10,634 $11,289 $11,077 $11,120
03/31/1997 $10,493 $10,825 $10,680 $10,759
04/30/1997 $10,601 $11,472 $11,076 $11,060
05/31/1997 $11,100 $12,170 $11,768 $11,780
06/30/1997 $11,436 $12,715 $12,222 $12,208
07/31/1997 $12,070 $13,728 $13,129 $13,099
08/31/1997 $11,988 $12,959 $12,678 $12,779
09/30/1997 $12,532 $13,669 $13,322 $13,428
10/31/1997 $12,307 $13,212 $12,851 $12,909
11/30/1997 $12,460 $13,824 $13,203 $13,187
12/31/1997 $12,697 $14,062 $13,425 $13,403
01/31/1998 $12,596 $14,218 $13,440 $13,335
02/28/1998 $13,324 $15,243 $14,364 $14,262
03/31/1998 $13,766 $16,024 $15,000 $14,873
04/30/1998 $13,712 $16,186 $15,101 $14,934
05/31/1998 $13,581 $15,907 $14,788 $14,603
06/30/1998 $13,515 $16,553 $15,035 $14,638
07/31/1998 $13,148 $16,376 $14,647 $14,130
08/31/1998 $11,293 $14,008 $12,490 $12,023
09/30/1998 $11,214 $14,906 $13,154 $12,579
10/31/1998 $11,947 $16,118 $14,120 $13,562
11/30/1998 $12,584 $17,094 $14,841 $14,178
12/31/1998 $12,698 $18,079 $15,503 $14,626
01/31/1999 $12,900 $18,835 $15,764 $14,669
02/28/1999 $12,725 $18,249 $15,280 $14,223
03/31/1999 $13,318 $18,979 $15,778 $14,595
04/30/1999 $14,340 $19,713 $16,710 $15,704
05/31/1999 $14,405 $19,248 $16,495 $15,643
06/30/1999 $14,817 $20,316 $17,209 $16,189
07/31/1999 $14,399 $19,683 $16,713 $15,712
08/31/1999 $13,835 $19,584 $16,366 $15,231
09/30/1999 $13,476 $19,048 $15,842 $14,631
10/31/1999 $14,001 $20,253 $16,558 $15,152
11/30/1999 $14,260 $20,664 $16,783 $15,253
12/31/1999 $14,521 $21,881 $17,544 $15,727
</TABLE>
CLASS B (11/1/99-12/31/99)
This graph compares the performance of Mutual Shares Fund - Class B, as tracked
by the growth in value of a $10,000 investment, to that of the S&P 500, Lipper
Growth & Income Funds Average, and Lipper Multi-Cap Value Funds Average Indexes
from 1/1/99 -12/31/99.
<TABLE>
<CAPTION>
MUTUAL SHARES FUND- LIPPER GROWTH & INCOME LIPPER MULTI-CAP VALUE
DATE CLASS B S&P 500* FUNDS AVERAGE** FUNDS AVERAGE**
---- ------- ------- ------------- -------------
<S> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000 $10,000
01/31/1999 $10,154 $10,418 $10,168 $10,029
02/28/1999 $10,005 $10,094 $ 9,856 $ 9,724
03/31/1999 $10,467 $10,498 $10,177 $ 9,979
04/30/1999 $11,262 $10,904 $10,779 $10,737
05/31/1999 $11,313 $10,647 $10,640 $10,695
06/30/1999 $11,627 $11,238 $11,100 $11,069
07/31/1999 $11,293 $10,887 $10,781 $10,742
08/31/1999 $10,844 $10,833 $10,556 $10,413
09/30/1999 $10,556 $10,536 $10,219 $10,003
10/31/1999 $10,964 $11,203 $10,680 $10,359
11/30/1999 $11,157 $11,430 $10,826 $10,429
12/31/1999 $10,976 $12,103 $11,316 $10,753
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<TABLE>
<CAPTION>
CLASS A
- ----------------------------------------------
<S> <C>
1-Year 7.98%
3-Year 10.84%
Since Inception (11/1/96) 12.51%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------------
<S> <C>
1-Year 9.76%
Since Inception (1/1/99) 9.76%
</TABLE>
Past performance does not guarantee future results.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<TABLE>
<CAPTION>
CLASS C
- ----------------------------------------------
<S> <C>
1-Year 11.72%
3-Year 11.95%
Since Inception (11/1/96) 13.55%
</TABLE>
This graph compares the performance of Mutual Shares Fund - Class C, as tracked
by the growth in value of a $10,000 investment, to that of the S&P 500, Lipper
Growth & Income Funds Average, and Lipper Multi-Cap Value Funds Average Indexes
from 11/1/96-12/31/99.
<TABLE>
<CAPTION>
MUTUAL SHARES LIPPER GROWTH & INCOME LIPPER MULTI-CAP VALUE
DATE FUND- CLASS C S&P 500 FUNDS AVERAGE FUNDS AVERAGE
---- ------------- ------- ------------- -------------
<S> <C> <C> <C> <C>
11/01/1996 $ 9,900 $10,000 $10,000 $10,000
11/30/1996 $10,467 $10,756 $10,668 $10,664
12/31/1996 $10,576 $10,543 $10,557 $10,620
01/31/1997 $10,901 $11,202 $11,019 $11,028
02/28/1997 $11,154 $11,289 $11,077 $11,120
03/31/1997 $10,994 $10,825 $10,680 $10,759
04/30/1997 $11,102 $11,472 $11,076 $11,060
05/31/1997 $11,620 $12,170 $11,768 $11,780
06/30/1997 $11,968 $12,715 $12,222 $12,208
07/31/1997 $12,623 $13,728 $13,129 $13,099
08/31/1997 $12,524 $12,959 $12,678 $12,779
09/30/1997 $13,089 $13,669 $13,322 $13,428
10/31/1997 $12,847 $13,212 $12,851 $12,909
11/30/1997 $13,002 $13,824 $13,203 $13,187
12/31/1997 $13,234 $14,062 $13,425 $13,403
01/31/1998 $13,128 $14,218 $13,440 $13,335
02/28/1998 $13,877 $15,243 $14,364 $14,262
03/31/1998 $14,327 $16,024 $15,000 $14,873
04/30/1998 $14,264 $16,186 $15,101 $14,934
05/31/1998 $14,120 $15,907 $14,788 $14,603
06/30/1998 $14,045 $16,553 $15,035 $14,638
07/31/1998 $13,657 $16,376 $14,647 $14,130
08/31/1998 $11,717 $14,008 $12,490 $12,023
09/30/1998 $11,635 $14,906 $13,154 $12,579
10/31/1998 $12,389 $16,118 $14,120 $13,562
11/30/1998 $13,041 $17,094 $14,841 $14,178
12/31/1998 $13,159 $18,079 $15,503 $14,626
01/31/1999 $13,355 $18,835 $15,764 $14,669
02/28/1999 $13,165 $18,249 $15,280 $14,223
03/31/1999 $13,768 $18,979 $15,778 $14,595
04/30/1999 $14,819 $19,713 $16,710 $15,704
05/31/1999 $14,887 $19,248 $16,495 $15,643
06/30/1999 $15,299 $20,316 $17,209 $16,189
07/31/1999 $14,859 $19,683 $16,713 $15,712
08/31/1999 $14,273 $19,584 $16,366 $15,231
09/30/1999 $13,894 $19,048 $15,842 $14,631
10/31/1999 $14,424 $20,253 $16,558 $15,152
11/30/1999 $14,687 $20,664 $16,783 $15,253
12/31/1999 $14,951 $21,881 $17,544 $15,727
</TABLE>
*Source: Standard and Poor's Micropal.
