As filed with the Securities and Exchange Commission April 30, 1997
File Nos.
33-18516
811-5387
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post Effective Amendment No. 22 (X)
and/or
|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 (X)
FRANKLIN MUTUAL SERIES FUND INC.
(Exact Name of Registrant as Specified in Charter)
51 John F. Kennedy Parkway, Short Hills, NJ 07078
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (201) 912-2100
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate
box)
[ ]immediately upon filing pursuant to paragraph (b)
[X]on May 1, 1997 pursuant to paragraph (b)
[ ]60 days after filing pursuant to paragraph (a)(i)
[ ]on (date) pursuant to paragraph (a)(i)
[ ]75 days after filing pursuant to paragraph (a)(ii)
[ ]on (date) pursuant to paragraph (a)(ii)of rule 485
if appropriate, check the following box:
[ ]This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Declaration Pursuant to Rule 24f-2. The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice for the issuer's most recent fiscal year was filed on February 27, 1997.
FRANKLIN MUTUAL SERIES FUND INC.
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(All Series Prospectus - Class I and Class II)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights";"How
does the Fund Measure
Performance?"
4. General Description of "How is the Fund Organized?";
Registrant "How does the Fund Invest its
Assets?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Contained in Registrant's
Fund Performance Annual Report to Shareholders
6. Capital Stock and Other "How is the Fund Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to
Help You Manage Your Account";
"Useful Terms and Definitions";
"What If I Have Questions About My
Account?"; "Who Manages the Fund?"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?"; "How
Do I Sell Shares?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Pending Legal Proceedings Not Applicable
|
FRANKLIN MUTUAL SERIES FUND INC.
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(All Series Prospectus - Class Z Shares)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "How is The Fund Organized?";"How
does the Fund Invest Its Assetts?"
4. General Description of "Cover Page; "The Fund";
Registrant "Additional Information"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Contained in Registrant's
Fund Performance Annual Report to Shareholders
6. Capital Stock and Other "How is the Fund Organized?";
Securities "Services to Help You Manage
Your Account"; "What Distributions
Might I Receive from the Fund?";
"How Taxation Affects its
Shareholders"; What if I Have
Questions about My Account?"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements?"; "Services to
Help You Manage Your Account";
"Useful Terms and Definitions";
"What If I Have Questions About My
Account?"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?"; "How
Do I Sell Shares?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Pending Legal Proceedings Not Applicable
|
FRANKLIN MUTUAL SERIES FUND INC.
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
Statement of Additional Information
(All Series - Class I and Class II Shares)
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and See "Expense Summary" in the
History Prospectus
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Restrictions and
Limitations"
14. Management of the Fund "Officers and Directors";
"Investment Management and
Other Services"
15. Control Persons and "Officers and Directors";
Principal Holders of "Investment Management and
Securities Other Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and
Other Services Other Services"; "The Fund's
Underwriter"
17. Brokerage Allocation and "How does the Fund Buy
Other Practices Securities for its Portfolio?"
18. Capital Stock and Other See Prospectus "How is the Fund
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and
Pricing of Securities Exchange Shares?"; "How Are
Being Offered Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "How does the Fund Measure
Data Performance?"
23. Financial Statements "Financial Statements"
|
FRANKLIN MUTUAL SERIES FUND INC.
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
Statement of Additional Information
(All Series - Class Z Shares)
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and See "Expense Summary" in the
History Prospectus
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Restrictions and
Limitations"
14. Management of the Fund "Officers and Directors";
"Investment Management and
Other Services"
15. Control Persons and "Officers and
Principal Holders of Directors";"Investment
Securities Management and Other Services";
Miscellaneous Information"
16. Investment Advisory and "Investment Management and
Other Services Other Services"
17. Brokerage Allocation and "How does the Fund buy
Other Practices Securities for its Portfolios?"
18. Capital Stock and Other See Prospectus "How is the Fund
Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and
Pricing of Securities Exchange Shares?"; How are Fund
Being Offered Shares Valued?"; "Financial
Statements"
20. Tax Status "Additional Information on
Distributions and Taxes";
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "How does the Fund Measure
Data Performance?"
23. Financial Statements "Financial Statements"
|
PROSPECTUS & APPLICATION
MAY 1, 1997
FRANKLIN
MUTUAL
SERIES FUND INC.
MUTUAL SHARES FUND
MUTUAL QUALIFIED FUND
MUTUAL BEACON FUND
MUTUAL EUROPEAN FUND
MUTUAL DISCOVERY FUND
INVESTMENT STRATEGIES
GROWTH AND INCOME o VALUE
GROWTH AND INCOME o VALUE
GROWTH AND INCOME o VALUE
GLOBAL o VALUE
GROWTH o VALUE
THIS PROSPECTUS DESCRIBES CLASS I AND CLASS II SHARES OF MUTUAL SHARES FUND ("MUTUAL SHARES"), MUTUAL QUALIFIED FUND ("QUALIFIED"), MUTUAL BEACON FUND ("BEACON"), MUTUAL EUROPEAN FUND ("EUROPEAN") AND MUTUAL DISCOVERY FUND ("DISCOVERY"). EACH SERIES MAY, INDIVIDUALLY OR TOGETHER, BE REFERRED TO AS THE "FUND(S)." THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE INVESTING IN THE FUND. PLEASE KEEP IT FOR FUTURE REFERENCE.
The Fund currently offers another class of shares with a different sales charge and expense structure, which affects performance. This class is described in a separate prospectus. For more information, contact your investment representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Class I and Class II shares, dated May 1, 1997, which may be amended from time to time. It includes more information about the Fund's procedures and policies. It has been filed with the SEC and is incorporated by reference into this prospectus. For a free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write the Fund at its address.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN MUTUAL SERIES FUND INC.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary............. 2 Financial Highlights........ 4 How does the Fund Invest its Assets? 9 Who Manages the Fund?....... 17 How does the Fund Measure Performance? 21 How Taxation Affects the Fund and its Shareholders........... 21 How is the Fund Organized?..23 ABOUT YOUR ACCOUNT How Do I Buy Shares?........ 24 May I Exchange Shares for Shares of Another Fund?........... 30 How Do I Sell Shares?....... 33 What Distributions Might I Receive from the Fund?............. 36 Transaction Procedures and Special Requirements............... 37 Services to Help You Manage Your Account.................... 42 What If I Have Questions About My Account?................ 44 GLOSSARY Useful Terms and Definitions 44 Franklin Mutual Series Fund Inc. |
May 1, 1997
WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
1-800/DIAL BEN
Franklin Mutual Series Fund Inc.
About the Fund
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the Fund. It is based on the historical management fees and other expenses of the Class Z shares of each series for the fiscal year ended December 31, 1996, and the maximum contractual Class I or Class II Rule 12b-1 fees. The Fund's actual expenses may vary.
A.SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge (as a percentage of Offering Price) 4.50% 4.50% 4.50% 4.50% 4.50% Paid at time of purchase++ 4.50% 4.50% 4.50% 4.50% 4.50% Paid at redemption++++ None None None None None |
CLASS II
Maximum Sales Charge (as a percentage of Offering Price) 1.99% 1.99% 1.99% 1.99% 1.99% Paid at time of purchase+++ 1.00% 1.00% 1.00% 1.00% 1.00% Paid at |
redemption++++ 0.99% 0.99% 0.99% 0.99% 0.99%
B.ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
CLASS I
Management Fees* 0.60% 0.60% 0.60% 0.80% 0.80% Rule 12b-1 Fees** 0.35% 0.35% 0.35% 0.35% 0.35% Other Expenses 0.12% 0.18% 0.15% 0.19% 0.35% Total Fund Operating Expenses 1.07% 1.13% 1.10% 1.34% 1.50% |
CLASS II
Management Fees* 0.60% 0.60% 0.60% 0.80% 0.80% Rule 12b-1 Fees** 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses 0.12% 0.18% 0.15% 0.19% 0.35% Total Fund Operating Expenses 1.72% 1.78% 1.75% 1.99% 2.15% |
C.EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as described above, and you sell your shares after the number of years shown. These are the projected expenses for each $1,000 that you invest in the Fund.
CLASS I
1 Year*** $ 55 $ 56 $ 56 $ 58 $ 60 3 Years $ 78 $ 79 $ 78 $ 86 $ 90 5 Years $101 $104 $103 $115 $123 10 Years $170 $176 $173 $199 $216 CLASS II 1 Year $ 37 $ 38 $ 38 $ 40 $ 41 3 Years $ 64 $ 65 $ 65 $ 72 $ 77 5 Years $102 $105 $104 $116 $124 10 Years $211 $217 $214 $239 $256 |
For the same Class II investment, you would pay projected expenses of $27 (Mutual Shares), $28 (Qualified), $28 (Beacon), $30 (Discovery) and $31 (European) if you did not sell your shares at the end of the first year. Your projected expenses for the remaining periods would be the same.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The Fund pays its operating expenses. The effects of these expenses are reflected in the Net Asset Value or dividends of each class and are not directly charged to your account.
+IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
++THERE IS NO FRONT-END SALES CHARGE IF YOU INVEST $1 MILLION OR MORE IN CLASS I SHARES.
+++ALTHOUGH CLASS II HAS A LOWER FRONT-END SALES CHARGE THAN CLASS I, ITS RULE 12B-1 FEES ARE HIGHER. OVER TIME YOU MAY PAY MORE FOR CLASS II SHARES. PLEASE SEE "HOW DO I BUY SHARES? - DECIDING WHICH CLASS TO BUY."
++++A CONTINGENT DEFERRED SALES CHARGE MAY APPLY TO ANY CLASS II PURCHASE IF YOU SELL THE SHARES WITHIN 18 MONTHS AND TO CLASS I PURCHASES OF $1 MILLION OR MORE IF YOU SELL THE SHARES WITHIN ONE YEAR. A CONTINGENT DEFERRED SALES CHARGE MAY ALSO APPLY TO PURCHASES BY CERTAIN RETIREMENT PLANS THAT QUALIFY TO BUY CLASS I SHARES WITHOUT A FRONT-END SALES CHARGE. THE CHARGE IS 1% OF THE VALUE OF THE SHARES SOLD OR THE NET ASSET VALUE AT THE TIME OF PURCHASE, WHICHEVER IS LESS. THE NUMBER IN THE TABLE SHOWS THE CHARGE AS A PERCENTAGE OF OFFERING PRICE. WHILE THE PERCENTAGE IS DIFFERENT DEPENDING ON WHETHER THE CHARGE IS SHOWN BASED ON THE NET ASSET VALUE OR THE OFFERING PRICE, THE DOLLAR AMOUNT PAID BY YOU WOULD BE THE SAME. SEE "HOW DO I SELL SHARES? - CONTINGENT DEFERRED SALES CHARGE" FOR DETAILS.
*FOR THE PERIOD SHOWN, FRANKLIN MUTUAL HAD AGREED IN ADVANCE TO LIMIT ITS MANAGEMENT FEES. WITH THIS REDUCTION, MANAGEMENT FEES AND TOTAL OPERATING
EXPENSES WERE AS FOLLOWS:
MANAGEMENT FEES 0.58% 0.57% 0.58% 0.77% 0.74% TOTAL OPERATING EXPENSES: CLASS I 1.05% 1.10% 1.08% 1.31% 1.44% CLASS II 1.70% 1.75% 1.73% 1.96% 2.09% |
**THE COMBINATION OF FRONT-END SALES CHARGES AND RULE 12B-1 FEES COULD CAUSE LONG-TERM SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE NASD'S RULES.
***ASSUMES A CONTINGENT DEFERRED SALES CHARGE WILL NOT APPLY.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been audited by Ernst & Young LLP, the Fund's independent auditors. Their audit report covering the two-month period appears in the financial statements in the Fund's Annual Report to Shareholders for the fiscal year ended December 31, 1996. The Annual Report to Shareholders also includes more information about the Fund's performance. For a free copy, please call Fund Information.
CLASS I CLASS II
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 1996* NOVEMBER 1, 1996*
MUTUAL SHARES TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------------------------
|
NET ASSET VALUE
Net Investment Income 1.03 0.97
Net Gain on Securities
(realized and unrealized) 5.43 5.41
-------------------
Total from
Investment Operations 6.46 6.38
-------------------
|
LESS DISTRIBUTIONS:
Dividends (from
net investment income) 2.35 2.30
Distributions
(from capital gains) 5.79 5.79
--------------------
Total Distributions 8.14 8.09
--------------------
NET ASSET VALUE
End of Period $92.81 $92.78
--------------------
TOTAL RETURN 6.91%+ 6.82%++
=====================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of
Period (millions) $35 $17
Ratio of Expenses to
Average Net Assets 1.09%** 1.71%**
Ratio of Net Investment
Income to Average
Net Assets 2.44%** 1.69%**
Portfolio Turnover Rate 58.35% 58.35%
Average Commission
Per Share $0.041 $0.041
CLASS I CLASS II
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 1996* NOVEMBER 1, 1996*
QUALIFIED TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------------------------
|
NET ASSET VALUE
Net Investment Income 0.32 0.26
Net Gain on Securities
(realized and unrealized) 1.78 1.81
--------------------
Total from Investment
Operations 2.10 2.07
--------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) 0.81 0.79
Distributions (from
capital gains) 1.63 1.63
--------------------
Total Distributions 2.44 2.42
--------------------
NET ASSET VALUE
End of Period $32.46 $32.45
--------------------
TOTAL RETURN 6.47%+ 6.37%++
=======================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(millions) $20 $10
Ratio of Expenses to
Average Net Assets 1.13%** 1.78%**
Ratio of Net Investment
Income to Average
Net Assets 3.19%** 2.59%**
Portfolio Turnover Rate 65.03% 65.03%
Average Commission
Per Share $0.036 $0.036
CLASS I CLASS II
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 1996* NOVEMBER 1, 1996*
BEACON TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------------------------
|
NET ASSET VALUE
Net Investment Income 0.48 0.38
Net Gain on Securities
(realized and
unrealized) 2.07 2.14
-----------------------
Total from Investment
Operations 2.55 2.52
-----------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) 1.00 0.97
Distributions (from
capital gains) 2.26 2.26
----------------------
Total Distributions 3.26 3.23
----------------------
NET ASSET VALUE
End of Period $38.93 $38.93
----------------------
TOTAL RETURN 6.51%+ 6.45%++
=========================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(millions) $52 $16
Ratio of Expenses to
Average Net Assets 1.03%** 1.75%**
Ratio of Net Investment
Income
to Average Net Assets 1.33%** 0.84%**
Portfolio Turnover Rate 66.87% 66.87%
Average Commission Per
Share $0.047 $0.047
CLASS I CLASS II
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 1996* NOVEMBER 1, 1996*
DISCOVERY TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------------------------
|
NET ASSET VALUE
Net Investment Income 0.11 0.09
Net Gain on Securities
(realized and unrealized) 0.74 0.76
-----------------------
Total from Investment
Operations 0.85 0.85
-----------------------
Less Distributions:
Dividends (from net
investment income) 0.29 0.27
Distributions (from
capital gains) 1.07 1.07
-----------------------
Total Distributions 1.36 1.34
-----------------------
NET ASSET VALUE
End of Period $17.15 $17.17
Total Return 4.85%+ 4.90%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(millions) $30 $18
Ratio of Expenses to
Average Net Assets 1.38%** 2.00%**
Ratio of Net Investment
Income to Average
Net Assets 0.74%** 0.13%**
Portfolio Turnover Rate 80.18% 80.18%
Average Commission
Per Share $0.026 $0.026
CLASS I CLASS II
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 1996* NOVEMBER 1, 1996*
EUROPEAN TO DECEMBER 31, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------------------------
NET ASSET VALUE
Beginning of Period $10.84 $10.84
-------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.02
Net Gain on Securities
(realized and unrealized) 0.58 0.58
-------------------------------
Total from Investment
Operations 0.61 0.60
-------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) 0.05 0.04
Distributions (from
capital gains) 0.02 0.02
-------------------------------
Total Distributions 0.07 0.06
-------------------------------
NET ASSET VALUE
End of Period $11.38 $11.38
-------------------------------
TOTAL RETURN 5.61%+ 5.52%++
==================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(millions) $9 $3
Ratio of Expenses to
Average Net Assets 1.32%** 1.94%**
Ratio of Net Investment
Income to Average
Net Assets 1.44%** 0.79%**
Portfolio Turnover Rate 36.75% 36.75%
Average Commission
Per Share $0.023 $0.023
|
+TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR
PERIODS OF LESS THAN ONE YEAR.
++TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS, OR THE DEFERRED
CONTINGENT SALES CHARGES. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE
YEAR.
*COMMENCEMENT OF OFFERING OF SALE.
**ANNUALIZED. AFTER REDUCTION OF EXPENSES BY FRANKLIN MUTUAL. HAD
FRANKLIN MUTUAL NOT TAKEN SUCH ACTION, THE RATIOS OF OPERATING EXPENSES
AND NET INVESTMENT INCOME WOULD HAVE BEEN:
OPERATING NET INVESTMENT
EXPENSES INCOME
- ------------------------------------------------------------------------
MUTUAL SHARES
CLASS I 1.18% 2.35%
CLASS II 1.80% 1.60%
QUALIFIED
CLASS I 1.28% 3.04%
CLASS II 1.93% 2.44%
BEACON
CLASS I 1.13% 1.23%
CLASS II 1.85% 0.74%
DISCOVERY
CLASS I 1.51% 0.61%
CLASS II 2.13% 0.00%
EUROPEAN
CLASS I 1.42% 1.34%
CLASS II 2.04% 0.69%
|
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The principal investment objective of Mutual Shares, Qualified, Beacon and European is capital appreciation, which may occasionally be short-term. A secondary objective of each is income. Discovery's investment objective is long-term capital appreciation. These objectives are fundamental. Discovery will seek to achieve its objective by investing approximately 50% of its assets in foreign investments and including proportionately more investments in smaller capitalization companies than the other Funds.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
European will normally invest at least 65% of its invested assets in the securities of issuers organized under the laws of, or whose principal business operations are in, or at least 50% of whose revenue is earned from, European countries. European countries are given a broad definition which includes all of the countries that are members of the European Union, United Kingdom, Scandinavia, Eastern and Western Europe and those regions of Russia and the former Soviet Union that are considered part of Europe. European may also invest up to 35% of its invested assets in U.S. securities as well as in securities of issuers from the Levant, Middle East and the rest of the world. European is currently expected to invest primarily in Western Europe and Scandinavia but may also include investments in other countries. European will normally invest in at least 5 countries although it may invest all of its assets in a single country. However, European may include in its portfolio securities of issuers from outside of Europe and the U.S. For short-term purposes, European anticipates that it generally will buy short-term securities denominated in U.S. dollars. European will normally attempt to maintain at least 50% of the value of its assets invested in securities of foreign corporations at the close of each taxable year.
Each series pursues its objectives primarily through investments in common stock and preferred stock as well as debt securities and securities convertible into common stock (including convertible preferred and convertible debt securities). You should bear in mind that since every investment carries risk, the value of the assets of each series fluctuates with changes in the market value of the Fund's investments. Therefore, there is no assurance that the Fund's objectives will be achieved. Except for the Fund's primary and secondary investment objectives, these objectives are not fundamental and the Board reserves the right to change them without shareholder approval, which may result in the Fund having an investment objective different from that which an investor deemed appropriate at the time of investment.
The general investment policy of each series is to invest in common stock, preferred stock and corporate debt securities, which may be convertible into common stock and the other investments described below which, in the opinion of Franklin Mutual, are available at prices less than their intrinsic value. (See "Non-U.S. Securities," "Repurchase Agreements and Loans of Securities" and "Hedging.")
Franklin Mutual also has no pre-set limits as to the percentage of each series' portfolio which may be invested in equity securities, debt securities (including "junk bonds" as described below), or cash equivalents. Franklin Mutual's opinions are based upon analysis and research, taking into account, among other factors, the relationship of book value to market value of the securities, cash flow, and multiples of earnings of comparable securities. These factors are not applied formulaically, as Franklin Mutual examines each security separately; Franklin Mutual has no general criteria as to asset size, earnings or industry type which would make a security unsuitable for purchase by a series. Although the series may invest in securities from any size issuer, Mutual Shares, Qualified and Beacon will tend to invest in securities of issuers with market capitalizations in excess of $1 billion due to the larger size of these series. Each series may invest in securities that are traded on U.S. or foreign exchanges, the NASDAQ national market system or in the OTC market. Each series may invest in any industry sector although no series will be concentrated in any one industry.
Debt securities in which the Fund invests (such as corporate and U.S. government bonds, debentures and notes) may or may not be rated by rating agencies such as Moody's or S&P, and, if rated, such rating may range from the very highest to the very lowest, currently C for Moody's and D for S&P. Securities rated D are in default as to the payments of principal and interest. Medium and lower rated debt securities in which each series expects to invest are commonly known as "junk bonds." The series may be subject to investment risks as to these unrated or lower rated securities that are greater in some respects than the investment risks incurred by a fund which invests only in securities rated in higher categories. In addition, the secondary market for such securities may be less liquid and market quotations less readily available than higher rated securities, thereby increasing the degree to which judgment plays a role in valuing such securities. The general policy of each series is to invest in debt instruments, including junk bonds, for the same reasons underlying investments in equities, i.e., whenever such instruments are available, in Franklin Mutual's opinion, at prices less than their intrinsic value. Consequently, Franklin Mutual's own analysis of a debt instrument exercises a greater influence over the investment decision than the stated coupon rate or credit rating. The series have historically invested in debt instruments issued by reorganizing or restructuring companies, or companies which recently emerged from, or are facing, the prospect of a financial restructuring. It is under these circumstances, which usually involve unrated or low rated securities that are often in, or about to, default that Franklin Mutual identifies securities which are sometimes available at prices which it believes are less than their intrinsic value. Although such debt securities may pose a greater risk than higher rated debt securities of loss of principal, the debt securities of reorganizing or restructuring companies typically rank senior to the equity securities of such companies and offer the potential for certain investment opportunities. See "How does the Fund Invest its Assets? Medium and Lower Rated Corporate Debt Securities" in the SAI.
Each series also seeks to invest in the securities of domestic and foreign companies involved in mergers, consolidations, liquidations and reorganizations or as to which there exist tender or exchange offers, and may participate in such transactions. Although there are no restrictions limiting the extent to which each series may invest in such transactions, no series presently anticipates investing more than 50% of its portfolio in such investments. There can be no assurance that any merger, consolidation, liquidation, reorganization or tender or exchange offer proposed at the time a series makes its investment will be consummated or will be consummated on the terms and within the time period contemplated by Franklin Mutual.
The series from time to time may also purchase indebtedness and participations therein, both secured and unsecured, of debtor companies in reorganization or financial restructuring ("Indebtedness"). Such Indebtedness may be in the form of loans, notes, bonds or debentures. Participations normally are made available only on a nonrecourse basis by financial institutions, such as banks or insurance companies, or by governmental institutions, such as the Resolution Trust Corporation, the Federal Deposit Insurance Corporation or the Pension Benefit Guaranty Corporation, or may include supranational organizations such as the World Bank. When a series purchases a participation interest, it assumes the credit risk associated with the bank or other financial intermediary as well as the credit risk associated with the issuer of any underlying debt instrument.
The series may also purchase trade and other claims against, and other unsecured obligations of, such debtor companies, which generally represent money due a supplier of goods or services to such company. Some corporate debt securities, including Indebtedness, purchased by the Fund may have very long maturities. The length of time remaining until maturity is one factor Franklin Mutual considers in purchasing a particular Indebtedness. The purchase of Indebtedness of a troubled company always involves a risk as to the creditworthiness of the issuer and the possibility that the investment may be lost. Franklin Mutual believes that the difference between perceived risk and actual risk creates the opportunity for profit which can be realized through proper analysis. There are no established markets for some of this Indebtedness and thus it is less liquid than more heavily traded securities. Indebtedness which represents indebtedness of the debtor company to a bank are not securities of the banks issuing or selling them. The series purchase loans from national and state chartered banks as well as foreign ones. The series normally invest in senior indebtedness of the debtor companies, although on occasion subordinated indebtedness may also be acquired.
Each series does not invest more than 15% of its portfolio in assets which are illiquid, including Indebtedness which are not readily marketable. Other securities which may be considered to be illiquid but in which the series may invest include restricted securities not registered under the Securities Act of 1933, OTC options and securities that are otherwise considered illiquid as a result of market or other factors.
The series may invest in securities eligible for resale under Rule 144A of the Securities Act of 1933 ("144A securities"). The Board has adopted procedures in accordance with Rule 144A whereby specific 144A securities held in the Fund may be deemed to be liquid. Nevertheless, due to changing market or other factors 144A securities may be subject to a greater possibility of becoming illiquid than registered securities. Fund purchases of 144A securities may increase the level of illiquidity and institutional buyers may become disinterested in purchasing such securities.
The series may also invest in cash equivalents such as Treasury bills and high
quality commercial paper. The series generally purchase securities for
investment purposes and not for the purpose of influencing or controlling
management of the issuer. However, in certain circumstances when Franklin Mutual
perceives that one or more of the series may benefit, the Fund may itself seek
to influence or control management or may invest in other entities that purchase
securities for the purpose of influencing or controlling management, such as
investing in a potential takeover or leveraged buyout or investing in other
entities engaged in such activities. The series may also invest in distressed
mortgage obligations and other debt secured by real property and may sell short
securities it does not own up to 5% of its assets. Short sales have risks of
loss if the price of the security sold short increases after the sale, but the
series can profit if the price decreases. The series may also sell securities
"short against the box" without limit. See "How does the Fund Invest its Assets?
- - Short Sales" in the SAI for more discussion of these practices.
Discovery expects to invest approximately 50% of its assets in foreign companies and to invest proportionately more of its assets in smaller capitalized companies than the other series. Investing in smaller capitalized companies may involve greater risks than investing in securities of larger companies. Smaller companies often are not well known, often may trade at a discount and may not be followed by established financial institutions.
Each series may invest in common stock, preferred stock and corporate debt securities in such proportions as Franklin Mutual deems advisable. Franklin Mutual typically keeps a portion of the assets of each series invested in short-term debt securities and preferred stocks although it may choose not to do so when circumstances dictate. In addition, each series may invest from time to time in other investment company securities, subject to applicable law which restricts such investments. Investors should recognize that a series' purchase of the securities of such investment companies results in layering of expenses such that investors indirectly bear a proportionate share of the expenses of such investment companies, including operating costs, and investment advisory and administrative fees.
NON-U.S. SECURITIES
The series may purchase securities of non-U.S. issuers and Discovery expects that approximately 50% of its assets may be so invested. European will normally invest at least 65% of its invested assets in European countries (as defined above). The remaining series expect to invest a lesser percentage in securities of non-U.S. issuers than Discovery, with Beacon investing the next largest percentage, followed by Qualified, and finally with Mutual Shares holding the smallest percentage of these securities. The series may purchase securities denominated in any currency and generally expect currency risks will be hedged to the extent that hedging is available. Investments in securities of non-U.S. issuers involve certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include fluctuations in foreign exchange rates, volatile political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Since each series may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments, although Franklin Mutual generally attempts to reduce such risks through hedging transactions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than about a U.S. company. Foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies. Non-U.S. securities markets, while growing in volume, have, for the most part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable U.S. companies. Transaction costs on non-U.S. securities markets are generally higher than in the U.S. There is generally less government supervision and regulation of exchanges, brokers and issuers than there is in the U.S. Each series' foreign investments may include both voting and non voting securities, sovereign debt and participations in foreign government deals. The Fund might have greater difficulty taking appropriate legal action with respect to foreign investments in non-U.S. courts than with respect to domestic issuers in U.S. courts.
Each series may invest in securities commonly known as Depositary Receipts of non-U.S. issuers which have certain risks, including trading for a lower price, having less liquidity than their underlying securities and risks relating to the issuing bank or trust company. Depositary Receipts can be sponsored by the issuer of the underlying securities or the issuing bank or trust company or unsponsored. Holders of unsponsored Depositary Receipts have a greater risk that receipt of corporate information and proxy disclosure will be untimely, information may be incomplete and costs may be higher.
Dividend and interest income from non-U.S. securities will generally be subject to withholding taxes by the country in which the issuer is located, which may not be recoverable, either directly or indirectly, as a foreign tax credit or deduction by the Fund or its shareholders. Please see the SAI for more details.
REPURCHASE AGREEMENTS AND LOANS OF SECURITIES
Each series may invest up to 10% of its assets in repurchase agreements, including tri-party repurchase agreements. Each series may also loan its portfolio securities in order to realize additional income. Repurchase and tri-party agreements are generally agreements under which the Fund obtains money market instruments subject to resale to the seller at an agreed upon price and date. Any loans of portfolio securities which the Fund may make must be fully collateralized at all times by securities with a value at least equal to 100% of the current market value of the loaned securities. The series presently do not anticipate loaning more than 5% of their respective portfolio securities. There are certain risks associated with such transactions which are described in the SAI.
HEDGING AND INCOME TRANSACTIONS
The series may utilize various investment strategies as described below to hedge various market risks (such as risks related to fluctuations in interest rates, currency exchange rates, and broad or specific equity market movements), to manage the effective maturity or duration of fixed-income securities or for gain. Such strategies are generally accepted by modern portfolio managers and are regularly utilized by many mutual funds and other institutional investors. Techniques and instruments may change over time as new instruments and strategies are developed or regulatory changes occur and the Fund will describe any such techniques in its registration statement before using them. In the course of pursuing these investment strategies, the series may purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other financial instruments, purchase and sell financial futures contracts and options thereon, and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies or currency futures (collectively, all of the above are called "Hedging Transactions").
Hedging Transactions may be used to attempt to protect against possible changes in the market value of securities held in or to be purchased for a series' portfolio resulting from changes in securities markets or currency exchange rate fluctuations, to protect the series' unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, or to establish a position in the derivatives markets as a temporary substitute for purchasing or selling particular securities. Any or all of these investment techniques may be used at any time and there is no particular strategy that dictates the use of one technique rather than another, as use of any Hedging Transaction is a function of numerous variables including market conditions. The ability of a series to utilize these Hedging Transactions successfully will depend on Franklin Mutual's ability to predict pertinent market movements, which cannot be assured. The Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Each series generally hedges the foreign currency risk associated with its investments in foreign securities. European expects to hedge for gain on market risks including broad movements in markets in addition to the specific currency risk of its portfolio securities. No more than 5% of the series' assets will be at risk in such types of instruments entered into for non-hedging purposes. Hedging Transactions involving financial futures and options thereon will be purchased, sold or entered into generally for bona fide hedging, risk management or portfolio management purposes.
Hedging Transactions, whether entered into as a hedge or for gain, have risks associated with them including possible default by the other party to the transaction, illiquidity and, to the extent Franklin Mutual's view as to certain market movements is incorrect, the risk that the use of such Hedging Transactions could result in losses greater than if they had not been used. Use of put and call options may result in losses to a series, force the sale or purchase of portfolio securities at inopportune times or for prices higher than (in the case of put options) or lower than (in the case of call options) current market values, limit the amount of appreciation the Fund can realize on its investments, increase the cost of holding a security and reduce the returns on securities or cause a series to hold a security it might otherwise sell. The use of currency transactions can result in a series incurring losses as a result of a number of factors including the imposition of exchange controls, suspension of settlements, or the inability to deliver or receive a specified currency. The use of options and futures transactions entails certain other risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund creates the possibility that losses on the hedging instrument may be greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, in certain markets, a series might not be able to close out a transaction without incurring substantial losses, if it is able to close out a transaction at all. Although the use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time they tend to limit any potential gain which might result from an increase in value of such position. Finally, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Losses resulting from the use of Hedging Transactions would reduce net asset value, and possibly income, and such losses can be greater than if the Hedging Transactions had not been utilized. The cost of entering into hedging transactions may also reduce the series' total return to investors.
FUNDAMENTAL RESTRICTIONS
Each series has adopted a number of fundamental investment restrictions, which may not be changed for a particular series without the approval of that series' shareholders. These restrictions are set forth in the SAI.
Among other things, each series may not purchase the securities of any one issuer, other than the U.S. government or any of its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of its total assets would be invested in such issuer, or such series would own more than 10% of the outstanding voting securities of such issuer, except that up to 25% of the value of such series' total assets may be invested without regard to such 5% and 10% limitations; make loans, except to the extent the purchase of debt obligations of any type are considered loans and except that the series may lend portfolio securities to qualified institutional investors in compliance with requirements established from time to time by the SEC and the securities exchanges on which such securities are traded; invest more than 25% of the value of its assets in a particular industry (except that U.S. government securities are not considered an industry); or issue securities senior to its stock or borrow money or utilize leverage in excess of the maximum permitted by the Investment Company Act of 1940, which is currently 331/3% of total assets (plus 5% for emergency or other short-term purposes). Such borrowing has special risks. The Fund will not engage in investment transactions when borrowing exceeds 5% of its assets.
While Mutual Shares, Qualified, Beacon, Discovery and European have identical basic investment restrictions, and Mutual Shares, Qualified, Beacon and European have identical investment objectives, Franklin Mutual seeks to retain certain historical differences among the series on an informal basis. Mutual Shares, Qualified and Beacon have generally invested in larger and medium sized companies with large share trading volume. Discovery, in comparison to the other series, has tended to invest proportionately more of its portfolio in smaller companies (see the discussion of investment policies above) and in foreign companies (see "Non-U.S. Securities"). Qualified was originally intended for purchase by pension plans, profit sharing plans and other nontaxpaying entities, and the portfolio was intended to have greater flexibility due to reduced concerns about the tax effects on shareholders. Depending on market conditions, and any future changes in tax laws, Franklin Mutual expects that it will purchase securities for Qualified which satisfy such a goal, although currently Qualified operates in the same fashion as Mutual Shares and Beacon. European will utilize the same investment philosophy but will apply it in the context of European investing. Allocation of investments among the series will also depend upon, among other things, the amount of cash in, and relative size of each series' portfolio. In addition, the factors outlined above are not mutually exclusive and a particular security may be owned by more than one of the series.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to at the time of investment, a later increase or decrease in the percentage resulting from a change in the value or liquidity of portfolio securities or the amount of net assets will not be considered a violation of any of the foregoing policies.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its officers. The officers are responsible for the Fund's day-to-day operations. The Board also monitors the Fund to ensure no material conflicts exist between the Fund's classes of shares. While none is expected, the Board will act appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Mutual manages the Fund's assets and makes its investment decisions. It is wholly owned by Resources, a publicly owned company engaged in the financial services industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together, Franklin Mutual and its affiliates manage over $188 billion in assets. Please see "Investment Management and Other Services" and "Miscellaneous Information" in the SAI for information on securities transactions and a summary of the Fund's Code of Ethics.
Management Team. The team responsible for the day-to-day management of the Fund's portfolio is: Michael F. Price since 1976, Jeffrey A. Altman since 1988, Robert L. Friedman since 1988, Raymond Garea since 1991, Peter A. Langerman since 1986 and Lawrence N. Sondike since 1984.
Michael F. Price
Chief Executive Officer and President of Franklin Mutual
Mr. Price has a Bachelor of Arts degree in business administration from the University of Oklahoma. Prior to November 1996, Mr. Price was President and Chairman of Heine, the former investment manager for Franklin Mutual Series Fund Inc. He became Chief Executive Officer of Franklin Mutual in November 1996. He is Chairman of the Board and President of Franklin Mutual Series Fund Inc.
Jeffrey A. Altman
Senior Vice President of Franklin Mutual
Mr. Altman has a Bachelor of Science degree from Tulane University. Prior to November 1996, Mr. Altman was employed as a Research Analyst and Trader for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Robert L. Friedman
Senior Vice President of Franklin Mutual
Mr. Friedman has a Bachelor of Arts degree in humanities from Johns Hopkins University and a Masters in Business Administration from the Wharton School, University of Pennsylvania. Prior to November 1996, Mr. Friedman was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Raymond Garea
Senior Vice President of Franklin Mutual
Mr. Garea has a Bachelor of Science degree in engineering from Case Institute of Technology and a Masters in Business Administration from the University of Michigan. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Peter A. Langerman
Senior Vice President of Franklin Mutual
Mr. Langerman has a Bachelor of Arts degree from Yale University, a Masters in Science from New York University Graduate School of Business and a Juris Doctor from Stanford University Law School. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. Mr. Langerman is a director and Executive Vice President of Franklin Mutual Series Fund Inc.
Lawrence N. Sondike
Senior Vice President of Franklin Mutual
Mr. Sondike has a Bachelor of Arts degree from Cornell University and a Masters in Business Administration from New York University Graduate School of Business. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
MANAGEMENT FEES. During the fiscal year ended December 31, 1996, management fees, before any advance waiver, totaled 0.60%, 0.60%, 0.60%, 0.80% and 0.80% of the average daily net assets of Mutual Shares, Qualified, Beacon, Discovery, and European, respectively, and total operating expenses were: Mutual Shares, Class I, 1.18%, Class II, 1.80%; Qualified, Class I, 1.28%, Class II, 1.93%; Beacon, Class I, 1.13%, Class II, 1.85%; Discovery, Class I, 1.51%, Class II, 2.13%; and European, Class I, 1.42%, Class II, 2.04%. Under an agreement by Franklin Mutual to limit its fees, Mutual Shares, Qualified, Beacon, Discovery, and European paid management fees totaling 0.58%, 0.57%, 0.58%, 0.77% and 0.74%, respectively, and total operating expenses were: Mutual Shares, Class I, 1.09%, Class II, 1.71%; Qualified, Class I, 1.13%, Class II, 1.78%; Beacon, Class I, 1.03%, Class II, 1.75%; Discovery, Class I, 1.38%, Class II, 2.00%; and European, Class I, 1.32%, Class II, 1.94%. Franklin Mutual may end this arrangement at any time upon notice to the Board.
The Fund pays its own operating expenses. These expenses include Franklin Mutual's management fees; taxes, if any; custodian, legal and auditing fees; the fees and expenses of Board members who are not members of, affiliated with, or interested persons of Franklin Mutual; fees of any personnel not affiliated with Franklin Mutual; insurance premiums; trade association dues; expenses of obtaining quotations for calculating the Fund's Net Asset Value; and printing and other expenses that are not expressly assumed by Franklin Mutual.
Under their management agreements, the Funds pay Franklin Mutual a management fee equal to an annual rate of 0.60% of the average daily net assets of Mutual Shares, Qualified and Beacon and 0.80% of the average daily net assets of Discovery and European. The fee is computed at the close of business on the last business day of each month.
PORTFOLIO TRANSACTIONS. Franklin Mutual tries to obtain the best execution on all transactions. If Franklin Mutual believes more than one broker or dealer can provide the best execution, it may consider research and related services and the sale of Fund shares, as well as shares of other funds in the Franklin Templeton Group of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy Securities for its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services and facilities for the Fund. Under its administration agreement, the Fund pays FT Services a monthly administration fee equal to an annual rate of 0.15% of each series' average daily net assets up to $200 million, 0.135% of average daily net assets over $200 million up to $700 million, 0.10% of average daily net assets over $700 million up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion. During the fiscal year ended December 31, 1996, annualized administration fees totaling 0.08% of the average daily net assets of each series were paid to FT Services. These fees are included in the amount of total expenses shown above. Please see "Investment Management and Other Services" in the SAI for more information.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 Plans" under which they may pay or reimburse Distributors or others for activities primarily intended to sell shares of the class. These expenses may include, among others, distribution or service fees paid to Securities Dealers or others who have executed a servicing agreement with the Fund, Distributors or its affiliates, printing prospectuses and reports used for sales purposes, preparing and distributing sales literature and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the Class I plan may not exceed 0.35% per year of Class I's average daily net assets. Of this amount, the Fund may reimburse up to 0.25% to Distributors or others and may reimburse an additional 0.10% to Distributors for distribution expenses. All distribution expenses over this amount will be borne by those who have incurred them. During the first year after certain Class I purchases made without a sales charge, Distributors may keep the Rule 12b-1 fees associated with the purchase.
Under the Class II plan, the Fund may pay Distributors up to 0.75% per year of Class II's average daily net assets to pay Distributors or others for providing distribution and related services and bearing certain Class II expenses. All distribution expenses over this amount will be borne by those who have incurred them. During the first year after a purchase of Class II shares, Distributors may keep this portion of the Rule 12b-1 fees associated with the purchase.
The Fund may also pay a servicing fee of up to 0.25% per year of Class II's average daily net assets under the Class II plan. This fee may be used to pay Securities Dealers or others for, among other things, helping to establish and maintain customer accounts and records, helping with requests to buy and sell shares, receiving and answering correspondence, monitoring dividend payments from the Fund on behalf of customers, and similar servicing and account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees attributable to that particular class. For more information, please see "The Fund's Underwriter" in the SAI.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more commonly used measure of performance is total return. Performance figures are usually calculated using the maximum sales charges, but certain figures may not include sales charges.
Total return is the change in value of an investment over a given period. It assumes any dividends and capital gains are reinvested.
The investment results of each class will vary. Performance figures are always based on past performance and do not guarantee future results. For a more detailed description of how the Fund calculates its performance figures, please see "How does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect mutual funds and their shareholders. For more information on tax matters relating to the Fund and its shareholders, see "Additional Information on Distributions and Taxes" in the SAI.
Each series is treated as a separate entity for federal income tax purposes. The Fund has elected and intends to continue to qualify as a regulated investment company under Subchapter M of the Code. By distributing all of its income and meeting certain other requirements relating to the sources of its income and diversification of its assets, the Fund will generally not be liable for federal income or excise taxes.
You will generally have to pay Federal income taxes on the dividends and distributions you receive from a series and on gains realized upon redemption of your shares.
Following each calendar year, you will receive information for tax purposes on the dividends and capital gain distributions received during the previous year. The Fund may make distributions from net investment income or capital gain and may also make distributions in kind. Dividends from net investment income and any net short-term capital gain will be taxable as ordinary income whether received in cash or in kind. Any distributions designated as realized net capital gain (the excess of net long-term capital gain over net short-term capital loss) will be taxable as long-term capital gain, regardless of the holding period of your shares of such series. All or a portion of any dividends paid by the Fund to corporate shareholders may, under certain circumstances, be eligible for the dividends received deduction. Credit for foreign taxes paid by the Fund have generally not been available to shareholders.
If you buy shares shortly before the record date, please keep in mind that any distribution will lower the value of the Fund's shares by the amount of the distribution and generally be subject to tax.
The IRS requires backup withholding of Federal income tax of 31% of the gross amount of dividends, capital gain distributions, and redemption proceeds paid or credited to shareholders who do not furnish a valid social security or taxpayer identification number. If you are using the Fund as a medium for tax qualified retirement plans, you may be subject to a 20% mandatory withholding upon withdrawal under certain circumstances.
Redemptions of shares of a series will be taxable transactions for Federal income tax purposes. Generally, gain or loss will be recognized in an amount equal to the difference between your basis in your shares and the amount received. Assuming that such shares are held as a capital asset, such gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if you have held your shares for a period of more than one year. If you redeem shares of any series at a loss and make an additional investment in the same series 30 days before or after your redemption, the loss may be disallowed under the wash sale rules.
Income received by each series from sources outside the U.S. may be subject to withholding and other foreign taxes. As long as more than 50% of the value of a particular series' assets at the close of any taxable year consists of securities of foreign corporations, as is anticipated for European, such series intends to elect to treat any foreign income paid by the series as if it were paid by shareholders. Accordingly, the amount of foreign income taxes paid by European will be included in the income of its shareholders and the European shareholders will be entitled to credit their portions of those amounts against their U.S. federal income taxes, if any, or to deduct such portions from their taxable income. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. In addition, certain individual shareholders may be subject to rules that limit or reduce their ability to deduct fully their pro rata share of foreign taxes. Shortly after any year for which it makes such an election, European will report to its shareholders, in writing, the amount per share of any foreign tax that must be included in each shareholder's gross income and the amount that will be available for deduction or credit.
In general, a credit for foreign taxes may not exceed the U.S. shareholder's U.S. federal income tax attributable to its foreign source taxable income. If European elects to treat foreign taxes paid by the series as paid by the shareholders as described in the preceding paragraph, the source of European's income will flow through to its shareholders for purposes of calculating the limitation on foreign tax credits. Dividends and interest received by the Fund in respect of non-U.S. securities will give rise to foreign source income to shareholders. Please consult your tax advisors with respect to the federal, state, local or foreign tax consequences of the pass-through of foreign tax credits described above.
The foregoing summary of federal income tax consequences is included herein for general informational purposes only. It does not address the tax consequences to all investors and does not address the tax consequences under state, local, foreign and other tax laws. Please consult your own tax advisors with respect to the tax consequences of an investment in the Fund.
HOW IS THE FUND ORGANIZED?
Each Fund is a diversified series of Franklin Mutual Series Fund Inc. ("Mutual Series"), an open-end management investment company, commonly called a mutual fund. Mutual Series was organized as a Maryland corporation on November 12, 1987, and is registered with the SEC. Each Fund began offering three classes of shares on November 1, 1996: Mutual Shares Fund - Class Z, Mutual Shares Fund - Class I, Mutual Shares Fund - Class II, Mutual Qualified Fund - Class Z, Mutual Qualified Fund Class I, Mutual Qualified Fund - Class II, Mutual Beacon Fund - Class Z, Mutual Beacon Fund - Class I, Mutual Beacon Fund - Class II, Mutual European Fund - Class Z, Mutual European Fund - Class I, Mutual European Fund - Class II, Mutual Discovery Fund - Class Z, Mutual Discovery Fund - Class I, and Mutual Discovery Fund - Class II. All shares outstanding before the offering of Class I and Class II shares on November 1, 1996, are considered Class Z shares. Additional series and classes of shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the Fund and have the same voting and other rights and preferences as any other class of the Fund for matters that affect the Fund as a whole. For matters that only affect one class, however, only shareholders of that class may vote. Each class will vote separately on matters affecting only that class, or expressly required to be voted on separately by state or federal law. Shares of each class of a series have the same voting and other rights and preferences as the other classes and series of Mutual Series for matters that affect Mutual Series as a whole.
Mutual Series has noncumulative voting rights. This gives holders of more than 50% of the shares voting the ability to elect all of the members of the Board. If this happens, holders of the remaining shares voting will not be able to elect anyone to the Board.
Mutual Series does not intend to hold annual shareholder meetings. Mutual Series or a Fund may hold special meetings, however, for matters requiring shareholder approval. A meeting may also be called by the Board in its discretion or by shareholders holding at least 10% of the outstanding shares. In certain circumstances, we are required to help you communicate with other shareholders about the removal of a Board member.
As of April 2, 1997, Michael F. Price owned of record and beneficially more than 25% of the outstanding shares of European.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and sign the enclosed shareholder application and return it to the Fund with your check. Please indicate which class of shares you want to buy. If you do not specify a class, your purchase will be automatically invested in Class I shares.
*We may waive these minimums for retirement plans. We may also refuse any order to buy shares. Currently, the Fund does not allow investments by Market Timers.
**$500 for accounts opened pursuant to an automatic investment plan.
DECIDING WHICH CLASS TO BUY
You should consider a number of factors when deciding which class of shares to buy. IF YOU PLAN TO BUY $1 MILLION OR MORE IN A SINGLE PAYMENT OR YOU QUALIFY TO BUY CLASS I SHARES WITHOUT A SALES CHARGE, YOU MAY NOT BUY CLASS II SHARES.
Generally, you should consider buying Class I shares if:
o you expect to invest in the Fund over the long term;
o you qualify to buy Class I shares at a reduced sales charge; or
o you plan to buy $1 million or more over time.
You should consider Class II shares if:
o you expect to invest less than $100,000 in the Franklin Templeton Funds; and
o you plan to sell a substantial number of your shares within approximately six years or less of your investment.
Class I shares are generally more attractive for long-term investors because of Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh the lower Class II front-end sales charge and result in lower income dividends for Class II shareholders. If you qualify to buy Class I shares at a reduced sales charge based upon the size of your purchase or through our Letter of Intent or cumulative quantity discount programs, but plan to hold your shares less than approximately six years, you should evaluate whether it is more economical for you to buy Class I or Class II shares.
For purchases of $1 million or more, it is considered more beneficial for you to buy Class I shares since there is no front-end sales charge, even though these purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of $1 million or more is therefore automatically invested in Class I shares. You may accumulate more than $1 million in Class II shares through purchases over time, but if you plan to do this you should determine whether it would be more beneficial for you to buy Class I shares through a Letter of Intent.
Please consider all of these factors before deciding which class of shares to buy. There are no conversion features attached to either class of shares.
Purchase Price of Fund Shares
For Class I shares, the sales charge you pay depends on the dollar amount you invest, as shown in the table below. The sales charge for Class II shares is 1% and, unlike Class I, does not vary based on the size of your purchase.
TOTAL SALES CHARGE
AS A PERCENTAGE OF AMOUNT PAID
------------------- TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
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CLASS I
Under $100,000 4.50% 4.71% 4.00%
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more* None None None
CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%
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*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1 million or more and any Class II purchase. Please see "How Do I Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other Payments to Securities Dealers" below for a discussion of payments Distributors may make out of its own resources to Securities Dealers for certain purchases. Purchases of Class II shares are limited to purchases below $1 million. Please see "Deciding Which Class to Buy."
SALES CHARGE REDUCTIONS AND WAIVERS
o IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include this statement, we cannot guarantee that you will receive the sales charge reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a reduced sales charge, the amount of your current Class I purchase is added to the cost or current value, whichever is higher, of your existing shares in the Franklin Templeton Funds, as well as those of your spouse, children under the age of 21 and grandchildren under the age of 21. If you are the sole owner of a company, you may also add any company accounts, including retirement plan accounts. Companies with one or more retirement plans may add together the total plan assets invested in the Franklin Templeton Funds to determine the sales charge that applies.
LETTER OF INTENT - CLASS I ONLY. You may buy Class I shares at a reduced sales charge by completing the Letter of Intent section of the shareholder application. A Letter of Intent is a commitment by you to invest a specified dollar amount during a 13 month period. The amount you agree to invest determines the sales charge you pay on Class I shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase in Class I shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares you own. We will pay or reinvest dividend and capital gain distributions on the reserved shares as you direct. Our policy of reserving shares does not apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege, please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or call Shareholder Services.
GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you may buy Class I shares at a reduced sales charge that applies to the group as a whole. The sales charge is based on the combined dollar value of the group members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings in distributing shares.
SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3 below: (i) the distributions or payments must be reinvested within 365 days of their payment date, and (ii) Class II distributions may be reinvested in either Class I or Class II shares. Class I distributions may only be reinvested in Class I shares.
The Fund's sales charges will not apply if you are buying Class I shares with money from the following sources or Class II shares with money from the sources in waiver categories 1 or 4:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or a real estate investment trust (REIT) sponsored or advised by Franklin Properties, Inc.
2. Distributions from an existing retirement plan invested in the Franklin Templeton Funds
3. Annuity payments received under either an annuity option or from death benefit proceeds, only if the annuity contract offers as an investment option the Franklin Valuemark Funds, the Templeton Variable Annuity Fund, the Templeton Variable Products Series Fund, or the Franklin Government Securities Trust. You should contact your tax advisor for information on any tax consequences that may apply.
4. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the same class of shares.
An exchange is not considered a redemption for this privilege. The Contingent Deferred Sales Charge will not be waived if the shares were subject to a Contingent Deferred Sales Charge when sold. We will credit your account in shares, at the current value, in proportion to the amount reinvested for any Contingent Deferred Sales Charge paid in connection with the earlier redemption, but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you may reinvest them as described above. The proceeds must be reinvested within 365 days from the date the CD matures, including any rollover.
5. Redemptions from other mutual funds - This waiver category is only effective with respect to purchases of Fund shares made prior to June 1, 1997.
If you sold shares of a fund that is not a Franklin Templeton Fund within
the past 60 days, you may invest the proceeds without any sales charge if
(a) the investment objectives were similar to the Fund's, and (b) your
shares in that fund were subject to any front-end or contingent deferred
sales charges at the time of purchase. You must provide a copy of the
statement showing your redemption, and purchase the Fund's shares prior to
June 1, 1997.
The Fund's sales charges will also not apply to Class I purchases by:
6. Trust companies and bank trust departments agreeing to invest in Franklin Templeton Funds over a 13 month period at least $1 million of assets held in a fiduciary, agency, advisory, custodial or similar capacity and over which the trust companies and bank trust departments or other plan fiduciaries or participants, in the case of certain retirement plans, have full or shared investment discretion. We will accept orders for these accounts by mail accompanied by a check or by telephone or other means of electronic data transfer directly from the bank or trust company, with payment by federal funds received by the close of business on the next business day following the order.
7. Group annuity separate accounts offered to retirement plans
8. Chilean retirement plans that meet the requirements described under "Retirement Plans" below
9. An Eligible Governmental Authority. Please consult your legal and investment advisors to determine if an investment in the Fund is permissible and suitable for you and the effect, if any, of payments by the Fund on arbitrage rebate calculations.
10. Broker-dealers, registered investment advisors or certified financial planners who have entered into an agreement with Distributors for clients participating in comprehensive fee programs
11. Registered Securities Dealers and their affiliates, for their investment accounts only
12. Current employees of Securities Dealers and their affiliates and their family members, as allowed by the internal policies of their employer
13. Officers, trustees, directors and full-time employees of the Franklin Templeton Funds or the Franklin Templeton Group, and their family members, consistent with our then-current policies
14. Investment companies exchanging shares or selling assets pursuant to a merger, acquisition or exchange offer
15. Accounts managed by the Franklin Templeton Group
16. Certain unit investment trusts and their holders reinvesting distributions from the trusts
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with at least 100 employees, or (ii) have plan assets of $1 million or more, or (iii) agree to invest at least $500,000 in the Franklin Templeton Funds over a 13 month period may buy Class I shares without a front-end sales charge. Retirement plans that are not Qualified Retirement Plans or SEPS, such as 403(b) or 457 plans, must also meet the requirements described under "Group Purchases - Class I Only" above. For retirement plan accounts opened on or after May 1, 1997, a Contingent Deferred Sales Charge may apply if the account is closed within 365 days of the retirement plan account's initial purchase in the Franklin Templeton Funds. Please see "How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund. Plan documents are required for all retirement plans. Trust Company can provide the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information about its plans. To establish a Trust Company retirement plan, you will need an application other than the one included in this prospectus. For a retirement plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a retirement plan. Your investment representative or advisor can help you make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate and are responsible for Class II purchases and certain Class I purchases made without a sales charge. The payments are subject to the sole discretion of Distributors, and are paid by Distributors or one of its affiliates and not by the Fund or its shareholders.
1. Class II purchases - up to 1% of the purchase price.
2. Class I purchases of $1 million or more - up to 1% of the amount invested.
3. Class I purchases made without a front-end sales charge by certain retirement plans described under "Sales Charge Reductions and Waivers - Retirement Plans" above - up to 1% of the amount invested. For retirement plan accounts opened on or after May 1, 1997, a Contingent Deferred Sales Charge will not apply to the account if the Securities Dealer chooses to receive a payment of 0.25% or less or if no payment is made.
4. Class I purchases by trust companies and bank trust departments, Eligible Governmental Authorities, and broker-dealers or others on behalf of clients participating in comprehensive fee programs - up to 0.25% of the amount invested.
5. Class I purchases by Chilean retirement plans - up to 1% of the amount invested.
A Securities Dealer may receive only one of these payments for each qualifying purchase. Securities Dealers who receive payments in connection with investments described in paragraphs 1, 2 or 5 above or a payment of up to 1% for investments described in paragraph 3 will be eligible to receive the Rule 12b-1 fee associated with the purchase starting in the thirteenth calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? OTHER PAYMENTS TO SECURITIES DEALERS" IN THE SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your investment from your Fund account to an existing or new account in another Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds except Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only money fund exchange option available to Class II shareholders. Unlike our other money funds, shares of Money Fund II may not be purchased directly and no drafts (checks) may be written on Money Fund II accounts.
Before making an exchange, please read the prospectus of the fund you are interested in. This will help you learn about the fund, its investment objective and policies, and its rules and requirements for exchanges. For example, some Franklin Templeton Funds do not accept exchanges and others may have different investment minimums. Some Franklin Templeton Funds do not offer Class II shares.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
- ------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to exchange by phone to
apply to your account, please let us know.
- ------------------------------------------------------------------------
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Please refer to "Transaction Procedures and Special Requirements" for other important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have held your shares less than six months, however, you will pay the percentage difference between the sales charge you previously paid and the applicable sales charge of the new fund. If you have never paid a sales charge on your shares because, for example, they have always been held in a money fund, you will pay the Fund's applicable sales charge no matter how long you have held your shares. These charges may not apply if you qualify to buy shares without a sales charge.
We will not impose a Contingent Deferred Sales Charge when you exchange shares. Any shares subject to a Contingent Deferred Sales Charge at the time of exchange, however, will remain so in the new fund. See the discussion on Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"
CONTINGENT DEFERRED SALES CHARGE - CLASS I. For accounts with Class I shares subject to a Contingent Deferred Sales Charge, shares are exchanged into the new fund in the order they were purchased. If you exchange Class I shares into one of our money funds, the time your shares are held in that fund will not count towards the completion of any Contingency Period.
CONTINGENT DEFERRED SALES CHARGE - CLASS II. For accounts with Class II shares subject to a Contingent Deferred Sales Charge, shares are exchanged into the new fund proportionately based on the amount of shares subject to a Contingent Deferred Sales Charge and the length of time the shares have been held. For example, suppose you own $1,000 in shares that have never been subject to a Contingent Deferred Sales Charge, such as shares from the reinvestment of dividends and capital gains ("free shares"), $2,000 in shares that are no longer subject to a Contingent Deferred Sales Charge because you have held them for longer than 18 months ("matured shares"), and $3,000 in shares that are still subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you exchange $3,000 into a new fund, $500 will be exchanged from free shares, $1,000 from matured shares, and $1,500 from CDSC liable shares.
Likewise, CDSC liable shares purchased at different times will be exchanged into a new fund proportionately. For example, assume you purchased $1,000 in shares 3 months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new fund, $500 will be exchanged from shares purchased at each of these three different times.
While Class II shares are exchanged proportionately, they are redeemed in the order purchased. In some cases, this means exchanged shares may be CDSC liable even though they would not be subject to a Contingent Deferred Sales Charge if they were sold. We believe the proportional method of exchanging Class II shares more closely reflects the expectations of Class II shareholders if shares are sold during the Contingency Period. The tax consequences of a sale or exchange are determined by the Code and not by the method used by the Fund to transfer shares.
If you exchange your Class II shares for shares of Money Fund II, the time your shares are held in that fund will count towards the completion of any Contingency Period.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS.
o The accounts must be identically registered. You may, however, exchange shares from a Fund account requiring two or more signatures into an identically registered money fund account requiring only one signature for all transactions. Please notify us in writing if you do not want this option to be available on your account. Additional procedures may apply. Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as described above. Restrictions may apply to other types of retirement plans. Please contact our Retirement Plans Department for information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days' written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may refuse any exchange purchase if (i) we believe the Fund would be harmed or unable to invest effectively, or (ii) the Fund receives or anticipates simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
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BY WIRE
(Available for requests of $1,000, up to $50,000)
1. You must sign up for the wire feature before using it. To sign up, send us written instructions, with a signature guarantee. To avoid any delay in processing, the instructions should include:
o The name, address and telephone number of the bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit union, the name of the corresponding bank and the account number
2. Call Shareholder Services for wire instructions
3. If we receive your request in proper form before 1:00 p.m. Pacific time, your wire payment will be sent the next business day. For requests received in proper form after 1:00 p.m. Pacific time, the payment will be sent the second business day.
BY PHONE Call Shareholder Services
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a separate
agreement. Call Institutional Services to receive a
copy.
o If there are no share certificates issued for the shares you
want to sell or you have already returned them to the Fund
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by
phone within the last 15 days
If you do not want the ability to redeem by phone to apply
to your account, please let us know. If you later decide you
would like this option, send us written instructions, with a
signature guarantee.
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If you redeem your shares by mail or by phone, we will send your redemption check within seven days after we receive your request in proper form. If you would like the check to be sent to an address other than the address of record or to be made payable to someone other than the registered owners on the account, send us written instructions signed by all account owners, with a signature guarantee. We are not able to receive or pay out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available whenever possible. By offering this service to you, however, the Fund is not bound to meet any redemption request in less than the seven day period prescribed by law. Neither the Fund nor its agents shall be liable to you or any other person if, for any reason, a redemption request by wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay sending you the proceeds for up to 15 days or more to allow the check or draft to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before selling shares in a Trust Company retirement plan account. Tax penalties generally apply to any distribution from these plans to a participant under age 59 1/2, unless the distribution meets an exception stated in the Code. To obtain the necessary forms, please call our Retirement Plans Department.
CONTINGENT DEFERRED SALES CHARGE
For Class I purchases, if you did not pay a front-end sales charge because you invested $1 million or more or agreed to invest $1 million or more under a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all or a part of your investment within the Contingency Period. Once you have invested $1 million or more, any additional Class I investments you make without a sales charge may also be subject to a Contingent Deferred Sales Charge if they are sold within the Contingency Period. For any Class II purchase, a Contingent Deferred Sales Charge may apply if you sell the shares within the Contingency Period. The charge is 1% of the value of the shares sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that qualify to buy Class I shares without a front-end sales charge may also be subject to a Contingent Deferred Sales Charge if the retirement plan account is closed within 365 days of the account's initial purchase in the Franklin Templeton Funds.
We will first redeem any shares in your account that are not subject to the charge. If there are not enough of these to meet your request, we will redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we will redeem additional shares to cover any Contingent Deferred Sales Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the Securities Dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection
with the purchase, as described under "How Do I Buy Shares? - Other Payments
to Securities Dealers"
o Redemptions by the Fund when an account falls below the minimum required account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1, 1995
o Redemptions through a systematic withdrawal plan set up on or after February 1, 1995, at a rate of up to 1% a month of an account's Net Asset Value. For example, if you maintain an annual balance of $1 million in Class I shares, you can redeem up to $120,000 annually through a systematic withdrawal plan free of charge. Likewise, if you maintain an annual balance of $10,000 in Class II shares, $1,200 may be redeemed annually free of charge.
o Distributions from individual retirement plan accounts due to death or disability or upon periodic distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Distributions from employee benefit plans, including those due to termination or plan transfer
o Redemptions by Trust Company employee benefit plans or employee benefit plans serviced by ValuSelect
o Participant initiated distributions from employee benefit plans or participant initiated exchanges among investment choices in employee benefit plans
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income semi-annually. The distributions arre frequently declared at mid-year and during late December. Capital gains, if any, may be distributed twice a year, usually once in December and once at mid-year.
Dividends and capital gains are calculated and distributed the same way for each class. The amount of any income dividends per share will differ, however, generally due to the difference in the Rule 12b-1 fees of Class I and Class II.
Dividend payments are not guaranteed, are subject to the Board's discretion and may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any distribution will lower the value of the Fund's shares by the amount of the distribution and you will then receive a portion of the price you paid back in the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same class of the Fund (without a sales charge or imposition of a Contingent Deferred Sales Charge) by reinvesting capital gain distributions, dividend distributions, or both. If you own Class II shares, you may also reinvest your distributions in Class I shares of the Fund. This is a convenient way to accumulate additional shares and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your distributions to buy the same class of shares of another Franklin Templeton Fund (without a sales charge or imposition of a Contingent Deferred Sales Charge). If you own Class II shares, you may also direct your distributions to buy Class I shares of another Franklin Templeton Fund. Many shareholders find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive capital gain distributions, dividend distributions, or both in cash. If you have the money sent to another person or to a checking account, you may need a signature guarantee.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS OF THE FUND. For Trust Company retirement plans, special forms are required to receive distributions in cash. You may change your distribution option at any time by notifying us by mail or phone. Please allow at least seven days before the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net Asset Value per share of each class as of the scheduled close of the NYSE, generally 4:00 p.m. Eastern time. You can find the prior day's closing Net Asset Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a pro rata basis. It is based on each class' proportionate participation in the Fund, determined by the value of the shares of each class. Each class, however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net Asset Value per share of each class, the assets of each class are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares of the class outstanding. The Fund's assets are valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy shares at the Offering Price of the class you wish to purchase, unless you qualify to buy shares at a reduced sales charge or with no sales charge. The Offering Price of each class is based on the Net Asset Value per share of the class and includes the maximum sales charge. We calculate it to two decimal places using standard rounding criteria. You sell shares at Net Asset Value.
The Net Asset Value we use when you buy or sell shares is the one next calculated after we receive your transaction request in proper form. If you buy or sell shares through your Securities Dealer, however, we will use the Net Asset Value next calculated after your Securities Dealer receives your request, which is promptly transmitted to the Fund. Your redemption proceeds will not earn interest between the time we receive the order from your dealer and the time we receive any required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder application and check. Written requests to sell or exchange shares are in proper form when we receive written instructions signed by all registered owners, with a signature guarantee if necessary. We must also receive any outstanding share certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be able to obtain a signature guarantee from a bank, broker, credit union, savings association, clearing agency, or securities exchange or association. A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share certificates unless you specifically request them. This eliminates the costly problem of replacing lost, stolen or destroyed certificates. If a certificate is lost, stolen or destroyed, you may have to pay an insurance premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to sell or exchange those shares or if you would like to start a systematic withdrawal plan. The certificates should be properly endorsed. You can do this either by signing the back of the certificate or by completing a share assignment form. For your protection, you may prefer to complete a share assignment form. In this case, you should send the certificate and assignment form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of this prospectus that discuss the transaction you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to confirm that instructions are genuine. We will also record calls. We will not be liable for following instructions communicated by telephone if we reasonably believe they are genuine. For your protection, we may delay a transaction or not implement one if we are not reasonably satisfied that the instructions are genuine. If this occurs, we will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may wish to ask your investment representative for assistance or send us written instructions, as described elsewhere in this prospectus. If you are unable to execute a transaction by telephone, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell shares or change distribution options on Trust Company retirement plans by phone. While you may exchange shares of Trust Company IRA and 403(b) retirement accounts by phone, certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares registered. How you register your account will affect your ownership rights and ability to make certain transactions. If you have questions about how to register your account, you should consult your investment representative or legal advisor. Please keep the following information in mind when registering your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the account as "joint tenants with rights of survivorship" unless you tell us otherwise. An account registered as "joint tenants with rights of survivorship" is shown as "Jt Ten" on your account statement. For any account with two or more owners, all owners must sign instructions to process transactions and changes to the account. Even if the law in your state says otherwise, we cannot accept instructions to change owners on the account unless all owners agree in writing. If you would like another person or owner to sign for you, please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor under your state's Uniform Gifts/Transfers to Minors Act. Other than this form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid written trust document. This avoids future disputes or possible court action over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
|
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or "nominee" name account with your Securities Dealer, you may transfer the shares to the street or nominee name account of another Securities Dealer. Both dealers must have an agreement with Distributors or we cannot process the transfer. Contact your Securities Dealer to initiate the transfer. We will process the transfer after we receive authorization in proper form from your delivering Securities Dealer. Accounts may be transferred electronically through the NSCC. For accounts registered in street or nominee name, we may take instructions directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative of record on your account, we are authorized to use and execute electronic instructions. We will accept electronic instructions directly from your dealer or representative without further inquiry. Electronic instructions may be processed through the services of the NSCC, which currently include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax identification number and certifications. We may also close your account if the IRS notifies us that your tax identification number is incorrect. If you complete an "awaiting TIN" certification, we must receive a correct tax identification number within 60 days of your initial purchase to keep your account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close your account if the value of your shares is less than $500. We will only do this if the value of your account fell below this amount because you voluntarily sold your shares and your account has been inactive (except for the reinvestment of distributions) for at least six months. Before we close your account, we will notify you and give you 30 days to increase the value of your account to $500.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund. Under the plan, you can have money transferred automatically from your savings or checking account to the Fund each month to buy additional shares. If you are interested in this program, please refer to the shareholder application included with this prospectus or contact your investment representative. If you start the automatic investment plan when you open your account, your initial investment amount may be as little as $500. The market value of the Fund's shares may fluctuate and a systematic investment plan such as this will not assure a profit or protect against a loss. You may discontinue the program at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive regular payments from your account on a monthly, quarterly, semiannual or annual basis. The value of your account must be at least $5,000 and the minimum payment amount for each withdrawal must be at least $50. For retirement plans subject to mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the systematic withdrawal plan section of the shareholder application included with this prospectus and indicate how you would like to receive your payments. You may choose to direct your payments to buy the same class of shares of another Franklin Templeton Fund or have the money sent directly to you, to another person, or to a checking account.
You will generally receive your payment by the end of the month in which a payment is scheduled. When you sell your shares under a systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short period of time, you may not want to set up a systematic withdrawal plan if you plan to buy shares on a regular basis. Shares sold under the plan may also be subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and schedule of withdrawal payments, or suspend one payment by notifying us in writing at least seven business days before the end of the month preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at 1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips for Franklin accounts.
You will need the code number for each class to use TeleFACTS. The code numbers for Class I and Class II are:
CODE NUMBER
--------------
FUND NAME CLASSI CLASS II
- ----------------------------------
Mutual Shares 474 574
Qualified 475 575
Beacon 476 576
Discovery 477 577
European 478 578
|
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account, including additional purchases and dividend reinvestments. PLEASE VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund expenses, we attempt to identify related shareholders within a household and send only one copy of a report. Call Fund Information if you would like an additional free copy of the Fund's financial reports or an interim quarterly report.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be available to institutional accounts. Institutional investors may also be required to complete an institutional account application. For more information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares are held by a financial institution, in a street name account, or networked through the NSCC, the Fund may not be able to offer these services directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services at 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The Fund and Franklin Mutual are located at 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. Distributors is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
|
Your phone call may be monitored or recorded to ensure we provide you with high quality service. You will hear a regular beeping tone if your call is being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
Board - The Board of Directors of the Fund
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares, designated "Class I," "Class II," and "Class Z." The three classes have proportionate interests in the Fund's portfolio. They differ, however, primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a Contingent Deferred Sales Charge may apply. For Class II shares, the contingency period is 18 months. Regardless of when during the month you purchased shares, they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal underwriter. The SAI lists the officers and Board members who are affiliated with Distributors. See "Officers and Directors."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any instrumentality, department, authority or agency thereof that has determined the Fund is a legally permissible investment and that can only buy shares of the Fund without paying sales charges.
FRANKLIN MUTUAL - Franklin Mutual Advisers, Inc., the Fund's investment manager
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products` Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
HEINE - Heine Securities Corporation, the Fund's former investment manager that was acquired by Resources on October 31, 1996
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or allocation services, accounts administered so as to buy, sell or exchange shares based on predetermined market indicators, or any person or group whose transactions seem to follow a timing pattern.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting the fund's liabilities from the total assets of the portfolio. The net asset value per share is determined by dividing the net asset value of the fund by the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value per share of the class and includes the front-end sales charge. The maximum front-end sales charge is 4.50% for Class I and 1% for Class II.
OTC - Over-the-counter
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing plan that qualifies under section 401 of the Code. Examples include 401(k), money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through affiliates, has an agreement with Distributors to handle customer orders and accounts with the Fund. This reference is for convenience only and does not indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under section 408(k) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer to the Fund and/or Investor Services, Distributors, or other wholly owned subsidiaries of Resources. Instructions and Important Notice
PROSPECTUS & APPLICATION
FRANKLIN MUTUAL SERIES FUND INC.
CLASS Z
MAY 1, 1997
INVESTMENT STRATEGIES
MUTUAL SHARES FUND GROWTH AND INCOME O VALUE
MUTUAL QUALIFIED FUND GROWTH AND INCOME O VALUE
MUTUAL BEACON FUND GROWTH AND INCOME O VALUE
|
MUTUAL EUROPEAN FUND GLOBAL O VALUE
MUTUAL DISCOVERY FUND GROWTH O VALUE
This prospectus describes the Class Z shares of Mutual Shares Fund ("Mutual Shares"), Mutual Qualified Fund ("Qualified"), Mutual Beacon Fund ("Beacon"), Mutual European Fund ("European") and Mutual Discovery Fund ("Discovery"). Each series may, individually or together, be referred to as the "Fund(s)." This prospectus contains information you should know before investing in the Fund. Please keep it for future reference.
The Fund currently offers other classes of shares with different sales charge and expense structures, which affect performance. These classes are described in a separate prospectus. For more information, contact your investment representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Class Z shares, dated May 1, 1997, which may be amended from time to time. It includes more information about the Fund's procedures and policies. It has been filed with the SEC and is incorporated by reference into this prospectus. For a free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write the Fund at its address.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
FRANKLIN MUTUAL SERIES FUND INC. - CLASS Z
May 1, 1997
When reading this prospectus, you will see certain terms beginning with capital letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary..........................................2 Financial Highlights.....................................3 How does the Fund Invest its Assets?.....................9 Who Manages the Fund?...................................17 How does the Fund Measure Performance?..................20 How Taxation Affects the Fund and its Shareholders......20 How is the Fund Organized?....................... 22 ABOUT YOUR ACCOUNT How Do I Buy Shares?....................................23 May I Exchange Shares for Shares of Another Fund?.......26 How Do I Sell Shares?...................................28 What Distributions Might I Receive from the Fund?.......29 Transaction Procedures and Special Requirements.........30 Services to Help You Manage Your Account................34 What If I Have Questions About My Account?..............36 GLOSSARY Useful Terms and Definitions............................36 |
51 John F. Kennedy Parkway
Short Hills, NJ 07078
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of
investing in the Fund. It is based on the historical expenses of
Class Z for the fiscal year ended December 31, 1996. The Fund's
actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
MUTUAL
SHARES QUALIFIED BEACON DISCOVERY EUROPEAN
- ------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases None None None None None
B. ANNUAL FUND
OPERATING EXPENSES*
(AS A PERCENTAGE
OF AVERAGE NET
ASSETS)
Management Fees** 0.60% 0.60% 0.60% 0.80% 0.80%
Rule 12b-1 Fees none none none none none
Other Expenses 0.12% 0.18% 0.15% 0.19% 0.35%
-------------------------------------------------------
Total Fund Operating
Expenses** 0.72% 0.78% 0.75% 0.99% 1.15%
=======================================================
|
C. EXAMPLE
Assume the annual return for the class is 5%, operating expenses are as described above, and you sell your shares after the number of years shown. These are the projected expenses for each $1,000 that you invest in the Fund.
Mutual
Shares Qualified Beacon Discovery European
- ------------------------------------------------------------------- 1 Year $ 7 $ 8 $ 8 $ 10 $ 12 3 Years $ 23 $ 25 $ 24 $ 32 $ 37 5 Years $ 40 $ 43 $ 42 $ 55 $ 63 10 Years $ 89 $ 97 $ 93 $121 $140 |
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The Fund pays its operating expenses. The effects of these expenses are reflected in the Net Asset Value or dividends of the class and are not directly charged to your account.