** Source: Lipper Analytical Services, Inc. Lipper Growth & Income Funds Average
consists of 148 funds as of 12/31/99. Lipper Multi-Cap Value Funds Average
consists of 518 funds as of 12/31/99. Lipper calculations do not include sales
charges; past and current expense reductions by the fund's manager increased the
fund's total return. If these factors had been considered, the fund's
performance relative to the Lipper averages may have been different.
Past performance does not guarantee future results.
10
<PAGE>
MUTUAL SHARES FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS Z
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999++ 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $19.55 $21.30 $18.57 $17.29 $15.74
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .33 .53 .42 .55 .40
Net realized and unrealized gains (losses)......... 2.55 (.46) 4.43 2.96 4.10
------------------------------------------------------------------
Total from investment operations.................... 2.88 .07 4.85 3.51 4.50
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.42) (.53) (.54) (.50) (.39)
Net realized gains................................. (1.58) (1.29) (1.58) (1.73) (2.56)
------------------------------------------------------------------
Total distributions................................. (2.00) (1.82) (2.12) (2.23) (2.95)
------------------------------------------------------------------
Net asset value, end of year........................ $20.43 $19.55 $21.30 $18.57 $17.29
==================================================================
Total Return........................................ 14.95% .45% 26.44% 20.76% 29.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $5,571,867 $6,279,026 $7,918,986 $6,543,063 $5,229,574
Ratios to average net assets:
Expenses(a)........................................ .77% .76% .76% .70% .73%
Expenses, excluding waiver and payments by
affiliate(a)..................................... .81% .80% .79% .72% .73%
Net investment income.............................. 1.58% 2.15% 1.92% 3.02% 2.47%
Portfolio turnover rate............................. 66.24% 69.46% 49.61% 58.35% 79.32%
(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........................................... .75% .73% .72% .70% .69%
Expenses, excluding waiver and payments by
affiliate........................................ .79% .77% .75% .72% .69%
</TABLE>
+Per share amounts for all periods prior to December 31, 1996, have been
restated to reflect a 5-for-1 stock split effective February 3, 1997.
++Based on average weighted shares outstanding.
11
<PAGE>
MUTUAL SHARES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999+++ 1998 1997+++ 1996+
----------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year....................... $19.50 $21.26 $18.56 $18.90
----------------------------------------------------------
Income from investment operations:
Net investment income................................... .26 .40 .34 .21
Net realized and unrealized gains (losses).............. 2.54 (.41) 4.43 1.08
----------------------------------------------------------
Total from investment operations......................... 2.80 (.01) 4.77 1.29
----------------------------------------------------------
Less distributions from:
Net investment income................................... (.34) (.46) (.49) (.47)
Net realized gains...................................... (1.58) (1.29) (1.58) (1.16)
----------------------------------------------------------
Total distributions...................................... (1.92) (1.75) (2.07) (1.63)
----------------------------------------------------------
Net asset value, end of year............................. $20.38 $19.50 $21.26 $18.56
==========================================================
Total Return*............................................ 14.57% .06% 26.03% 6.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's).......................... $1,365,694 $1,509,647 $1,043,262 $35,634
Ratios to average net assets:
Expenses(a)............................................. 1.12% 1.11% 1.11% 1.09%**
Expenses, excluding waiver and payments by
affiliate(a).......................................... 1.16% 1.15% 1.14% 1.18%**
Net investment income................................... 1.23% 1.78% 1.58% 2.44%**
Portfolio turnover rate.................................. 66.24% 69.46% 49.61% 58.35%
(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................................................ 1.10% 1.08% 1.07% 1.09%**
Expenses, excluding waiver and payments by affiliate.... 1.14% 1.12% 1.10% 1.18%**
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 5-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
12
<PAGE>
MUTUAL SHARES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
------------------
YEAR ENDED
DECEMBER 31, 1999+
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $19.50
-------
Income from investment operations:
Net investment income...................................... .09
Net realized and unrealized gains.......................... 2.55
-------
Total from investment operations............................ 2.64
-------
Less distributions from:
Net investment income...................................... (.30)
Net realized gains......................................... (1.58)
-------
Total distributions......................................... (1.88)
-------
Net asset value, end of year................................ $20.26
=======
Total Return*............................................... 13.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $21,634
Ratios to average net assets:
Expenses(a)................................................ 1.77%
Expenses, excluding waiver and payments by affiliate(a).... 1.81%
Net investment income...................................... .46%
Portfolio turnover rate..................................... 66.24%
(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................................................... 1.75%
Expenses, excluding waiver and payments by affiliate....... 1.79%
</TABLE>
*Total return does not reflect contingent deferred sales charge and is not
annualized.
+Effective date of Class B shares was January 1, 1999. Based on average weighted
shares outstanding.
13
<PAGE>
MUTUAL SHARES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999+++ 1998 1997+++ 1996+
-----------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $19.41 $21.18 $18.56 $18.90
-----------------------------------------------------
Income from investment operations:
Net investment income...................................... .12 .28 .20 .20
Net realized and unrealized gains (losses)................. 2.53 (.43) 4.42 1.08
-----------------------------------------------------
Total from investment operations............................ 2.65 (.15) 4.62 1.28
-----------------------------------------------------
Less distributions from:
Net investment income...................................... (.20) (.33) (.42) (.46)
Net realized gains......................................... (1.57) (1.29) (1.58) (1.16)
-----------------------------------------------------
Total distributions......................................... (1.77) (1.62) (2.00) (1.62)
-----------------------------------------------------
Net asset value, end of year................................ $20.29 $19.41 $21.18 $18.56
=====================================================
Total Return*............................................... 13.87% (.59)% 25.17% 6.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $890,712 $993,931 $636,838 $16,873
Ratios to average net assets:
Expenses(a)................................................ 1.76% 1.76% 1.76% 1.71%**
Expenses, excluding waiver and payments by affiliate(a).... 1.80% 1.80% 1.79% 1.80%**
Net investment income...................................... .59% 1.12% .92% 1.69%**
Portfolio turnover rate..................................... 66.24% 69.46% 49.61% 58.35%
(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................................................... 1.74% 1.73% 1.72% 1.71%**
Expenses, excluding waiver and payments by affiliate....... 1.78% 1.77% 1.75% 1.80%**
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996.
++Per share amounts for the period ended December 31, 1996 have been restated to
reflect a 5-for-1 stock split effective February 3, 1997.
+++Based on average weighted shares outstanding.
See Notes to Financial Statements.