+IF YOUR TRANSACTION IS PROCESSED FOR THE SAME PERIOD THROUGH YOUR SECURITIES DEALER, YOU MAY BE CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
*IN CONNECTION WITH THE TRANSACTION WHICH RESULTED IN FRANKLIN MUTUAL BECOMING
THE FUND'S INVESTMENT MANAGER, FRANKLIN MUTUAL HAS MADE A COMMITMENT TO THE FUND'S BOARD NOT TO SEEK AN INCREASE IN THE RATE OF INVESTMENT ADVISORY FEES FOR A THREE YEAR PERIOD BEGINNING NOVEMBER 1, 1996. THE PARTIES ALSO AGREED THAT FOR THE SAME PERIOD THE ORDINARY EXPENSES OF EACH SERIES' (BASED ON A PERCENTAGE OF NET ASSETS) WILL NOT BE HIGHER THAN THEY WERE EXPECTED TO BE AS OF NOVEMBER 1, 1996, BASED ON THE ANNUALIZED EXPENSE RATIOS OF EACH SERIES AS OF THAT DATE.
INCREASES IN EXPENSES BEYOND THESE EXPENSE RATIOS WILL BE PERMITTED, HOWEVER, IF THE BOARD IS SATISFIED THAT SUCH EXPENSES ALSO WOULD HAVE BEEN HIGHER (BASED UPON SUCH CONSIDERATIONS AS THE AMOUNT AND COMPOSITION OF ASSETS UNDER MANAGEMENT, THE NUMBER OF SECURITY TRANSACTIONS, THE NUMBER OF SHAREHOLDER ACCOUNTS, REGULATORY REQUIREMENTS AND GENERAL ECONOMIC CONDITIONS) HAD THE TRANSACTION 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.
**FOR THE PERIOD SHOWN, FRANKLIN MUTUAL HAD AGREED IN ADVANCE TO LIMIT ITS MANAGEMENT FEES. WITH THIS REDUCTION, MANAGEMENT FEES AND TOTAL OPERATING
EXPENSES WERE AS FOLLOWS:
Mutual
Shares Qualified Beacon Discovery European
- ------------------------------------------------------------------- Management Fees .58% .57% .58% 77% .74% Total Operating Expenses .70% .75% .73% .96% 1.09% |
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been audited by Ernst & Young LLP, the Fund's independent auditors. Their audit report appears in the financial statements in the Fund's Annual Report to Shareholders for the fiscal year ended December 31, 1996. The Annual Report to Shareholders also includes more information about the Fund's performance. For a free copy, please call Fund Information.
MUTUAL SHARES - CLASS Z
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--- --- --- --- --- --- ---
NET ASSET VALUE,
Beginning of Year $86.45 $78.69 $80.97 $73.36 $64.49 $56.39 $67.16 $67.77 $57.83 $60.43
------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT
Income 2.77 1.99 1.34 1.41 1.55 2.04 3.32 4.03 2.64 2.23
Net Gains or
Losses on
Securities
(realized and
unrealized) 14.80 20.51 2.28 13.89 12.07 9.69 (9.86) 6.00 14.98 1.78
---------------------------------------------------------------
Total from
Investment
Operations 17.57 22.50 3.621 5.30 13.62 11.73 (6.54) 10.03 17.62 4.01
----------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends
(from net
investment
income) 2.48 1.93 1.34 1.38 1.59 2.00 3.34 4.09 2.63 2.52
Distributions
(from capital
gains) 8.69 12.81 4.56 6.31 3.16 1.63 .89 6.55 5.05 4.09
----------------------------------------------------------------
Total
Distributions
11.17 14.74 5.90 7.69 4.75 3.63 4.23 10.64 7.68 6.61
-----------------------------------------------------------------
NET ASSET VALUE,
End of
Period $92.85 $86.45 $78.69 $80.97 $73.36 $64.49 $56.39 $67.16 $67.77 $57.83
===================================================================
TOTAL
RETURN 20.76% 29.11% 4.53% 21.00% 21.33% 20.99% (9.82)% 14.93% 30.69% 6.34%
=====================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
End of Period
(millions)
$6,543 $5,230 $3,746 $3,527 $2,913 $2,640 $2,521 $3,403 $2,551 $1,685
Ratio of
Expenses
to Average
Net Assets
.70%* .69% .72% .74% .78% .82% .85% .65%* .67%* .69%
Ratio of
Net
Investment
Income to
Average
Net Assets
3.02%* 2.47% 1.80% 1.90% 2.18% 3.08% 4.88% 5.57%* 4.16%* 3.32%
Portfolio
Turnover
Rate 58.35% 79.32% 66.55% 48.78% 41.06% 47.89% 43.41% 71.54 89.67% 77.72%
Average
Commission
Per Share
$.041 -- -- -- -- -- -- -- -- --
|
*After reduction of expenses by the investment adviser. Had the investment adviser not undertaken such action, the ratios of operating expenses and net investment income would have been .72% and 3.00% in 1996, .67% and 5.55% in 1989, and .74% and 4.09% in 1988.
QUALIFIED - CLASS Z
Year Ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--- --- --- --- --- --- --- --- --- ---
NET
ASSET
VALUE,
Beginning
of Year $29.74 $26.67 $27.00 $24.43 $21.18 $18.37 $22.21 $22.71 $19.37 $20.06
---- ---- ---- ---- ---- ---- ---
INCOME
FROM
INVESTMENT
OPERATIONS:
Net
Investment
Income .94 .66 .43 .38 .49 .67 1.22 1.34 .84 .77
Net
Gains or
Losses on
Securities
(realized
and
unrealized) 5.24 6.33 1.10 5.12 4.27 3.18 (3.45) 1.91 4.95 .86
---- ---- ---- ---- ---- ---- ----
Total from
Investment
Operations 6.18 6.99 1.53 5.50 4.76 3.85 (2.23) 3.25 5.79 1.63
---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS:
Dividends
(from net
investment
income) .87 .65 .43 .37 .49 .67 1.23 1.36 .83 .88
Distributions
(from capital
gains) 2.58 3.27 1.43 2.56 1.02 .37 .38 2.39 1.62 1.44
---- ---- ---- ---- ---- ---- ---
Total
Distributions
3.45 3.92 1.86 2.93 1.51 1.04 1.61 3.75 2.45 2.32
---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
End of
Period $32.47 $29.74 $26.67 $27.00 $24.43 $21.18 $18.37 $22.21 $22.71 $19.37
====================================================================
TOTAL
RETURN 21.19% 26.60% 5.73% 22.71% 22.70% 21.13%(10.12)% 14.44% 30.15% 7.72%
====================================================================
RATIOS/
SUPPLEMENTAL
DATA:
Net Assets,
End of
Period
(millions) $4,287 $3,002 $1,792 $1,511 $1,251 $1,110 $1,075 $1,470 $1,094 $686
Ratio
of
Expenses
to Average
Net Assets .75%* .72% .73% .78% .82% .87% .89% .70%* .62%* .71%
Ratio
of Net
Investment
Income to
Average
Net Assets 3.06%* 2.71% 1.91% 1.65% 2.10% 3.09% 5.40% 5.61%* 3.96%* 3.43%
Portfolio
Turnover
Rate 65.03% 75.59% 67.65% 56.22% 47.39% 51.99% 46.12% 73.41% 85.05% 73.50%
Average
Commission
Per Share $.036 -- -- -- -- -- -- -- -- --
|
*After reduction of expenses by the investment adviser. Had the investment adviser not undertaken such action, the ratios of operating expenses and net investment income would have been .78% and 3.03% in 1996, .71% and 5.60% in 1989, and .69% and 3.89% in 1988.
BEACON - CLASS Z
Sept. 1,1987 Year Ended
to Dec. 31, August 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1987+
-----------------------------------------------------------
NET ASSET
VALUE,
Beginning
of Period $35.94 $31.03 $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78 $19.27
-------------------------------------------------------------------
INCOME
FROM
INVESTMENT
OPERATIONS:
Net
Investment
Income 1.20 .87 .46 .37 .45 .75 1.08 1.12 .77 .22 .37
Net Gains
or Losses on
Securities
(realized
and
unrealized)
6.28 7.09 1.28 5.81 4.85 2.88 (3.03) 2.84 4.80 (3.96) 6.39
----------------------------------------------------------------------
Total
from
Investment
Operations
7.48 7.96 1.74 6.18 5.30 3.63 (1.95) 3.96 5.57 (3.74) 6.76
----------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends
(from net
investment
income)
1.06 .84 .44 .37 .46 .74 1.08 1.17 .80 .51 .31
Distributions
(from
capital gains)
3.41 2.21 1.36 1.82 1.10 .33 .26 1.55 1.41 1.04 .94
-----------------------------------------------------------------------
Total
Distributions
4.47 3.05 1.80 2.19 1.56 1.07 1.34 2.72 1.21 1.55 1.25
-------------------------------------------------------------------------
NET
ASSET
VALUE,
End of
Period
$38.95 $35.94 $31.03 $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78
=========================================================================
TOTAL
RETURN*
21.19% 25.89% 5.61% 22.93% 22.92% 17.60% (8.17)% 17.46% 28.79% (15.12)% 37.33%
=========================================================================
RATIOS/
SUPPLEMENTAL
DATA:
Net
Assets,
End of
Period
(millions)
$4,920 $3,573 $2,060 $1,062 $534 $398 $388 $409 $214 $131 $159
Ratio of
Expenses
to
Average
Net
Assets .73%*** .72% .75% .73% .81% .85% .85% .67%*** .59%*** .87%** .85%
Ratio
of Net
Investment
Income
to
Average
Net
Assets
3.21%*** 2.89% 1.96% 1.53% 1.90% 3.07% 4.59% 4.98%*** 3.64%*** 2.86%** 2.50%
Portfolio
Turnover
Rate
66.87% 73.18% 70.63% 52.88% 57.52% 56.63% 57.74% 67.18% 86.79% 28.07% 73.41%
Average
Commission
Per Share
$.047 -- -- -- -- -- --
|
+This year is covered by the report of other independent auditors. This report
is not included in this prospectus.
*Not annualized for periods of less than one year.
**Annualized.
***After reduction of expenses by the investment adviser. Had the investment
adviser not undertaken such action, the ratios of operating expenses and net
investment income would have been 0.75% and 3.19% in 1996 .68% and 4.97% in
1989, and .66% and 3.57% in 1988.
DISCOVERY - CLASS Z
Year Ended December 31,
----------------------------------
1996 1995 1994 1993
--- --- --- ---
NET ASSET VALUE,
Beginning of Year $15.16 $12.55 $13.05 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .34 .17 .15 .10
Net Gain on Securities
(realized and unrealized) 3.39 3.40 .32 3.48
------ ------ ------ ------
Total from
Investment Operations 3.73 3.57 .47 3.58
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends
(from net
investment income) .31 .14 .16 .09
Distributions
(from capital gains) 1.40 .82 .81 .44
------ ------ ------ ------
Total Distributions 1.71 .96 .97 .53
------ ------ ------ ------
NET ASSET VALUE,
End of Period $17.18 $15.16 $12.55 $13.05
====== ====== ====== ======
TOTAL RETURN 24.93% 28.63% 3.62% 35.85%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End
of Period (millions) $2,976 $1,370 $725 $548
Ratio of Expenses
to Average Net Assets .96%* .99% .99% 1.07%
Ratio of
Net Investment
Income to
Average Net Assets 2.24%* 2.00% 1.64% 1.17%
Portfolio Turnover Rate 80.18% 73.23% 72.70% 90.37%
Average Commission
Per Share $.026 -- -- --
|
*After reduction of expenses by the investment adviser. Had the investment adviser not undertaken such action, the ratios of operating expenses and net investment income would have been .99% and 2.21% in 1996.
NET ASSET VALUE,
Beginning of Period $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .06
Net Gain on Securities
(realized and unrealized) 1.40
------
Total from Investment Operations 1.46
------
LESS DISTRIBUTIONS:
Dividends (from
net investment income) .05
Distributions
(from capital gains) .02
------
Total Distributions .07
------
NET ASSET VALUE,
End of Period $11.39
======
TOTAL RETURN 14.61%*
======
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End
of Period (millions) $450
Ratio of Expenses to
Average Net Assets 1.15%**
Ratio of Expenses, Net
of Reimbursement, to
Average Net Assets 1.09%**
Ratio of Net Investment Income to
Average Net Assets 1.87%**
Portfolio Turnover Rate 36.75%
Average Commission Per Share $.023
|
+Commencement of Operations
*Not annualized for periods of less than one year.
**Annualized.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The principal investment objective of Mutual Shares, Qualified, Beacon and European is capital appreciation, which may occasionally be short-term. A secondary objective of each is income. Discovery's investment objective is long-term capital appreciation. These objectives are fundamental. Discovery will seek to achieve its objective by investing approximately 50% of its assets in foreign investments and including proportionately more investments in smaller capitalization companies than the other Funds.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
European will normally invest at least 65% of its invested assets in the securities of issuers organized under the laws of, or whose principal business operations or at least 50% of whose revenue is earned from, European countries. European countries are given a broad definition which includes all of the countries that are members of the European Union, United Kingdom, Scandinavia, Eastern and Western Europe and those regions of Russia and the former Soviet Union that are considered part of Europe. European may also invest up to 35% of its invested assets in U.S. securities as well as in securities of issuers from the Levant, Middle East and the rest of the world. European is currently expected to invest primarily in Western Europe and Scandinavia but may also include investments in other countries. European will normally invest in at least 5 countries although it may invest all of its assets in a single country. However, European may include in its portfolio securities of issuers from outside of Europe and the U.S. For short-term purposes, European anticipates that it generally will buy short-term securities denominated in U.S. dollars. European will normally attempt to maintain at least 50% of the value of its assets invested in securities of foreign corporations at the close of each taxable year.
Each series pursues its objectives primarily through investments in common stock and preferred stock as well as debt securities and securities convertible into common stock (including convertible preferred and convertible debt securities). You should bear in mind that since every investment carries risk, the value of the assets of each series fluctuates with changes in the market value of the Fund's investments. Therefore, there is no assurance that the Fund's objectives will be achieved. Except for the Fund's primary and secondary investment objectives, these objectives are not fundamental and the Board reserves the right to change them without shareholder approval, which may result in the Fund having an investment objective different from that which an investor deemed appropriate at the time of investment.
The general investment policy of each series is to invest in common stock, preferred stock and corporate debt securities, which may be convertible into common stock and the other investments described below which, in the opinion of Franklin Mutual, are available at prices less than their intrinsic value. (See "Non-U.S. Securities," "Repurchase Agreements and Loans of Securities" and "Hedging.")
Franklin Mutual also has no pre-set limits as to the percentage of each series' portfolio which may be invested in equity securities, debt securities (including "junk bonds" as described below), or cash equivalents. Franklin Mutual's opinions are based upon analysis and research, taking into account, among other factors, the relationship of book value to market value of the securities, cash flow, and multiples of earnings of comparable securities. These factors are not applied formulaically, as Franklin Mutual examines each security separately; Franklin Mutual has no general criteria as to asset size, earnings or industry type which would make a security unsuitable for purchase by a series. Although the series may invest in securities from any size issuer, Mutual Shares, Qualified and Beacon will tend to invest in securities of issuers with market capitalizations in excess of $1 billion due to the larger size of these series. Each series may invest in securities that are traded on U.S. or foreign exchanges, the NASDAQ national market system or in the OTC market. Each series may invest in any industry sector although no series will be concentrated in any one industry.
Debt securities in which the Fund invests (such as corporate and U.S. government bonds, debentures and notes) may or may not be rated by rating agencies such as Moody's or S&P, and, if rated, such rating may range from the very highest to the very lowest, currently C for Moody's and D for S&P. Securities rated D are in default as to the payments of principal and interest. Medium and lower rated debt securities in which each series expects to invest are commonly known as "junk bonds." The series may be subject to investment risks as to these unrated or lower rated securities that are greater in some respects than the investment risks incurred by a fund which invests only in securities rated in higher categories. In addition, the secondary market for such securities may be less liquid and market quotations less readily available than higher rated securities, thereby increasing the degree to which judgment plays a role in valuing such securities. The general policy of each series is to invest in debt instruments, including junk bonds, for the same reasons underlying investments in equities, i.e., whenever such instruments are available, in Franklin Mutual's opinion, at prices less than their intrinsic value. Consequently, Franklin Mutual's own analysis of a debt instrument exercises a greater influence over the investment decision than the stated coupon rate or credit rating. The series have historically invested in debt instruments issued by reorganizing or restructuring companies, or companies which recently emerged from, or are facing, the prospect of a financial restructuring. It is under these circumstances, which usually involve unrated or low rated securities that are often in, or about to, default that Franklin Mutual identifies securities which are sometimes available at prices which it believes are less than their intrinsic value. Although such debt securities may pose a greater risk than higher rated debt securities of loss of principal, the debt securities of reorganizing or restructuring companies typically rank senior to the equity securities of such companies and offer the potential for certain investment opportunities. See "How does the Fund Invest its Assets? - Medium and Lower Rated Corporate Debt Securities" in the SAI.
Each series also seeks to invest in the securities of domestic and foreign companies involved in mergers, consolidations, liquidations and reorganizations or as to which there exist tender or exchange offers, and may participate in such transactions. Although there are no restrictions limiting the extent to which each series may invest in such transactions, no series presently anticipates investing more than 50% of its portfolio in such investments. There can be no assurance that any merger, consolidation, liquidation, reorganization or tender or exchange offer proposed at the time a series makes its investment will be consummated or will be consummated on the terms and within the time period contemplated by Franklin Mutual.
The series from time to time may also purchase indebtedness and participations therein, both secured and unsecured, of debtor companies in reorganization or financial restructuring ("Indebtedness"). Such Indebtedness may be in the form of loans, notes, bonds or debentures. Participations normally are made available only on a nonrecourse basis by financial institutions, such as banks or insurance companies, or by governmental institutions, such as the Resolution Trust Corporation, the Federal Deposit Insurance Corporation or the Pension Benefit Guaranty Corporation, or may include supranational organizations such as the World Bank. When a series purchases a participation interest, it assumes the credit risk associated with the bank or other financial intermediary as well as the credit risk associated with the issuer of any underlying debt instrument.
The series may also purchase trade and other claims against, and other unsecured obligations of, such debtor companies, which generally represent money due a supplier of goods or services to such company. Some corporate debt securities, including Indebtedness, purchased by the Fund may have very long maturities. The length of time remaining until maturity is one factor Franklin Mutual considers in purchasing a particular Indebtedness. The purchase of Indebtedness of a troubled company always involves a risk as to the creditworthiness of the issuer and the possibility that the investment may be lost. Franklin Mutual believes that the difference between perceived risk and actual risk creates the opportunity for profit which can be realized through proper analysis. There are no established markets for some of this Indebtedness and thus it is less liquid than more heavily traded securities. Indebtedness which represents indebtedness of the debtor company to a bank are not securities of the banks issuing or selling them. The series purchase loans from national and state chartered banks as well as foreign ones. The series normally invest in senior indebtedness of the debtor companies, although on occasion subordinated indebtedness may also be acquired.
Each series does not invest more than 15% of its portfolio in assets which are illiquid, including Indebtedness which are not readily marketable. Other securities which may be considered to be illiquid but in which the series may invest include restricted securities not registered under the Securities Act of 1933, OTC options and securities that are otherwise considered illiquid as a result of market or other factors.
The series may invest in securities eligible for resale under Rule 144A of the Securities Act of 1933 ("144A securities"). The Board has adopted procedures in accordance with Rule 144A whereby specific 144A securities held in the Fund may be deemed to be liquid. Nevertheless, due to changing market or other factors 144A securities may be subject to a greater possibility of becoming illiquid than registered securities. Fund purchases of 144A securities may increase the level of illiquidity and institutional buyers may become disinterested in purchasing such securities.
The series may also invest in cash equivalents such as Treasury bills and high
quality commercial paper. The series generally purchase securities for
investment purposes and not for the purpose of influencing or controlling
management of the issuer. However, in certain circumstances when Franklin Mutual
perceives that one or more of the series may benefit, the Fund may itself seek
to influence or control management or may invest in other entities that purchase
securities for the purpose of influencing or controlling management, such as
investing in a potential takeover or leveraged buyout or investing in other
entities engaged in such activities. The series may also invest in distressed
mortgage obligations and other debt secured by real property and may sell short
securities it does not own up to 5% of its assets. Short sales have risks of
loss if the price of the security sold short increases after the sale, but the
series can profit if the price decreases. The series may also sell securities
"short against the box" without limit. See "How does the Fund Invest its Assets?
- - Short Sales" in the SAI for more discussion of these practices.
Discovery expects to invest approximately 50% of its assets in foreign companies and to invest proportionately more of its assets in smaller capitalized companies than the other series. Investing in smaller capitalized companies may involve greater risks than investing in securities of larger companies. Smaller companies often are not well known, often may trade at a discount and may not be followed by established financial institutions.
Each series may invest in common stock, preferred stock and corporate debt securities in such proportions as Franklin Mutual deems advisable. Franklin Mutual typically keeps a portion of the assets of each series invested in short-term debt securities and preferred stocks although it may choose not to do so when circumstances dictate. In addition, each series may invest from time to time in other investment company securities, subject to applicable law which restricts such investments. Investors should recognize that a series' purchase of the securities of such investment companies results in layering of expenses such that investors indirectly bear a proportionate share of the expenses of such investment companies, including operating costs, and investment advisory and administrative fees.
NON-U.S. SECURITIES
The series may purchase securities of non-U.S. issuers and Discovery expects that approximately 50% of its assets may be so invested. European will normally invest at least 65% of its invested assets in European countries (as defined above). The remaining series expect to invest a lesser percentage in securities of non-U.S. issuers than Discovery, with Beacon investing the next largest percentage, followed by Qualified, and finally with Mutual Shares holding the smallest percentage of these securities. The series may purchase securities denominated in any currency and generally expect currency risks will be hedged to the extent that hedging is available. Investments in securities of non-U.S. issuers involve certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include fluctuations in foreign exchange rates, volatile political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Since each series may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments, although Franklin Mutual generally attempts to reduce such risks through hedging transactions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than about a U.S. company. Foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies. Non-U.S. securities markets, while growing in volume, have, for the most part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable U.S. companies. Transaction costs on non-U.S. securities markets are generally higher than in the U.S. There is generally less government supervision and regulation of exchanges, brokers and issuers than there is in the U.S. Each series' foreign investments may include both voting and non voting securities, sovereign debt and participations in foreign government deals. The Fund might have greater difficulty taking appropriate legal action with respect to foreign investments in non-U.S. courts than with respect to domestic issuers in U.S. courts.
Each series may invest in securities commonly known as Depositary Receipts of non-U.S. issuers which have certain risks, including trading for a lower price, having less liquidity than their underlying securities and risks relating to the issuing bank or trust company. Depositary Receipts can be sponsored by the issuer of the underlying securities or the issuing bank or trust company or unsponsored. Holders of unsponsored Depositary Receipts have a greater risk that receipt of corporate information and proxy disclosure will be untimely, information may be incomplete and costs may be higher.
Dividend and interest income from non-U.S. securities will generally be subject to withholding taxes by the country in which the issuer is located, which may not be recoverable, either directly or indirectly, as a foreign tax credit or deduction by the Fund or its shareholders. Please see the SAI for more details.
REPURCHASE AGREEMENTS AND LOANS OF SECURITIES
Each series may invest up to 10% of its assets in repurchase agreements, including tri-party repurchase agreements. Each series may also loan its portfolio securities in order to realize additional income. Repurchase and tri-party agreements are generally agreements under which the Fund obtains money market instruments subject to resale to the seller at an agreed upon price and date. Any loans of portfolio securities which the Fund may make must be fully collateralized at all times by securities with a value at least equal to 100% of the current market value of the loaned securities. The series presently do not anticipate loaning more than 5% of their respective portfolio securities. There are certain risks associated with such transactions which are described in the SAI.
HEDGING AND INCOME TRANSACTIONS
The series may utilize various investment strategies as described below to hedge various market risks (such as risks related to fluctuations in interest rates, currency exchange rates, and broad or specific equity market movements), to manage the effective maturity or duration of fixed-income securities or for gain. Such strategies are generally accepted by modern portfolio managers and are regularly utilized by many mutual funds and other institutional investors. Techniques and instruments may change over time as new instruments and strategies are developed or regulatory changes occur and the Fund will describe any such techniques in its registration statement before using them. In the course of pursuing these investment strategies, the series may purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other financial instruments, purchase and sell financial futures contracts and options thereon, and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies or currency futures (collectively, all of the above are called "Hedging Transactions").
Hedging Transactions may be used to attempt to protect against possible changes in the market value of securities held in or to be purchased for a series' portfolio resulting from changes in securities markets or currency exchange rate fluctuations, to protect the series' unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, or to establish a position in the derivatives markets as a temporary substitute for purchasing or selling particular securities. Any or all of these investment techniques may be used at any time and there is no particular strategy that dictates the use of one technique rather than another, as use of any Hedging Transaction is a function of numerous variables including market conditions. The ability of a series to utilize these Hedging Transactions successfully will depend on Franklin Mutual's ability to predict pertinent market movements, which cannot be assured. The Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Each series generally hedges the foreign currency risk associated with its investments in foreign securities. European expects to hedge for gain on market risks including broad movements in markets in addition to the specific currency risk of its portfolio securities. No more than 5% of the series' assets will be at risk in such types of instruments entered into for non-hedging purposes. Hedging Transactions involving financial futures and options thereon will be purchased, sold or entered into generally for bona fide hedging, risk management or portfolio management purposes.
Hedging Transactions, whether entered into as a hedge or for gain, have risks associated with them including possible default by the other party to the transaction, illiquidity and, to the extent Franklin Mutual's view as to certain market movements is incorrect, the risk that the use of such Hedging Transactions could result in losses greater than if they had not been used. Use of put and call options may result in losses to a series, force the sale or purchase of portfolio securities at inopportune times or for prices higher than (in the case of put options) or lower than (in the case of call options) current market values, limit the amount of appreciation the Fund can realize on its investments, increase the cost of holding a security and reduce the returns on securities or cause a series to hold a security it might otherwise sell. The use of currency transactions can result in a series incurring losses as a result of a number of factors including the imposition of exchange controls, suspension of settlements, or the inability to deliver or receive a specified currency. The use of options and futures transactions entails certain other risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund creates the possibility that losses on the hedging instrument may be greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, in certain markets, a series might not be able to close out a transaction without incurring substantial losses, if it is able to close out a transaction at all. Although the use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time they tend to limit any potential gain which might result from an increase in value of such position. Finally, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Losses resulting from the use of Hedging Transactions would reduce net asset value, and possibly income, and such losses can be greater than if the Hedging Transactions had not been utilized. The cost of entering into hedging transactions may also reduce the series' total return to investors.
FUNDAMENTAL RESTRICTIONS
Each series has adopted a number of fundamental investment restrictions, which may not be changed for a particular series without the approval of that series' shareholders. These restrictions are set forth in the SAI.
Among other things, each series may not purchase the securities of any one issuer, other than the U.S. government or any of its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of its total assets would be invested in such issuer, or such series would own more than 10% of the outstanding voting securities of such issuer, except that up to 25% of the value of such series' total assets may be invested without regard to such 5% and 10% limitations; make loans, except to the extent the purchase of debt obligations of any type are considered loans and except that the series may lend portfolio securities to qualified institutional investors in compliance with requirements established from time to time by the SEC and the securities exchanges on which such securities are traded; invest more than 25% of the value of its assets in a particular industry (except that U.S. government securities are not considered an industry); or issue securities senior to its stock or borrow money or utilize leverage in excess of the maximum permitted by the Investment Company Act of 1940, which is currently 33 1/3% of total assets (plus 5% for emergency or other short-term purposes). Such borrowing has special risks. The Fund will not engage in investment transactions when borrowing exceeds 5% of its assets.
While Mutual Shares, Qualified, Beacon, Discovery and European have identical basic investment restrictions, and Mutual Shares, Qualified, Beacon and European have identical investment objectives, Franklin Mutual seeks to retain certain historical differences among the series on an informal basis. Mutual Shares, Qualified and Beacon have generally invested in larger and medium sized companies with large share trading volume. Discovery, in comparison to the other series, has tended to invest proportionately more of its portfolio in smaller companies (see the discussion of investment policies above) and in foreign companies (see "Non-U.S. Securities"). Qualified was originally intended for purchase by pension plans, profit sharing plans and other nontaxpaying entities, and the portfolio was intended to have greater flexibility due to reduced concerns about the tax effects on shareholders. Depending on market conditions, and any future changes in tax laws, Franklin Mutual expects that it will purchase securities for Qualified which satisfy such a goal, although currently Qualified operates in the same fashion as Mutual Shares and Beacon. European will utilize the same investment philosophy but will apply it in the context of European investing. Allocation of investments among the series will also depend upon, among other things, the amount of cash in, and relative size of each series' portfolio. In addition, the factors outlined above are not mutually exclusive and a particular security may be owned by more than one of the series.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to at the time of investment, a later increase or decrease in the percentage resulting from a change in the value or liquidity of portfolio securities or the amount of net assets will not be considered a violation of any of the foregoing policies.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its officers. The officers are responsible for the Fund's day-to-day operations. The Board also monitors the Fund to ensure no material conflicts exist between the Fund's classes of shares. While none is expected, the Board will act appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Mutual manages the Fund's assets and makes its investment decisions. It is wholly owned by Resources, a publicly owned company engaged in the financial services industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together, Franklin Mutual and its affiliates manage over $188 billion in assets. Please see "Investment Management and Other Services" and "Miscellaneous Information" in the SAI for information on securities transactions and a summary of the Fund's Code of Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the Fund's portfolio is: Michael F. Price since 1976, Jeffrey A. Altman since 1988, Robert L. Friedman since 1988, Raymond Garea since 1991, Peter A. Langerman since 1986 and Lawrence N. Sondike since 1984.
Michael F. Price
Chief Executive Officer and President of Franklin Mutual
Mr. Price has a Bachelor of Arts degree in business administration from the University of Oklahoma. Prior to November 1996, Mr. Price was President and Chairman of Heine, the former investment manager for Franklin Mutual Series Fund Inc. He became Chief Executive Officer of Franklin Mutual in November 1996. He is Chairman of the Board and President of Franklin Mutual Series Fund Inc.
Jeffrey A. Altman
Senior Vice President of Franklin Mutual
Mr. Altman has a Bachelor of Science degree from Tulane University. Prior to November 1996, Mr. Altman was employed as a Research Analyst and Trader for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Robert L. Friedman
Senior Vice President of Franklin Mutual
Mr. Friedman has a Bachelor of Arts degree in humanities from Johns Hopkins University and a Masters in Business Administration from the Wharton School, University of Pennsylvania. Prior to November 1996, Mr. Friedman was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Raymond Garea
Senior Vice President of Franklin Mutual
Mr. Garea has a Bachelor of Science degree in engineering from Case Institute of Technology and a Masters in Business Administration from the University of Michigan. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
Peter A. Langerman
Senior Vice President of Franklin Mutual
Mr. Langerman has a Bachelor of Arts degree from Yale University, a Masters in Science from New York University Graduate School of Business and a Juris Doctor from Stanford University Law School. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. Mr. Langerman is a director and Executive Vice President of Franklin Mutual Series Fund Inc.
Lawrence N. Sondike
Senior Vice President of Franklin Mutual
Mr. Sondike has a Bachelor of Arts degree from Cornell University and a Masters in Business Administration from New York University Graduate School of Business. Prior to November 1996, he was a Research Analyst for Heine, the former investment manager for Franklin Mutual Series Fund Inc. He joined Franklin Mutual in November 1996. He is a Vice President of Franklin Mutual Series Fund Inc.
MANAGEMENT FEES. During the fiscal year ended December 31, 1996, management fees, before any advance waiver, totaled 0.60%, 0.60%, 0.60%, 0.80% and 0.80% of the average daily net assets of Mutual Shares, Qualified, Beacon, Discovery, and European, respectively. Total operating expenses of the class were 0.72%, 0.78%, 0.75%, 0.99% and 1.15% of the average daily net assets of Mutual Shares, Qualified, Beacon, Discovery, and European, respectively. Under an agreement by Franklin Mutual to limit its fees, Mutual Shares, Qualified, Beacon, Discovery, and European paid management fees totaling 0.58%, 0.57%, 0.58%, 0.77% and 0.74%, respectively, and operating expenses totaling 0.70%, 0.75%, 0.73%, 0.96% and 1.09%, respectively.
The Fund pays its own operating expenses. These expenses include Franklin Mutual's management fees; taxes, if any; custodian, legal and auditing fees; the fees and expenses of Board members who are not members of, affiliated with, or interested persons of Franklin Mutual; fees of any personnel not affiliated with Franklin Mutual; insurance premiums; trade association dues; expenses of obtaining quotations for calculating the Fund's Net Asset Value; and printing and other expenses that are not expressly assumed by Franklin Mutual.
Under their management agreements, the Funds pay Franklin Mutual a management fee equal to an annual rate of 0.60% of the average daily net assets of Mutual Shares, Qualified and Beacon and 0.80% of the average daily net assets of Discovery and European. The fee is computed at the close of business on the last business day of each month.
PORTFOLIO TRANSACTIONS. Franklin Mutual tries to obtain the best execution on all transactions. If Franklin Mutual believes more than one broker or dealer can provide the best execution, consistent with internal policies it may consider research and related services and the sale of Fund shares, as well as shares of other funds in the Franklin Templeton Group of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy Securities for its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services and facilities for the Fund. Under its administration agreement, the Fund pays FT Services a monthly administration fee equal to an annual rate of 0.15% of each series' average daily net assets up to $200 million, 0.135% of average daily net assets over $200 million up to $700 million, 0.10% of average daily net assets over $700 million up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion. During the fiscal year ended December 31, 1996, annualized administration fees totaling 0.08% of the average daily net assets of each series were paid to FT Services. These fees are included in the amount of total expenses shown above. Please see "Investment Management and Other Services" in the SAI for more information.
PRIOR SERVICES. Before November 1, 1996, Heine managed the Fund's assets and made its investment decisions under separate investment management agreements that were substantially the same as the management agreement currently in effect with Franklin Mutual.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, Class Z of the Fund advertises its performance. The more commonly used measure of performance is total return.
Total return is the change in value of an investment over a given period. It assumes any dividends and capital gains are reinvested.
The investment results of Class Z will vary. Performance figures are always based on past performance and do not guarantee future results. For a more detailed description of how the Fund calculates its performance figures, please see "How does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect mutual funds and their shareholders. For more information on tax matters relating to the Fund and its shareholders, see "Additional Information on Distributions and Taxes" in the SAI.
Each series is treated as a separate entity for federal income tax purposes. The Fund has elected and intends to continue to qualify as a regulated investment company under Subchapter M of the Code. By distributing all of its income and meeting certain other requirements relating to the sources of its income and diversification of its assets, the Fund will generally not be liable for federal income or excise taxes.
You will generally have to pay Federal income taxes on the dividends and distributions you receive from a series and on gains realized upon redemption of your shares.
Following each calendar year, you will receive information for tax purposes on the dividends and capital gain distributions received during the previous year. The Fund may make distributions from net investment income or capital gain and may also make distributions in kind. Dividends from net investment income and any net short-term capital gain will be taxable as ordinary income whether received in cash or in kind. Any distributions designated as realized net capital gain (the excess of net long-term capital gain over net short-term capital loss) will be taxable as long-term capital gain, regardless of the holding period of your shares of such series. All or a portion of any dividends paid by the Fund to corporate shareholders may, under certain circumstances, be eligible for the dividends received deduction. Credit for foreign taxes paid by the Fund have generally not been available to shareholders.
If you buy shares shortly before the record date, please keep in mind that any distribution will lower the value of the Fund's shares by the amount of the distribution and generally be subject to tax.
The IRS requires backup withholding of Federal income tax of 31% of the gross amount of dividends, capital gain distributions, and redemption proceeds paid or credited to shareholders who do not furnish a valid social security or taxpayer identification number. If you are using the Fund as a medium for tax qualified retirement plans, you may be subject to a 20% mandatory withholding upon withdrawal under certain circumstances.
Redemptions of shares of a series will be taxable transactions for Federal income tax purposes. Generally, gain or loss will be recognized in an amount equal to the difference between your basis in your shares and the amount received. Assuming that such shares are held as a capital asset, such gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if you have held your shares for a period of more than one year. If you redeem shares of any series at a loss and make an additional investment in the same series 30 days before or after your redemption, the loss may be disallowed under the wash sale rules.
Income received by each series from sources outside the U.S. may be subject to withholding and other foreign taxes. As long as more than 50% of the value of a particular series' assets at the close of any taxable year consists of securities of foreign corporations, as is anticipated for European, such series intends to elect to treat any foreign income paid by the series as if it were paid by shareholders. Accordingly, the amount of foreign income taxes paid by European will be included in the income of its shareholders and the European shareholders will be entitled to credit their portions of those amounts against their U.S. federal income taxes, if any, or to deduct such portions from their taxable income. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. In addition, certain individual shareholders may be subject to rules that limit or reduce their ability to deduct fully their pro rata share of foreign taxes. Shortly after any year for which it makes such an election, European will report to its shareholders, in writing, the amount per share of any foreign tax that must be included in each shareholder's gross income and the amount that will be available for deduction or credit.
In general, a credit for foreign taxes may not exceed the U.S. shareholder's U.S. federal income tax attributable to its foreign source taxable income. If European elects to treat foreign taxes paid by the series as paid by the shareholders as described in the preceding paragraph, the source of European's income will flow through to its shareholders for purposes of calculating the limitation on foreign tax credits. Dividends and interest received by the Fund in respect of non-U.S. securities will give rise to foreign source income to shareholders. Please consult your tax advisors with respect to the federal, state, local or foreign tax consequences of the pass-through of foreign tax credits described above.
The foregoing summary of federal income tax consequences is included herein for general informational purposes only. It does not address the tax consequences to all investors and does not address the tax consequences under state, local, foreign and other tax laws. Please consult your own tax advisors with respect to the tax consequences of an investment in a series of the Fund.
HOW IS THE FUND ORGANIZED?
Each Fund is a diversified series of Franklin Mutual Series Fund Inc. ("Mutual
Series"), an open-end management investment company, commonly called a mutual
fund. Mutual Series was organized as a Maryland corporation on November 12,
1987, and is registered with the SEC. Mutual Series began offering three classes
of shares of each Fund on November 1, 1996: Mutual Shares Fund - Class Z, Mutual
Shares Fund - Class I, Mutual Shares Fund - Class II, Mutual Qualified Fund -
Class Z, Mutual Qualified Fund - Class I, Mutual Qualified Fund - Class II,
Mutual Beacon Fund - Class Z, Mutual Beacon Fund - Class I, Mutual Beacon Fund -
Class II, Mutual European Fund - Class Z, Mutual European Fund - Class I, Mutual
European Fund - Class II, Mutual Discovery Fund - Class Z, Mutual Discovery Fund
- - Class I, and Mutual Discovery Fund - Class II. All shares outstanding before
the offering of Class I and Class II shares on November 1, 1996, are considered
Class Z shares. Additional series and classes of shares may be offered in the
future.
Shares of each class represent proportionate interests in the assets of the Fund and have the same voting and other rights and preferences as any other class of the Fund for matters that affect the Fund as a whole. For matters that only affect one class, however, only shareholders of that class may vote. Each class will vote separately on matters affecting only that class or expressly required to be voted on separately by state or federal law. Shares of each class of a series have the same voting and other rights and preferences as the other classes and series of Mutual Series for matters that affect Mutual Series as a whole.
Mutual Series has noncumulative voting rights. This gives holders of more than 50% of the shares voting the ability to elect all of the members of the Board. If this happens, holders of the remaining shares voting will not be able to elect anyone to the Board.
Mutual Series does not intend to hold annual shareholder meetings. Mutual Series or a Fund may hold special meetings, however, for matters requiring shareholder approval. A meeting may also be called by the Board in its discretion or by shareholders holding at least 10% of the outstanding shares. In certain circumstances, we are required to help you communicate with other shareholders about the removal of a Board member.
As of April 2, 1997, Michael F. Price owned of record and beneficially more than 25% of the outstanding shares of Class Z of European.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your account, contact your investment representative or complete and sign the enclosed shareholder application and return it to the Fund with your check.
MINIMUM
INVESTMENTS*
To Open Your Account............................. $5,000,000 To Add to Your Account................................. $ 25
*We waive or lower these minimums for certain investors listed below. We may also refuse any order to buy shares. Currently, the Fund does not allow investments by Market Timers.
To determine if you meet the minimum investment requirement, the amount of your current purchase is added to the cost or current value, whichever is higher, of your existing shares in the Franklin Templeton Funds. At least $1 million of this amount, however, must be invested in Advisor Class or Class Z shares of any of the Franklin Templeton Funds.
The Fund's minimum initial investment requirement will not apply to purchases by:
1. Existing shareholders of any series as of October 31, 1996, and their immediate family members residing at the same address subject to the other terms and conditions as set forth in this prospectus
2. Redemption proceeds from a sale of Class Z shares of the Fund if reinvested in the same class of shares of any series within 365 days of the redemption date
3. A direct rollover to an IRA by employees of a company with a non-custodial pension plan set up as an omnibus account on October 31, 1996
4. Partnership shareholders who have an account on October 31, 1996, whether or not they are listed on the registration
5. Investment companies exchanging shares or selling assets pursuant to a merger, acquisition, or exchange offer or other business combination transaction
6. New participants and accounts of employer-sponsored retirement plans invested in the Fund as of October 31, 1996, and employees who own Fund shares through an employer-sponsored retirement plan as of October 31, 1996, who wish to open new individual Class Z accounts in their own names
7. Corporate shareholders invested in the Fund as of October 31, 1996, using the same registration, or new companies of such corporate shareholders that have been reorganized into smaller, independent companies
8. Shareholders who owned shares of the Fund through a broker-dealer or service agent omnibus account on October 31, 1996
9. Broker-dealers, registered investment advisors or certified financial planners who have entered into an agreement with Distributors for clients participating in comprehensive fee programs
10. Qualified registered investment advisors or certified financial planners who have clients invested in the Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy through a broker-dealer or service agent who has entered into an agreement with Distributors
11. Officers, trustees, directors and full-time employees of the Franklin Templeton Funds or the Franklin Templeton Group and their immediate family members, subject to a $100 minimum investment requirement
12. Accounts managed by the Franklin Templeton Group
13. The Franklin Templeton Profit Sharing 401(k) Plan
14. Each series of the Franklin Templeton Fund Allocator Series investing in Mutual Shares Fund and Mutual Discovery Fund, subject to a $1,000 minimum initial and subsequent investment requirement
15. Employer stock, bonus, pension or profit sharing plans that meet the
requirements for qualification under Section 401 of the Code, including
salary reduction plans qualified under Section 401(k) of the Code, and
that (i) are sponsored by an employer with at least 5,000 employees, or
(ii) have plan assets of $50 million or more
16. Trust companies and bank trust departments initially investing in the Franklin Templeton Funds at least $1 million of assets held in a fiduciary, agency, advisory, custodial or similar capacity and over which the trust companies and bank trust departments or other plan fiduciaries or participants, in the case of certain retirement plans, have full or shared investment discretion
17. Defined benefit plans or governments, municipalities, and tax-exempt entities that meet the requirements for qualification under Section 501 of the Code, subject to a $1 million initial investment in Class Z shares
18. Any other investor, including a private investment vehicle such as a family trust or foundation, who is a member of a qualified group, if the group as a whole meets the $5 million minimum investment requirement. A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings in distributing shares.
TELEPHONE PURCHASES
If you are a current shareholder, you may buy Fund shares by calling the Fund at 1-800-448-FUND prior to the earlier of 4:00 p.m. Eastern time or the close of the NYSE. Telephone purchases must be for at least $1,000 and must be made in an account that has an existing balance equal to at least one half of the telephone purchase.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund. Plan documents are required for all retirement plans. Trust Company can provide the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information about its plans. To establish a Trust Company retirement plan, you will need an application other than the one included in this prospectus. For a retirement plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a retirement plan. Your investment representative or advisor can help you make investment decisions within your plan.
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Class Z shares may receive up to 0.25% of the amount invested. The payment is subject to the sole discretion of Distributors, and is paid by Distributors or one of its affiliates and not by the Fund or its shareholders.
For information on additional compensation payable to Securities Dealers in connection with the sale of Fund shares, please see "How Do I Buy, Sell and Exchange Shares? - Other Payments to Securities Dealers" in the SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your investment from your Fund account to an existing or new account in another Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are interested in. This will help you learn about the fund, its investment objective and policies, and its rules and requirements for exchanges. For example, some Franklin Templeton Funds do not accept exchanges and some do not offer Class Z or Advisor Class shares.
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METHOD STEPS TO FOLLOW
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BY MAIL 1. Send us written instructions signed by
all account owners
2. Include any outstanding share
certificates for the shares you're exchanging
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BY PHONE Call Shareholder Services
If you do not want the ability to exchange
by phone to apply to your account, please
let us know.
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THROUGH YOUR DEALER Call your investment representative
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Please refer to "Transaction Procedures and Special Requirements" for other important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may, however, exchange shares from a Fund account requiring two or more signatures into an identically registered money fund account requiring only one signature for all transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as described above. Restrictions may apply to other types of retirement plans. Please contact our Retirement Plans Department for information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days' written notice.
o Currently, the Fund does not allow investments by Market Timers.
o Mutual Series Class Z shareholders of record on October 31, 1996 and others who would not qualify to buy Class I shares of Franklin Templeton Funds at Net Asset Value, may exchange their shares for Class I shares at Net Asset Value of other Franklin Templeton Funds, as permitted by each fund's current prospectus, provided those shares have been held at least six consecutive months in any one Fund prior to the exchange.
Because excessive trading can hurt Fund performance and shareholders, we may refuse any exchange purchase if (i) we believe the Fund would be harmed or unable to invest effectively, or (ii) the Fund receives or anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you qualify to buy Advisor Class shares of the Franklin Templeton Funds and want to exchange into a fund that does not currently offer Advisor Class, you may exchange your Class Z shares for Class I shares of that fund at Net Asset Value. If you qualify to buy Advisor Class shares of the Franklin Templeton Funds and do not qualify to buy Advisor Class shares of Templeton Developing Markets Trust, Templeton Foreign Fund or Templeton Growth Fund, you may exchange the Class Z shares you own for Class I shares of those funds or of Templeton Institutional Funds, Inc. at Net Asset Value. If you do so and you later decide you would like to exchange into a fund that offers a Class Z or Advisor Class, you may exchange your Class I shares for Class Z or Advisor Class shares of that fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
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METHOD STEPS TO FOLLOW
- ---------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by
all account owners
2. Include any outstanding share
certificates for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
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BY PHONE Call Shareholder Services
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a separate
agreement. Call Institutional Services to receive a
copy.
o If there are no share certificates issued for the
shares you want to sell or you have already returned
them to the Fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to redeem by phone to
apply to your account, please let us know or check the
appropriate box on the shareholders application. If you
later decide you would like this option, send us written
instructions signed by all account owners, with a
signature guarantee.
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THROUGH YOUR DEALER Call your investment representative
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We will send your redemption check within seven days after we receive your request in proper form. If you sell your shares by phone, the check may only be made payable to all registered owners on the account and sent to the address of record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you recently purchased with a check or draft, we may delay sending you the proceeds for up to 15 days or more to allow the check or draft to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before selling shares in a Trust Company retirement plan account. Tax penalties generally apply to any distribution from these plans to a participant under age 59 1/2, unless the distribution meets an exception stated in the Code. To obtain the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income semi-annually. The distributions are frequently declared at mid-year and during late December. Capital gains, if any, may be distributed twice a year, usually once in December and once at mid-year.
Dividend payments are not guaranteed, are subject to the Board's discretion and may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any distribution will lower the value of the Fund's shares by the amount of the distribution and you will then receive a portion of the price you paid back in the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same class of the Fund by reinvesting capital gain distributions, or both dividend and capital gain distributions. This is a convenient way to accumulate additional shares and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your distributions to buy the Advisor Class of another Franklin Templeton Fund. You may also direct your distributions to buy Class I shares of another Franklin Templeton Fund. Many shareholders find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend and capital gain distributions, in cash. If you have the money sent to another person or to a checking account, you may need a signature guarantee.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 7 AND 8 OF THE SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS OF THE FUND. For Trust Company retirement plans, special forms are required to receive distributions in cash. You may change your distribution option at any time by notifying us by mail or phone. Please allow at least seven days before the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m. Eastern time. You can find the prior day's closing Net Asset Value in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a pro rata basis. It is based on each class' proportionate participation in the Fund, determined by the value of the shares of each class. To calculate Net Asset Value per share of each class, the assets of each class are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares of the class outstanding. The Fund's assets are valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy and sell Class Z shares at the Net Asset Value per share. We calculate it to two decimal places using standard rounding criteria. The Net Asset Value we use when you buy or sell shares is the one next calculated after we receive your transaction request in proper form. If you buy or sell shares through your Securities Dealer, however, we will use the Net Asset Value next calculated after your Securities Dealer receives your request, which is promptly transmitted to the Fund. Your redemption proceeds will not earn interest between the time we receive the order from your dealer and the time we receive any required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder application and check. Written requests to sell or exchange shares are in proper form when we receive written instructions signed by all registered owners, with a signature guarantee if necessary. We must also receive any outstanding share certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be able to obtain a signature guarantee from a bank, broker, credit union, savings association, clearing agency, or securities exchange or association. A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share certificates unless you specifically request them. This eliminates the costly problem of replacing lost, stolen or destroyed certificates. If a certificate is lost, stolen or destroyed, you may have to pay an insurance premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to sell or exchange those shares or if you would like to start a systematic withdrawal plan. The certificates should be properly endorsed. You can do this either by signing the back of the certificate or by completing a share assignment form. For your protection, you may prefer to complete a share assignment form. In this case, you should send the certificate and assignment form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of this prospectus that discuss the transaction you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to confirm that instructions are genuine. We will also record calls. We will not be liable for following instructions communicated by telephone if we reasonably believe they are genuine. For your protection, we may delay a transaction or not implement one if we are not reasonably satisfied that the instructions are genuine. If this occurs, we will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may wish to ask your investment representative for assistance or send us written instructions, as described elsewhere in this prospectus. If you are unable to execute a transaction by telephone, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell shares or change distribution options on Trust Company retirement plans by phone. While you may exchange shares of Trust Company IRA and 403(b) retirement accounts by phone, certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares registered. How you register your account will affect your ownership rights and ability to make certain transactions. If you have questions about how to register your account, you should consult your investment representative or legal advisor. Please keep the following information in mind when registering your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the account as "joint tenants with rights of survivorship" unless you tell us otherwise. An account registered as "joint tenants with rights of survivorship" is shown as "Jt Ten" on your account statement. For any account with two or more owners, ALL owners must sign instructions to process transactions and changes to the account. Even if the law in your state says otherwise, we cannot accept instructions to change owners on the account unless all owners agree in writing. If you would like another person or owner to sign for you, please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor under your state's Uniform Gifts/Transfers to Minors Act. Other than this form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid written trust document. This avoids future disputes or possible court action over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send us the following documents when you open your account. This will help avoid delays in processing your transactions while we verify who may sign on the account.
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TYPE OF ACCOUNT DOCUMENTS REQUIRED
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CORPORATION Corporate Resolution
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PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
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TRUST 1. The pages from the trust document that
identify the trustees, or
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STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or "nominee" name account with your Securities Dealer, you may transfer the shares to the street or nominee name account of another Securities Dealer. Both dealers must have an agreement with Distributors or we cannot process the transfer. Contact your Securities Dealer to initiate the transfer. We will process the transfer after we receive authorization in proper form from your delivering Securities Dealer. Accounts may be transferred electronically through the NSCC. For accounts registered in street or nominee name, we may take instructions directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative of record on your account, we are authorized to use and execute electronic instructions. We will accept electronic instructions directly from your dealer or representative without further inquiry. Electronic instructions may be processed through the services of the NSCC, which currently include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax identification number and certifications. We may also close your account if the IRS notifies us that your tax identification number is incorrect. If you complete an "awaiting TIN" certification, we must receive a correct tax identification number within 60 days of your initial purchase to keep your account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close your account if the value of your shares is less than $300, or $100 for IRA accounts. We will only do this if the value of your account fell below this amount because you voluntarily sold your shares and your account has been inactive (except for the reinvestment of distributions) for at least six months. Before we close your account, we will notify you and give you 30 days to increase the value of your account to $300, or $100 for IRA accounts. These minimums do not apply if you fall within categories 12, 13, 14 or 15 under "How Do I Buy Shares? Opening Your Account."
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund. Under the plan, you can have money transferred automatically from your savings or checking account to the Fund each month to buy additional shares. If you are interested in this program, please refer to the shareholder application included with this prospectus or contact your investment representative. The market value of the Fund's shares may fluctuate and a systematic investment plan such as this will not assure a profit or protect against a loss. You may discontinue the program at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive regular payments from your account on a monthly, quarterly, semiannual or annual basis. The value of your account must be at least $5,000 and the minimum payment amount for each withdrawal must be at least $50. For retirement plans subject to mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the systematic withdrawal plan section of the shareholder application included with this prospectus and indicate how you would like to receive your payments. You may choose to direct your payments to buy the same class of shares of another Franklin Templeton Fund or have the money sent directly to you, to another person, or to a checking account.
You will generally receive your payment by the end of the month in which a payment is scheduled. When you sell your shares under a systematic withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule of withdrawal payments, or suspend one payment by notifying us in writing at least seven business days before the end of the month preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic Withdrawal Plan" in the SAI for more information.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments.
PLEASE VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund expenses, we attempt to identify related shareholders within a household and send only one copy of a report. Call Fund Information if you would like an additional free copy of the Fund's financial reports or an interim quarterly report.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be available to institutional accounts. Institutional investors may also be required to complete an institutional account application. For more information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares are held by a financial institution, in a street name account, or networked through the NSCC, the Fund may not be able to offer these services directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services at P.O. Box 997151, Sacramento, California 95899-9983. The Fund and Franklin Mutual are located at 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. Distributors is located at 777 Mariners Island Blvd., San Mateo, California 94403-7777. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/448-3863 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plans 1-800/448-3863 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Automated Telephone 1-800/858-3013 24 hours a day, 7 days
Inquiry a week
|
Your phone call may be monitored or recorded to ensure we provide you with high quality service. You will hear a regular beeping tone if your call is being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares, designated "Class I," "Class II," and "Class Z." The three classes have proportionate interests in the Fund's portfolio. They differ, however, primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal underwriter. The SAI lists the officers and Board members who are affiliated with Distributors. See "Officers and Directors."
FRANKLIN MUTUAL - Franklin Mutual Advisers, Inc., the Fund's investment manager
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
HEINE - Heine Securities Corporation, the Fund's former investment manager that was acquired by Resources on October 31, 1996
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or allocation services, accounts administered so as to buy, sell or exchange shares based on predetermined market indicators, or any person or group whose transactions seem to follow a timing pattern.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting the fund's liabilities from the total assets of the portfolio. The net asset value per share is determined by dividing the net asset value of the fund by the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OTC - Over-the-counter
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through affiliates, has an agreement with Distributors to handle customer orders and accounts with the Fund. This reference is for convenience only and does not indicate a legal conclusion of capacity.
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer to the Fund and/or Investor Services, Distributors, or other wholly owned subsidiaries of Resources.
FRANKLIN MUTUAL SERIES FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
51 JOHN F. KENNEDY PARKWAY
SHORT HILLS, NJ 07078 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets?
Restrictions and Limitations
Officers and Directors
Investment Management and Other Services How does the Fund Buy Securities for its Portfolio? How Do I Buy, Sell and Exchange Shares?
How are Fund Shares Valued?
Additional Information on Distributions and Taxes The Fund's Underwriter
How does the Fund Measure Performance?
Miscellaneous Information
Financial Statements
Useful Terms and Definitions
Mutual Shares Fund ("Mutual Shares"), Mutual Qualified Fund("Qualified"), Mutual Beacon Fund ("Beacon"), Mutual Discovery Fund ("Discovery") and Mutual European Fund ("European") are diversified series of Franklin Mutual Series Fund Inc. ("Mutual Series"), an open-end management investment company. Each series may individually or together be referred to as the Fund(s). The principal investment objective of Mutual Shares, Qualified, Beacon and European is capital appreciation, which may occasionally be short-term. A secondary objective of each is income. Discovery's investment objective is long-term capital appreciation.
The Prospectus, dated May 1, 1997, as may be amended from time to time, contains the basic information you should know before investing in the Fund. For a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
This SAI describes the Fund's Class I and Class II shares. The Fund currently offers another class of shares with a different sales charge and expense structure, which affects performance. This class is described in a separate SAI and prospectus. For more information, contact your investment representative or call 1-800/DIAL BEN.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities the Fund may buy and its investment policies. You should read it together with the section in the Prospectus entitled "How does the Fund Invest its Assets?"
The general investment policy of the Fund is to invest in securities if, in the opinion of Franklin Mutual, they are available at prices less than their intrinsic value, as determined by Franklin Mutual after careful analysis and research, taking into account, among other factors, the relationship of book value to market value of the securities, cash flow, and multiples of earnings of comparable securities. The Fund reserves freedom of action to invest in common stock, preferred stock, debt securities and other securities in such proportions as Franklin Mutual deems advisable. Without committing any fixed portion of the Fund's assets, Franklin Mutual typically maintains a portion of the assets of the Fund invested in debt securities and preferred stocks (which may be convertible). In addition, the Fund may also invest in restricted debt and equity securities, in foreign securities, and in other investment company securities.
REPURCHASE AGREEMENTS AND
LOANS OF SECURITIES
The Fund may invest in repurchase agreements with domestic banks or broker-dealers. Repurchase agreements are considered loans by the Fund collateralized by the underlying securities. As with loans of portfolio securities which the Fund may make, these transactions must be fully collateralized at all times. Franklin Mutual will monitor the creditworthiness of the other party and will monitor the value of the collateral by marking to market daily in order to confirm that its value is at least 100% of the agreed upon sum to be paid to the Fund.
Repurchase agreements and lending of portfolio securities involve some credit risk to the Fund. If the other party defaults on its obligations, the Fund could be delayed or prevented from receiving payment or recovering its collateral. Even if the Fund recovers the collateral in such a situation, the Fund may receive less than its purchase price upon resale.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics and operational mechanics regardless of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the particular types of options discussed in greater detail below. In addition, many hedging transactions involving options require segregation of Fund assets in special accounts, as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the seller of the option, the obligation to buy, the underlying security, commodity, index, currency or other instrument at the exercise price. For instance, the Fund's purchase of a put option on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. The Fund's purchase of a call option on a security, financial future, index, currency or other instrument might be intended to protect the Fund against an increase in the price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase such instrument.
An American style put or call option may be exercised at any time during the option period while a European style put or call option may be exercised only upon expiration or during a fixed period prior thereto. The Fund is authorized to purchase and sell exchange-listed options and over-the-counter options ("OTC options"). Exchange-listed options are issued by a regulated intermediary such as the Options Clearing Corporation ("OCC"), which guarantees the performance of the obligations of the parties to such options. The discussion below uses the OCC as a paradigm, but is also applicable to other financial intermediaries.
With certain exceptions, OCC-issued and exchange-listed options generally settle by physical delivery of the underlying security or currency, although in the future cash settlement may become available. Index options and Eurodollar instruments are cash settled for the net amount, if any, by which the option is "in-the-money" (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting option transactions.
The Fund's ability to close out its position as a purchaser or seller of an OCC or exchange-listed put or call option is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although outstanding options on that exchange would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial institutions or other parties (each a "Counterparty," and collectively, "Counterparties") through direct bilateral agreement with the Counterparty. In contrast to exchange-listed options, which generally have standardized terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees and security, are set by negotiation of the parties. The Fund will only sell OTC options (other than OTC currency options) that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The Fund expects generally to enter into OTC options that have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails to make or take delivery of the security, currency or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash settlement payment due in accordance with the option, the Fund will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, Franklin Mutual must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers" or broker-dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligations of which have received) a short-term credit rating of "A-l" from S&P or "P-l" from Moody's, an equivalent rating from any nationally recognized statistical rating organization ("NRSRO") or which Franklin Mutual determines is of comparable credit quality. The staff of the SEC currently takes the position that OTC options purchased by the Fund, and portfolio securities "covering" the amount of the Fund's obligation pursuant to an OTC option sold by it (the cost of the sell-back plus the in-the-money amount, if any) are illiquid, and are subject to the Fund's limitations on investments in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against a decrease in the value of the underlying securities or instruments in its portfolio or will increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S. Treasury and agency securities, mortgage-backed securities, corporate debt securities, equity securities (including convertible securities) and Eurodollar instruments that are traded on U.S. and foreign securities exchanges and in the over-the-counter markets and on securities indices, currencies and futures contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own the securities or futures contract subject to the call) or must meet the asset segregation requirements described below as long as the call is outstanding. Even though the Fund will receive the option premium to help protect it against loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require the Fund to hold a security or instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury and agency securities, mortgage-backed securities, corporate debt securities, equity securities (including convertible securities) and Eurodollar instruments (whether or not it holds the above securities in its portfolio) and on securities indices, currencies and futures contracts other than futures on individual corporate debt and individual equity securities. The Fund will not sell put options if, as a result, more than 50% of the Fund's assets would be required to be segregated to cover its potential obligations under such put options other than those with respect to futures and options thereon. In selling put options, there is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Fund may enter into financial futures contracts or purchase or sell put and call options on such futures as a hedge against anticipated interest rate, currency or equity market changes, for duration management and for risk management purposes. Futures are generally bought and sold on the commodities exchanges where they are listed with payment of initial and variation margin as described below. The sale of a futures contract creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for in the contract at a specific future time for a specified price (or, with respect to index futures and Eurodollar instruments, the net cash amount). Options on futures contracts are similar to options on securities except that an option on a futures contract gives the purchaser the right in return for the premium paid to assume a position in a futures contract and obligates the seller to deliver such option.
The Fund's use of financial futures and options thereon will in all cases be consistent with applicable regulatory requirements and in particular the rules and regulations of the Commodity Futures Trading Commission and will be entered into only for a bona fide hedging, risk management (including duration management) or other portfolio management purposes. Typically, maintaining a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary as security for its obligations an amount of cash or other specified assets ("initial margin") which initially is typically 1% to 10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets ("variation margin") may be required to be deposited thereafter on a daily basis as the mark to market value of the contract fluctuates. The purchase of an option on financial futures involves payment of a premium for the option without any further obligation on the part of the Fund. If the Fund exercises an option on a futures contract, it will be obligated to post initial margin (and potential subsequent variation margin) for the resulting futures positions just as it would for any position. Futures contracts and options thereon are generally settled by entering into an offsetting transaction, but there can be no assurance that the position can be offset prior to settlement at an advantageous price nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for closing transactions) if, immediately thereafter, the sum of the amount of its initial margin and premiums on open futures contracts and options thereon would exceed 5% of the Fund's total assets (taken at current value); however, in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating the 5% limitation. The segregation requirements with respect to futures contracts and options thereon are described below.
OPTIONS ON SECURITIES INDICES
AND OTHER FINANCIAL INDICES
The Fund may also purchase and sell call and put options on securities indices and other financial indices and in so doing can achieve many of the same objectives it would achieve through the sale or purchase of options on individual securities or other instruments. Options on securities indices and other financial indices are similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle by cash settlement, i.e., an option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on an index depends on price movements in the instruments making up the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with Counterparties in order to hedge the value of portfolio holdings denominated in particular currencies against fluctuations in relative value between those currencies and the U.S. dollar. Currency transactions include forward currency contracts, exchange-listed currency futures, exchange-listed and OTC options on currencies, and currency swaps. A forward currency contract involves a privately negotiated obligation to purchase or sell (with delivery generally required) a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them.
The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps are entered into for good faith hedging purposes, Franklin Mutual and the Fund believe such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. The Fund may enter into currency transactions with Counterparties which have received (or the guarantors of the obligations of such Counterparties have received) a credit rating of A-l or P-l by S&P or Moody's, respectively, or that have an equivalent rating from an NRSRO or are determined to be of equivalent credit quality by Franklin Mutual. If there is a default by the Counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid.
The Fund's dealings in forward currency contracts and other currency transactions such as futures, options, options on futures and swaps will be limited to either specific transactions or portfolio positions. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of the Fund, which will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position hedging is entering into a currency transaction with respect to portfolio security positions denominated or generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an extent greater, after netting all transactions intended to wholly or partially offset other transactions, than the aggregate market value (at the time of entering into the transaction) of the securities held in its portfolio that are denominated or generally quoted in or whose value is based upon such foreign currency or currently convertible into such currency other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or anticipated holdings of portfolio securities, the Fund may also engage in proxy hedging. Proxy hedging is often used when the currency to which the Fund's portfolio is exposed is difficult to hedge or to hedge against the U.S. dollar. Proxy hedging entails entering into a forward contract to sell a currency whose changes in value are generally considered to be linked to a currency or currencies in which some or all of the Fund's portfolio securities are or are expected to be denominated, and to buy U.S. dollars. The amount of the contract would not exceed the value of the Fund's securities denominated in linked currencies. For example, if Franklin Mutual considers the Austrian schilling to be linked to the German deutsche mark (the "D-mark"), the Fund holds securities denominated in schillings and Franklin Mutual believes that the value of schillings will decline against the U.S. dollar, Franklin Mutual may enter into a contract to sell D-marks and buy dollars. Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Fund if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, there is the risk that the perceived linkage between various currencies may not be present during the particular time that the Fund is engaging in proxy hedging. If the Fund enters into a currency hedging transaction, the Fund will comply with the asset segregation requirements described below.
RISKS OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and any combination of futures, options and currency transactions ("component transactions"), instead of a single hedging transaction, as part of a single or combined strategy when, in the opinion of Franklin Mutual, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on Franklin Mutual's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the portfolio management objective.
RISKS OF HEDGING TRANSACTIONS OUTSIDE THE U.S.
When conducted outside the U.S., hedging transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that the Fund segregate liquid high grade assets with its custodian bank to the extent Fund obligations are not otherwise "covered" through ownership of the underlying security, financial instrument or currency. In general, either the full amount of any obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities, instruments or currency required to be delivered, or, subject to any regulatory restrictions, an amount of cash or liquid high grade securities at least equal to the current amount of the obligation must be segregated with the custodian bank. The segregated assets cannot be sold or transferred unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. For example, a call option written by the Fund will require the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate liquid high grade securities sufficient to purchase and deliver the securities if the call is exercised. A call option sold by the Fund on an index will require the Fund to own portfolio securities which correlate with the index or to segregate liquid high grade assets equal to the excess of the index value over the exercise price on a current basis. A put option written by the Fund requires the Fund to segregate liquid high grade assets equal to the exercise price.
A currency contract which obligates the Fund to buy or sell currency will generally require the Fund to hold an amount of the currency or liquid securities denominated in that currency equal to the Fund's obligations or to segregate liquid high grade assets equal to the amount of the Fund's obligation. However, the segregation requirement does not apply to currency contracts which are entered in order to "lock in" the purchase or sale price of a trade in a security denominated in a foreign currency pending settlement within the time customary for such securities.
OTC options entered into by the Fund, including those on securities, currency, financial instruments or indices and OCC-issued and exchange-listed index options will generally provide for cash settlement. As a result, when the Fund sells these instruments it will only segregate an amount of assets equal to its accrued net obligations, as there is no requirement for payment or delivery of amounts in excess of the net amount. These amounts will equal 100% of the exercise price in the case of a noncash settled put, the same as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount plus any sell-back formula amount in the case of a cash-settled put or call. In addition, when the Fund sells a call option on an index at a time when the in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires or is closed out, cash or cash equivalents equal in value to such excess. OCC-issued and exchange-listed options sold by the Fund other than those above generally settle with physical delivery, or with an election of either physical delivery or cash settlement, and the Fund will segregate an amount of assets equal to the full value of the option. OTC options settling with physical delivery, or with an election of either physical delivery or cash settlement, will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit initial margin and possible daily variation margin in addition to segregating assets sufficient to meet its obligation to purchase or provide securities or currencies, or to pay the amount owed at the expiration of an index-based futures contract. Such assets may consist of cash, cash equivalents, liquid debt or equity securities or other acceptable assets.
Hedging transactions may be covered by other means when consistent with applicable regulatory policies. The Fund may also enter into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related options and hedging transactions. For example, the Fund could purchase a put option if the strike price of that option is the same or higher than the strike price of a put option sold by the Fund. Moreover, instead of segregating assets if the Fund held a futures or forward contract, it could purchase a put option on the same futures or forward contract with a strike price as high or higher than the price of the contract held. Other hedging transactions may also be offset in combinations. If the offsetting transaction terminates at the time of or after the primary transaction, no segregation is required, but if it terminates prior to such time, assets equal to any remaining obligation would need to be segregated.
DEPOSITARY RECEIPTS
The Fund may invest in securities commonly known as American Depositary Receipts ("ADRs"), and in European Depositary Receipts ("EDRs") or other securities representing interests in securities of foreign issuers. ADRs are certificates issued by a U.S. bank or trust company and represent the right to receive securities of a foreign issuer deposited in a domestic bank or foreign branch of a U.S. bank and traded on a U.S. exchange or in an over-the-counter market. EDRs are receipts issued in Europe generally by a non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic securities. Generally, ADRs are in registered form and EDRs are in bearer form. There are no fees imposed on the purchase or sale of ADRs or EDRs although the issuing bank or trust company may impose charges for the collection of dividends and the conversion of ADRs and EDRs into the underlying securities. Investment in ADRs has certain advantages over direct investment in the underlying non-U.S. securities, since: (i) ADRs are U.S. dollar denominated investments which are easily transferable and for which market quotations are readily available and (ii) issuers whose securities are represented by ADRs are subject to the same auditing, accounting and financial reporting standards as domestic issuers. EDRs are not necessarily denominated in the currency of the underlying security.
MEDIUM AND LOWER RATED
CORPORATE DEBT SECURITIES
The Fund may invest in securities that are rated in the medium to lowest rating categories by S&P and Moody's, some of which may be so-called "junk bonds." The Fund has historically invested in securities of distressed issuers when the intrinsic values of such securities have, in the opinion of Franklin Mutual, warranted such investment. Corporate debt securities rated Baa are regarded by Moody's as being neither highly protected nor poorly secured. Interest payments and principal security appears adequate to Moody's for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such securities are regarded by Moody's as lacking outstanding investment characteristics and having speculative characteristics. Corporate debt securities rated BBB are regarded by S&P as having adequate capacity to pay interest and repay principal. Such securities are regarded by S&P as normally exhibiting adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for securities in this rating category than in higher rated categories.
Corporate debt securities which are rated B are regarded by Moody's as generally lacking characteristics of the desirable investment. In Moody's view, assurance of interest and principal payments or of maintenance of other terms of the security over any long period of time may be small. Corporate debt securities rated BB, B, CCC, CC and C are regarded by S&P on balance as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. In S&P's view, although such securities likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB and B are regarded by S&P as indicating the two lowest degrees of speculation in this group of ratings. Securities rated D by S&P or C by Moody's are in default and are not currently performing. The Fund will rely on Franklin Mutual's judgment, analysis and experience in evaluating such debt securities. In this evaluation, Franklin Mutual will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters as well as the price of the security. Franklin Mutual may also consider, although it does not rely primarily on, the credit ratings of Moody's and S&P in evaluating lower rated corporate debt securities. Such ratings evaluate only the safety of principal and interest payments, not market value risk. Additionally, because the creditworthiness of an issuer may change more rapidly than is able to be timely reflected in changes in credit ratings, Franklin Mutual monitors the issuers of corporate debt securities held in the Fund's portfolio. The credit rating assigned to a security is a factor considered by Franklin Mutual in selecting a security for a series, but the intrinsic value in light of market conditions and Franklin Mutual's analysis of the fundamental values underlying the issuer are of at least equal significance. Because of the nature of medium and lower rated corporate debt securities, achievement by each series of its investment objective when investing in such securities is dependent on the credit analysis of Franklin Mutual. If the Fund purchased primarily higher rated debt securities, such risks would be substantially reduced.
A general economic downturn or a significant increase in interest rates could severely disrupt the market for medium and lower grade corporate debt securities and adversely affect the market value of such securities. Securities in default are relatively unaffected by such events or by changes in prevailing interest rates. In addition, in such circumstances, the ability of issuers of medium and lower grade corporate debt securities to repay principal and to pay interest, to meet projected business goals and to obtain additional financing may be adversely affected. Such consequences could lead to an increased incidence of default for such securities and adversely affect the value of the corporate debt securities in the Fund's portfolio. The secondary market prices of medium and lower grade corporate debt securities are less sensitive to changes in interest rates than are higher rated debt securities, but are more sensitive to adverse economic changes or individual corporate developments. Adverse publicity and investor perceptions, whether or not based on rational analysis, may also affect the value and liquidity of medium and lower grade corporate debt securities, although such factors also present investment opportunities when prices fall below intrinsic values. Yields on debt securities in a series' portfolio that are interest rate sensitive can be expected to fluctuate over time. In addition, periods of economic uncertainty and changes in interest rates can be expected to result in increased volatility of market price of any medium to lower grade corporate debt securities in the Fund's portfolio and thus could have an effect on the Net Asset Value of the Fund if other types of securities did not show offsetting changes in values. The secondary market value of corporate debt securities structured as zero coupon securities or payment in kind securities may be more volatile in response to changes in interest rates than debt securities which pay interest periodically in cash. Because such securities do not pay current interest, but rather, income is accreted, to the extent that a series does not have available cash to meet distribution requirements with respect to such income, it could be required to dispose of portfolio securities that it otherwise would not. Such disposition could be at a disadvantageous price. Failure to satisfy distribution requirements could result in the Fund failing to qualify as a pass-through entity under the Code. Investment in such securities also involves certain other tax considerations.
Franklin Mutual values the Funds' investments pursuant to guidelines adopted and periodically reviewed by the Board. See "How are Fund Shares Valued?" in this SAI. To the extent that there is no established retail market for some of the medium or low grade corporate debt securities in which the Fund may invest, there may be thin or no trading in such securities and the ability of Franklin Mutual to accurately value such securities may be adversely affected. Further, it may be more difficult for a series to sell such securities in a timely manner and at their stated value than would be the case for securities for which an established retail market did exist. The effects of adverse publicity and investor perceptions may be more pronounced for securities for which no established retail market exists as compared with the effects on securities for which such a market does exist. During periods of reduced market liquidity and in the absence of readily available market quotations for medium and lower grade corporate debt securities held in the Fund's portfolio, the responsibility of Franklin Mutual to value the Fund's securities becomes more difficult and Franklin Mutual's judgment may play a greater role in the valuation of the Fund's securities due to a reduced availability of reliable objective data. To the extent that the Fund purchases illiquid corporate debt securities or securities which are restricted as to resale, the Fund may incur additional risks and costs. Illiquid and restricted securities may be particularly difficult to value and their disposition may require greater effort and expense than more liquid securities. Further, a series may be required to incur costs in connection with the registration of restricted securities in order to dispose of such securities, although under Rule 144A under the Securities Act of 1933 certain securities may be determined to be liquid pursuant to procedures adopted by the Board under applicable guidelines.
SHORT SALES
The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. Each series expects to make short sales as a form of hedging to offset potential declines in long positions in similar securities, in order to maintain portfolio flexibility and for profit.