14
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 80.9%
AEROSPACE & MILITARY TECHNOLOGY 1.5%
B.F. Goodrich Co. .......................................... United States 3,839,379 $ 105,582,923
*Hexcel Corp. ............................................... United States 1,740,895 9,683,728
--------------
115,266,651
--------------
APPLIANCES & HOUSEHOLD DURABLES .1%
Maytag Corp. ............................................... United States 140,700 6,753,600
--------------
AUTOMOBILES 4.7%
Borg-Warner Automotive Inc. ................................ United States 612,700 24,814,350
Delphi Automotive Systems Corp. ............................ United States 7,603,308 119,752,101
General Motors Corp. ....................................... United States 1,746,175 126,925,095
*Lear Corp. ................................................. United States 2,710,400 86,732,800
*SPX Corp. .................................................. United States 128,000 10,344,000
--------------
368,568,346
--------------
BANKING 3.8%
Bank One Corp. ............................................. United States 2,381,929 76,370,599
Banknorth Group Inc. ....................................... United States 185,100 4,951,425
Chase Manhattan Corp. ...................................... United States 986,476 76,636,854
National City Corp. ........................................ United States 1,501,219 35,560,125
Peoples Heritage Financial Group Inc. ...................... United States 2,093,750 31,537,109
Sovereign Bancorp Inc. ..................................... United States 4,311,900 32,137,130
U.S. Bancorp................................................ United States 1,768,266 42,106,834
--------------
299,300,076
--------------
BEVERAGES & TOBACCO 1.6%
Brown-Forman Corp., B....................................... United States 246,120 14,090,370
Gallaher Group PLC.......................................... United Kingdom 6,866,611 29,241,107
Gallaher Group PLC, ADR..................................... United Kingdom 160,000 2,460,000
Genesee Corp., A............................................ United States 2,211 44,220
Pepsi Bottling Group Inc. .................................. United States 3,181,300 52,690,281
UST Inc. ................................................... United States 1,176,800 29,640,650
--------------
128,166,628
--------------
BROADCASTING & PUBLISHING 8.5%
*AT&T Corp. -- Liberty Media Group, A........................ United States 1,131,712 64,224,656
Central Newspapers Inc., A.................................. United States 727,440 28,642,950
Dow Jones & Co. Inc. ....................................... United States 802,000 54,536,000
Dun & Bradstreet Corp. ..................................... United States 1,066,300 31,455,850
Media General Inc., A....................................... United States 1,194,600 62,119,200
*MediaOne Group Inc. ........................................ United States 2,404,273 184,678,220
Meredith Corp. ............................................. United States 794,000 33,099,875
Scripps Co., A.............................................. United States 2,037,000 91,283,063
Washington Post Co., B...................................... United States 212,143 117,924,990
--------------
667,964,804
--------------
</TABLE>
15
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUILDING MATERIALS & COMPONENTS 1.0%
*American Standard Cos. Inc. ................................ United States 1,131,400 $ 51,902,975
Armstrong World Industries Inc. ............................ United States 823,430 27,481,976
--------------
79,384,951
--------------
BUSINESS & PUBLIC SERVICES 3.0%
Deluxe Corp. ............................................... United States 57,300 1,572,169
National Service Industries Inc. ........................... United States 475,300 14,021,350
*Republic Services Inc., A................................... United States 4,149,800 59,653,375
Suez Lyonnaise des Eaux SA.................................. France 568,108 90,995,654
Vivendi..................................................... France 742,500 67,014,120
--------------
233,256,668
--------------
CHEMICALS 1.3%
+*Cytec Industries Inc. ...................................... United States 2,194,100 50,738,562
Union Carbide Corp. ........................................ United States 757,850 50,586,489
--------------
101,325,051
--------------
DATA PROCESSING & REPRODUCTION .5%
Compaq Computer Corp. ...................................... United States 964,900 26,112,606
*NCR Corp. .................................................. United States 343,100 12,994,913
--------------
39,107,519
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
*General Instrument Corp. ................................... United States 446,400 37,944,000
Thomas & Betts Corp. ....................................... United States 322,000 10,263,750
--------------
48,207,750
--------------
ENERGY EQUIPMENT & SERVICES .7%
*Cooper Cameron Corp. ....................................... United States 468,400 22,922,325
*Weatherford International Inc. ............................. United States 768,785 30,703,351
--------------
53,625,676
--------------
ENERGY SOURCES 3.0%
*Abraxas Petroleum Corp. .................................... United States 428,954 402,144
*Apco Oil Corp. ............................................. United States 9,200 0
Atlantic Richfield Co. ..................................... United States 686,450 59,377,925
Burlington Resources Inc. .................................. United States 1,343,100 44,406,244
(R)+*Environmental Credits LLC................................... United States 305,831 42,816,340
Royal Dutch Petroleum Co., N.Y. shs. ....................... Netherlands 534,000 32,273,625
Total Fina SA, ADR.......................................... France 157,737 10,923,287
Total Fina SA, B............................................ France 325,759 43,454,211
--------------
233,653,776
--------------
</TABLE>
16
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 8.1%
Bear Stearns Cos. Inc. ..................................... United States 2,822,179 $ 120,648,152
CIT Group Inc., A........................................... United States 3,431,430 72,488,959
Dime Bancorp Inc. .......................................... United States 1,283,700 19,415,963
Finova Group Inc. .......................................... United States 2,495,700 88,597,350
Greenpoint Financial Corp. ................................. United States 2,646,392 63,017,210
Household International Inc. ............................... United States 1,859,648 69,271,888
Lehman Brothers Holdings Inc. .............................. United States 626,200 53,031,313
+*MFN Financial Corp. ...................................... United States 573,852 3,730,038
Morgan Stanley, Dean Witter & Co. .......................... United States 139,800 19,956,450
PMI Group Inc. ............................................. United States 896,250 43,748,203
Power Corp. of Canada....................................... Canada 638,700 10,932,862
Power Financial Corp. ...................................... Canada 440,700 7,315,029
+United Asset Management Corp. ............................. United States 3,435,900 63,778,894
--------------
635,932,311
--------------
FOOD & HOUSEHOLD PRODUCTS 2.6%
+*Fine Host Corp. .......................................... United States 784,457 7,766,124
*Pactiv Corp. .............................................. United States 2,706,400 28,755,500
+Seaboard Corp. ............................................ United States 78,050 15,161,212
(R)+*Sunbeam Corp. ......................................... United States 11,260,174 42,436,781
U.S. Industries Inc. ....................................... United States 4,194,200 58,718,801
+Van Melle NV............................................... Netherlands 889,481 51,042,401
--------------
203,880,819
--------------
FOREST PRODUCTS & PAPER .9%
Rayonier Inc. .............................................. United States 906,450 43,792,866
St. Joe Co. ................................................ United States 995,325 24,198,839
--------------
67,991,705
--------------
HEALTH & PERSONAL CARE 2.4%
American Home Products Corp. ............................... United States 59,700 2,354,419
Aventis SA.................................................. France 1,668,984 96,949,941
*Foundation Health Systems, A............................... United States 1,304,300 12,961,481
*PacifiCare Health Systems Inc. ............................ United States 315,594 16,726,482