When a series makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other high grade liquid securities similar to those borrowed. The Fund will also be required to deposit similar collateral with its custodian to the extent, if any, necessary so that the value of both collateral deposits in the aggregate is at all times equal to at least 100% of the current market value of the security sold short.
If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
The Fund will not make a short sale if, after giving effect to such sale, the market value of all securities sold short exceeds 5% of the value of its total assets or the Fund's aggregate short sales of a particular class of securities exceeds 25% of the outstanding securities of that class. The Fund may also make short sales "against the box" without respect to such limitations. In this type of short sale, at the time of the sale, the Fund owns or has the immediate and unconditional right to acquire at no additional cost the identical security.
RESTRICTIONS AND LIMITATIONS
Mutual Shares, Qualified, Beacon, Discovery and European have each adopted the following fundamental investment restrictions which may not be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of such series, which means the lesser of (1) the holders of more than 50% of the outstanding shares of voting stock of such securities or (2) 67% of the shares if more than 50% of the shares are present at a meeting of shareholders in person or by proxy. Unless otherwise noted, all percentage restrictions are as of the time of investment after giving effect to the transaction. Pursuant to such restrictions each series may not:
1. Purchase or sell commodities, commodity contracts (except in conformity with regulations of the Commodities Futures Trading Commission such that the series would not be considered a commodity pool), or oil and gas interests or real estate. Securities or other instruments backed by commodities are not considered commodities or commodity contracts for purposes of this restriction. Debt or equity securities issued by companies engaged in the oil, gas, or real estate businesses are not considered oil or gas interests or real estate for purposes of this restriction. First mortgage loans and other direct obligations secured by real estate are not considered real estate for purposes of this restriction.
2. Make loans, except to the extent the purchase of debt obligations of any type are considered loans and except that the series may lend portfolio securities to qualified institutional investors in compliance with requirements established from time to time by the SEC and the securities exchanges on which such securities are traded.
3. Issue securities senior to its stock or borrow money or utilize leverage in excess of the maximum permitted by the 1940 Act which is currently 33 1/3% of total assets (plus 5% for emergency or other short-term purposes) from banks on a temporary basis from time to time to provide greater liquidity for redemptions or for special circumstances.
4. Invest more than 25% of the value of its assets in a particular industry (except that U.S. government securities are not considered an industry).
5. Act as an underwriter except to the extent the series may be deemed to be an underwriter when disposing of securities it owns or when selling its own shares.
6. Purchase the securities of any one issuer, other than the U.S. government or any of its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of its total assets would be invested in such issuer, or such series would own more than 10% of the outstanding voting securities of such issuer, except that up to 25% of the value of such series' total assets may be invested without regard to such 5% and 10% limitations.
7. Except as may be described in the Prospectus, engage in short sales, purchase securities on margin or maintain a net short position.
If a percentage restriction is met at the time of investment, a later increase or decrease in the percentage due to a change in the value or liquidity of portfolio securities or the amount of assets will not be considered a violation of any of the foregoing restrictions.
NONFUNDAMENTAL POLICIES
As a matter of policy that is not fundamental, no series will invest more than 5% of its assets in warrants, and that no more than 2% of such assets may be invested in warrants which are not listed on the NYSE or American Stock Exchange. Also, as a matter of policy, the Fund will not purchase securities for purposes of short term trading and will not invest more than 5% of its assets in securities of issuers (together with any predecessors) in existence for less than three years, provided that the aggregate percentage of assets invested in such issuers, combined with illiquid investments, does not exceed 15%. The Fund will not purchase the securities of any issuer of which any officer or director of the Fund owns more than 1/2 of 1% of the outstanding securities or in which the officers and directors in the aggregate own more than 5%. The Fund does not borrow for leveraging purposes.
In order to permit the sale of shares in certain states, the Fund may make commitments more restrictive than the operating restrictions described above. Should the Fund determine that any such commitment is no longer in the best interests of a particular series and its shareholders, the Fund will revoke the commitment by terminating sales of such series' shares in the state involved.
OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Fund, including general supervision and review of its investment activities. The Board, in turn, elects the officers of the Fund who are responsible for administering the Fund's day-to-day operations. The affiliations of the officers and Board members and their principal occupations for the past five years are shown below. Members of the Board who are considered "interested persons" of the Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS OFFICES WITH MUTUAL DURING THE PAST FIVE
SERIES YEARS
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Edward I. Altman, Ph.D. (55)
New York University
44 West 4th Street
New York, NY 10012
Director
Max L. Heine Professor of Financing and Vice Director of NYU Salomon Center, Stern School of Business, New York University; editor and author of numerous financial publications; financial consultant.
Ann Torre Grant (39)
8065 Leesburg Pike
Suite 400
Vienna, VA 22182
Director
Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily housing); prior to March 1995 she was Vice President and Treasurer, U.S. Air, Inc.
Andrew H. Hines, Jr. (74)
150 2nd Avenue N.
St. Petersburg, FL 33701
Director
Consultant for the Triangle Consulting Group; chairman and director of Precise Power Corporation; executive-in-residence of Eckerd College (1991-present); director of Checkers Drive-In Restaurants, Inc.; formerly, chairman of the board and chief executive officer of Florida Progress Corporation (1982-1990) and director or trustee of 24 of the investment companies in the Franklin Templeton Group of funds.
*Peter A. Langerman (41)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Director and Executive Vice President
Financial Analyst with Franklin Mutual Advisers, Inc.; held the same position with Heine Securities Corporation, 6/86 to 10/96; Director of Sunbeam Oster since 1990, Lancer Industries since 1994; Manager (Director) of MWCR, L.L.C. since 1995; and Director of Metallurg, Inc. since 1997.
*William J. Lippman (72)
One Parker Plaza
Fort Lee, NJ 07024
Director
Senior Vice President, Franklin Resources, Inc. and Franklin Management, Inc.; President and Director, Franklin Advisory Services, Inc.; and officer and/or director or trustee of seven of the investment companies in the Franklin Templeton Group of Funds.
Bruce A. MacPherson (67)
1 Pequot Way
Canton, MA 02021
Director
President of A.A. MacPherson, Inc. Boston, MA (representative for electrical manufacturers).
Fred R. Millsaps (68)
2665 NE 37th Drive
Fort Lauderdale, FL 33394
Director
Manager of personal investments (1978-present); director of various business and nonprofit organizations; formerly, chairman and chief executive officer of Landmark Banking Corporation (1969-1978), financial vice president of Florida Power and Light (1965-1969), and vice president of The Federal Reserve Bank of Atlanta (1958-1965); and director or trustee of 24 of the Franklin Templeton Group of Funds.
*Michael F. Price (45)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Chairman of the Board and President
President, Chief Executive Officer, and Director of Franklin Mutual Advisers, Inc.; held the same positions with Heine Securities Corporation, 1/87 to 10/96; Principal Executive Officer and majority owner of Compliance Solutions, Inc. ("Compliance Solutions") (a developer of compliance monitoring software for money managers); Director and owner of Clearwater Securities, Inc. ("Clearwater") (a registered securities dealer).
Leonard Rubin (71)
2 Executive Drive, Suite 560
Fort Lee, NJ 07024
Director
Partner in LDR Equities, LLC (manages various personal investments); Vice President, Trimtex Co. Inc. (manufactures and markets specialty fabrics); and trustee of four of the investment companies in the Franklin Templeton Group of Funds.
Barry F. Schwartz (48)
35 East 62nd Street
New York, NY 10021
Director
Executive Vice President and General Counsel, MacAndrews & Forbes Holdings, Inc. (a diversified holding company).
Vaughn R. Sturtevant, M.D. (73)
6 Noyes Avenue
Waterville, ME 04901
Director
Practicing physician.
Robert E. Wade (51)
225 Hardwick Street
Belvidere, NJ 07823
Director
Practicing attorney.
Jeffrey A. Altman (30)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Analyst and Trader with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation, 8/88 to 10/96; Manager (Director), MB Metropolis, L.L.C. since 1994; Manager (Director) of MWCR, L.L.C. and S.H. Mortgage Acquisition L.L.C. since 1995; Trustee of Resurgence Properties Inc.; and Chairman of the Board of Trustees, Value Property Trust.
James R. Baio (43)
500 East Broward Blvd.
Fort Lauderdale, FL 33701
Treasurer
Certified public accountant; Treasurer of the Templeton Funds; Senior Vice President of Templeton Worldwide, Inc., Templeton Global Investors, Inc., and Templeton Funds Trust Company.
Elizabeth N. Cohernour (47)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
General Counsel and Secretary
Vice President and Assistant Secretary of Franklin Mutual Advisers, Inc.; formerly Secretary and General Counsel of Heine Securities Corporation, 5/88 to 10/96; Secretary and General Counsel of Compliance Solutions and Clearwater.
Robert L. Friedman (37)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation, 8/88 to 10/96.
Raymond Garea (47)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation, 3/91 to 10/96; prior thereto he was a Vice President and analyst with Donaldson, Lufkin & Jenrette; Manager (Director), MB Metropolis, L.L.C. and S.H. Mortgage Acquisition L.L.C.
Lawrence N. Sondike (39)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation 3/84 to 10/96.
The Fund's independent Board members have standing audit, pension, nominating and director's compensation and performance committees. The audit committee is composed of Ms. Grant and Messrs. Altman and Wade. The pension committee is composed of Messrs. Altman, Schwartz and Sturtevant. The nominating committee is responsible for nominating candidates for independent Board member positions and is composed of Messrs. MacPherson and Schwartz. The Board members' compensation and performance committee is composed of Ms. Grant and Messrs. Wade and Sturtevant.
The table above shows the officers and Board members who are affiliated with Distributors and Franklin Mutual. Nonaffiliated members of the Board are currently paid $15,000 per year plus $750 per meeting attended. Board members are paid $500 plus out-of-pocket expenses for each committee meeting attended. In 1993, the Board members approved a retirement plan which generally provides payments to directors who have served 10 years and retire at age 70. At the time of retirement, Directors are entitled to annual payments equal to one-half of the retainer in effect as of the time of retirement. As shown above, some of the nonaffiliated Board members also serve as directors, trustees or managing general partners of other investment companies in the Franklin Templeton Group of Funds. They may receive fees from these funds for their services. The following table provides the total fees paid to nonaffiliated Board members by Mutual Sies and by other funds in the Franklin Templeton Group of Funds.
TOTAL FEES NUMBER OF BOARDS
RECEIVED FROM IN THE FRANKLIN
TOTAL FEES PENSION ANNUAL THE FRANKLIN TEMPLETON GROUP
NAME RECEIVED FROM RETIREMENT BENEFITS TEMPLETON GROUP OF FUNDS on WHICH
MUTUAL SERIES* ACCRUAL RETIREMENT OF FUNDS EACH SERVES***
- -----------------------------------------------------------------------------
Edward I.
Altman $19,000 0 $7,500 0 1
Ann Torre
Grant+ $19,000 0 $7,500 0 1
Bruce A.
MacPherson
$18,000 0 $7,500 0 1
Barry F.
Schwartz+
$18,000 0 $7,500 0 1
Vaughn
R.Sturtevant,
M.D.
$18,000 0 $7,500 0 1
Robert E. Wade+
$24,500 0 $7,500 0 1
Andrew Hines, Jr.+
$ 5,250 0 $7,500 $125,275 24
Fred R. Millsaps+
$ 5,250 0 $7,500 $125,275 24
Leonard Rubin+
$ 4,500 0 $7,500 $ 24,600 4
Richard L.
Chasse++
$17,250 0 $7,500 0 4
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+Not vested in retirement plan
++Retired December, 1996
*For the fiscal year ended December 31, 1996.
**For the calendar year ended December 31, 1996.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 62 registered investment companies, with approximately 170 U.S. based
funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in connection with attending board meetings, paid pro rata by each fund in the Franklin Templeton Group of Funds for which they serve as director, trustee or managing general partner. No officer or Board member received any other compensation, including pension or retirement benefits directly or indirectly from the Fund or other funds in the Franklin Templeton Group of Funds. Certain officers or Board members who are shareholders of Resources may be deemed to receive indirect remuneration by virtue of their participation, if any, in the fees paid to its subsidiaries. Certain officers and Board members of the Fund are also officers of Compliance Solutions. The Fund is not charged for the use of software designed by Compliance Solutions.
As of April 2, 1997, the officers and Board members, as a group, owned of record and beneficially the following shares of Mutual Series: 342,777.175 shares of Mutual Shares - Class Z; 99,910.747 shares of Qualified - Class Z; 666,619.489 shares of Beacon - Class Z; 380,534.148 shares of Discovery Class Z, or less than 1% of the total outstanding Class Z shares of that series. As of April 2, 1997, the officers and Board members, as a group, owned of record and beneficially 14,082,303.957 shares or 31% of the total outstanding Class Z shares of European. Some of the Board members also own shares in other funds in the Franklin Templeton Group of Funds.
INVESTMENT MANAGEMENT
AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is Franklin Mutual. On October 31, 1996, pursuant to an agreement between Resources and Heine Securities, Inc. ("Heine"), the assets of Heine were transferred to Franklin Mutual and Mutual Series Fund Inc.'s name was changed to Franklin Mutual Series Fund Inc.
Franklin Mutual provides investment research and portfolio management services, including the selection of securities for the Fund to buy, hold or sell and the selection of brokers through whom the Fund's portfolio transactions are executed. Franklin Mutual's activities are subject to the review and supervision of the Board to whom Franklin Mutual renders periodic reports of the Fund's investment activities. Franklin Mutual and its officers, directors and employees are covered by fidelity insurance for the protection of the Fund.
Franklin Mutual and its affiliates act as investment manager to numerous other
investment companies and accounts. Franklin Mutual may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Franklin Mutual on behalf of the
Fund. Similarly, with respect to the Fund, Franklin Mutual is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling any
security that Franklin Mutual and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Franklin Mutual is not obligated to refrain from investing in securities
held by the Fund or other funds that it manages. Of course, any transactions for
the accounts of Franklin Mutual and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
For the fiscal years ended December 31, 1994, 1995 and 1996, management fees, before any advance waiver, totaled $21,795,512, $27,500,952, and $35,687,092, respectively, for Mutual Shares; $9,766,052, $14,607,723 and $22,515,334, respectively, for Qualified; $9,511,199, $17,720,127 and $26,083,112, respectively, for Beacon; $5,737,128, $7,930,967 and $17,795,530, respectively, for Discovery. For the fiscal year ended December 31, 1996, management fees, before any advance waiver totaled $949,616 for European. Under an agreement by Franklin Mutual to limit its fees for the fiscal year ended December 31, 1996, the Funds paid management fees totaling $34,719,646 for Mutual Shares; $21,439,007 for Qualified; $25,260,160 for Beacon; $17,154,254 for Discovery; and $876,464 for European. For the fiscal years ended December 31, 1994 and 1995, the investment manager did not waive or limit its fees.
MANAGEMENT AGREEMENT. The management agreement is in effect until June 30, 1998. It may continue in effect for successive annual periods if its continuance is specifically approved at least annually by a vote of the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, and in either event by a majority vote of the Board members who are not parties to the management agreement or interested persons of any such party (other than as members of the Board), cast in person at a meeting called for that purpose. The management agreement may be terminated without penalty at any time by the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, or by Franklin Mutual on 60 days' written notice, and will automatically terminate in the event of its assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. On November 1, 1996, FT Services became the Fund's administrator. FT Services provides certain administrative services and facilities for the Fund. These include preparing and maintaining books, records, and tax and financial reports, and monitoring compliance with regulatory requirements. FT Services is a wholly owned subsidiary of Resources.
For the two-month period ended December 31, 1996, administration fees totaling $840,707, $553,904, $634,856, $380,772, and $57,060 were paid to FT Services for Mutual Shares, Qualified, Beacon, Discovery and European, respectively.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of Resources, is the Fund's shareholder servicing agent and acts as the Fund's transfer agent and dividend-paying agent. Investor Services is compensated on the basis of a fixed fee per account.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110, acts as custodian of the securities and other assets of the Fund. The custodian does not participate in decisions relating to the purchase and sale of portfolio securities.
AUDITORS. Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, are the Fund's independent auditors. During the fiscal year ended December 31, 1996, their auditing services consisted of rendering an opinion on the financial statements of the Fund included in the Fund's Annual Report to Shareholders for the fiscal year ended December 31, 1996.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
Franklin Mutual selects brokers and dealers to execute the Fund's portfolio transactions in accordance with criteria set forth in the management agreement and any directions that the Board may give.
When placing a portfolio transaction, Franklin Mutual seeks to obtain prompt execution of orders at the most favorable net price. For portfolio transactions on a securities exchange, the amount of commission paid by the Fund is negotiated between Franklin Mutual and the broker executing the transaction. The determination and evaluation of the reasonableness of the brokerage commissions paid are based to a large degree on the professional opinions of the persons responsible for placement and review of the transactions. These opinions are based on the experience of these individuals in the securities industry and information available to them about the level of commissions being paid by other institutional investors of comparable size. Franklin Mutual will ordinarily place orders to buy and sell over-the-counter securities on a principal rather than agency basis with a principal market maker unless, in the opinion of Franklin Mutual, a better price and execution can otherwise be obtained. Purchases of portfolio securities from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers will include a spread between the bid and ask price.
Franklin Mutual may pay certain brokers commissions that are higher than those another broker may charge, if Franklin Mutual determines in good faith that the amount paid is reasonable in relation to the value of the brokerage and research services it receives. This may be viewed in terms of either the particular transaction or Franklin Mutual's overall responsibilities to client accounts over which it exercises investment discretion. The services that brokers may provide to Franklin Mutual include, among others, supplying information about particular companies, markets, countries, or local, regional, national or transnational economies, statistical data, quotations and other securities pricing information, and other information that provides lawful and appropriate assistance to Franklin Mutual in carrying out its investment advisory responsibilities. These services may not always directly benefit the Fund. They must, however, be of value to Franklin Mutual in carrying out its overall responsibilities to its clients.
It is not always possible to place a precise dollar value on the special executions or on the research services Franklin Mutual receives from dealers effecting transactions in portfolio securities. The allocation of transactions in order to obtain additional research services permits Franklin Mutual to supplement its own research and analysis activities and to receive the views and information of individuals and research staffs of other securities firms. As long as it is lawful and appropriate to do so, Franklin Mutual and its affiliates may use this research and data in their investment advisory capacities with other clients. If the Fund's officers are satisfied that the best execution is obtained, the sale of Fund shares, as well as shares of other funds in the Franklin Templeton Group of Funds, may also be considered a factor in the selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain fees when the Fund tenders portfolio securities pursuant to a tender-offer solicitation. As a means of recapturing brokerage for the benefit of the Fund, any portfolio securities tendered by the Fund may be tendered through Distributors if it is legally permissible and Franklin Mutual believes it would be in the best interests of the Fund to do so. In turn, the next management fee payable to Franklin Mutual will be reduced by the amount of any fees received by Distributors in cash, less any costs and expenses incurred in connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment companies or clients supervised by Franklin Mutual are considered at or about the same time, transactions in these securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by Franklin Mutual, taking into account the respective sizes of the funds and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Fund is concerned. In other cases it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Fund.
During the fiscal years ended December 31, 1994, 1995 and 1996, the Fund paid brokerage commissions as follows:
MUTUAL SHARES QUALIFIED BEACON DISCOVERY EUROPEAN
1994 $4,036,735 $2,648,109 $2,745,963 $2,225,634 -0-
1995 $8,028,205 $5,182,736 $6,269,829 $3,040,751 -0-
1996 $8,095,501 $6,090,786 $7,418,388 $7,928,860 $734,682
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As of December 31, 1996, the Funds owned securities issued by Bear Stearns & Co. valued in the aggregate at $39,490. Except as noted, the Funds did not own any securities issued by their regular broker-dealers as of the end of the fiscal year.
Clearwater, an indirect affiliate of Franklin Mutual, is a registered securities dealer and a member of the NASD. Transactions in some Fund portfolio securities (particularly transactions involving floor brokers) were effected through Clearwater before November 1, 1996. During the fiscal years ended December 31, 1994, 1995 and 1996, Mutual Shares paid brokerage commissions to Clearwater of $313,814, $1,192,230 and $755,142, respectively; Qualified paid $147,829, $640,588 and $439,926, respectively; Beacon paid $168,828, $764,323 and $607,402, respectively; and Discovery paid $$74,704, $217,609 and $384,267, respectively. During the fiscal year ended December 31, 1996, European paid $4,037.
SOFT DOLLAR ARRANGEMENTS. The Fund receives research services from persons who act as brokers or dealers for the Fund. The discussion below relates in general to these brokers or dealers who pursuant to various arrangements pay for certain computer hardware and software and other research and brokerage services to Franklin Mutual and/or the Fund for transactions effected by it for the Fund. Commission soft dollars may be used only for brokerage and research services provided by brokers to whom commissions are paid and under no circumstances will cash payments be made by any such broker to Franklin Mutual. To the extent that commission soft dollars do not result in the provision of any "brokerage and research services" by brokers to whom such commissions are paid, the commissions, nevertheless, are the property of such broker. Although, potentially, Franklin Mutual could be influenced to place Fund brokerage transactions with a broker in order to generate soft dollars for Franklin Mutual's benefit, Franklin Mutual believes that the requirement that it achieve best execution on Fund portfolio transactions, and the Fund's negotiated commission structure with brokers, mitigate these concerns as the cost of transactions effected through brokers, before consideration of any soft dollar benefits that may be received, generally will be comparable to that available elsewhere. During the fiscal years ended December 31, 1994, 1995 and 1996, the Fund paid brokerage commissions of $2,267,683, $3,355,180, and $2,539,782, respectively, to brokers who provided research services. This amount represented 19.45%, 14.90%, and 8.50%, respectively, of total commissions paid for the periods.
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an agreement with Distributors. Securities Dealers may at times receive the entire sales charge. A Securities Dealer who receives 90% or more of the sales charge may be deemed an underwriter under the Securities Act of 1933, as amended.
Securities laws of states where the Fund offers its shares may differ from federal law. Banks and financial institutions that sell shares of the Fund may be required by state law to register as Securities Dealers. Financial institutions or their affiliated brokers may receive an agency transaction fee in the percentages indicated in the table under "How Do I Buy Shares? Purchase Price of Fund Shares" in the Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid to the Fund we may impose a $10 charge against your account for each returned item.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's shares are available to these banks' trust accounts without a sales charge. The banks may charge service fees to their customers who participate in the trusts. A portion of these service fees may be paid to Distributors or one of its affiliates to help defray expenses of maintaining a service office in Taiwan, including expenses related to local literature fulfillment and communication facilities.
Class I shares of the Fund may be offered to investors in Taiwan through securities advisory firms known locally as Securities Investment Consulting Enterprises. In conformity with local business practices in Taiwan, Class I shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE Under $30,000 3.0% $30,000 but less than $50,000 2.5% $50,000 but less than $100,000 2.0% $100,000 but less than $200,000 1.5% $200,000 but less than $400,000 1.0% $400,000 or more 0% |
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors may pay the following commissions, out of its own resources, to Securities Dealers who initiate and are responsible for purchases of Class I shares of $1 million or more: 1% on sales of $1 million to $2 million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales over $50 million to $100 million, plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts, out of its own resources, to Securities Dealers who initiate and are responsible for purchases of Class I shares by certain retirement plans without a front-end sales charge, as discussed in the Prospectus: 1% on sales of $500,000 to $2 million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales over $50 million to $100 million, plus 0.15% on sales over $100 million. Distributors may make these payments in the form of contingent advance payments, which may be recovered from the Securities Dealer or set off against other payments due to the dealer if shares are sold within 12 months of the calendar month of purchase. Other conditions may apply. All terms and conditions may be imposed by an agreement between Distributors, or one of its affiliates, and the Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional purchases.
Distributors and/or its affiliates provide financial support to various Securities Dealers that sell shares of the Franklin Templeton Group of Funds. This support is based primarily on the amount of sales of fund shares. The amount of support may be affected by: total sales; net sales; levels of redemptions; the proportion of a Securities Dealer's sales and marketing efforts in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and participation in, Distributors' marketing programs; a Securities Dealer's compensation programs for its registered representatives; and the extent of a Securities Dealer's marketing programs relating to the Franklin Templeton Group of Funds. Financial support to Securities Dealers may be made by payments from Distributors' resources, from Distributors' retention of underwriting concessions and, in the case of funds that have Rule 12b-1 plans, from payments to Distributors under such plans. In addition, certain Securities Dealers may receive brokerage commissions generated by fund portfolio transactions in accordance with the NASD's rules.
LETTER OF INTENT. You may qualify for a reduced sales charge when you buy Class I shares, as described in the Prospectus. At any time within 90 days after the first investment that you want to qualify for a reduced sales charge, you may file with the Fund a signed shareholder application with the Letter of Intent section completed. After the Letter is filed, each additional investment will be entitled to the sales charge applicable to the level of investment indicated on the Letter. Sales charge reductions based on purchases in more than one Franklin Templeton Fund will be effective only after notification to Distributors that the investment qualifies for a discount. Your holdings in the Franklin Templeton Funds acquired more than 90 days before the Letter is filed will be counted towards completion of the Letter, but they will not be entitled to a retroactive downward adjustment in the sales charge. Any redemptions you make during the 13 month period, except in the case of certain retirement plans, will be subtracted from the amount of the purchases for purposes of determining whether the terms of the Letter have been completed. If the Letter is not completed within the 13 month period, there will be an upward adjustment of the sales charge, depending on the amount actually purchased (less redemptions) during the period. The upward adjustment does not apply to certain retirement plans. If you execute a Letter before a change in the sales charge structure of the Fund, you may complete the Letter at the lower of the new sales charge structure or the sales charge structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total intended purchase will be reserved in Class I shares of the Fund registered in your name until you fulfill the Letter. This policy of reserving shares does not apply to certain retirement plans. If total purchases, less redemptions, equal the amount specified under the Letter, the reserved shares will be deposited to an account in your name or delivered to you or as you direct. If total purchases, less redemptions, exceed the amount specified under the Letter and is an amount that would qualify for a further quantity discount, a retroactive price adjustment will be made by Distributors and the Securities Dealer through whom purchases were made pursuant to the Letter (to reflect such further quantity discount) on purchases made within 90 days before and on those made after filing the Letter. The resulting difference in Offering Price will be applied to the purchase of additional shares at the Offering Price applicable to a single purchase or the dollar amount of the total purchases. If the total purchases, less redemptions, are less than the amount specified under the Letter, you will remit to Distributors an amount equal to the difference in the dollar amount of sales charge actually paid and the amount of sales charge that would have applied to the aggregate purchases if the total of the purchases had been made at a single time. Upon remittance, the reserved shares held for your account will be deposited to an account in your name or delivered to you or as you direct. If within 20 days after written request the difference in sales charge is not paid, the redemption of an appropriate number of reserved shares to realize the difference will be made. In the event of a total redemption of the account before fulfillment of the Letter, the additional sales charge due will be deducted from the proceeds of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and any reduction in sales charge for these plans will be based on actual plan participation and the projected investments in the Franklin Templeton Funds under the Letter. These plans are not subject to the requirement to reserve 5% of the total intended purchase, or to any penalty as a result of the early termination of a plan, nor are these plans entitled to receive retroactive adjustments in price for investments made before executing the Letter.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be purchased at the Net Asset Value determined on the business day following the dividend record date (sometimes known as the "ex-dividend date"). The processing date for the reinvestment of dividends may vary and does not affect the amount or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but unpaid income dividends and capital gain distributions will be exchanged into the new fund and will be invested at Net Asset Value. Backup withholding and information reporting may apply. Information regarding the possible tax consequences of an exchange is included in the tax section in this SAI and in the Prospectus.
If a substantial number of shareholders should, within a short period, sell their shares of the Fund under the exchange privilege, the Fund might have to sell portfolio securities it might otherwise hold and incur the additional costs related to such transactions. On the other hand, increased use of the exchange privilege may result in periodic large inflows of money. If this occurs, it is the Fund's general policy to initially invest this money in short-term, interest-bearing money market instruments, unless it is believed that attractive investment opportunities consistent with the Fund's investment objectives exist immediately. This money will then be withdrawn from the short-term money market instruments and invested in portfolio securities in as orderly a manner as is possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not available until the fifth business day following the sale. The funds you are seeking to exchange into may delay issuing shares pursuant to an exchange until that fifth business day. The sale of Fund shares to complete an exchange will be effected at Net Asset Value at the close of business on the day the request for exchange is received in proper form. Please see "May I Exchange Shares for Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or maintaining a systematic withdrawal plan. Once your plan is established, any distributions paid by the Fund will be automatically reinvested in your account. Payments under the plan will be made from the redemption of an equivalent amount of shares in your account, generally on the 25th day of the month in which a payment is scheduled. If the 25th falls on a weekend or holiday, we will process the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the shares in your account if payments exceed distributions received from the Fund. This is especially likely to occur if there is a market decline. If a withdrawal amount exceeds the value of your account, your account will be closed and the remaining balance in your account will be sent to you. Because the amount withdrawn under the plan may be more than your actual yield or income, part of the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in writing and will automatically discontinue a systematic withdrawal plan if all shares in your account are withdrawn or if the Fund receives notification of the shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities Dealer, it is your dealer's responsibility to transmit the order to the Fund in a timely fashion. Any loss to you resulting from your dealer's failure to do so must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. In the case of redemption requests, the Board reserves the right to make payments in whole or in part in securities or other assets of the Fund, in case of an emergency, or if the payment of such a redemption in cash would be detrimental to the existing shareholders of the Fund. In these circumstances, the securities distributed would be valued at the price used to compute the Fund's net assets and you may incur brokerage fees in converting the securities to cash. The Fund does not intend to redeem illiquid securities in kind. If this happens, however, you may not be able to recover your investment in a timely manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the postal service, we will consider this a request by you to change your dividend option to reinvest all distributions. The proceeds will be reinvested in additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify your current mailing address, we may deduct the costs of our efforts to find you from your account. These costs may include a percentage of the account when a search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares of the Fund must be denominated in U.S. dollars. We may, in our sole discretion, either (a) reject any order to buy or sell shares denominated in any other currency or (b) honor the transaction or make adjustments to your account for the transaction as of a date and with a foreign currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that maintain omnibus accounts with the Fund on behalf of numerous beneficial owners for recordkeeping operations performed with respect to such owners. For each beneficial owner in the omnibus account, the Fund may reimburse Investor Services an amount not to exceed the per account fee that the Fund normally pays Investor Services. These financial institutions may also charge a fee for their services directly to their clients.
Certain shareholder servicing agents may be authorized to accept your transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled close of the NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for trading. As of the date of this SAI, the Fund is informed that the NYSE observes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and receivables are valued at their realizable amounts. Interest is recorded as accrued and dividends are recorded on the ex-dividend date. Portfolio securities listed on a securities exchange or on the NASDAQ National Market System for which market quotations are readily available are valued at the last quoted sale price of the day or, if there is no such reported sale, within the range of the most recent quoted bid and ask prices. Over-the-counter portfolio securities are valued within the range of the most recent quoted bid and ask prices. Portfolio securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market as determined by Franklin Mutual.
Portfolio securities underlying actively traded call options are valued at their market price as determined above. The current market value of any option held by the Fund is its last sale price on the relevant exchange before the time when assets are valued. Lacking any sales that day or if the last sale price is outside the bid and ask prices, options are valued within the range of the current closing bid and ask prices if the valuation is believed to fairly reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the foreign exchange on which it is traded or as of the scheduled close of trading on the NYSE, if that is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York time, on the day the value of the foreign security is determined. If no sale is reported at that time, the mean between the current bid and ask prices is used. Occasionally events that affect the values of foreign securities and foreign exchange rates may occur between the times at which they are determined and the close of the exchange and will, therefore, not be reflected in the computation of the Net Asset Value of each class. If events materially affecting the values of these foreign securities occur during this period, the securities will be valued in accordance with procedures established by the Board.
Generally, trading in corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times before the scheduled close of the NYSE. The value of these securities used in computing the Net Asset Value of each class is determined as of such times. Occasionally, events affecting the values of these securities may occur between the times at which they are determined and the scheduled close of the NYSE that will not be reflected in the computation of the Net Asset Value of each class. If events materially affecting the values of these securities occur during this period, the securities will be valued at their fair value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued at the current market price, which may be obtained from a pricing service, based on a variety of factors including recent trades, institutional size trading in similar types of securities (considering yield, risk and maturity) and/or developments related to specific issues. Securities and other assets for which market prices are not readily available are valued at fair value as determined following procedures approved by the Board. With the approval of the Board, the Fund may utilize a pricing service, bank or Securities Dealer to perform any of the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of dividends, interest and other income derived from its investments. This income, less the expenses incurred in the Fund's operations, is its net investment income from which income dividends may be distributed. Thus, the amount of dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in connection with sales or other dispositions of its portfolio securities. Distributions by the Fund derived from net short-term and net long-term capital gains (after taking into account any capital loss carryforward or post-October loss deferral) may generally be made twice each year, once in December and once at mid-year. The Fund may adjust the timing of these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, Mutual Series has elected and qualified to be treated as a regulated investment company under Subchapter M of the Code. The Board reserves the right not to maintain the qualification of Mutual Series as a regulated investment company if it determines this course of action to be beneficial to shareholders. In that case, the Fund will be subject to federal and possibly state corporate taxes on its taxable income and gains, and distributions to shareholders will be taxable to the extent of the Fund's available earnings and profits.
Because the Fund intends to qualify and to distribute all of its net investment income and capital gain to shareholders, it is expected that the Fund will not be required to pay Federal income taxes.
The Fund normally will distribute substantially all of its net investment income and net realized capital gain, if any, to shareholders in the form of dividends to be paid from time to time as determined by the Board. Such dividends are taxable whether paid in cash or additional shares of such series.
In the event that total distributions (including distributed or designated net capital gain) for a taxable year exceed its investment company taxable income and net capital gain, a portion of each distribution generally will be treated as a return of capital. Distributions treated as a return of capital reduce a shareholder's basis in its shares and could result in a capital gain tax either when a distribution is in excess of basis or, more likely, when a shareholder redeems its shares.
Shareholders will be notified annually by the Fund as to the Federal tax
treatment of dividends and distributions paid during the calendar year.
Dividends and distributions may also be subject to state and local taxes. State
and local tax treatment may vary according to applicable laws. You can elect to
receive distributions in cash or in additional shares of such series. The price
of the additional shares is determined as of the date for the dividend payment.
(See "What Distributions Might I Receive from the Fund?" in the Prospectus.)
To maintain qualification as a regulated investment company under the Code, the Fund must limit gains from the sale or other disposition of its portfolio securities (including options, futures and forward contracts) held for less than three months to less than 30% of its annual gross income. Generally, gains on foreign currencies (and gains on options, futures, or forward contracts with respect to foreign currencies) are not subject to this 30% short-short rule if directly related to regular investments by a series in equity or debt securities.
The Fund intends to declare and pay dividends and capital gain distributions so as to avoid imposition of a 4% federal excise tax. To do so, the Fund expects to distribute during the calendar year an amount at least equal to (i) 98% of its calendar year net investment income, (ii) 98% of its realized capital gain (the excess of short and long-term capital gain over short and long-term capital loss) for each one-year period ending October 31, and (iii) 100% of any undistributed net investment income or realized capital gain from the prior calendar year which has not been distributed by the Fund. Dividends declared in October, November, or December and made payable to shareholders of record in such a month would be deemed paid by the Fund and taxable to shareholders on December 31 of such year provided that the dividends are actually paid during January of the following year. The Fund may make a deemed distribution with respect to its net capital gain by paying the tax with respect to the net capital gain and then designating, but not distributing, all or a portion of the gain as a capital gain dividend. The Fund's shareholders will treat the designated amounts as a capital gain on their income tax returns, but they will receive a credit or refund equal to federal income taxes paid by the Fund with respect to the capital gain. In addition, shareholders will increase their basis in the Fund's shares by 65% of the amount subject to tax. If a capital gain dividend is paid with respect to any shares sold at a loss after being held for less than six months, any loss realized will be treated as a long-term capital loss to the extent of the capital gain dividend. There are special rules for determining holding periods for the purpose of the preceding sentence.
Dividends distributed by the Fund will only be eligible for the
dividends-received deduction available to corporate shareholders to the extent
of the portion of the Fund's gross income that consists of dividends received on
equity securities issued by domestic corporations meets the same holding period,
risk of loss, and borrowing limitations applicable to the Fund's shareholders.
Section 246 of the Code permits the dividends-received deduction to corporate
shareholders only if the shares with respect to which the dividends were paid
have been held for more than 45 days. If the holding period is not satisfied,
the dividends-received deduction is disallowed, regardless of whether the shares
with respect to which the dividends were paid have been sold or otherwise
disposed of. The holding period requirements are separately applicable to each
block of shares acquired, including each block of shares received in payment of
the Fund's dividends. For purposes of determining whether this holding period
requirement has been met, the day of acquisition and any day after the first 45
days after the date on which such shares become ex-dividend must be disregarded.
In addition, the holding period is suspended during periods in which the stock
is subject to diminished risk of loss including, for example, because the holder
has acquired a put option or sold a call option (other than certain covered call
options where the exercise price is not substantially below the selling price)
or otherwise hedged his position.
The dividends-received deduction will also be reduced, for shareholders who incur indebtedness in order to purchase shares of the Fund, by the percentage of the cost of the Fund's shares that is debt-financed. Generally, this limitation applies only if the debt is directly attributable to the purchase of shares. Whether debt is directly attributable to the purchase of shares depends on the particular facts and circumstances of each situation and accordingly shareholders are urged to consult their tax advisors.
Under section 1059 of the Code, a corporation which receives an "extraordinary dividend" and disposes of the stock with respect to which such dividend was paid, provided generally that such stock has not been held for at least two years prior to the date of declaration, announcement or agreement about the extraordinary dividend, is required to reduce its basis in such stock (but not below zero) by the amount of the dividend which was not taxed because of the dividends-received deduction with such basis reduction generally being treated as having occurred immediately before the sale or disposition of such stock. To the extent such untaxed amount exceeds the shareholder's basis, such excess will be taxed as gain upon a sale or disposition of such stock. An extraordinary dividend generally is any dividend that equals or exceeds 10% of the shareholder's basis in the stock (5% in the case of preferred stock). For this purpose, generally, all dividends within any 85-day period, and if such dividends total more than 20% of the shareholder's basis in its stock, all dividends within one year, must be aggregated for purposes of determining whether such dividends constitute extraordinary dividends. The shareholder may elect to determine the status of extraordinary dividends by reference to the fair market value of the stock as of the date before the ex-dividend date, rather than by reference to the adjusted basis of such stock (provided the shareholder establishes the fair market value to the satisfaction of the Commissioner of the IRS). In determining whether the above-mentioned two-year holding period has been met, the same rules apply as are applicable to the 45-day holding period requirement for the dividends-received deduction.
Corporations should note that 75% of the untaxed portion of the Fund's dividends could be taken into account for purposes of the alternative minimum tax imposed on corporations.
The Fund may in the future engage in various defensive hedging transactions. Under various Code provisions such transactions might change the character of recognized gains and losses, accelerate the recognition of certain gains and losses, and defer the recognition of certain losses or deductions.
If more than 50% of the assets of the Fund at the close of any taxable year consists of stocks or securities of foreign corporations, the Fund may elect to treat any foreign income taxes, such as withholding taxes on interest or dividends, that are paid by the Fund as paid by the shareholders of the Fund. If the Fund makes this election, shareholders will be entitled to credit their pro rata share of the foreign taxes paid by the Fund against their U.S. federal income tax liability, or to deduct the amounts from their U.S. taxable income. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. In addition, certain individual shareholders may be subject to rules that limit or reduce their ability to deduct fully their pro rata share of foreign taxes paid by the Fund. Since European anticipates that more than 50% of the value of its total assets will consist of non-U.S. equity and debt securities, European shareholders are expected to be eligible for a pass through of the foreign taxes paid by the Fund. Shareholders of Mutual Shares, Qualified, Beacon and Discovery are not expected to be eligible for a pass through of the foreign taxes paid by the Fund.
Treasury regulations provide that the dividends paid-deduction attributable to an in-kind distribution of property is equal to the adjusted basis of such property.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal underwriter in a continuous public offering for each class of the Fund's shares. The underwriting agreement will continue in effect for successive annual periods if its continuance is specifically approved at least annually by a vote of the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, and in either event by a majority vote of the Board members who are not parties to the underwriting agreement or interested persons of any such party (other than as members of the Board), cast in person at a meeting called for that purpose. The underwriting agreement terminates automatically in the event of its assignment and may be terminated by either party on 90 days' written notice.
Distributors pays the expenses of the distribution of Fund shares, including advertising expenses and the costs of printing sales material and prospectuses used to offer shares to the public. The Fund pays the expenses of preparing and printing amendments to its registration statements and prospectuses (other than those necessitated by the activities of Distributors) and of sending prospectuses to existing shareholders.
In connection with the offering of the Fund's shares, aggregate underwriting commissions received by Distributors for the two-month period ended December 31, 1996, and the amounts retained by Distributors after allowances to dealers were:
Aggregate Underwriting Amount Retained
Fund Commissions by Distributors
Mutual Shares $962,557 $99,326
Discovery $710,492 $41,905
Beacon $717,831 $68,177
Qualified $494,207 $37,660
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For the two-month period ended December 31, 1996, European received $152,732 in underwriting commissions and paid a net amount of $1,291 to dealers Distributors may be entitled to reimbursement under the Rule 12b-1 plan for each class, as discussed below.. Except as noted, Distributors received no other compensation from the Fund for acting as underwriter.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 plans" that were adopted pursuant to Rule 12b-1 of the 1940 Act.
THE CLASS I PLAN. Under the Class I plan, the Fund may pay up to a maximum of 0.25% per year of Class I's average daily net assets, payable quarterly, for expenses incurred in the promotion and distribution of Class I shares. In addition, the Fund is permitted to pay Distributors up to an additional 0.10% per year of Class I's average daily net assets for reimbursement of distribution expenses.
THE CLASS II PLAN. Under the Class II plan, the Fund pays Distributors up to 0.75% per year of Class II's average daily net assets, payable quarterly, for distribution and related expenses. These fees may be used to compensate Distributors or others for providing distribution and related services and bearing certain Class II expenses. All distribution expenses over this amount will be borne by those who have incurred them without reimbursement by the Fund.
Under the Class II plan, the Fund also pays an additional 0.25% per year of Class II's average daily net assets, payable quarterly, as a servicing fee.
THE CLASS I AND CLASS II PLANS. In addition to the payments that Distributors or others are entitled to under each plan, each plan also provides that to the extent the Fund, Franklin Mutual or Distributors or other parties on behalf of the Fund, Franklin Mutual or Distributors make payments that are deemed to be for the financing of any activity primarily intended to result in the sale of shares of each class within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been made pursuant to the plan. The terms and provisions of each plan relating to required reports, term, and approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include payments made under each plan, plus any other payments deemed to be made pursuant to a plan, exceed the amount permitted to be paid under the rules of the NASD.
To the extent fees are for distribution or marketing functions, as distinguished from administrative servicing or agency transactions, certain banks will not be entitled to participate in the plans as a result of applicable federal law prohibiting certain banks from engaging in the distribution of mutual fund shares. These banking institutions, however, are permitted to receive fees under the plans for administrative servicing or for agency transactions. If you are a customer of a bank that is prohibited from providing these services, you would be permitted to remain a shareholder of the Fund, and alternate means for continuing the servicing would be sought. In this event, changes in the services provided might occur and you might no longer be able to avail yourself of any automatic investment or other services then being provided by the bank. It is not expected that you would suffer any adverse financial consequences as a result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The plans are renewable annually by a vote of the Board, including a majority vote of the Board members who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the plans, cast in person at a meeting called for that purpose. It is also required that the selection and nomination of such Board members be done by the non-interested members of the Board. The plans and any related agreement may be terminated at any time, without penalty, by vote of a majority of the non-interested Board members on not more than 60 days' written notice, by Distributors on not more than 60 days' written notice, by any act that constitutes an assignment of the management agreement with Franklin Mutual or by vote of a majority of the outstanding shares of the class. Distributors or any dealer or other firm may also terminate their respective distribution or service agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase materially the amount to be spent for distribution expenses without approval by a majority of the outstanding shares of the class, and all material amendments to the plans or any related agreements shall be approved by a vote of the non-interested members of the Board, cast in person at a meeting called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly on the amounts and purpose of any payment made under the plans and any related agreements, as well as to furnish the Board with such other information as may reasonably be requested in order to enable the Board to make an informed determination of whether the plans should be continued.
For the two-month period ended December 31, 1996, Distributors had eligible expenditures for advertising, printing and payments to underwriters and broker-dealers pursuant to the Class I and Class II plans. The Fund paid a portion of these expenditures to Distributors, as noted below.
DISTRIBUTORS'
ELIGIBLE AMOUNT PAID
FUND EXPENDITURES BY THE FUND
- -----------------------------------------------------------
Mutual Shares
Class I $136,669 $23,457
Class II 434,345 36,285
Qualified
Class I 189,111 14,806
Class II 257,829 20,640
Beacon
Class I 235,264 31,178
Class II 418,760 32,675
Discovery
Class I 158,034 20,639
Class II 822,714 35,995
European
Class I 87,602 5,607
Class II 90,814 5,982
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HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of standardized performance quotations or, alternatively, that every non-standardized performance quotation furnished by the Fund be accompanied by certain standardized performance information computed as required by the SEC. Average annual total return used by the Fund is based on the standardized methods of computing performance mandated by the SEC. If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date of the plan's implementation. An explanation of these and other methods used by the Fund to compute or express performance for each class follows. Regardless of the method used, past performance does not guarantee future results, and is an indication of the return to shareholders only for the limited historical period used.
Standardized historical performance data for Class I and Class II shares will be restated to reflect the maximum initial front-end sales charge currently in effect. For Class II shares such performance data will also take into account the applicable contingent deferred sales charge in connection with redemptions within eighteen months. Each class adopted a plan of distribution under Rule 12b-1, effective November 1, 1996, which will affect subsequent performance. Historical performance data will not be restated to include Rule 12b-1 fees, which will only be taken into account from the effective date of the Rule 12b-1 plan.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by finding the average annual rates of return over one-, five- and ten-year periods, or fractional portion thereof, that would equate an initial hypothetical $1,000 investment to its ending redeemable value. The calculation assumes the maximum front-end sales charge is deducted from the initial $1,000 purchase, and income dividends and capital gain distributions are reinvested at Net Asset Value. The quotation assumes the account was completely redeemed at the end of each one-, five- and ten-year period and the deduction of all applicable charges and fees. If a change is made to the sales charge structure, historical performance information will be restated to reflect the maximum front-end sales charge currently in effect. The restated average annual total return for each class for the one-, five- and ten-year periods ended December 31, 1996, was:
CLASS I 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------- Mutual Shares 15.24% 17.95% 14.82% Qualified 15.67% 18.44% 15.09% Beacon 15.65% 18.37% 15.66% Discovery* 19.17% N/A N/A European** N/A N/A N/A CLASS II 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------- Mutual Shares 18.38% 18.79% 15.22% Qualified 18.80% 19.28% 15.49% Beacon 18.83% 19.20% 16.07% Discovery* 22.53% N/A N/A European** N/A N/A N/A |
*From inception on December 31, 1992, Class I, 21.19%; and Class II, 22.29%.
**Commenced operations on July 3, 1996.
These figures were calculated according to the SEC formula:
n P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year periods at the end of the one-, five-or ten-year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total return assumes the maximum front-end sales charge is deducted from the initial $1,000 purchase, and income dividends and capital gain distributions are reinvested at Net Asset Value. Cumulative total return, however, will be based on the actual return for each class for a specified period rather than on the average return over one-, five- and ten-year periods, or fractional portion thereof. The restated cumulative total return for each class for the one-, five- and ten-year periods ended December 31, 1996, was:
CLASS I 1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------
Mutual Shares
15.24% 128.33% 298.10%
Qualified 15.67% 133.07% 307.66%
Beacon 15.65% 132.35% 328.28%
Discovery* 19.17% N/A N/A
European** N/A N/A N/A
CLASS II 1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------------
Mutual Shares
18.38% 136.51% 312.39%
Qualified 18.80% 141.44% 322.15%
Beacon 18.83% 140.68% 343.72%
Discovery* 22.53% N/A N/A
European** N/A N/A N/A
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*From inception on December 31, 1992, Class I, 115.74%; and Class II, 123.64%.
**From inception on July 3, 1996, Class I, 9.34%; and Class II 12.27%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk. Measures of volatility or risk are generally used to compare the Fund's Net Asset Value or performance to a market index. One measure of volatility is beta. Beta is the volatility of a fund relative to the total market, as represented by an index considered representative of the types of securities in which the fund invests. A beta of more than 1.00 indicates volatility greater than the market and a beta of less than 1.00 indicates volatility less than the market. Another measure of volatility or risk is standard deviation. Standard deviation is used to measure variability of Net Asset Value or total return around an average over a specified period of time. The idea is that greater volatility means greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
The Fund may also quote the performance of shares without a sales charge. Sales literature and advertising may quote cumulative total return, average annual total return and other measures of performance as described elsewhere in this SAI with the substitution of Net Asset Value for the public Offering Price.
Sales literature referring to the use of the Fund as a potential investment for Individual Retirement Accounts (IRAs), Business Retirement Plans, and other tax-advantaged retirement plans may quote a total return based upon compounding of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating to investment objectives and performance results of funds belonging to the Franklin Templeton Group of Funds. Resources is the parent company of the advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your investment objective, advertisements and other materials about the Fund may discuss certain measures of each class' performance as reported by various financial publications. Materials may also compare performance (as calculated above) to performance as reported by other investments, indices, and averages. These comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial Average), 15 utilities company stocks (Dow Jones(R) Utilities Average), and 20 transportation company stocks. Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's(R) 500 Stock Index or its component indices - an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of performance assume reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged index of all industrial, utilities, transportation, and finance stocks listed on the NYSE.
d) Wilshire 5000 Equity Index - represents the return on the market value of all common equity securities for which daily pricing is available. Comparisons of performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund Performance Analysis - measure total return and average current yield for the mutual fund industry and rank individual mutual fund performance over specified time periods, assuming reinvestment of all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. analyzes price, current yield, risk, total return, and average rate of return (average annual compounded growth rate) over specified time periods for the mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield, risk, and total return for mutual funds.
h) Financial publications: The Wall Street Journal, and Business Week, Changing Times, Financial World, Forbes, Fortune, and Money magazines provide performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau of Labor Statistics - a statistical measure of change, over time, in the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates historical measure of yield, price, and total return for common and small company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's(R) 100 Stock Index - an unmanaged index based on the prices of 100 blue-chip stocks, including 92 industrials, one utility, two transportation companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller, index for options trading.
n) Morningstar - information published by Morningstar, Inc., including Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's assessment of the historical risk adjusted performance of a fund over specified time periods relative to other funds within its category.
o) Salomon Brothers Broad Bond Index or its component indices - measures yield, price, and total return for Treasury, agency, corporate and mortgage bonds.
p) Lehman Brothers Aggregate Bond Index or its component indices - measures yield, price and total return for Treasury, agency, corporate, mortgage and Yankee bonds.
r) Salomon Brothers Composite High Yield Index or its component indices measures yield, price and total return for the Long-Term High-Yield Index, Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.
From time to time, advertisements or information for the Fund may include a discussion of certain attributes or benefits to be derived from an investment in the Fund. The advertisements or information may include symbols, headlines, or other material that highlights or summarizes the information discussed in more detail in the communication.
Advertisements or information may also compare a class' performance to the return on CDs or other investments. You should be aware, however, that an investment in the Fund involves the risk of fluctuation of principal value, a risk generally not present in an investment in a CD issued by a bank. For example, as the general level of interest rates rise, the value of the Fund's fixed-income investments, if any, as well as the value of its shares that are based upon the value of such portfolio investments, can be expected to decrease. Conversely, when interest rates decrease, the value of the Fund's shares can be expected to increase. CDs are frequently insured by an agency of the U.S. government. An investment in the Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the composition of the investments in the reported indices and averages is not identical to the Fund's portfolio, the indices and averages are generally unmanaged, and the items included in the calculations of the averages may not be identical to the formula used by the Fund to calculate its figures. In addition, there can be no assurance that the Fund will continue its performance as compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating money for retirement, saving for a down payment on a home, college costs and other long-term goals. The Franklin College Costs Planner may help you in determining how much money must be invested on a monthly basis in order to have a projected amount available in the future to fund a child's college education. (Projected college cost estimates are based upon current costs published by the College Board.) The Franklin Retirement Planning Guide leads you through the steps to start a retirement savings program. Of course, an investment in the Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the largest mutual fund organizations in the U.S., and may be considered in a program for diversification of assets. Founded in 1947, Franklin, one of the oldest mutual fund organizations, has managed mutual funds for over 49 years and now services more than 2.7 million shareholder accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and an innovator in creating domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer in international investing. Mutual Series, known for its value-driven approach to domestic equity investing, became part of the organization four years later. Together, the Franklin Templeton Group has over $188 billion in assets under management for more than 5.1 million U.S. based mutual fund shareholder and other accounts. The Franklin Templeton Group of Funds offers 122 U.S. based open-end investment companies to the public. The Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in service quality for five of the past nine years.
As of April 2, 1997, the principal shareholder of the Fund, beneficial or of record, was as follows:
European - Class Z
Michael F. Price 14,024,207.588 31.22%
51 John F. Kennedy Pkwy
Short Hills, NJ 07078
From time to time, the number of Fund shares held in the "street name" accounts of various Securities Dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding.
In the event of disputes involving multiple claims of ownership or authority to control your account, the Fund has the right (but has no obligation) to: (a) freeze the account and require the written agreement of all persons deemed by the Fund to have a potential property interest in the account, before executing instructions regarding the account; (b) interplead disputed funds or accounts with a court of competent jurisdiction; or (c) surrender ownership of all or a portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are access persons under the 1940 Act are permitted to engage in personal securities transactions subject to the following general restrictions and procedures: (i) the trade must receive advance clearance from a compliance officer and must be completed before the close of the business day following the day clearance is granted but may be extended in special circumstnaces; (ii) copies of all brokerage confirmations must be sent to a compliance officer and, within 10 days after the end of each calendar quarter, a report of all securities transactions must be provided to the compliance officer; and (iii) access persons involved in preparing and making investment decisions must, in addition to (i) and (ii) above, file annual reports of their securities holdings each January and inform the compliance officer (or other designated personnel) if they own a security that is being considered for a fund or other client transaction or if they are recommending a security in which they have an ownership interest for purchase or sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders of the Fund, for the fiscal year ended December 31, 1996, including the auditors' report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares, designated "Class I," "Class II," and "Class Z." The three classes have proportionate interests in the Fund's portfolio. They differ, however, primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal underwriter
FRANKLIN MUTUAL - Franklin Mutual Advisers, Inc., the Fund's investment manager
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin Group of FundsAE and the Templeton Group of Funds except Franklin Valuemark Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in the Franklin Group of FundsAE and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting the fund's liabilities from the total assets of the portfolio. The net asset value per share is determined by dividing the net asset value of the fund by the number of shares outstanding.
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value per share of the class and includes the front-end sales charge. The maximum front-end sales charge is 4.50% for Class I and 1% for Class II.
PROSPECTUS - The prospectus for the Fund's Class I and Class II shares dated May 1, 1997, as may be amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through affiliates, has an agreement with Distributors to handle customer orders and accounts with the Fund. This reference is for convenience only and does not indicate a legal conclusion of capacity.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms refer to the Fund and/or Investor Services, Distributors, or other wholly owned subsidiaries of Resources.
FRANKLIN MUTUAL
SERIES FUND INC. -
CLASS Z
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
51 JOHN F. KENNEDY PARKWAY
SHORT HILLS, NJ 07078 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets?
Restrictions and Limitations
Officers and Directors
Investment Management and Other Services How does the Fund Buy Securities for its Portfolio? How Do I Buy, Sell and Exchange Shares?
How are Fund Shares Valued?
Additional Information on Distributions and Taxes The Fund's Underwriter
How does the Fund Measure Performance?
Miscellaneous Information
Financial Statements
Useful Terms and Definitions
Mutual Shares Fund ("Mutual Shares"), Mutual Qualified Fund("Qualified"), Mutual Beacon Fund ("Beacon"), Mutual Discovery Fund ("Discovery") and Mutual European Fund ("European") are diversified series of Franklin Mutual Series Fund Inc. ("Mutual Series"), an open-end management investment company. Each series may, individually or together, be referred to as the "Fund(s). The principal investment objective of Mutual Shares, Qualified, Beacon and European is capital appreciation, which may occasionally be short-term. A secondary objective of each is income. Discovery's investment objective is long-term capital appreciation.
This SAI describes the Fund's Class Z shares. The Prospectus, dated May 1, 1997, as may be amended from time to time, contains the basic information you should know before investing in the Fund. For a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
oARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF
THE U.S. GOVERNMENT;
oARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK;
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities the Fund may buy and its investment policies. You should read it together with the section in the Prospectus entitled "How does the Fund Invest its Assets?"
The general investment policy of the Fund is to invest in securities if, in the opinion of Franklin Mutual, they are available at prices less than their intrinsic value, as determined by Franklin Mutual after careful analysis and research, taking into account, among other factors, the relationship of book value to market value of the securities, cash flow, and multiples of earnings of comparable securities. The Fund reserves freedom of action to invest in common stock, preferred stock, debt securities and other securities in such proportions as Franklin Mutual deems advisable. Without committing any fixed portion of the Fund's assets, Franklin Mutual typically maintains a portion of the assets of the Fund invested in debt securities and preferred stocks (which may be convertible). In addition, the Fund may also invest in restricted debt and equity securities, in foreign securities, and in other investment company securities.
REPURCHASE AGREEMENTS AND LOANS OF SECURITIES
The Fund may invest in repurchase agreements with domestic banks or broker-dealers. Repurchase agreements are considered loans by the Fund collateralized by the underlying securities. As with loans of portfolio securities which the Fund may make, these transactions must be fully collateralized at all times. Franklin Mutual will monitor the creditworthiness of the other party and will monitor the value of the collateral by marking to market daily in order to confirm that its value is at least 100% of the agreed upon sum to be paid to the Fund.
Repurchase agreements and lending of portfolio securities involve some credit risk to the Fund. If the other party defaults on its obligations, the Fund could be delayed or prevented from receiving payment or recovering its collateral. Even if the Fund recovers the collateral in such a situation, the Fund may receive less than its purchase price upon resale.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics and operational mechanics regardless of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the particular types of options discussed in greater detail below. In addition, many hedging transactions involving options require segregation of Fund assets in special accounts, as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the seller of the option, the obligation to buy, the underlying security, commodity, index, currency or other instrument at the exercise price. For instance, the Fund's purchase of a put option on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. The Fund's purchase of a call option on a security, financial future, index, currency or other instrument might be intended to protect the Fund against an increase in the price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase such instrument.
An American style put or call option may be exercised at any time during the option period while a European style put or call option may be exercised only upon expiration or during a fixed period prior thereto. The Fund is authorized to purchase and sell exchange-listed options and over-the-counter options ("OTC options"). Exchange-listed options are issued by a regulated intermediary such as the Options Clearing Corporation ("OCC"), which guarantees the performance of the obligations of the parties to such options. The discussion below uses the OCC as a paradigm, but is also applicable to other financial intermediaries.
With certain exceptions, OCC-issued and exchange-listed options generally settle by physical delivery of the underlying security or currency, although in the future cash settlement may become available. Index options and Eurodollar instruments are cash settled for the net amount, if any, by which the option is "in-the-money" (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting option transactions.
The Fund's ability to close out its position as a purchaser or seller of an OCC or exchange-listed put or call option is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although outstanding options on that exchange would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial institutions or other parties (each a "Counterparty," and collectively, "Counterparties") through direct bilateral agreement with the Counterparty. In contrast to exchange-listed options, which generally have standardized terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees and security, are set by negotiation of the parties. The Fund will only sell OTC options (other than OTC currency options) that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The Fund expects generally to enter into OTC options that have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails to make or take delivery of the security, currency or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash settlement payment due in accordance with the option, the Fund will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, Franklin Mutual must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers" or broker-dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligations of which have received) a short-term credit rating of "A-l" from S&P or "P-l" from Moody's, an equivalent rating from any nationally recognized statistical rating organization ("NRSRO") or which Franklin Mutual determines is of comparable credit quality. The staff of the SEC currently takes the position that OTC options purchased by the Fund, and portfolio securities "covering" the amount of the Fund's obligation pursuant to an OTC option sold by it (the cost of the sell-back plus the in-the-money amount, if any) are illiquid, and are subject to the Fund's limitations on investments in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against a decrease in the value of the underlying securities or instruments in its portfolio or will increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S. Treasury and agency securities, mortgage-backed securities, corporate debt securities, equity securities (including convertible securities) and Eurodollar instruments that are traded on U.S. and foreign securities exchanges and in the over-the-counter markets and on securities indices, currencies and futures contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own the securities or futures contract subject to the call) or must meet the asset segregation requirements described below as long as the call is outstanding. Even though the Fund will receive the option premium to help protect it against loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require the Fund to hold a security or instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury and agency securities, mortgage-backed securities, corporate debt securities, equity securities (including convertible securities) and Eurodollar instruments (whether or not it holds the above securities in its portfolio) and on securities indices, currencies and futures contracts other than futures on individual corporate debt and individual equity securities. The Fund will not sell put options if, as a result, more than 50% of the Fund's assets would be required to be segregated to cover its potential obligations under such put options other than those with respect to futures and options thereon. In selling put options, there is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Fund may enter into financial futures contracts or purchase or sell put and call options on such futures as a hedge against anticipated interest rate, currency or equity market changes, for duration management and for risk management purposes. Futures are generally bought and sold on the commodities exchanges where they are listed with payment of initial and variation margin as described below. The sale of a futures contract creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for in the contract at a specific future time for a specified price (or, with respect to index futures and Eurodollar instruments, the net cash amount). Options on futures contracts are similar to options on securities except that an option on a futures contract gives the purchaser the right in return for the premium paid to assume a position in a futures contract and obligates the seller to deliver such option.
The Fund's use of financial futures and options thereon will in all cases be consistent with applicable regulatory requirements and in particular the rules and regulations of the Commodity Futures Trading Commission and will be entered into only for a bona fide hedging, risk management (including duration management) or other portfolio management purposes. Typically, maintaining a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary as security for its obligations an amount of cash or other specified assets ("initial margin") which initially is typically 1% to 10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets ("variation margin") may be required to be deposited thereafter on a daily basis as the mark to market value of the contract fluctuates. The purchase of an option on financial futures involves payment of a premium for the option without any further obligation on the part of the Fund. If the Fund exercises an option on a futures contract, it will be obligated to post initial margin (and potential subsequent variation margin) for the resulting futures positions just as it would for any position. Futures contracts and options thereon are generally settled by entering into an offsetting transaction, but there can be no assurance that the position can be offset prior to settlement at an advantageous price nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for closing transactions) if, immediately thereafter, the sum of the amount of its initial margin and premiums on open futures contracts and options thereon would exceed 5% of the Fund's total assets (taken at current value); however, in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating the 5% limitation. The segregation requirements with respect to futures contracts and options thereon are described below.
OPTIONS ON SECURITIES INDICES
AND OTHER FINANCIAL INDICES
The Fund may also purchase and sell call and put options on securities indices and other financial indices and in so doing can achieve many of the same objectives it would achieve through the sale or purchase of options on individual securities or other instruments. Options on securities indices and other financial indices are similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle by cash settlement, i.e., an option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on an index depends on price movements in the instruments making up the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with Counterparties in order to hedge the value of portfolio holdings denominated in particular currencies against fluctuations in relative value between those currencies and the U.S. dollar. Currency transactions include forward currency contracts, exchange-listed currency futures, exchange-listed and OTC options on currencies, and currency swaps. A forward currency contract involves a privately negotiated obligation to purchase or sell (with delivery generally required) a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them.
The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps are entered into for good faith hedging purposes, Franklin Mutual and the Fund believe such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. The Fund may enter into currency transactions with Counterparties which have received (or the guarantors of the obligations of such Counterparties have received) a credit rating of A-l or P-l by S&P or Moody's, respectively, or that have an equivalent rating from an NRSRO or are determined to be of equivalent credit quality by Franklin Mutual. If there is a default by the Counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid.
The Fund's dealings in forward currency contracts and other currency transactions such as futures, options, options on futures and swaps will be limited to either specific transactions or portfolio positions. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of the Fund, which will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position hedging is entering into a currency transaction with respect to portfolio security positions denominated or generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an extent greater, after netting all transactions intended to wholly or partially offset other transactions, than the aggregate market value (at the time of entering into the transaction) of the securities held in its portfolio that are denominated or generally quoted in or whose value is based upon such foreign currency or currently convertible into such currency other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or anticipated holdings of portfolio securities, the Fund may also engage in proxy hedging. Proxy hedging is often used when the currency to which the Fund's portfolio is exposed is difficult to hedge or to hedge against the U.S. dollar. Proxy hedging entails entering into a forward contract to sell a currency whose changes in value are generally considered to be linked to a currency or currencies in which some or all of the Fund's portfolio securities are or are expected to be denominated, and to buy U.S. dollars. The amount of the contract would not exceed the value of the Fund's securities denominated in linked currencies. For example, if Franklin Mutual considers the Austrian schilling to be linked to the German deutsche mark (the "D-mark"), the Fund holds securities denominated in schillings and Franklin Mutual believes that the value of schillings will decline against the U.S. dollar, Franklin Mutual may enter into a contract to sell D-marks and buy dollars. Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Fund if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, there is the risk that the perceived linkage between various currencies may not be present during the particular time that the Fund is engaging in proxy hedging. If the Fund enters into a currency hedging transaction, the Fund will comply with the asset segregation requirements described below.
RISKS OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and any combination of futures, options and currency transactions ("component transactions"), instead of a single hedging transaction, as part of a single or combined strategy when, in the opinion of Franklin Mutual, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on Franklin Mutual's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the portfolio management objective.
RISKS OF HEDGING TRANSACTIONS OUTSIDE THE U.S.
When conducted outside the U.S., hedging transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that the Fund segregate liquid high grade assets with its custodian bank to the extent Fund obligations are not otherwise "covered" through ownership of the underlying security, financial instrument or currency. In general, either the full amount of any obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities, instruments or currency required to be delivered, or, subject to any regulatory restrictions, an amount of cash or liquid high grade securities at least equal to the current amount of the obligation must be segregated with the custodian bank. The segregated assets cannot be sold or transferred unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. For example, a call option written by the Fund will require the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate liquid high grade securities sufficient to purchase and deliver the securities if the call is exercised. A call option sold by the Fund on an index will require the Fund to own portfolio securities which correlate with the index or to segregate liquid high grade assets equal to the excess of the index value over the exercise price on a current basis. A put option written by the Fund requires the Fund to segregate liquid high grade assets equal to the exercise price.
A currency contract which obligates the Fund to buy or sell currency will generally require the Fund to hold an amount of the currency or liquid securities denominated in that currency equal to the Fund's obligations or to segregate liquid high grade assets equal to the amount of the Fund's obligation. However, the segregation requirement does not apply to currency contracts which are entered in order to "lock in" the purchase or sale price of a trade in a security denominated in a foreign currency pending settlement within the time customary for such securities.
OTC options entered into by the Fund, including those on securities, currency, financial instruments or indices and OCC-issued and exchange-listed index options will generally provide for cash settlement. As a result, when the Fund sells these instruments it will only segregate an amount of assets equal to its accrued net obligations, as there is no requirement for payment or delivery of amounts in excess of the net amount. These amounts will equal 100% of the exercise price in the case of a noncash settled put, the same as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount plus any sell-back formula amount in the case of a cash-settled put or call. In addition, when the Fund sells a call option on an index at a time when the in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires or is closed out, cash or cash equivalents equal in value to such excess. OCC-issued and exchange-listed options sold by the Fund other than those above generally settle with physical delivery, or with an election of either physical delivery or cash settlement, and the Fund will segregate an amount of assets equal to the full value of the option. OTC options settling with physical delivery, or with an election of either physical delivery or cash settlement, will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit initial margin and possible daily variation margin in addition to segregating assets sufficient to meet its obligation to purchase or provide securities or currencies, or to pay the amount owed at the expiration of an index-based futures contract. Such assets may consist of cash, cash equivalents, liquid debt or equity securities or other acceptable assets.
Hedging transactions may be covered by other means when consistent with applicable regulatory policies. The Fund may also enter into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related options and hedging transactions. For example, the Fund could purchase a put option if the strike price of that option is the same or higher than the strike price of a put option sold by the Fund. Moreover, instead of segregating assets if the Fund held a futures or forward contract, it could purchase a put option on the same futures or forward contract with a strike price as high or higher than the price of the contract held. Other hedging transactions may also be offset in combinations. If the offsetting transaction terminates at the time of or after the primary transaction, no segregation is required, but if it terminates prior to such time, assets equal to any remaining obligation would need to be segregated.
DEPOSITARY RECEIPTS
The Fund may invest in securities commonly known as American Depositary Receipts ("ADRs"), and in European Depositary Receipts ("EDRs") or other securities representing interests in securities of foreign issuers. ADRs are certificates issued by a U.S. bank or trust company and represent the right to receive securities of a foreign issuer deposited in a domestic bank or foreign branch of a U.S. bank and traded on a U.S. exchange or in an over-the-counter market. EDRs are receipts issued in Europe generally by a non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic securities. Generally, ADRs are in registered form and EDRs are in bearer form. There are no fees imposed on the purchase or sale of ADRs or EDRs although the issuing bank or trust company may impose charges for the collection of dividends and the conversion of ADRs and EDRs into the underlying securities. Investment in ADRs has certain advantages over direct investment in the underlying non-U.S. securities, since: (i) ADRs are U.S. dollar denominated investments which are easily transferable and for which market quotations are readily available and (ii) issuers whose securities are represented by ADRs are subject to the same auditing, accounting and financial reporting standards as domestic issuers. EDRs are not necessarily denominated in the currency of the underlying security.
MEDIUM AND LOWER RATED
CORPORATE DEBT SECURITIES
The Fund may invest in securities that are rated in the medium to lowest rating categories by S&P and Moody's, some of which may be so-called "junk bonds." The Fund has historically invested in securities of distressed issuers when the intrinsic values of such securities have, in the opinion of Franklin Mutual, warranted such investment. Corporate debt securities rated Baa are regarded by Moody's as being neither highly protected nor poorly secured. Interest payments and principal security appears adequate to Moody's for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such securities are regarded by Moody's as lacking outstanding investment characteristics and having speculative characteristics. Corporate debt securities rated BBB are regarded by S&P as having adequate capacity to pay interest and repay principal. Such securities are regarded by S&P as normally exhibiting adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for securities in this rating category than in higher rated categories.
Corporate debt securities which are rated B are regarded by Moody's as generally lacking characteristics of the desirable investment. In Moody's view, assurance of interest and principal payments or of maintenance of other terms of the security over any long period of time may be small. Corporate debt securities rated BB, B, CCC, CC and C are regarded by S&P on balance as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. In S&P's view, although such securities likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB and B are regarded by S&P as indicating the two lowest degrees of speculation in this group of ratings. Securities rated D by S&P or C by Moody's are in default and are not currently performing. The Fund will rely on Franklin Mutual's judgment, analysis and experience in evaluating such debt securities. In this evaluation, Franklin Mutual will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters as well as the price of the security. Franklin Mutual may also consider, although it does not rely primarily on, the credit ratings of Moody's and S&P in evaluating lower rated corporate debt securities. Such ratings evaluate only the safety of principal and interest payments, not market value risk. Additionally, because the creditworthiness of an issuer may change more rapidly than is able to be timely reflected in changes in credit ratings, Franklin Mutual monitors the issuers of corporate debt securities held in the Fund's portfolio. The credit rating assigned to a security is a factor considered by Franklin Mutual in selecting a security for a series, but the intrinsic value in light of market conditions and Franklin Mutual's analysis of the fundamental values underlying the issuer are of at least equal significance. Because of the nature of medium and lower rated corporate debt securities, achievement by each series of its investment objective when investing in such securities is dependent on the credit analysis of Franklin Mutual. If the Fund purchased primarily higher rated debt securities, such risks would be substantially reduced.
A general economic downturn or a significant increase in interest rates could severely disrupt the market for medium and lower grade corporate debt securities and adversely affect the market value of such securities. Securities in default are relatively unaffected by such events or by changes in prevailing interest rates. In addition, in such circumstances, the ability of issuers of medium and lower grade corporate debt securities to repay principal and to pay interest, to meet projected business goals and to obtain additional financing may be adversely affected. Such consequences could lead to an increased incidence of default for such securities and adversely affect the value of the corporate debt securities in the Fund's portfolio. The secondary market prices of medium and lower grade corporate debt securities are less sensitive to changes in interest rates than are higher rated debt securities, but are more sensitive to adverse economic changes or individual corporate developments. Adverse publicity and investor perceptions, whether or not based on rational analysis, may also affect the value and liquidity of medium and lower grade corporate debt securities, although such factors also present investment opportunities when prices fall below intrinsic values. Yields on debt securities in a series' portfolio that are interest rate sensitive can be expected to fluctuate over time. In addition, periods of economic uncertainty and changes in interest rates can be expected to result in increased volatility of market price of any medium to lower grade corporate debt securities in the Fund's portfolio and thus could have an effect on the Net Asset Value of the Fund if other types of securities did not show offsetting changes in values. The secondary market value of corporate debt securities structured as zero coupon securities or payment in kind securities may be more volatile in response to changes in interest rates than debt securities which pay interest periodically in cash. Because such securities do not pay current interest, but rather, income is accreted, to the extent that a series does not have available cash to meet distribution requirements with respect to such income, it could be required to dispose of portfolio securities that it otherwise would not. Such disposition could be at a disadvantageous price. Failure to satisfy distribution requirements could result in the Fund failing to qualify as a pass-through entity under the Code. Investment in such securities also involves certain other tax considerations.
Franklin Mutual values the Funds' investments pursuant to guidelines adopted and periodically reviewed by the Board. See "How are Fund Shares Valued?" in this SAI. To the extent that there is no established retail market for some of the medium or low grade corporate debt securities in which the Fund may invest, there may be thin or no trading in such securities and the ability of Franklin Mutual to accurately value such securities may be adversely affected. Further, it may be more difficult for a series to sell such securities in a timely manner and at their stated value than would be the case for securities for which an established retail market did exist. The effects of adverse publicity and investor perceptions may be more pronounced for securities for which no established retail market exists as compared with the effects on securities for which such a market does exist. During periods of reduced market liquidity and in the absence of readily available market quotations for medium and lower grade corporate debt securities held in the Fund's portfolio, the responsibility of Franklin Mutual to value the Fund's securities becomes more difficult and Franklin Mutual's judgment may play a greater role in the valuation of the Fund's securities due to a reduced availability of reliable objective data. To the extent that the Fund purchases illiquid corporate debt securities or securities which are restricted as to resale, the Fund may incur additional risks and costs. Illiquid and restricted securities may be particularly difficult to value and their disposition may require greater effort and expense than more liquid securities. Further, a series may be required to incur costs in connection with the registration of restricted securities in order to dispose of such securities, although under Rule 144A under the Securities Act of 1933 certain securities may be determined to be liquid pursuant to procedures adopted by the Board under applicable guidelines.