Sankyo Co. Ltd. ............................................ Japan 470,100 9,661,007
*Tenet Healthcare Corp. .................................... United States 1,899,400 44,635,900
Ventas Inc. ................................................ United States 1,523,500 6,379,656
--------------
189,668,886
--------------
INDUSTRIAL COMPONENTS .8%
(R)+*Lancer Industries Inc., B.............................. United States 3 12,204,615
*Owens-Illinois Inc. ....................................... United States 2,010,362 50,384,698
*PXL Holdings Corp. ........................................ United States 21 16,800
--------------
62,606,113
--------------
</TABLE>
17
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE 4.0%
Allmerica Financial Corp. .................................. United States 1,200,100 $ 66,755,563
AON Corp. .................................................. United States 885,300 35,412,000
Lincoln National Corp. ..................................... United States 435,000 17,400,000
MBIA Inc. .................................................. United States 1,422,300 75,115,219
Old Republic International Corp. ........................... United States 3,727,500 50,787,188
ReliaStar Financial Corp. .................................. United States 385,100 15,091,106
+White Mountain Insurance Group Inc. ....................... United States 421,384 50,776,772
--------------
311,337,848
--------------
LEISURE & TOURISM 2.9%
Galileo International Inc. ................................. United States 1,414,700 42,352,581
Hilton Hotels Corp. ........................................ United States 3,741,270 36,009,724
*Park Place Entertainment Corp. ............................ United States 4,810,200 60,127,500
Starwood Hotels & Resorts Worldwide Inc. ................... United States 3,686,400 86,630,400
--------------
225,120,205
--------------
MACHINERY & ENGINEERING .8%
Invensys PLC................................................ United Kingdom 12,142,914 65,348,843
--------------
MERCHANDISING 3.5%
*Federated Department Stores Inc. .......................... United States 1,713,875 86,657,805
J.C. Penney Co. Inc. ....................................... United States 1,769,500 35,279,406
May Department Stores Co. .................................. United States 660,600 21,304,350
*Payless Shoesource Inc. ................................... United States 1,015,400 47,723,800
*Saks Inc. ................................................. United States 2,900,900 45,145,256
Sears, Roebuck & Co. ....................................... United States 1,285,000 39,112,188
--------------
275,222,805
--------------
MULTI-INDUSTRY 12.3%
*Alleghany Corp. ........................................... United States 269,040 49,906,920
*Berkshire-Hathaway Inc., A................................. United States 1,025 57,502,500
Compagnie Financiere Richemont AG, Br., A................... Switzerland 20,171 48,131,743
Compagnie Generale D'Industrie et de Participation.......... France 943,268 61,725,958
Corporacion Financiera Alba SA.............................. Spain 2,290,463 78,308,792
Investor AB, A ............................................. Sweden 6,726,600 95,698,836
Investor AB, B.............................................. Sweden 15,499,750 218,691,358
Kansas City Southern Industries Inc. ....................... United States 1,292,300 96,437,888
Lagardere SCA............................................... France 2,149,187 116,838,919
*Thermo Electron Corp. ..................................... United States 3,872,900 58,093,500
TRW Inc. ................................................... United States 1,334,600 69,315,788
Williams PLC................................................ United Kingdom 3,426,880 15,673,143
--------------
966,325,345
--------------
REAL ESTATE 3.9%
+*Alexander's Inc. ......................................... United States 383,200 30,272,800
*Al-Zar Ltd. LP............................................. United States 284 1,420
</TABLE>
18
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
* Cadillac Fairview Corp. ................................... Canada 1,119,697 $ 25,787,337
* Cadillac Fairview Corp., wts., 7/31/00..................... Canada 291,749 3,006,474
+* Canary Wharf Group PLC.................................... United Kingdom 38,342,402 237,637,752
+ MBO Properties Inc. ....................................... United States 574,712 287,356
(R)* Security Capital European Realty........................... United States 685,950 9,882,825
--------------
306,875,964
--------------
RECREATION & OTHER CONSUMER GOODS
* Bulova Corp. .............................................. United States 37,900 833,800
--------------
TELECOMMUNICATIONS 4.8%
BCE Inc. .................................................. Canada 593,550 53,837,805
* General Motors Corp., H.................................... United States 171,400 16,454,400
Telephone & Data Systems Inc. ............................. United States 2,052,500 258,615,000
U.S. West Inc. ............................................ United States 494,300 35,589,600
* United States Cellular Corp. .............................. United States 105,900 10,689,281
--------------
375,186,086
--------------
TEXTILES & APPAREL .3%
Liz Claiborne Inc. ........................................ United States 738,600 27,789,825
--------------
TRANSPORTATION 2.2%
Burlington Northern Santa Fe Corp. ......................... United States 977,600 23,706,800
+ Florida East Coast Industries Inc. ......................... United States 1,921,500 80,222,625
Railtrack Group PLC......................................... United Kingdom 4,343,743 71,252,633
--------------
175,182,058
--------------
UTILITIES ELECTRICAL & GAS 1.1%
* MidAmerican Energy Holding Co. ............................. United States 1,927,600 64,936,025
Veba AG..................................................... Germany 449,647 21,954,978
--------------
86,891,003
--------------
TOTAL COMMON STOCKS (COST $4,680,538,762)................... 6,350,775,112
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------------
<S> <C> <C> <C>
BONDS AND NOTES 2.4%
Abraxas Petroleum Corp., Series A, 11.50%, 11/01/04......... United States $ 5,036,500 4,608,398
Dictaphone Corporation:
Revolver.................................................. United States 7,349,262 6,908,307
Tranche B, Term Loan...................................... United States 4,933,932 4,687,236
Eurotunnel Finance Ltd.:
Equity Note 12/31/03...................................... United Kingdom 9,069,442GBP 6,302,600
Participating Loan Note, 4/30/40.......................... United Kingdom 1,482,000GBP 1,005,931
</TABLE>
19
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES (CONT.)
Eurotunnel PLC:
12/31/18, Tier 2........................................... United Kingdom 14,936,189GBP $ 16,776,268
12/31/25, Tier 3........................................... United Kingdom 8,162,126GBP 7,452,852
12/31/50, Resettable Advance R5............................ United Kingdom 3,751,660GBP 2,031,136
Stabilization Advance S8, Tier 1........................... United Kingdom 4,533,094GBP 1,758,234
Stabilization Advance S8, Tier 2........................... United Kingdom 2,855,531GBP 922,970
Eurotunnel SA:
12/31/12, Tier 1 (Libor)................................... France 6,135,965EUR 4,849,222
12/31/12, Tier 1 (Pibor)................................... France 766,479EUR 605,745
12/31/18, Tier 2 (Libor)................................... France 22,166,207EUR 15,397,848
12/31/18, Tier 2 (Pibor)................................... France 4,576,207EUR 3,178,881
12/31/25, Tier 3 (Libor)................................... France 36,294,197EUR 20,279,150
12/31/25, Tier 3 (Pibor)................................... France 10,575,783EUR 5,909,151
12/31/50, Resettable Advance R4............................ France 21,724,301EUR 7,217,376
Stabilization Advance S6, Tier 1 (Pibor)................... France 1,849,047EUR 446,765
Stabilization Advance S6, Tier 2........................... France 5,766,952EUR 1,161,170
Stabilization Advance S7, Tier 1 (Pibor)................... France 4,122,676EUR 996,116
Golden Books Publishing, 7.65%, 9/15/02..................... United States 4,020,000 1,728,600
HIH Capital Ltd., cvt., 144A, 7.50%, 9/25/06................ United Kingdom 7,930,000 5,154,500
Imperial Credit Capital Trust I, B, 10.25%, 6/15/02......... United States 7,730,000 6,261,300
+MFN Financial Corp.:
Series A, 10.00%, 3/23/01................................. United States 2,378,216 2,294,978
Series B, FRN, 10.676%, 3/23/01........................... United States 4,028,213 3,907,367
RH Cement Finance PLC, 144A, 31.20%, 3/10/00 Irish Republic 6,050,000 6,715,500
Rite Aid Corp.:
7.125%, 1/15/07........................................... United States 3,235,000 2,393,900
144A, 6.125%, 12/15/08.................................... United States 780,000 553,800
6.875%, 8/15/13........................................... United States 975,000 653,250
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03..... United States 19,027,000 14,139,439
SFC New Holdings Inc., PIK, 13.25%, 8/15/03................ United States 12,321,000 8,871,120
Southwest Royalties Inc., B, 10.50%, 10/15/04.............. United States 29,763,000 15,923,205
TFM SA de CV:
senior disc. note, zero cpn............................... Mexico 7,050,000 4,529,625
10.25%, 6/15/07........................................... Mexico 400,000 380,000
Tribasa Toll Road Trust I:
10.50%, 12/01/11.......................................... Mexico 450,659 180,264
144A, 10.50%, 12/01/11.................................... Mexico 3,064,482 1,225,793
U.S. Cellular Corp., cvt., 6/15/15......................... United States 5,000,000 4,837,500
--------------
TOTAL BONDS AND NOTES (COST $206,672,295).................. 192,245,497
--------------
BONDS & NOTES IN REORGANIZATION 3.4%
*Acme Metals Inc., Term Loan................................ United States 4,554,143 3,871,021
*Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11........ United States 775,000 294,500
</TABLE>
20
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01..................................... Mexico 350,000 $ 119,000
Series A, 11.375%, 4/30/02................................ Mexico 1,540,000 608,300
Series B, 11.875%, 4/30/04................................ Mexico 1,070,000 422,650
Tranche A, Term Loan...................................... United States 2,005,524 842,320
*APS Inc., Tranche B........................................ United States 27,819,558 4,033,836
*Breed Technologies Inc.:
Bank Debt................................................. United States 45,503 26,619
Tern Loan B............................................... United States 311,276 182,096
*Brunos Inc.:
Revolver.................................................. United States 4,001,907 2,361,125
Tranche A, Term Loan...................................... United States 7,360,726 4,342,828
Tranche B, Term Loan...................................... United States 6,777,440 3,998,690
*Crown Leasing, Bank Claim.................................. Japan 1,655,539,489JPY 1,121,136
*Decision One Corp.:
Revolver.................................................. United States 5,860,870 2,622,739
Tranche A, Term Loan...................................... United States 19,650,236 8,793,480
Tranche B, Term Loan...................................... United States 9,033,079 4,042,303
*Dow Corning Corp.:
8.55%, 3/01/01............................................ United States 500,000 675,000
9.375%, 2/01/08........................................... United States 2,170,000 3,124,800
8.15%, 10/15/29........................................... United States 5,280,000 7,128,000
9.50%, 8/10/49............................................ United States 1,250,000 1,812,500
Bank Debt................................................. United States 600,000,000JPY 6,341,440
Bank Debt #1.............................................. United States 7,500,000 10,312,500
Bank Debt................................................. United States 2,738,952 3,766,059
Bank Claim................................................ United States 1,000,000 1,375,000
Bank Claim #2............................................. United States 1,391,595 1,913,443
*Harnischfeger Industries Inc.:
8.90%, 3/01/22............................................ United States 6,173,000 2,345,740
8.70%, 6/15/22............................................ United States 4,455,000 1,692,900
7.25%, 12/15/25........................................... United States 11,685,000 4,440,300
6.875%, 2/15/27........................................... United States 6,385,000 2,426,300
*Integrated Health Services Inc.:
Revolver.................................................. United States 7,429,915 3,417,761
Tranche B, Term Loan...................................... United States 9,384,697 4,316,960
Tranche C, Term Loan...................................... United States 6,473,448 2,977,786
*Koninklijke Ned Vlieg Fokker NV, Trade Claim............... Netherlands 10,115,607EUR 2,953,313
*Loewen Group Inc., Series 5, 6.10%, 10/01/02............... Canada 5,860,000CAD 1,945,363
</TABLE>
21
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Loewen Group International Inc.:
144A, 6.70%, 10/01/99..................................... Canada 17,425,000 $ 8,538,250
Revolver.................................................. United States 2,559,720 1,356,652
Series 3, 7.50%, 4/15/01.................................. Canada 3,820,000 1,871,800
Series 3, 7.75%, 10/15/01................................. Canada 3,880,000 1,901,200
Series 2, 8.25%, 4/15/03.................................. Canada 4,085,000 2,001,650
Series 6, 7.20%, 6/01/03.................................. Canada 30,055,000 15,027,500
Series 4, 8.25%, 10/15/03................................. Canada 5,945,000 2,913,050
Series 7, 7.60%, 6/01/08.................................. Canada 20,810,000 10,405,000
*Mariner Post-Acute Network Inc.:
Revolver.................................................. United States 1,372,593 439,230
Tranche A, Term Loan...................................... United States 2,010,849 643,472
Tranche B, Term Loan...................................... United States 1,755,243 561,678
Tranche C, Term Loan...................................... United States 893,209 285,827
*Nippon Credit Bank Ltd., Bank Claim........................ Japan 842,728,577JPY 1,317,744
*Nippon Total Finance, Bank Claim........................... Japan 854,369,557JPY 497,371
*Paging Network Inc., Revolver A............................ United States 10,299,000 8,754,150
*Peregrine Investments Holdings Ltd:
6.70%, 1/15/98............................................ Hong Kong 500,000 72,500
zero coupon, 1/22/98...................................... Hong Kong 95,000,000JPY 134,805
2.60%, 6/30/00............................................ Hong Kong 250,000,000JPY 354,749
*Philip Services Corp.:
Revolver Canadian Operating, CAD Tranche.................. Canada 6,531,357 2,612,543
Revolver Canadian Operating, USD Tranche.................. Canada 173,744 69,498
Revolver Tranche 1........................................ United States 6,005,962 2,402,385
Revolver Tranche 2........................................ United States 6,079,744 2,431,898
Revolver Tranche 3........................................ United States 2,795,057 1,118,023
*PIV Investment Finance (Cayman) Ltd., cvt.,
4.50%,12/01/00............................................ Hong Kong 20,350,000 4,680,500
*Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17.... United States 385,000 146,300
*Pratama Datakom Asia BV:
144A, 12.75%, 7/15/05..................................... Indonesia 12,810,000 2,305,800
Reg S, 12.75%, 7/15/05.................................... Indonesia 2,690,000 484,200
*Southeast Banking Corp.:
zero coupon, 12/18/96..................................... United States 2,230,000 596,525
4.75%, 10/15/97........................................... United States 3,317,000 812,665
zero coupon, 11/12/97..................................... United States 1,250,000 334,375
10.50%, 4/11/01........................................... United States 5,300,000 733,308
*United Companies Financial Corp., Revolver................. United States 44,340,600 35,472,480
*Vencor Inc.:
9.875%, 5/01/05........................................... United States 28,300,000 5,872,250
Revolver.................................................. United States 5,237,456 3,430,534
Term Loan A............................................... United States 21,440,016 14,043,197
Term Loan B............................................... United States 12,923,167 8,464,675
Tranche A, Term Loan 3/07/00.............................. United States 3,447,016 3,412,546
Tranche B, Term Loan 3/07/00.............................. United States 1,175,000 1,163,250
</TABLE>
22
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS & NOTES IN REORGANIZATION (CONT.)
*Ventas Inc.