SHORT SALES
The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. Each series expects to make short sales as a form of hedging to offset potential declines in long positions in similar securities, in order to maintain portfolio flexibility and for profit.
When a series makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other high grade liquid securities similar to those borrowed. The Fund will also be required to deposit similar collateral with its custodian to the extent, if any, necessary so that the value of both collateral deposits in the aggregate is at all times equal to at least 100% of the current market value of the security sold short.
If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
The Fund will not make a short sale if, after giving effect to such sale, the market value of all securities sold short exceeds 5% of the value of its total assets or the Fund's aggregate short sales of a particular class of securities exceeds 25% of the outstanding securities of that class. The Fund may also make short sales "against the box" without respect to such limitations. In this type of short sale, at the time of the sale, the Fund owns or has the immediate and unconditional right to acquire at no additional cost the identical security.
Mutual Shares, Qualified, Beacon, Discovery and European have each adopted the following fundamental investment restrictions which may not be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of such series, which means the lesser of (1) the holders of more than 50% of the outstanding shares of voting stock of such securities or (2) 67% of the shares if more than 50% of the shares are present at a meeting of shareholders in person or by proxy. Unless otherwise noted, all percentage restrictions are as of the time of investment after giving effect to the transaction. Pursuant to such restrictions each series may not:
1. Purchase or sell commodities, commodity contracts (except in conformity with regulations of the Commodities Futures Trading Commission such that the series would not be considered a commodity pool), or oil and gas interests or real estate. Securities or other instruments backed by commodities are not considered commodities or commodity contracts for purposes of this restriction. Debt or equity securities issued by companies engaged in the oil, gas, or real estate businesses are not considered oil or gas interests or real estate for purposes of this restriction. First mortgage loans and other direct obligations secured by real estate are not considered real estate for purposes of this restriction.
2. Make loans, except to the extent the purchase of debt obligations of any type are considered loans and except that the series may lend portfolio securities to qualified institutional investors in compliance with requirements established from time to time by the SEC and the securities exchanges on which such securities are traded.
3. Issue securities senior to its stock or borrow money or utilize leverage in excess of the maximum permitted by the 1940 Act which is currently 33 1/3% of total assets (plus 5% for emergency or other short-term purposes) from banks on a temporary basis from time to time to provide greater liquidity for redemptions or for special circumstances.
4. Invest more than 25% of the value of its assets in a particular industry (except that U.S. government securities are not considered an industry).
5. Act as an underwriter except to the extent the series may be deemed to be an underwriter when disposing of securities it owns or when selling its own shares.
6. Purchase the securities of any one issuer, other than the U.S. government or any of its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of its total assets would be invested in such issuer, or such series would own more than 10% of the outstanding voting securities of such issuer, except that up to 25% of the value of such series' total assets may be invested without regard to such 5% and 10% limitations.
7. Except as may be described in the Prospectus, engage in short sales, purchase securities on margin or maintain a net short position.
If a percentage restriction is met at the time of investment, a later increase or decrease in the percentage due to a change in the value or liquidity of portfolio securities or the amount of assets will not be considered a violation of any of the foregoing restrictions.
NONFUNDAMENTAL POLICIES
As a matter of policy that is not fundamental, no series will invest more than 5% of its assets in warrants, and that no more than 2% of such assets may be invested in warrants which are not listed on the NYSE or American Stock Exchange. Also, as a matter of policy, the Fund will not purchase securities for purposes of short term trading and will not invest more than 5% of its assets in securities of issuers (together with any predecessors) in existence for less than three years, provided that the aggregate percentage of assets invested in such issuers, combined with illiquid investments, does not exceed 15%. The Fund will not purchase the securities of any issuer of which any officer or director of the Fund owns more than 1/2 of 1% of the outstanding securities or in which the officers and directors in the aggregate own more than 5%. The Fund does not borrow for leveraging purposes.
In order to permit the sale of shares in certain states, the Fund may make commitments more restrictive than the operating restrictions described above. Should the Fund determine that any such commitment is no longer in the best interests of a particular series and its shareholders, the Fund will revoke the commitment by terminating sales of such series' shares in the state involved.
OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Fund, including general supervision and review of its investment activities. The Board, in turn, elects the officers of the Fund who are responsible for administering the Fund's day-to-day operations. The affiliations of the officers and Board members and their principal occupations for the past five years are shown below. Members of the Board who are considered "interested persons" of the Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS OFFICES WITH MUTUAL DURING THE PAST FIVE
SERIES YEARS
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Edward I. Altman, Ph.D. (55)
New York University
44 West 4th Street
New York, NY 10012
Director
Max L. Heine Professor of Financing and Vice Director of NYU Salomon Center, Stern School of Business, New York University; editor and author of numerous financial publications; financial consultant.
Ann Torre Grant (39)
8065 Leesburg Pike
Suite 400
Vienna, VA 22182
Director
Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily housing); prior to March 1995 she was Vice President and Treasurer, U.S. Air, Inc.
Andrew H. Hines, Jr. (74)
150 2nd Avenue N.
St. Petersburg, FL 33701
Director
Consultant for the Triangle Consulting Group; chairman and director of Precise Power Corporation; executive-in-residence of Eckerd College (1991-present); director of Checkers Drive-In Restaurants, Inc.; formerly, chairman of the board and chief executive officer of Florida Progress Corporation (1982-1990) and director or trustee of 24 of the investment companies in the Franklin Templeton Group of funds.
*Peter A. Langerman (41)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Director and Executive Vice President
Financial Analyst with Franklin Mutual Advisers, Inc.; held the same position with Heine Securities Corporation, 6/86 to 10/96; Director of Sunbeam Oster since 1990, Lancer Industries since 1994; Manager (Director) of MWCR, L.L.C. since 1995; and Director of Metallurg, Inc. since 1997.
*William J. Lippman (72)
One Parker Plaza
Fort Lee, NJ 07024
Director
Senior Vice President, Franklin Resources, Inc. and Franklin Management, Inc.; President and Director, Franklin Advisory Services, Inc.; and officer and/or director or trustee of seven of the investment companies in the Franklin Templeton Group of Funds.
Bruce A. MacPherson (67)
1 Pequot Way
Canton, MA 02021
Director
President of A.A. MacPherson, Inc. Boston, MA (representative for electrical manufacturers).
Fred R. Millsaps (68)
2665 NE 37th Drive
Fort Lauderdale, FL 33394
Director
Manager of personal investments (1978-present); director of various business and nonprofit organizations; formerly, chairman and chief executive officer of Landmark Banking Corporation (1969-1978), financial vice president of Florida Power and Light (1965-1969), and vice president of The Federal Reserve Bank of Atlanta (1958-1965); and director or trustee of 24 of the Franklin Templeton Group of Funds.
*Michael F. Price (45)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Chairman of the Board and President
President, Chief Executive Officer, and Director of Franklin Mutual Advisers, Inc.; held the same positions with Heine Securities Corporation, 1/87 to 10/96; Principal Executive Officer and majority owner of Compliance Solutions, Inc. ("Compliance Solutions") (a developer of compliance monitoring software for money managers); Director and owner of Clearwater Securities, Inc. ("Clearwater") (a registered securities dealer).
Leonard Rubin (71)
2 Executive Drive, Suite 560
Fort Lee, NJ 07024
Director
Partner in LDR Equities, LLC (manages various personal investments); Vice President, Trimtex Co. Inc. (manufactures and markets specialty fabrics); and trustee of four of the investment companies in the Franklin Templeton Group of Funds.
Barry F. Schwartz (48)
35 East 62nd Street
New York, NY 10021
Director
Executive Vice President and General Counsel, MacAndrews & Forbes Holdings, Inc.(a diversified holding company).
Vaughn R. Sturtevant, M.D. (73)
6 Noyes Avenue
Waterville, ME 04901
Director
Practicing physician.
Robert E. Wade (51)
225 Hardwick Street
Belvidere, NJ 07823
Director
Practicing attorney.
Jeffrey A. Altman (30)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Analyst and Trader with Franklin Mutual Advisers, Inc.; was
employed by Heine Securities Corporation, 8/88 to 10/96; Manager
(Director), MB Metropolis, L.L.C. since 1994; Manager (Director)
of MWCR, L.L.C. and S.H. Mortgage Acquisition L.L.C. since 1995;
Trustee of Resurgence Properties Inc.; and Chairman of the Board
of Trustees, Value Property Trust.
James R. Baio (43)
500 East Broward Blvd.
Fort Lauderdale, FL 33701
Treasurer
Certified public accountant; Treasurer of the Templeton Funds; Senior Vice President of Templeton Worldwide, Inc., Templeton Global Investors, Inc., and Templeton Funds Trust Company.
Elizabeth N. Cohernour (47)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
General Counsel and Secretary
Vice President and Assistant Secretary of Franklin Mutual Advisers, Inc.; formerly Secretary and General Counsel of Heine Securities Corporation, 5/88 to 10/96; Secretary and General Counsel of Compliance Solutions and Clearwater.
Robert L. Friedman (37)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation, 8/88 to 10/96.
Raymond Garea (47)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine
Securities Corporation, 3/91 to 10/96; prior thereto he was a Vice President and
analyst with Donaldson, Lufkin & Jenrette; Manager (Director), MB Metropolis,
L.L.C. and
S.H. Mortgage Acquisition L.L.C.
Lawrence N. Sondike (39)
51 John F. Kennedy Pkwy.
Short Hills, NJ 07078
Vice President
Research Analyst with Franklin Mutual Advisers, Inc.; was employed by Heine Securities Corporation 3/84 to 10/96.
The Fund's independent Board members have standing audit, pension, nominating and director's compensation and performance committees. The audit committee is composed of Ms. Grant and Messrs. Altman and Wade. The pension committee is composed of Messrs. Altman, Schwartz and Sturtevant. The nominating committee is responsible for nominating candidates for independent Board member positions and is composed of Messrs. MacPherson and Schwartz. The Board members' compensation and performance committee is composed of Ms. Grant and Messrs. Wade and Sturtevant.
The table above shows the officers and Board members who are affiliated with Distributors and Franklin Mutual. Nonaffiliated members of the Board are currently paid $15,000 per year plus $750 per meeting attended. Board members are paid $500 plus out-of-pocket expenses for each committee meeting attended. In 1993, the Board members approved a retirement plan which generally provides payments to directors who have served 10 years and retire at age 70. At the time of retirement, Directors are entitled to annual payments equal to one-half of the retainer in effect as of the time of retirement. As shown above, some of the nonaffiliated Board members also serve as directors, trustees or managing general partners of other investment companies in the Franklin Templeton Group of Funds. They may receive fees from these funds for their services. The following table provides the total fees paid to nonaffiliated Board members by Mutual Series and by other funds in the Franklin Templeton Group of Funds.
TOTAL FEES NUMBER OF BOARDS
RECEIVED FROM IN THE FRANKLIN
TOTAL FEES PENSION ANNUAL THE FRANKLIN TEMPLETON GROUP
NAME RECEIVED FROM RETIREMENT BENEFITS TEMPLETON GROUP OF FUNDS on WHICH
MUTUAL SERIES* ACCRUAL RETIREMENT OF FUNDS EACH SERVES***
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Edward I.
Altman $19,000 0 $7,500 0 1
Ann Torre
Grant+ $19,000 0 $7,500 0 1
Bruce A.
MacPherson
$18,000 0 $7,500 0 1
Barry F.
Schwartz+
$18,000 0 $7,500 0 1
Vaughn
R.Sturtevant,
M.D.
$18,000 0 $7,500 0 1
Robert E. Wade+
$24,500 0 $7,500 0 1
Andrew Hines, Jr.+
$ 5,250 0 $7,500 $125,275 24
Fred R. Millsaps+
$ 5,250 0 $7,500 $125,275 24
Leonard Rubin+
$ 4,500 0 $7,500 $ 24,600 4
Richard L.
Chasse++
$17,250 0 $7,500 0 4
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+Not vested in retirement plan
++Retired December, 1996
*For the fiscal year ended December 31, 1996.
**For the calendar year ended December 31, 1996.
***We base the number of boards on the number of registered
investment companies in the Franklin Templeton Group of Funds.
This number does not include the total number of series or funds within each
investment company for which the Board members are responsible. The Franklin
Templeton Group of Funds currently includes 62 registered investment companies,
with approximately 170 U.S. based funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in connection with attending board meetings, paid pro rata by each fund in the Franklin Templeton Group of Funds for which they serve as director, trustee or managing general partner. No officer or Board member received any other compensation, including pension or retirement benefits directly or indirectly from the Fund or other funds in the Franklin Templeton Group of Funds. Certain officers or Board members who are shareholders of Resources may be deemed to receive indirect remuneration by virtue of their participation, if any, in the fees paid to its subsidiaries. Certain officers and Board members of the Fund are also officers of Compliance Solutions. The Fund is not charged for the use of software designed by Compliance Solutions.
As of April 2, 1997, the officers and Board members, as a group, owned of record and beneficially the following shares of Mutual Series: 342,777.175 shares of Mutual Shares - Class Z; 99,910.747 shares of Qualified - Class Z; 666,619.489 shares of Beacon Class Z; 380,534.148 shares of Discovery - Class Z, or less than 1% of the total outstanding Class Z shares of that series. As of April 2, 1997, the officers and Board members, as a group, owned of record and beneficially 14,082,303.957 shares or 31% of the total outstanding Class Z shares of European. Some of the Board members also own shares in other funds in the Franklin Templeton Group of Funds.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is Franklin Mutual. On October 31, 1996, pursuant to an agreement between Resources and Heine Securities, Inc. ("Heine"), the assets of Heine were transferred to Franklin Mutual and Mutual Series Fund Inc.'s name was changed to Franklin Mutual Series Fund Inc.
Franklin Mutual provides investment research and portfolio management services, including the selection of securities for the Fund to buy, hold or sell and the selection of brokers through whom the Fund's portfolio transactions are executed. Franklin Mutual's activities are subject to the review and supervision of the Board to whom Franklin Mutual renders periodic reports of the Fund's investment activities. Franklin Mutual and its officers, directors and employees are covered by fidelity insurance for the protection of the Fund.
Franklin Mutual and its affiliates act as investment manager to numerous other
investment companies and accounts. Franklin Mutual may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Franklin Mutual on behalf of the
Fund. Similarly, with respect to the Fund, Franklin Mutual is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling any
security that Franklin Mutual and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Franklin Mutual is not obligated to refrain from investing in securities
held by the Fund or other funds that it manages. Of course, any transactions for
the accounts of Franklin Mutual and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
For the fiscal years ended December 31, 1994, 1995 and 1996, management fees, before any advance waiver, totaled $21,795,512, $27,500,952, and $35,687,092, respectively, for Mutual Shares; $9,766,052, $14,607,723 and $22,515,334, respectively, for Qualified; $9,511,199, $17,720,127 and $26,083,112, respectively, for Beacon; $5,737,128, $7,930,967 and $17,795,530, respectively, for Discovery. For the fiscal year ended December 31, 1996, management fees, before any advance waiver totaled $949,616 for European. Under an agreement by Franklin Mutual to limit its fees for the fiscal year ended December 31, 1996, the Funds paid management fees totaling $34,719,646 for Mutual Shares; $21,439,007 for Qualified; $25,260,160 for Beacon; $17,154,254 for Discovery; and $876,464 for European. For the fiscal years ended December 31, 1994 and 1995, the investment manager did not waive or limit its fees.
MANAGEMENT AGREEMENT. The management agreement is in effect until June 30, 1998. It may continue in effect for successive annual periods if its continuance is specifically approved at least annually by a vote of the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, and in either event by a majority vote of the Board members who are not parties to the management agreement or interested persons of any such party (other than as members of the Board), cast in person at a meeting called for that purpose. The management agreement may be terminated without penalty at any time by the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, or by Franklin Mutual on 60 days' written notice, and will automatically terminate in the event of its assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. On November 1, 1996, FT Services became the Fund's administrator. FT Services provides certain administrative services and facilities for the Fund. These include preparing and maintaining books, records, and tax and financial reports, and monitoring compliance with regulatory requirements. FT Services is a wholly owned subsidiary of Resources.
For the two-month period ended December 31, 1996, administration fees totaling $840,707, $553,904, $634,856, $380,772, and $57,060 were paid to FT Services for Mutual Shares, Qualified, Beacon, Discovery and European, respectively.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of Resources, is the Fund's shareholder servicing agent and acts as the Fund's transfer agent and dividend-paying agent. Investor Services is compensated on the basis of a fixed fee per account.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110, acts as custodian of the securities and other assets of the Fund. The custodian does not participate in decisions relating to the purchase and sale of portfolio securities.
AUDITORS. Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, are the Fund's independent auditors. During the fiscal year ended December 31, 1996, their auditing services consisted of rendering an opinion on the financial statements of the Fund included in the Fund's Annual Report to Shareholders for the fiscal year ended December 31, 1996.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
Franklin Mutual selects brokers and dealers to execute the Fund's portfolio transactions in accordance with criteria set forth in the management agreement and any directions that the Board may give.
When placing a portfolio transaction, Franklin Mutual seeks to obtain prompt execution of orders at the most favorable net price. For portfolio transactions on a securities exchange, the amount of commission paid by the Fund is negotiated between Franklin Mutual and the broker executing the transaction. The determination and evaluation of the reasonableness of the brokerage commissions paid are based to a large degree on the professional opinions of the persons responsible for placement and review of the transactions. These opinions are based on the experience of these individuals in the securities industry and information available to them about the level of commissions being paid by other institutional investors of comparable size. Franklin Mutual will ordinarily place orders to buy and sell over-the-counter securities on a principal rather than agency basis with a principal market maker unless, in the opinion of Franklin Mutual, a better price and execution can otherwise be obtained. Purchases of portfolio securities from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers will include a spread between the bid and ask price.
Franklin Mutual may pay certain brokers commissions that are higher than those another broker may charge, if Franklin Mutual determines in good faith that the amount paid is reasonable in relation to the value of the brokerage and research services it receives. This may be viewed in terms of either the particular transaction or Franklin Mutual's overall responsibilities to client accounts over which it exercises investment discretion. The services that brokers may provide to Franklin Mutual include, among others, supplying information about particular companies, markets, countries, or local, regional, national or transnational economies, statistical data, quotations and other securities pricing information, and other information that provides lawful and appropriate assistance to Franklin Mutual in carrying out its investment advisory responsibilities. These services may not always directly benefit the Fund. They must, however, be of value to Franklin Mutual in carrying out its overall responsibilities to its clients.
It is not always possible to place a precise dollar value on the special executions or on the research services Franklin Mutual receives from dealers effecting transactions in portfolio securities. The allocation of transactions in order to obtain additional research services permits Franklin Mutual to supplement its own research and analysis activities and to receive the views and information of individuals and research staffs of other securities firms. As long as it is lawful and appropriate to do so, Franklin Mutual and its affiliates may use this research and data in their investment advisory capacities with other clients. If the Fund's officers are satisfied that the best execution is obtained, the sale of Fund shares, as well as shares of other funds in the Franklin Templeton Group of Funds, may also be considered a factor in the selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain fees when the Fund tenders portfolio securities pursuant to a tender-offer solicitation. As a means of recapturing brokerage for the benefit of the Fund, any portfolio securities tendered by the Fund may be tendered through Distributors if it is legally permissible and Franklin Mutual believes it would be in the best interests of the Fund to do so. In turn, the next management fee payable to Franklin Mutual will be reduced by the amount of any fees received by Distributors in cash, less any costs and expenses incurred in connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment companies or clients supervised by Franklin Mutual are considered at or about the same time, transactions in these securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by Franklin Mutual, taking into account the respective sizes of the funds and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Fund is concerned. In other cases it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Fund.
During the fiscal years ended December 31, 1994, 1995 and 1996, the Fund paid brokerage commissions as follows:
MUTUAL SHARES QUALIFIED BEACON DISCOVERY EUROPEAN
1994 $4,036,735 $2,648,109 $2,745,963 $2,225,634 -0-
1995 $8,028,205 $5,182,736 $6,269,829 $3,040,751 -0-
1996 $8,095,501 $6,090,786 $7,418,388 $7,928,860 $734,682
|
As of December 31, 1996, the Funds owned securities issued by Bear Stearns & Co. valued in the aggregate at $39,490. Except as noted, the Fund did not own any securities issued by their regular broker-dealers as of the end of the end of the fiscal year.
Clearwater, an indirect affiliate of Franklin Mutual, is a registered securities dealer and a member of the NASD. Transactions in some Fund portfolio securities (particularly transactions involving floor brokers) were effected through Clearwater before November 1, 1996. During the fiscal years ended December 31, 1994, 1995 and 1996, Mutual Shares paid brokerage commissions to Clearwater of $313,814, $1,192,230 and $755,142, respectively; Qualified paid $147,829, $640,588 and $439,926, respectively; Beacon paid $168,828, $764,323 and $607,402, respectively; and Discovery paid $74,704, $217,609 and $384,267, respectively. During the fiscal year ended December 31, 1996, European paid $4,037.
SOFT DOLLAR ARRANGEMENTS. The Fund receives research services from persons who act as brokers or dealers for the Fund. The discussion below relates in general to these brokers or dealers who pursuant to various arrangements pay for certain computer hardware and software and other research and brokerage services to Franklin Mutual and/or the Fund for transactions effected by it for the Fund. Commission soft dollars may be used only for brokerage and research services provided by brokers to whom commissions are paid and under no circumstances will cash payments be made by any such broker to Franklin Mutual. To the extent that commission soft dollars do not result in the provision of any brokerage and research services by brokers to whom such commissions are paid, the commissions, nevertheless, are the property of such broker. Although, potentially, Franklin Mutual could be influenced to place Fund brokerage transactions with a broker in order to generate soft dollars for Franklin Mutual's benefit, Franklin Mutual believes that the requirement that it achieve best execution on Fund portfolio transactions, and the Fund's negotiated commission structure with brokers, mitigate these concerns as the cost of transactions effected through brokers, before consideration of any soft dollar benefits that may be received, generally will be comparable to that available elsewhere. During the fiscal years ended December 31, 1994, 1995 and 1996, the Fund paid brokerage commissions of $2,267,683, $3,355,180, and $2,539,782, respectively, to brokers who provided research services. This amount represented 19.45%, 14.90%, and 8.50%, respectively, of total commissions paid for the periods.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an agreement with Distributors. Securities laws of states where the Fund offers its shares may differ from federal law. Banks and financial institutions that sell shares of the Fund may be required by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to the Fund we may impose a $10 charge against your account for each returned item.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors and/or its affiliates provide financial support to various Securities Dealers that sell shares of the Franklin Templeton Group of Funds. This support is based primarily on the amount of sales of fund shares. The amount of support may be affected by: total sales; net sales; levels of redemptions; the proportion of a Securities Dealer's sales and marketing efforts in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and participation in, Distributors' marketing programs; a Securities Dealer's compensation programs for its registered representatives; and the extent of a Securities Dealer's marketing programs relating to the Franklin Templeton Group of Funds. Financial support to Securities Dealers may be made by payments from Distributors' resources, from Distributors' retention of underwriting concessions and, in the case of funds that have Rule 12b-1 plans, from payments to Distributors under such plans. In addition, certain Securities Dealers may receive brokerage commissions generated by fund portfolio transactions in accordance with the NASD's rules.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be purchased at the Net Asset Value determined on the business day following the dividend record date (sometimes known as the "ex-dividend date"). The processing date for the reinvestment of dividends may vary and does not affect the amount or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but unpaid income dividends and capital gain distributions will be exchanged into the new fund and will be invested at Net Asset Value. Backup withholding and information reporting may apply. Information regarding the possible tax consequences of an exchange is included in the tax section in this SAI and in the Prospectus.
If a substantial number of shareholders should, within a short period, sell their shares of the Fund under the exchange privilege, the Fund might have to sell portfolio securities it might otherwise hold and incur the additional costs related to such transactions. On the other hand, increased use of the exchange privilege may result in periodic large inflows of money. If this occurs, it is the Fund's general policy to initially invest this money in short-term, interest-bearing money market instruments, unless it is believed that attractive investment opportunities consistent with the Fund's investment objectives exist immediately. This money will then be withdrawn from the short-term money market instruments and invested in portfolio securities in as orderly a manner as is possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not available until the fifth business day following the sale. The funds you are seeking to exchange into may delay issuing shares pursuant to an exchange until that fifth business day. The sale of Fund shares to complete an exchange will be effected at Net Asset Value at the close of business on the day the request for exchange is received in proper form. Please see "May I Exchange Shares for Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or maintaining a systematic withdrawal plan. Once your plan is established, any distributions paid by the Fund will be automatically reinvested in your account. Payments under the plan will be made from the redemption of an equivalent amount of shares in your account, generally on the 10th or 25th day of the month in which a payment is scheduled. If the 10th or 25th falls on a weekend or holiday, we will process the redemption on the next business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the shares in your account if payments exceed distributions received from the Fund. This is especially likely to occur if there is a market decline. If a withdrawal amount exceeds the value of your account, your account will be closed and the remaining balance in your account will be sent to you. Because the amount withdrawn under the plan may be more than your actual yield or income, part of the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in writing and will automatically discontinue a systematic withdrawal plan if all shares in your account are withdrawn or if the Fund receives notification of the shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities Dealer, it is your dealer's responsibility to transmit the order to the Fund in a timely fashion. Any loss to you resulting from your dealer's failure to do so must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. In the case of redemption requests, the Board reserves the right to make payments in whole or in part in securities or other assets of the Fund, in case of an emergency, or if the payment of such a redemption in cash would be detrimental to the existing shareholders of the Fund. In these circumstances, the securities distributed would be valued at the price used to compute the Fund's net assets and you may incur brokerage fees in converting the securities to cash. The Fund does not intend to redeem illiquid securities in kind. If this happens, however, you may not be able to recover your investment in a timely manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the postal service, we will consider this a request by you to change your dividend option to reinvest all distributions. The proceeds will be reinvested in additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify your current mailing address, we may deduct the costs of our efforts to find you from your account. These costs may include a percentage of the account when a search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares of the Fund must be denominated in U.S. dollars. We may, in our sole discretion, either (a) reject any order to buy or sell shares denominated in any other currency or (b) honor the transaction or make adjustments to your account for the transaction as of a date and with a foreign currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that maintain omnibus accounts with the Fund on behalf of numerous beneficial owners for recordkeeping operations performed with respect to such owners. For each beneficial owner in the omnibus account, the Fund may reimburse Investor Services an amount not to exceed the per account fee that the Fund normally pays Investor Services. These financial institutions may also charge a fee for their services directly to their clients.
Certain shareholder servicing agents may be authorized to accept your transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class of the Fund's shares as of the scheduled close of the NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for trading. As of the date of this SAI, the Fund is informed that the NYSE observes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and receivables are valued at their realizable amounts. Interest is recorded as accrued and dividends are recorded on the ex-dividend date. Portfolio securities listed on a securities exchange or on the NASDAQ National Market System for which market quotations are readily available are valued at the last quoted sale price of the day or, if there is no such reported sale, within the range of the most recent quoted bid and ask prices. Over-the-counter portfolio securities are valued within the range of the most recent quoted bid and ask prices. Portfolio securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market as determined by Franklin Mutual.
Portfolio securities underlying actively traded call options are valued at their market price as determined above. The current market value of any option held by the Fund is its last sale price on the relevant exchange before the time when assets are valued. Lacking any sales that day or if the last sale price is outside the bid and ask prices, options are valued within the range of the current closing bid and ask prices if the valuation is believed to fairly reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the foreign exchange on which it is traded or as of the scheduled close of trading on the NYSE, if that is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York time, on the day the value of the foreign security is determined. If no sale is reported at that time, the mean between the current bid and ask prices is used. Occasionally events that affect the values of foreign securities and foreign exchange rates may occur between the times at which they are determined and the close of the exchange and will, therefore, not be reflected in the computation of the Net Asset Value. If events materially affecting the values of these foreign securities occur during this period, the securities will be valued in accordance with procedures established by the Board.
Generally, trading in corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times before the scheduled close of the NYSE. The value of these securities used in computing the Net Asset Value is determined as of such times. Occasionally, events affecting the values of these securities may occur between the times at which they are determined and the scheduled close of the NYSE that will not be reflected in the computation of the Net Asset Value. If events materially affecting the values of these securities occur during this period, the securities will be valued at their fair value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued at the current market price, which may be obtained from a pricing service, based on a variety of factors including recent trades, institutional size trading in similar types of securities (considering yield, risk and maturity) and/or developments related to specific issues. Securities and other assets for which market prices are not readily available are valued at fair value as determined following procedures approved by the Board. With the approval of the Board, the Fund may utilize a pricing service, bank or Securities Dealer to perform any of the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of dividends, interest and other income derived from its investments. This income, less the expenses incurred in the Fund's operations, is its net investment income from which income dividends may be distributed. Thus, the amount of dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in connection with sales or other dispositions of its portfolio securities. Distributions by the Fund derived from net short-term and net long-term capital gains (after taking into account any capital loss carryforward or post-October loss deferral) may generally be made twice each year, once in December and once at mid-year. The Fund may adjust the timing of these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, Mutual Series has elected and qualified to be treated as a regulated investment company under Subchapter M of the Code. The Board reserves the right not to maintain the qualification of Mutual Series as a regulated investment company if it determines this course of action to be beneficial to shareholders. In that case, the Fund will be subject to federal and possibly state corporate taxes on its taxable income and gains, and distributions to shareholders will be taxable to the extent of the Fund's available earnings and profits.
Because the Fund intends to qualify and to distribute all of its net investment income and capital gain to shareholders, it is expected that the Fund will not be required to pay Federal income taxes.
The Fund normally will distribute substantially all of its net investment income and net realized capital gain, if any, to shareholders in the form of dividends to be paid from time to time as determined by the Board. Such dividends are taxable whether paid in cash or additional shares of such series.
In the event that total distributions (including distributed or designated net capital gain) for a taxable year exceed its investment company taxable income and net capital gain, a portion of each distribution generally will be treated as a return of capital. Distributions treated as a return of capital reduce a shareholder's basis in its shares and could result in a capital gain tax either when a distribution is in excess of basis or, more likely, when a shareholder redeems its shares.
Shareholders will be notified annually by the Fund as to the Federal tax
treatment of dividends and distributions paid during the calendar year.
Dividends and distributions may also be subject to state and local taxes. State
and local tax treatment may vary according to applicable laws. You can elect to
receive distributions in cash or in additional shares of such series. The price
of the additional shares is determined as of the date for the dividend payment.
(See "What Distributions Might I Receive from the Fund?" in the Prospectus.)
To maintain qualification as a regulated investment company under the Code, the Fund must limit gains from the sale or other disposition of its portfolio securities (including options, futures and forward contracts) held for less than three months to less than 30% of its annual gross income. Generally, gains on foreign currencies (and gains on options, futures, or forward contracts with respect to foreign currencies) are not subject to this 30% short-short rule if directly related to regular investments by a series in equity or debt securities.
The Fund intends to declare and pay dividends and capital gain distributions so as to avoid imposition of a 4% federal excise tax. To do so, the Fund expects to distribute during the calendar year an amount at least equal to (i) 98% of its calendar year net investment income, (ii) 98% of its realized capital gain (the excess of short and long-term capital gain over short and long-term capital loss) for each one-year period ending October 31, and (iii) 100% of any undistributed net investment income or realized capital gain from the prior calendar year which has not been distributed by the Fund. Dividends declared in October, November, or December and made payable to shareholders of record in such a month would be deemed paid by the Fund and taxable to shareholders on December 31 of such year provided that the dividends are actually paid during January of the following year. The Fund may make a deemed distribution with respect to its net capital gain by paying the tax with respect to the net capital gain and then designating, but not distributing, all or a portion of the gain as a capital gain dividend. The Fund's shareholders will treat the designated amounts as a capital gain on their income tax returns, but they will receive a credit or refund equal to federal income taxes paid by the Fund with respect to the capital gain. In addition, shareholders will increase their basis in the Fund's shares by 65% of the amount subject to tax. If a capital gain dividend is paid with respect to any shares sold at a loss after being held for less than six months, any loss realized will be treated as a long-term capital loss to the extent of the capital gain dividend. There are special rules for determining holding periods for the purpose of the preceding sentence.
Dividends distributed by the Fund will only be eligible for the
dividends-received deduction available to corporate shareholders to the extent
of the portion of the Fund's gross income that consists of dividends received on
equity securities issued by domestic corporations meets the same holding period,
risk of loss, and borrowing limitations applicable to the Fund's shareholders.
Section 246 of the Code permits the dividends-received deduction to corporate
shareholders only if the shares with respect to which the dividends were paid
have been held for more than 45 days. If the holding period is not satisfied,
the dividends-received deduction is disallowed, regardless of whether the shares
with respect to which the dividends were paid have been sold or otherwise
disposed of. The holding period requirements are separately applicable to each
block of shares acquired, including each block of shares received in payment of
the Fund's dividends. For purposes of determining whether this holding period
requirement has been met, the day of acquisition and any day after the first 45
days after the date on which such shares become ex-dividend must be disregarded.
In addition, the holding period is suspended during periods in which the stock
is subject to diminished risk of loss including, for example, because the holder
has acquired a put option or sold a call option (other than certain covered call
options where the exercise price is not substantially below the selling price)
or otherwise hedged his position.
The dividends-received deduction will also be reduced, for shareholders who incur indebtedness in order to purchase shares of the Fund, by the percentage of the cost of the Fund's shares that is debt-financed. Generally, this limitation applies only if the debt is directly attributable to the purchase of shares. Whether debt is directly attributable to the purchase of shares depends on the particular facts and circumstances of each situation and accordingly shareholders are urged to consult their tax advisors.
Under section 1059 of the Code, a corporation which receives an "extraordinary dividend" and disposes of the stock with respect to which such dividend was paid, provided generally that such stock has not been held for at least two years prior to the date of declaration, announcement or agreement about the extraordinary dividend, is required to reduce its basis in such stock (but not below zero) by the amount of the dividend which was not taxed because of the dividends-received deduction with such basis reduction generally being treated as having occurred immediately before the sale or disposition of such stock. To the extent such untaxed amount exceeds the shareholder's basis, such excess will be taxed as gain upon a sale or disposition of such stock. An extraordinary dividend generally is any dividend that equals or exceeds 10% of the shareholder's basis in the stock (5% in the case of preferred stock). For this purpose, generally, all dividends within any 85-day period, and if such dividends total more than 20% of the shareholder's basis in its stock, all dividends within one year, must be aggregated for purposes of determining whether such dividends constitute extraordinary dividends. The shareholder may elect to determine the status of extraordinary dividends by reference to the fair market value of the stock as of the date before the ex-dividend date, rather than by reference to the adjusted basis of such stock (provided the shareholder establishes the fair market value to the satisfaction of the Commissioner of the IRS). In determining whether the above-mentioned two-year holding period has been met, the same rules apply as are applicable to the 45-day holding period requirement for the dividends-received deduction.
Corporations should note that 75% of the untaxed portion of the Fund's dividends could be taken into account for purposes of the alternative minimum tax imposed on corporations.
The Fund may in the future engage in various defensive hedging transactions. Under various Code provisions such transactions might change the character of recognized gains and losses, accelerate the recognition of certain gains and losses, and defer the recognition of certain losses or deductions.
If more than 50% of the assets of the Fund at the close of any taxable year consists of stocks or securities of foreign corporations, the Fund may elect to treat any foreign income taxes, such as withholding taxes on interest or dividends, that are paid by the Fund as paid by the shareholders of the Fund. If the Fund makes this election, shareholders will be entitled to credit their pro rata share of the foreign taxes paid by the Fund against their U.S. federal income tax liability, or to deduct the amounts from their U.S. taxable income. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. In addition, certain individual shareholders may be subject to rules that limit or reduce their ability to deduct fully their pro rata share of foreign taxes paid by the Fund. Since European anticipates that more than 50% of the value of its total assets will consist of non-U.S. equity and debt securities, European shareholders are expected to be eligible for a pass through of the foreign taxes paid by the Fund. Shareholders of Mutual Shares, Qualified, Beacon and Discovery are not expected to be eligible for a pass through of the foreign taxes paid by the Fund.
Treasury regulations provide that the dividends-paid deduction attributable to an in-kind distribution of property is equal to the adjusted basis of such property.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal underwriter in a continuous public offering for each class of the Fund's shares. The underwriting agreement will continue in effect for successive annual periods if its continuance is specifically approved at least annually by a vote of the Board or by a vote of the holders of a majority of the Fund's outstanding voting securities, and in either event by a majority vote of the Board members who are not parties to the underwriting agreement or interested persons of any such party (other than as members of the Board), cast in person at a meeting called for that purpose. The underwriting agreement terminates automatically in the event of its assignment and may be terminated by either party on 90 days' written notice.
Distributors pays the expenses of the distribution of Fund shares, including advertising expenses and the costs of printing sales material and prospectuses used to offer shares to the public. The Fund pays the expenses of preparing and printing amendments to its registration statements and prospectuses (other than those necessitated by the activities of Distributors) and of sending prospectuses to existing shareholders.
Distributors does not receive compensation from the Fund for acting as underwriter of the Fund's Class Z shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of standardized performance quotations or, alternatively, that every non-standardized performance quotation furnished by the Fund be accompanied by certain standardized performance information computed as required by the SEC. Average annual total return used by the Fund is based on the standardized methods of computing performance mandated by the SEC. If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date of the plan's implementation.