Tranche A, Bridge Loan.................................... United States 4,519,645 $ 4,090,279
Tranche B, Revolver....................................... United States 4,225,113 3,823,727
Tranche C, Term Loan A.................................... United States 4,376,690 3,960,904
Tranche D, Term Loan B.................................... United States 3,106,048 2,873,094
--------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $265,123,902). 263,059,392
--------------
COMPANIES IN LIQUIDATION .1%
+*City Investing Company Liquidating Trust.................. United States 4,314,037 5,527,360
*Roeser & Pendelton........................................ United States 2,800 1,974
--------------
TOTAL COMPANIES IN LIQUIDATION (COST $589,345)............ 5,529,334
--------------
GOVERNMENT AGENCIES 11.6%
Fannie Mae, 4.980% to 5.920%, with maturities to 12/05/00. United States 499,900,000 485,347,192
Federal Home Loan Banks, 4.520% to 6.125%, with maturities
to 1/26/01............................................... United States 272,818,000 269,644,065
Federal Home Loan Mortgage Corp., 4.780% to 5.635%,
with maturities to 10/1/01................................ United States 159,300,000 155,650,663
--------------
TOTAL GOVERNMENT AGENCIES (COST $913,160,147)............. 910,641,920
--------------
TOTAL INVESTMENTS (COST $6,066,084,451) 98.4%............. 7,722,251,255
SECURITIES SOLD SHORT (2.3%).............................. (181,844,480)
NET EQUITY IN FORWARD CONTRACTS .3%....................... 25,549,871
OTHER ASSETS, LESS LIABILITIES 3.6%....................... 283,951,368
--------------
TOTAL NET ASSETS 100.0%................................... $7,849,908,014
==============
<CAPTION>
SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*BP Amoco PLC, ADR.......................................... United Kingdom 796,000 $ 47,212,750
*Dow Chemical Co. .......................................... United States 406,923 54,375,086
*DST Systems Inc. .......................................... United States 81,500 6,219,469
*Golden Books Entertainment Inc. W/I ....................... United States 56,750 227,000
*Motorola Inc. ............................................. United States 256,700 37,799,075
*Nortel Networks Corp. ..................................... Canada 357,000 36,011,100
--------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $152,340,506)......... $ 181,844,480
==============
</TABLE>
23
<PAGE>
MUTUAL SHARES FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 12/31/99 GAIN/LOSS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*BP Amoco PLC, cfd. 5.18................................ United Kingdom 512,800 $ 5,167,199 $ (875,399)
*BP Amoco PLC, cfd. 5.47................................ United Kingdom 204,000 2,055,594 (251,386)
*BP Amoco PLC, cfd. 5.565............................... United Kingdom 148,500 1,496,351 (160,795)
*BP Amoco PLC, cfd. 5.65................................ United Kingdom 388,000 3,909,659 (367,075)
*BP Amoco PLC, cfd. 5.71................................ United Kingdom 94,300 950,208 (80,010)
*BP Amoco PLC, cfd. 6.23317............................. United Kingdom 368,200 3,710,146 (1,071)
*BP Amoco PLC, cfd. 6.24797............................. United Kingdom 275,000 2,771,022 5,778
----------- -----------
TOTAL CONTRACT FOR DIFFERENCES.......................... $20,060,179 $(1,729,958)
=========== ===========
</TABLE>
CURRENCY ABBREVIATIONS:
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.
24
<PAGE>
MUTUAL SHARES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value:
Unaffiliated issuers (cost $5,745,239,041)................ $7,021,649,278
Controlled affiliates (cost $34,995,999).................. 42,816,340
Non controlled affiliates (cost $285,849,411)............. 657,785,637 $7,722,251,255
--------------
Cash....................................................... 38,921,917
Receivables:
Investment securities sold................................ 156,919,372
Capital shares sold....................................... 7,456,385
Dividends and interest.................................... 20,409,306
From affiliates........................................... 57,416
Unrealized gain on forward exchange contracts (Note 8)..... 30,352,495
Deposits with broker for securities sold short............. 149,198,868
--------------
Total assets.......................................... 8,125,567,014
--------------
Liabilities:
Payables:
Investment securities purchased........................... 56,945,168
Capital shares redeemed................................... 21,285,843
To affiliates............................................. 7,140,015
Securities sold short, at value (proceeds $152,340,506).... 181,844,480
Unrealized loss on forward exchange contracts (Note 8)..... 4,802,624
Due to broker-variation margin............................. 3,020,832
Accrued expenses........................................... 620,038
--------------
Total liabilities..................................... 275,659,000
--------------
Net assets, at value........................................ $7,849,908,014
==============
Net assets consist of:
Undistributed net investment income........................ $ 13,620,505
Net unrealized appreciation................................ 1,650,482,743
Accumulated net realized gain.............................. 355,649,457
Capital shares............................................. 5,830,155,309
--------------
Net assets, at value........................................ $7,849,908,014
==============
</TABLE>
25
<PAGE>
MUTUAL SHARES FUND
Financial Statements (continued)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
CLASS Z:
Net asset value and maximum offering price per share
($5,571,867,444 / 272,675,012 shares outstanding)......... $20.43
==============
CLASS A:
Net asset value per share ($1,365,694,410 / 67,012,191
shares outstanding)....................................... $20.38
==============
Maximum offering price per share ($20.38 / 94.25%)......... $21.62
==============
CLASS B:
Net asset value and maximum offering price per share
($21,633,849 / 1,067,822 shares outstanding)*............. $20.26
==============
CLASS C:
Net asset value per share ($890,712,311 / 43,907,807 shares
outstanding)*............................................. $20.29
==============
Maximum offering price per share ($20.29 / 99.00%)......... $20.49
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
26
<PAGE>
MUTUAL SHARES FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $4,126,953)
Dividends.................................................. $101,689,713
Interest................................................... 91,621,871
------------
Total investment income............................... $ 193,311,584
--------------
Expenses:
Management fees (Note 3)................................... 49,291,464
Administrative fees (Note 3)............................... 6,390,473
Distribution fees (Note 3)
Class A................................................... 5,023,543
Class B................................................... 103,496
Class C................................................... 9,437,615
Transfer agent fees (Note 3)............................... 6,811,843
Custodian fees............................................. 479,245
Reports to shareholders.................................... 1,005,854
Registration and filing fees............................... 108,872
Professional fees.......................................... 318,021
Directors' fees and expenses............................... 227,938
Dividends for securities sold short........................ 1,884,945
Other...................................................... 183,362
------------
Total expenses........................................ 81,266,671
Expenses waived/paid by affiliate (Note 3)............ (3,524,357)
--------------
Net expenses...................................... 77,742,314
--------------
Net investment income........................... 115,569,270
--------------
Realized and unrealized gains:
Net realized gain from:
Investments............................................... 704,412,337
Foreign currency transactions............................. 88,265,648
Short sale transactions................................... 39,010,284
------------
Net realized gain..................................... 831,688,269
Net unrealized appreciation on:
Investments............................................... 155,091,193
Translation of assets and liabilities denominated in
foreign currencies...................................... 27,891,799
------------
Net unrealized appreciation........................... 182,982,992
--------------
Net realized and unrealized gain............................ 1,014,671,261
--------------
Net increase in net assets resulting from operations........ $1,130,240,531
==============
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
MUTUAL SHARES FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 115,569,270 $ 196,374,397
Net realized gain from investments and foreign currency
transactions............................................. 831,688,269 583,182,217
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 182,982,992 (827,301,518)
-------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 1,130,240,531 (47,744,904)
Distributions to shareholders from:
Net investment income:
Class Z.................................................. (108,309,743) (164,855,136)
Class A.................................................. (21,630,827) (33,970,722)
Class B.................................................. (270,895) --
Class C.................................................. (8,195,525) (16,236,799)
Net realized gains:
Class Z.................................................. (409,414,842) (405,815,356)
Class A.................................................. (100,779,589) (95,152,617)
Class B.................................................. (1,324,825) --
Class C.................................................. (66,770,051) (62,745,269)
Capital share transactions (Note 2):
Class Z.................................................. (1,004,479,968) (1,084,039,468)
Class A.................................................. (215,301,758) 628,757,143
Class B.................................................. 22,523,646 --
Class C.................................................. (148,981,707) 465,320,320
-------------------------------------
Net decrease in net assets.............................. (932,695,553) (816,482,808)
Net assets:
Beginning of period........................................ 8,782,603,567 9,599,086,375
-------------------------------------
End of period.............................................. $ 7,849,908,014 $ 8,782,603,567
=====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 13,620,505 $ 5,008,347
=====================================
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mutual Shares 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.
29
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (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. OPTION CONTRACTS:
Options purchased are recorded as investments; options written (sold) are
recorded as liabilities. When an option expires, the premium (original option
value) is realized as a gain if the option was written or as a loss if the
option was purchased. When the exercise of an option results in a cash
settlement, the difference between the premium and the settlement proceeds is
realized as a gain or loss. When securities are acquired or delivered upon
exercise of an option, the acquisition cost or sale proceeds are adjusted by the
amount of the premium. When an option is closed, the difference between the
premium and the cost to close the position is realized as a gain or loss.
f. 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.
g. 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.
30
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
g. SECURITIES SOLD SHORT (CONT.)
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.
h. 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.
i. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
The Fund offers four classes of shares: Class Z, Class A, Class B and Class C
shares. Effective January 1, 1999, Class I and Class II shares were renamed
Class A and Class C, respectively, and a fourth class of shares, Class B was
established. The shares differ by their initial sales load, distribution fees,
voting rights on matters affecting a single class and the exchange privilege of
each class.
At December 31, 1999, there were 1.7 billion shares authorized ($0.001 par
value) of which 1 billion, 250 million, 200 million and 250 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Z SHARES:
Shares sold......................................... 10,144,534 $ 212,511,082 19,502,032 $ 413,844,106
Shares issued on reinvestment of distributions...... 22,397,081 454,213,355 25,912,149 507,736,078
Shares redeemed..................................... (81,120,944) (1,671,204,405) (95,950,368) (2,005,619,652)
---------------------------------------------------------------------
Net decrease........................................ (48,579,329) $(1,004,479,968) (50,536,187) $(1,084,039,468)
=====================================================================
</TABLE>
31
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold........................................... 14,951,408 $ 313,756,603 46,308,752 $ 1,006,489,888
Shares issued on reinvestment of distributions........ 5,708,854 115,472,688 6,240,384 121,708,309
Shares redeemed....................................... (31,077,434) (644,531,049) (24,191,574) (499,441,054)
-------------------------------------------------------------------
Net increase (decrease)............................... (10,417,172) $(215,301,758) 28,357,562 $ 628,757,143
===================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, 1999+
----------------------------
SHARES AMOUNT
----------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold........................................... 1,030,482 $ 21,813,792
Shares issued on reinvestment of distributions........ 76,501 1,521,346
Shares redeemed....................................... (39,161) (811,492)
----------------------------
Net increase.......................................... 1,067,822 $ 22,523,646
============================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold........................................... 6,636,188 $ 138,846,953 28,245,508 $ 612,709,669
Shares issued on reinvestment of distributions........ 3,498,453 70,419,412 3,814,215 74,005,389
Shares redeemed....................................... (17,436,466) (358,248,072) (10,921,730) (221,394,738)
-------------------------------------------------------------------
Net increase (decrease)............................... (7,301,825) $(148,981,707) 21,137,993 $ 465,320,320
===================================================================
</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 and/or directors of
Franklin Mutual Advisers, Inc. (Franklin Mutual) and Franklin Templeton
Services, Inc. (FT Services), the Fund's investment manager and administrative
manager, respectively. Franklin/Templeton Investor Services, Inc. (Investor
Services) and Franklin/Templeton Distributors, Inc. (Distributors) are the
Fund's transfer agent and principal underwriter, respectively.
The Fund pays an investment management fee to Franklin Mutual of 0.60% per year
of the average daily net assets of the Fund. Franklin Mutual agreed, through
June 30, 2000, to limit the expense ratio of the Fund to be no higher than
expected for the Fund's 1996 fiscal year, except that increases in expenses will
be permitted if the Series Fund's Board of Directors determines that such
expenses would have been higher had the merger between Franklin Mutual
32
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
and the Fund's former investment adviser not taken place. This expense
limitation does not include items such as litigation expenses, interest, taxes,
insurance, brokerage commissions, and expenses of an extraordinary nature. The
expense reduction is set forth in the Statement of Operations.
The Fund pays its allocated share of an administrative fee to FT Services based
on the Series Fund's aggregate average daily net assets as follows:
<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 Fund shares, and received contingent deferred
sales charges for the period of $412,454 and $1,101,285, 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 December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $6,078,516,739 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,918,820,063
Unrealized depreciation..................................... (275,085,547)
--------------
Net unrealized appreciation................................. $1,643,734,516
==============
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of passive
foreign investment companies, wash sales and foreign currency transactions.
33
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1999, aggregated $4,855,829,669 and $6,437,242,329
respectively.
Transactions in options written during the year ended December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS PREMIUM
-------------------------
<S> <C> <C>
Options outstanding at December 31, 1998.......... 377 $ 89,525
Options written................................... 601 244,913
Options expired................................... (844) (281,440)
Options terminated in closing transactions........ (134) (52,998)
Options exercised................................. 0 0
-------------------------
Options outstanding at December 31, 1999.......... 0 $ 0
=========================
</TABLE>
6. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OR ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
305,831 Environmental Credits LLC................................... 3/09/98 $ 42,816,340
3 Lancer Industries Inc., B................................... 8/11/89 12,204,615
685,950 Security Capital European Realty............................ 4/08/98 9,882,825
11,260,174 Sunbeam Corp. .............................................. 2/23/90 42,436,781
------------
TOTAL RESTRICTED SECURITIES (COST $78,108,211) (1.37% OF NET ASSETS).............. $107,340,561
============
</TABLE>
34
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
7. INVESTMENT IN AFFILIATES
The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at December
31, 1999 were $700,601,977. For the year ended December 31, 1999, dividend
income from "affiliated persons" was $7,376,391 and net realized gains from
disposition of "affiliated persons" were $25,757,649.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF REALIZED
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME CAPITAL
NAME OF ISSUER DEC. 31, 1998 ADDITIONS REDUCTIONS DEC. 31, 1999 DEC. 31, 1999 1/1/99-12/31/99 GAIN/(LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTROLLED AFFILIATES*
Environmental Credits
LLC................... 316,331 -- (10,500) 305,831 $ 42,816,340 -- $ 426,672
MSCW Investors I
LLC****............... 40,500,000 -- (40,500,000) -- ** -- 8,147,589
---------------------------------------------
TOTAL CONTROLLED
AFFILIATES $ 42,816,340 -- $ 8,574,261
=============================================
NON CONTROLLED
AFFILIATES
Alexander's Inc. ...... 383,200 -- -- 383,200 $ 30,272,800 -- --
Canary Wharf Group
PLC****............... -- 38,440,402 (98,000) 38,342,402 237,637,752 -- $ 620,913
City Investing Co.,
Liquidating Trust..... 4,314,037 -- -- 4,314,037 5,527,360 -- --
Cytec Industries
Inc. ................. 1,446,700 1,856,800 (1,109,400) 2,194,100 50,738,562 -- --
FBR Asset Investment
Corp. ................ 750,000 -- (750,000) -- ** $ 828,750 (3,787,875)
Fine Host Corp. ....... -- 784,457 -- 784,457 7,766,124 -- --
Florida East Coast
Industries Inc. ...... 2,027,900 -- (106,400) 1,921,500 80,222,625 196,825 1,214,275
Genesee Corp., A....... 15,911 -- (13,700) 2,211 ** 22,581 (135,843)
Genesee Corp., B....... 96,750 -- (96,750) -- ** 92,015 (1,178,454)
Kreisler Manufacturing
Corp. ................ 144,480 -- (144,480) -- ** -- 76,712
Lancer Industries Inc.,
B..................... 3 -- -- 3 12,204,615 -- --
MBO Properties Inc. ... 574,712 -- -- 574,712 287,356 -- 718,390
MFN Financial Corp. ... -- 573,852 -- 573,852 3,730,038 -- --
MFN Financial Corp.,
Ser. A Note........... -- 13,113,216 (10,735,000) 2,378,216 2,294,978 -- 36,038
MFN Financial Corp.,
Ser. B Note........... -- 13,113,213 (9,085,000) 4,028,213 3,907,367 -- 183,341
Seaboard Corp. ........ 78,050 -- -- 78,050 15,161,212 78,050 --
Sunbeam Corp. ......... 11,260,174 -- -- 11,260,174 42,436,781 -- --
Telephone & Data
Systems Inc. ......... 2,913,400 -- (860,900) 2,052,500 ** 328,831 2,337,993
United Asset Management
Corp. ................ 3,435,900 -- -- 3,435,900 63,778,894 2,748,720 --
Van Melle NV........... 939,307 14,824 (64,650) 889,481 51,042,401 941,261 (619,078)
Ventas Inc. ........... 3,469,300 1,555,100 (3,500,900) 1,523,500 ** 1,364,064 (2,798,771)
White Mountain
Insurance Group
Inc.***............... 674,084 -- (252,700) 421,384 50,776,772 775,294 20,515,747
---------------------------------------------
TOTAL NON CONTROLLED
AFFILIATES $657,785,637 $7,376,391 $17,183,388
=============================================
</TABLE>
*Issuer in which the Fund owns 25% or more of the outstanding voting securities.
**As of December 31, 1999, no longer an affiliate.
***Name changed from Fund American Enterprises Holding Inc. effective June 1,
1999.
****MSCW Investors I LLC share were exchanged for shares of Canary Wharf Group
PLC effective May 6, 1999.
35
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the functional currency
and foreign currencies and interest rates. These instruments involve market risk
in excess of the amount recognized on the Statement of Assets and Liabilities.
Some of these risks have been minimized by offsetting contracts. Risks arise
from the possible inability of counterparties to meet the terms of their
contracts, future movement in currency values and interest rates and contract
positions that are not exact offsets. The contract amount indicates the extent
of the Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At December
31, 1999, the Fund has outstanding forward exchange contracts for the sale of
currencies as set out below. The contracts are reported in the financial
statements at the Fund's net equity, as measured by the difference between the
forward exchange rates at the reporting date and the forward exchange rates at
the day of entry into the contract.
As of December 31, 1999, 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>
6,600,000 Canadian Dollars................................... U.S.$ 4,545,298 1/31/00 U.S.$ 22,761
4,896,697 Swiss Francs....................................... 3,090,374 3/10/00 9,724
487,806,000 Japanese Yen....................................... 4,788,994 3/24/00 50,400
------------ ---------
U.S.$ 12,424,666 82,885
------------ ---------
</TABLE>
36
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
CONTRACTS TO SELL:
- ------------
<C> <S> <C> <C> <C>
165,585,294 European Unit...................................... U.S.$ 174,171,901 1/19/00 7,217,413
406,651,023 Swedish Krona...................................... 50,390,461 1/19/00 2,514,365
17,700,000 British Pounds..................................... 28,791,705 1/20/00 183,795
2,076,086 British Pounds..................................... 3,382,983 2/17/00 27,442
446,558,104 Swedish Krona...................................... 54,283,645 2/17/00 1,604,668
99,500,000 European Unit...................................... 106,106,473 2/29/00 5,479,450
90,806,092 Swiss Francs....................................... 58,696,288 3/10/00 1,206,976
72,580,110 European Unit...................................... 77,709,729 3/10/00 4,255,019
598,889,311 Swedish Krona...................................... 71,521,937 3/17/00 733,350
18,250,000 British Pounds..................................... 30,023,575 3/24/00 528,339
301,770,000 Japanese Yen....................................... 3,000,000 3/24/00 6,220
76,578,140 European Unit...................................... 82,274,616 4/12/00 4,591,722
8,973,607 British Pounds..................................... 14,575,479 4/17/00 73,757
96,456,884 British Pounds..................................... 156,192,632 5/22/00 336,835
88,246,056 European Unit...................................... 91,088,359 5/30/00 1,265,981
635,000,000 Swedish Krona...................................... 75,541,280 6/15/00 60,649
17,385,033 European Unit...................................... 17,904,218 6/19/00 183,629
------------ ---------
U.S.$1,095,655,281 30,269,610
------------ ---------
Unrealized gain on forward exchange contracts................... 30,352,495
---------
</TABLE>
37
<PAGE>
MUTUAL SHARES FUND
Notes to Financial Statements (continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY: EXCHANGE FOR DATE GAIN/(LOSS)
-----------------------------------------
------------
<C> <S> <C> <C> <C>
6,147,558 Swiss Francs....................................... U.S.$ 3,905,816 3/10/00 (13,798)
566,214 British Pounds..................................... 915,331 3/24/00 (228)
1,636,731 British Pounds..................................... 2,671,145 5/22/00 (26,502)
------------ ---------
U.S.$ 7,492,292 (40,528)
============ =========
<CAPTION>
CONTRACTS TO SELL:
- ------------
33,352,296 British Pounds..................................... U.S.$ 53,763,902 1/18/00 (141,762)
64,091,325 British Pounds..................................... 100,712,257 1/20/00 (2,876,375)
96,612,506 Canadian Dollars................................... 65,884,013 1/31/00 (984,414)
35,536,887 British Pounds..................................... 57,129,480 2/17/00 (308,143)
4,339,268 European Unit...................................... 4,391,339 3/10/00 (218)
1,800,458,097 Japanese Yen....................................... 17,649,575 3/24/00 (212,290)
2,477,339 British Pounds..................................... 3,990,058 5/22/00 (12,846)
39,923,916 European Unit...................................... 40,593,345 6/19/00 (101,163)
------------ ---------
U.S.$ 344,113,969 (4,637,211)
============ =========
<CAPTION>
CONTRACTS TO BUY:
- ------------
<C> <S> <C> <C> <C>
<C> <S> <C> <C> <C>
10,852,248 European Unit...................................... SEK 94,000,000 1/19/00 (124,885)
============ ========
Unrealized loss on forward exchange contracts................... (4,802,624)
---------
Net unrealized gain on forward exchange contracts............. U.S.$25,549,871
---------
</TABLE>
9. CREDIT FACILITY
Certain Franklin Templeton Funds, including Mutual Shares Fund, are participants
in a $750 million senior unsecured credit agreement for temporary borrowing
purposes. The termination date of the agreement is March 1, 2000. Interest is
calculated on the Fund's borrowings at market rates. At December 31, 1999, the
Fund had not utilized this credit facility.
37
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors of Franklin Mutual Series Fund Inc. and Shareholders
of Mutual Shares Fund
We have audited the accompanying statement of assets and liabilities of Mutual
Shares Fund, a portfolio of Franklin Mutual Series Fund Inc. ("Fund"), including
the statement of investments, as of December 31, 1999, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian and brokers, or other appropriate auditing procedures when replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mutual
Shares Fund, a portfolio of Franklin Mutual Series Fund Inc., at December 31,
1999, the results of its operations for the year then ended, and the changes in
net assets and its financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
[ERNST & YOUNG LLP SIGNATURE]
Boston, Massachusetts
January 28, 2000
38
<PAGE>
FRANKLIN MUTUAL SERIES FUND, INC.
MUTUAL SHARES FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $780,196,373 as a capital gain dividend for the fiscal year ended
December 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
49.59% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended December 31, 1999.
39
<PAGE>
ANNUAL REPORT
CHAIRMAN OF THE BOARD
Michael F. Price
OFFICERS
Peter A. Langerman
Robert L. Friedman
Jeffrey Altman
Raymond Garea
David E. Marcus
Lawrence Sondike
David J. Winters
AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
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)
www.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 Shares(R) 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.
474 A99 02/00 [RECYCLING GRAPHIC] Printed on recycled paper