An explanation of these and other methods used by the Fund to compute or express performance for Class Z follows. Regardless of the method used, past performance does not guarantee future results, and is an indication of the return to shareholders only for the limited historical period used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by finding the average annual rates of return over one-, five- and ten-year periods, or fractional portion thereof, that would equate an initial hypothetical $1,000 investment to its ending redeemable value. The calculation assumes income dividends and capital gain distributions are reinvested at Net Asset Value. The quotation assumes the account was completely redeemed at the end of each one-, five- and ten-year period and the deduction of all applicable charges and fees. If a change is made to the sales charge structure, historical performance information will be restated to reflect the maximum front-end sales charge currently in effect.
The average annual total return for Class Z for the one-, five- and ten-year periods ended December 31, 1996, was:
1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------
Mutual Shares 20.76% 19.06% 15.35%
Qualified 21.19% 19.55% 15.62%
Beacon 21.19% 19.48% 16.20%
Discovery* 24.93% N/A N/A
European** N/A N/A N/A
|
*Discovery commenced operations on December 31, 1992. The average annual return for the three-year period ended December 31, 1996, was 18.53% and from inception was 22.64%.
**European commenced operations on July 3, 1996.
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year periods at the end of the one-, five- or ten-year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total return assumes income dividends and capital gain distributions are reinvested at Net Asset Value. Cumulative total return, however, will be based on the actual return for each class for a specified period rather than on the average return over one-, five- and ten-year periods, or fractional portion thereof. The cumulative total return for Class Z for the one-, five- and ten-year periods ended December 31, 1996, was:
1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------
Mutual Shares 20.76% 139.27% 317.19%
Qualified 21.19% 327.03% 327.03%
Beacon 21.19% 143.38% 348.84%
Discovery* 24.93% N/A N/A
European** N/A N/A N/A
|
*Discovery commenced operations on December 31, 1992. The cumulative total return for the three-year period ended December 31, 1996, was 66.51% and from inception was 126.20%.
**European commenced operations on July 3, 1996. The cumulative total return from inception was 14.61%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk. Measures of volatility or risk are generally used to compare the Fund's Net Asset Value or performance to a market index. One measure of volatility is beta. Beta is the volatility of a fund relative to the total market, as represented by an index considered representative of the types of securities in which the fund invests. A beta of more than 1.00 indicates volatility greater than the market and a beta of less than 1.00 indicates volatility less than the market. Another measure of volatility or risk is standard deviation. Standard deviation is used to measure variability of Net Asset Value or total return around an average over a specified period of time. The idea is that greater volatility means greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
Sales literature referring to the use of the Fund as a potential investment for Individual Retirement Accounts (IRAs), Business Retirement Plans, and other tax-advantaged retirement plans may quote a total return based upon compounding of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating to investment objectives and performance results of funds belonging to the Franklin Templeton Group of Funds. Resources is the parent company of the advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your investment objective, advertisements and other materials about the Fund may discuss certain measures of performance as reported by various financial publications. Materials may also compare performance (as calculated above) to performance as reported by other investments, indices, and averages. These comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow Jones(R) Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20 transportation company stocks. Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's(R) 500 Stock Index or its component indices an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of performance assume reinvestment of dividends.
c) The New York Stock Exchange composite or component indices an unmanaged index of all industrial, utilities, transportation, and finance stocks listed on the NYSE.
d) Wilshire 5000 Equity Index - represents the return on the market value of all common equity securities for which daily pricing is available. Comparisons of performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund Performance Analysis - measure total return and average current yield for the mutual fund industry and rank individual mutual fund performance over specified time periods, assuming reinvestment of all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. - analyzes price, current yield, risk, total return, and average rate of return (average annual compounded growth rate) over specified time periods for the mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield, risk, and total return for mutual funds.
h) Financial publications: The Wall Street Journal, and Business Week, Changing Times, Financial World, Forbes, Fortune, and Money magazines - provide performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau of Labor Statistics - a statistical measure of change, over time, in the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates - historical measure of yield, price, and total return for common and small company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's(R) 100 Stock Index - an unmanaged index based on the prices of 100 blue-chip stocks, including 92 industrials, one utility, two transportation companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller, index for options trading.
n) Morningstar - information published by Morningstar, Inc., including Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's assessment of the historical risk-adjusted performance of a fund over specified time periods relative to other funds within its category.
o) Salomon Brothers Broad Bond Index or its component indices measures yield, price, and total return for Treasury, agency, corporate and mortgage bonds.
p) Lehman Brothers Aggregate Bond Index or its component indices - measures yield, price and total return for Treasury, agency, corporate, mortgage and Yankee bonds.
r) Salomon Brothers Composite High Yield Index or its component indices - measures yield, price and total return for the Long-Term High-Yield Index, Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.
From time to time, advertisements or information for the Fund may include a discussion of certain attributes or benefits to be derived from an investment in the Fund. The advertisements or information may include symbols, headlines, or other material that highlights or summarizes the information discussed in more detail in the communication.
Advertisements or information may also compare the performance of Class Z to the return on CDs or other investments. You should be aware, however, that an investment in the Fund involves the risk of fluctuation of principal value, a risk generally not present in an investment in a CD issued by a bank. For example, as the general level of interest rates rise, the value of the Fund's fixed-income investments, if any, as well as the value of its shares that are based upon the value of such portfolio investments, can be expected to decrease. Conversely, when interest rates decrease, the value of the Fund's shares can be expected to increase. CDs are frequently insured by an agency of the U.S. government. An investment in the Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the composition of the investments in the reported indices and averages is not identical to the Fund's portfolio, the indices and averages are generally unmanaged, and the items included in the calculations of the averages may not be identical to the formula used by the Fund to calculate its figures. In addition, there can be no assurance that the Fund will continue its performance as compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating money for retirement, saving for a down payment on a home, college costs and other long-term goals. The Franklin College Costs Planner may help you in determining how much money must be invested on a monthly basis in order to have a projected amount available in the future to fund a child's college education. (Projected college cost estimates are based upon current costs published by the College Board.) The Franklin Retirement Planning Guide leads you through the steps to start a retirement savings program. Of course, an investment in the Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the largest mutual fund organizations in the U.S., and may be considered in a program for diversification of assets. Founded in 1947, Franklin, one of the oldest mutual fund organizations, has managed mutual funds for over 49 years and now services more than 2.7 million shareholder accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and an innovator in creating domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer in international investing. Mutual Series, known for its value-driven approach to domestic equity investing, became part of the organization four years later. Together, the Franklin Templeton Group has over $188 billion in assets under management for more than 5.1 million U.S. based mutual fund shareholder and other accounts. The Franklin Templeton Group of Funds offers 122 U.S. based open-end investment companies to the public. The Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in service quality for five of the past nine years.
As of April 2, 1997, the principal shareholder of the Fund, beneficial or of record, was as follows:
Michael F. Price
51 John F. Kennedy Pkwy
Short Hills, NJ 07078
From time to time, the number of Fund shares held in the "street name" accounts of various Securities Dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding.
In the event of disputes involving multiple claims of ownership or authority to control your account, the Fund has the right (but has no obligation) to: (a) freeze the account and require the written agreement of all persons deemed by the Fund to have a potential property interest in the account, before executing instructions regarding the account; (b) interplead disputed funds or accounts with a court of competent jurisdiction; or (c) surrender ownership of all or a portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are access persons under the 1940 Act are permitted to engage in personal securities transactions subject to the following general restrictions and procedures: (i) the trade must receive advance clearance from a compliance officer and must be completed before the close of the *business day following the day clearance is granted but may be extended in special circumstances; (ii) copies of all brokerage confirmations must be sent to a compliance officer and, within 10 days after the end of each calendar quarter, a report of all securities transactions must be provided to the compliance officer; and (iii) access persons involved in preparing and making investment decisions must, in addition to (i) and (ii) above, file annual reports of their securities holdings each January and inform the compliance officer (or other designated personnel) if they own a security that is being considered for a fund or other client transaction or if they are recommending a security in which they have an ownership interest for purchase or sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders of the Fund, for the fiscal year ended December 31, 1996, including the auditors' report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares, designated "Class I," "Class II," and "Class Z." The three classes have proportionate interests in the Fund's portfolio. They differ, however, primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal underwriter
FRANKLIN MUTUAL - Franklin Mutual Advisers, Inc., the Fund's investment manager
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in the Franklin Group of FundsAE and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting the fund's liabilities from the total assets of the portfolio. The net asset value per share is determined by dividing the net asset value of the fund by the number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for Class Z shares of the Fund dated May 1, 1997, as may be amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through affiliates, has an agreement with Distributors to handle customer orders and accounts with the Fund. This reference is for convenience only and does not indicate a legal conclusion of capacity.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms refer to the Fund and/or Investor Services, Distributors, or other wholly owned subsidiaries of Resources.
Franklin Mutual Series Fund Inc. 33-18516 811-5387
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements
(1) Audited Financial Statements incorporated herein by reference to the Mutual Shares Fund's Annual Report to Shareholders dated December 31, 1996, as filed with the SEC electronically on Form Type N-30D on March 5, 1997
(i) Schedule of Investments - December 31, 1996
(ii) Statement of Assets and Liabilities - December 31, 1996
(iii)Statements of Operations - for the year ended December 31, 1996
(iv) Statements of Changes in Net Assets - for the years ended December 31, 1996 and the year ended December 31, 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - February 7, 1997
(2) Audited Financial Statements incorporated herein by reference to the Mutual Qualified Fund's Annual Report to Shareholders dated December 31, 1996 as filed with the SEC electronically on Form Type N-30D on March 5, 1997
(i) Schedule of Investments - December 31, 1996
(ii) Statement of Assets and Liabilities - December 31, 1996
(iii)Statement of Operations - for the year ended December 31, 1996
(iv) Statements of Changes in Net Assets - for the years ended December 31, 1996 and December 31, 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - February 7, 1997
(3) Audited Financial Statements incorporated herein by reference to the Mutual Discovery Fund's Annual Report to Shareholders dated December 31, 1996 as filed with the SEC electronically on Form Type N-30D on March 5, 1997
(i) Schedule of Investments - December 31, 1996
(ii) Statement of Assets and Liabilities - December 31, 1996
(iii)Statement of Operations - for the year ended December 31, 1996
(iv) Statements of Changes in Net Assets - for the years ended December 31, 1996 and December 31, 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - February 7, 1997
(4) Audited Financial Statements incorporated herein by reference to the Mutual Beacon Fund's Annual Report to Shareholders dated December 31, 1996 as filed with the SEC electronically on Form Type N-30D on March 5, 1997
(i) Schedule of Investments - December 31, 1996
(ii) Statement of Assets and Liabilities - December 31, 1996
(iii)Statement of Operations - for the year ended December 31, 1996
(iv) Statements of Changes in Net Assets - for the Years ended December 31, 1996 and December 31, 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - February 7, 1997
(5) Audited Financial Statements incorporated herein by reference to the Mutual European Fund's Annual Report to Shareholders dated December 31, 1996 as filed with the SEC electronically on Form Type N-30D on March 5, 1997
(i) Schedule of Investments - December 31, 1996
(ii) Statement of Assets and Liabilities - December 31, 1996
(iii)Statement of Operations - for the year ended December 31, 1996
(iv) Statements of Changes in Net Assets - for the Years ended December 31, 1996 and December 31, 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - February 7, 1997
b) The following exhibits are attached, except exhibits 5(i), 5(ii),
5(iii), 5(iv), 5(v), 6(i), 6(ii), 6(iii), 6(iv), 6(v), 6(vi), 14(i),
14(ii), 14(iii), 14(iv), 14(v), 14(vi), 15(i), 15(ii), 15(iii), 15(iv),
15(v), 15(vi) and 18(i) which are incorporated by reference.
(1) copies of the charter as now in effect;
(i) Articles of Incorporation dated November 12, 1987
(ii) Articles of Amendment dated December 30, 1987
(iii) Articles Supplementary dated September 18, 1992
(iv) Articles Supplementary dated January 26, 1996
(v) Articles Supplementary dated June 17, 1996
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
(3) copies of any voting trust agreement with respect to more than five percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant, including copies of all constituent instruments, defining the rights of the holders of such securities, and copies of each security being registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the management of the assets of the Registrant;
(i) Investment Advisory Agreement between Franklin Mutual Advisers, Inc., and the Registrant on behalf of Mutual Shares Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(ii) Investment Advisory Agreement between Franklin Mutual Advisers, Inc., and the Registrant on behalf of Mutual Qualified Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iii) Investment Advisory Agreement between Franklin Mutual Advisers, Inc., and the Registrant on behalf of Mutual Beacon Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iv) Investment Advisory Agreement between Franklin Mutual Advisers, Inc., and the Registrant on behalf of Mutual Discovery Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(v) Investment Advisory Agreement between Franklin Mutual Advisers, Inc., and the Registrant on behalf of Mutual European Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(vi) Administration Agreement between Franklin Templeton Services, Inc. and Franklin Mutual Series Inc. on behalf of Mutual Shares Fund dated November 1, 1996
(vii)Administration Agreement between Franklin Templeton Services, Inc. and Franklin Mutual Series Inc. on behalf of Mutual Qualified Fund dated November 1, 1996
(viii)Administration Agreement between Franklin Templeton Services, Inc. and Franklin Mutual Series Inc. on behalf of Mutual Beacon Fund dated November 1, 1996
(ix) Administration Agreement between Franklin Templeton Services, Inc. and Franklin Mutual Series Inc. on behalf of Mutual Discovery Fund dated November 1, 1996
(x) Administration Agreement between Franklin Templeton Services, Inc. and Franklin Mutual Series Inc. on behalf of Mutual European Fund dated November 1, 1996
(6) copies of each underwriting or distribution contract between the Registrant and a principal underwriter, and specimens or copies of all agreements between principal underwriters and dealers;
(i) Distribution Agreement between Registrant and Franklin/Templeton Distributors, Inc. on behalf of Mutual Shares Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(ii) Distribution Agreement Agreement between the Registrant and Franklin/Templeton Distributors, Inc. on behalf of Mutual Beacon Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iii)Distribution Agreement Agreement between the Registrant and Franklin/Templeton Distributors, Inc. on behalf of Mutual Qualified Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iv) Distribution Agreement Agreement between the Registrant and Franklin/Templeton Distributors, Inc. on behalf of Mutual Discovery Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(v) Distribution Agreement Agreement between the Registrant and Franklin/Templeton Distributors, Inc. on behalf of Mutual European Fund dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(vi) Form of Dealer Agreement between the Registrant and Franklin/Templeton Distributors, Inc., incorporated by reference to:
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to the Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(7) copies of all bonus, profit sharing, pension or other similar contracts or arrangements wholly or partly for the benefit of directors or officers of the Registrant in their capacity as such; any such plan that is not set forth in a formal document, furnish a reasonably detailed description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under Section 17(f) of the 1940 Act, with respect to securities and similar investments of the Registrant, including the schedule of remuneration;
(i) Custodian Agreement between the Registrant and State Street Bank
(9) copies of all other material contracts not made in the ordinary course of business which are to be performed in whole or in part at or after the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the securities being registered, indicating whether they will when sold be legally issued, fully paid and nonassessable;
(i) Opinion and Consent of Miles and Stockbridge as to legality of shares dated December 18, 1992
(ii Opinion and Consent of Miles and Stockbridge as to legality of shares dated June 17, 1996
(11) copies of any other opinions, appraisals or rulings and consents to the use thereof relied on in the preparation of this Registration Statement and required by Section 7 of the 1933 Act;
(i) Consent of Ernst & Young LLP
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration for providing the initial capital between or among the Registrant, the underwriter, adviser, promoter or initial stockholders and written assurances from promoters or initial stockholders that their purchases were made for investment purposes without any present intention of redeeming or reselling;
(i) Form of Subscription by Sole Shareholder
(14) copies of the model plan used in the establishment of any retirement plan in conjunction with which Registrant offers its securities, any instructions thereto and any other documents making up the model plan. Such form(s) should disclose the costs and fees charged in connection therewith;
(i) Copy of Model Retirement Plan incorporated by reference to:
Registrant: Franklin High Income Trust
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(ii) *Model 403 (b) (7) Plan
(iii)*Model SEP-IRA Plan
(iv) *Model Fund Sponsored Plan
(v) *Model IRA Plan
(vi) *Model IRA Plan Amendment
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1 under the 1940 Act, which describes all material aspects of the financing of distribution of Registrant's shares, and any agreements with any person relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc. on behalf of Mutual Shares Fund - Class I dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(ii) Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc.on behalf of Mutual Qualified Fund - Class I dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iii)Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc. on behalf of Mutual Beacon Fund - Class I dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(iv) Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc. on behalf of Mutual Discovery Fund - Class I dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(v) Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc.on behalf of Mutual European Fund - Class I dated November 1, 1996 Filing: Post-Effective Amendment No. 21 to Registration Statement on Form N-1A File No. 33-18516 Filing Date: January 31, 1997
(vi) Distribution Plan pursuant to Rule 12b-1 between the Registrant and Franklin Templeton Distributors, Inc. dated November 1, 1996 on behalf of:
Mutual Shares Fund - Class II
Mutual Qualified Fund - Class II
Mutual Beacon Fund - Class II
Mutual Discovery Fund - Class II
Mutual European Fund - Class II
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 (which need not be audited).
(i) Schedule for Computation of Performance quotations
incorporated by reference to:
Filing: Post-Effective Amendment No. 20 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: August 30, 1996
(17) Power of Attorney
(i) Power of Attorney
(ii) Certificate of Secretary
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3 under the 1940 Act.
(i) Form of Multiple Class Plan incorporated by reference to:
Filing: Post-Effective Amendment No. 20 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: August 30, 1996
(27) Financial Data Schedule
(i) Financial Data Schedule - Mutual Shares Fund Class I
(ii) Financial Data Schedule - Mutual Shares Fund Class II
(iii) Financial Data Schedule - Mutual Shares Fund Class Z
(iv) Financial Data Schedule - Mutual Qualified Fund Class I
(v) Financial Data Schedule - Mutual Qualified Fund Class II
(vi) Financial Data Schedule - Mutual Qualified Fund Class Z
(vii) Financial Data Schedule - Mutual Discovery Fund Class I
(viii) Financial Data Schedule - Mutual Discovery Fund Class II
(ix) Financial Data Schedule - Mutual Discovery Fund Class Z
(x) Financial Data Schedule - Mutual Beacon Fund Class I
(xi) Financial Data Schedule - Mutual Beacon Fund Class II
(xii) Financial Data Schedule - Mutual Beacon Fund Class Z
(xiii) Financial Data Schedule - Mutual European Fund Class I
(xiv) Financial Data Schedule - Mutual European Fund Class II
(xv) Financial Data Schedule - Mutual European Fund Class Z
* Previously Filed
Item 25 Persons Controlled by or Under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of January 30, 1997 the number of record holders of each series of the Registrant was as follows:
Number of Record Holders
Class Z Class I Class II
Mutual Shares Fund 145,635 4,586 2,505
Mutual Qualified Fund 174,010 2,854 1,531
Mutual Discovery Fund 110,248 5,255 3,242
Mutual Beacon Fund 122,993 4,722 2,362
Mutual European Fund 17,834 921 479
|
Item 27 Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court or appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 28 Business and Other Connections of Investment Adviser
a) The officers and directors of the Registrant's manager also serve as officers and/or directors for (1) the manager's corporate parent, Franklin Resources, Inc., and/or (2) other investment companies in the Franklin Group of Funds(R). In addition, Mr. Charles B. Johnson is a director of General Host Corporation. For additional information please see Part B and Schedules A and D of Form ADV of the Funds' Investment Manager (SEC File 801-53068), incorporated herein by reference, which sets forth the officers and directors of the Investment Manager and information as to any business, profession, vocation or employment of a substantial nature engaged in by those officers and directors during the past two years.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc. Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust Franklin Strategic Mortgage Portfolio
Franklin Strategic Series Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund Franklin Tax-Advantaged U.S.
Government Securities Fund Franklin Tax-Exempt Money Fund Franklin Tax-Free
Trust Franklin Templeton Fund Allocator Series Franklin Templeton Global Trust
Franklin Templeton International Trust Franklin Templeton Money Fund Trust
Franklin Value Investors Trust Institutional Fiduciary Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
b) The information required by this item 29 with respect to each director and officer of Distributors is incorporated by reference to Part B of this N-1A and Schedule A of Form BD filed by Distributors with the Securities and Exchange Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889)
c) Not applicable. Registrant's principal underwriter is an affiliated person of an affiliated person of the Registrant.
Item 30 Location of Accounts and Records
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder will be maintained at the offices of Franklin Mutual Series Fund Inc., located at 51 John F Kennedy Parkway, Short Hills, New Jersey 07078, or at the State Street Bank and Trust Company, 1776 Heritage Drive, John Adams Building #2, North Quincy, Massachusetts 02171 or PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809-3710 or at Franklin/Templeton Investor Services, Inc., 777 Mariners Island Blvd., San Mateo, California 94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part A or
Part B.
Item 32 Undertakings
(a) The Registrant hereby undertakes to promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any director or directors when requested in writing to do so by the record holders of not less than 10 percent of the Registrant's outstanding shares to assist its shareholders in accordance with the requirements of Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information requirement in Item 5A of the Form N-1A by including the required information in the Fund's Annual Report to Shareholders and to furnish each person to whom a prospectus is delivered a copy of the Annual Report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Mateo and the State of California, on the 30th day of April, 1997.
FRANKLIN MUTUAL SERIES FUND INC.
(Registrant)
By: /s/Michael F. Price*
Michael F. Price
President
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
/s/Michael F. Price* President and Chairman of the
Michael F. Price Board (Chief Executive Officer)
Dated: April 30, 1997
/s/James R. Baio* Treasurer and Chief Financial
James R. Baio Officer
Dated: April 30, 1997
/s/Edward I. Altman* Director
Edward I. Altman Dated: April 30, 1997
/s/Richard L. Chasse, M.D.* Director
Richard L. Chasse, M.D. Dated: April 30, 1997
/s/Ann Torre Grant* Director
Ann Torre Grant Dated: April 30, 1997
/s/Andrew H. Hines, Jr. Director
Andrew H. Hines, Jr. Dated: April 30, 1997
/s/Peter A. Langerman* Director
Peter A. Langerman Dated: April 30, 1997
/s/Bruce A. MacPherson* Director
Bruce A. MacPherson Dated: April 30, 1997
/s/Fred R. Millsaps* Director
Fred R. Millsaps Dated: April 30, 1997
/s/Leonard Rubin* Director
Leonard Rubin Dated: April 30, 1997
/s/Barry F. Schwartz* Director
Barry F. Schwartz Dated: April 30, 1997
/s/Vaughn R. Sturtevant, M.D.* Director
Vaughn R. Sturtevant, M.D. Dated: April 30, 1997
/s/Robert E. Wade* Director
Robert E. Wade Dated: April 30, 1997
*By /s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
|
FRANKLIN MUTUAL SERIES FUND INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
- -------------------------------------------------------------------
EX-99.B1(i) Articles of Incorporation Attached
EX-99.B1(ii) Articles of Amendment Attached
EX-99.B1(iii) Articles Supplementary Attached
EX-99.B1(iv) Articles Supplementary Attached
EX-99.B1(iv) Articles Supplementary Attached
EX-99.B2(i) By-Laws Attached
EX-99.B5(i) Investment Advisory Agreement **
between Franklin Mutual Advisers,
Inc., and the Registrant on behalf of
Mutual Shares Fund
EX-99.B5(ii) Investment Advisory Agreement **
between Franklin Mutual Advisers,
Inc., and the Registrant on behalf of
Mutual Qualified Fund
EX-99.B5(iii) Investment Advisory Agreement **
between Franklin Mutual Advisers,
Inc., and the Registrant on behalf of
Mutual Beacon Fund
EX-99.B5(iv) Investment Advisory Agreement **
between Franklin Mutual Advisers,
Inc., and the Registrant on behalf of
Mutual Discovery Fund
EX-99.B5(v) Investment Advisory Agreement **
between Franklin Mutual Advisers,
Inc., and the Registrant on behalf of
Mutual European Fund
EX-99.B5(vi) Administration Agreement Attached
between Franklin Templeton Services,
Inc. and the Registrant on behalf of
Mutual Shares Fund
EX-99.B5(vii) Administration Agreement Attached
between Franklin Templeton Services,
Inc. and the Registrant on behalf of
Mutual Qualified Fund
EX-99.B5(viii) Administration Agreement Attached
between Franklin Templeton Services,
Inc. and the Registrant on behalf
of Mutual Beacon Fund
EX-99.B5(ix) Administration Agreement Attached
between Franklin Templeton Services,
Inc. and the Registrant on behalf
of Mutual Discovery Fund
EX-99.B5(x) Administration Agreement Attached
between Franklin Templeton Services,
Inc. and the Registrant on behalf of
Mutual European Fund
EX-99.B6(i) Distribution Agreement between **
Registrant and Franklin/Templeton
Distributors, on behalf of Mutual
Shares Fund
EX-99.B6(ii) Distribution Agreement between **
Registrant and Franklin/Templeton
Distributors, on behalf of Mutual
Beacon Fund
EX-99.B6(iii) Distribution Agreement between **
Registrant and Franklin/Templeton
Distributors, on behalf of Mutual
Qualified Fund
EX-99.B6(iv) Distribution Agreement between **
Registrant and Franklin/Templeton
Distributors, on behalf of Mutual
Discovery Fund
EX-99.B6(v) Distribution Agreement between **
Registrant and Franklin/Templeton
Distributors, on behalf of Mutual
European Fund
EX-99.B6(vi) Form of Dealer Agreement between the **
Registrant and Franklin/Templeton
Distributors, Inc.
EX-99.B8(i) Custodian Agreement between the Attached
Registrant and State Street Bank
EX-99.B10(i) Opinion and Consent of Miles and Attached
Stockbridge as to legality of shares
ters
EX-99.B10(ii) Opinion and Consent of Miles and Attached
Stockbridge as to legality of shares
EX-99.B11(i) Consent of Ernst & Young L.L.P. Attached
EX-99.B13(i) Letter of Understanding Attached
EX-99.B14(i) Copy of Model Retirement Plan **
EX-99.B14(ii) Model 403(b)(7) Plan *
EX-99.B14(iii) Model SEP-IRA Plan *
EX-99.B14(iv) Model Fund Sponsored Plan *
EX-99.B14(v) Model IRA Plan *
EX-99.B14(vi) Model IRA Plan Amendment *
EX-99.B15(i) Distribution Plan pursuant to Rule **
12b-1 between the Registrant and
Franklin Templeton Distributors, Inc.
on behalf of Mutual Shares Fund -
Class I
EX-99.B15(ii) Distribution Plan pursuant to Rule **
12b-1 between the Registrant and
Franklin Templeton Distributors, Inc.
on behalf of Mutual Qualified Fund -
Class I
EX-99.B15(iii) Distribution Plan pursuant to Rule **
12b-1 between the Registrant and
Franklin Templeton Distributors, Inc.
on behalf of Mutual Beacon Fund -
Class I
EX-99.B15(iv) Distribution Plan pursuant to Rule **
12b-1 between the Registrant on behalf
of Mutual Discovery Fund - Class I
EX-99.B15(v) Distribution Plan pursuant to Rule **
12b-1 between the Registrant and
Franklin Templeton Distributors, Inc.
on behalf of Mutual European Fund -
Class I
EX-99.B15(vi) Distribution Plan pursuant to Rule **
12b-1 between the and
Franklin Templeton Distributors, Inc.
Registrant on behalf of All Series -
Class II
EX-99.B16(i) Schedule for Computation of Attached
Performance Quotations
EX-99.B17(i) Power of Attorney Attached
EX-99.B17(ii) Certificate of Secretary Attached
EX-99.B18(i) Form of Multiple Class Plan **
EX-99.B22(i) Schedule of Computation of Performance Attached
Quotations
EX-27.B(i) Financial Data Schedule - Mutual Attached
Shares Fund Class I
Attached
EX-27.B(ii) Financial Data Schedule - Mutual
Shares Fund Class II
EX-27.B(iii) Financial Data Schedule - Mutual Attached
Shares Fund Class Z
EX-27.B(iv) Financial Data Schedule - Mutual Attached
Qualified Fund Class I
EX-27.B(v) Financial Data Schedule - Mutual Attached
Qualified Fund Class II
EX-27.B(vi) Financial Data Schedule - Mutual Attached
Qualified Fund Class Z
EX-27.B(vii) Financial Data Schedule - Mutual Attached
Discovery Fund Class I
EX-27.B(viii) Financial Data Schedule - Mutual Attached
Discovery Fund Class II
EX-27.B(ix) Financial Data Schedule - Mutual Attached
Discovery Fund Class Z
EX-27.B(x) Financial Data Schedule - Mutual Attached
Beacon Fund Class I
EX-27.B(xi) Financial Data Schedule - Mutual Attached
Beacon Fund Class II
EX-27.B(xii) Financial Data Schedule - Mutual Attached
Beacon Fund Class Z
EX-27.B(xiii) Financial Data Schedule - Mutual Attached
European Fund Class I
EX-27.B(xiv) Financial Data Schedule - Mutual Attached
European Fund Class II
EX-27.B(xv) Financial Data Schedule - Mutual Attached
European Fund Class Z
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* Previously filed **Incorporated by reference
ARTICLES OF INCORPORATION
OF
MUTUAL SERIES FUND INC.
* * * * *
ARTICLE I
THE UNDERSIGNED, John B. Frisch, whose post office address is 10 Light Street, Baltimore, Maryland 21202, being at least eighteen (18) years of age, hereby forms a corporation under and by virtue of the Maryland General Corporation Law.
ARTICLE II
NAME
The name of the Corporation is MUTUAL SERIES FUND INC. (the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purposes for which the Corporation is formed are to act as an investment company under the federal Investment Company Act of 1940 as amended (the "1940 Act"), and to exercise and enjoy all of the general powers, rights and privileges granted to, or conferred upon, corporations by the Maryland General Corporation Law now or hereafter in force.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated, a corporation of the State of Maryland, and the post office address of the resident agent is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of stock of all classes which the Corporation shall have authority to issue is Six Hundred Million (600,000,000) all of which stock shall have a par value of one-tenth of one cent ($.001) per share. The aggregate par value of all authorized shares of stock of the Corporation is Six Hundred Thousand Dollars ($600,000).
(2) (a) The Board of Directors of the Corporation is authorized to classify or to reclassify, from time to time, any unissued shares of stock of the Corporation, whether now or hereafter authorized, by setting, changing or eliminating the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, and qualifications or terms and conditions of or rights to require redemption of the stock and, pursuant to such classification or reclassification, to increase or decrease the number of authorized shares of any class, but the number of shares of any class shall not be reduced by the Board of Directors below the number of shares thereof then outstanding.
(b) Without limiting the generality of the foregoing, the dividends and distributions of investment income and capital gains with respect to the stock of the Corporation, and with respect to each class that hereafter may be created, shall be in such amount as may be declared from time to time by the Board of Directors, and such dividends and distributions may vary from class to class to such extent and for such purposes as the Board of Directors may deem appropriate, including, but not limited to, the purpose of complying with requirements of regulatory or legislative authorities.
(c) Without limiting the generality of the foregoing, the Board of Directors may designate, from time to time, any unissued shares of stock of the Corporation, whether now or hereafter authorized, as a class or classes or a number of series of preferred or special stock that is excluded from the definition of "senior security" set forth in section 18(g) of the 1940 Act (or in any successor statute).
(3) Until such time as the Board of Directors shall provide otherwise
pursuant to the authority granted in section (2) of this Article V, 200,000,000
shares of the authorized shares of the Corporation are designated as Mutual
Shares Fund Stock ("Mutual Shares Stock"), 200,000,000 of the authorized shares
stock of the Corporation are designated as Mutual Qualified Fund Stock
("Qualified Stock") and 200,000,000 of the authorized shares of stock of the
Corporation are designated as Mutual Beacon Fund Stock ("Beacon Stock"). Shares
of the Mutual Shares Stock, Qualified Stock and Beacon Stock and the holders
thereof, and shares of any class or series of the type referred to in subsection
(c) of section (2) of this Article V and the holders thereof, shall be subject
to the following provisions, provided, however, that if no shares of any class
or series of the type referred to in subsection (c) of section (2) of this
Article V are outstanding, the shares of the Mutual Shares Stock, Qualified
Stock and Beacon Stock and the holders thereof shall nevertheless be subject to
the following provisions except to the extent that such provisions are by their
terms applicable only when shares of two or more classes are outstanding.
(a) As more fully set forth hereafter, the assets and liabilities and the income and expenses of each class of the Corporation's stock shall be determined separately and, accordingly, the net asset value, the distributions payable to holders, and the amounts distributable in the event of dissolution of the Corporation to holders, of shares of the Corporation's stock may vary from class to class. Except for these differences and certain other differences hereafter set forth, each class of the Corporation's stock shall have the same preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of and rights to require redemption.
(b) All consideration received by the Corporation for the issue or sale of shares of a class of the Corporation's stock, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be (collectively referred to as "assets belonging to" that class), shall irrevocably belong to that class for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. For purposes of the preceding sentence, the assets of any corporation or business trust merged with and into the Corporation pursuant to a merger in which the Corporation is the surviving corporation shall be deemed to be assets belonging to that class of the Corporation's stock the shares of which are issued by the Corporation pursuant to the merger.
(c) For purposes of determining the net asset value per share of stock of a class, the assets belonging to such class of the Corporation's stock shall be charged with the liabilities of the Corporation with respect to that class and with that class' share of the liabilities of the Corporation not attributable to any particular class, in the latter case in the proportion that the net asset value of that class (determined without regard to such liabilities) bears to the net asset value of all classes of the Corporation's stock (determined without regard to such liabilities) as determined in accordance with procedures adopted by the Board of Directors. The determination of the Board of Directors shall be conclusive as to the allocation of liabilities, including accrued expenses and reserves, and assets to a particular class or classes. The liabilities of any corporation or business trust merged with and into the Corporation pursuant to a merger in which the Corporation is the surviving corporation shall be charged to that class of the Corporation's stock the shares of which are issued by the Corporation pursuant to the merger.
(d) Each holder of stock of the Corporation, upon request to the Corporation (accompanied by surrender of the appropriate stock certificate or certificates in proper form for transfer, if any certificates have been issued to represent such shares) shall be entitled to require the Corporation to redeem, to the extent that the Corporation may lawfully effect such redemption under the laws of the State of Maryland and the federal securities laws, all or any part of the shares of stock standing in the name of such holder on the books of the Corporation at a price per share equal to the net asset value per share.
(e) Payment by the Corporation for shares of stock of the Corporation surrendered to it for redemption shall be made by the corporation within seven business days of such surrender out of the funds legally available therefor, provided that the Corporation may suspend the right of the holders of stock of the Corporation to redeem shares of stock and may postpone the right of such holders to receive payment for any shares when permitted or required to do so by applicable statutes or regulations. Payment of the aggregate price of shares surrendered for redemption may be made in cash or, at the option of the Corporation, wholly or partly in such portfolio securities of the Corporation as the Corporation shall select.
(f) The right of any holder of stock of the Corporation redeemed by
the Corporation as provided in subsection (d) of this section (3) to receive
dividends thereon and all other rights of such holder with respect to such
shares shall terminate at the time as of which the purchase or redemption price
of such shares is determined, except the right of such holder to receive (i) the
redemption price of such shares from the Corporation or its designated agent and
(ii) any dividend or distribution to which such holder had previously become
entitled as the record holder of such shares on the record date for such
dividend or distribution.
(g) The Corporation shall be entitled to purchase shares of its stock, to the extent that the Corporation may lawfully effect such purchase under the laws of the State of Maryland, upon such terms and conditions and for such consideration as the Board of Directors shall deem advisable, at a price not exceeding the net asset value per share.
(h) The net asset value of each share of each class of the Corporation's stock issued and sold or redeemed or purchased at net asset value shall be the current net asset value per share of the shares of that class as determined in accordance with procedures adopted from time to time by the Board of Directors which comply with the 1940 Act with such current net asset value to be based on the assets belonging to each such class less the liabilities charged to each such class.
(i) In the absence of any specification as to the purpose for which shares of stock of the Corporation are redeemed or purchased by it, all shares so redeemed or purchased shall be deemed to be retired in the sense contemplated by the laws of the State of Maryland and the number of the authorized shares of stock of the Corporation shall not be reduced by the number of any shares redeemed or purchased by it. Until their classification is changed in accordance with section (2) of this Article V, all shares so redeemed or purchased shall continue to belong to the same class or series to which they belonged at the time of their redemption or purchase.
(j) Shares of each class of stock shall be entitled to such dividends or distributions, in stock or in cash or both, as may be declared from time to time by the Board of Directors, acting in its sole discretion, with respect to such class, provided that dividends or distributions shall be paid on shares of a class of stock only out of lawfully available assets belonging to that class.
(k) In the event of the liquidation or dissolution of the Corporation, the stockholders of a class of the Corporation's stock shall be entitled to receive, as a class, out of the assets of the Corporation available for distribution to stockholders, the assets belonging to that class. The assets so distributable to the stockholders of a class shall be distributed among such stockholders in proportion to the number of shares of that class held by them and recorded on the books of the Corporation. In the event that there are any assets available for distribution that are not attributable to any particular class of stock, such assets shall be allocated to all classes in proportion to the net assets of the respective classes and then distributed to the holders of stock of each class in proportion to the number of shares of that class held by the respective holders.
(l)on each matter submitted to a vote of the stockholders, each holder of a share of stock shall be entitled to one vote for each such share standing in his name on the books of the Corporation irrespective of the class thereof; provided, however, that to the extent class voting is required by the 1940 Act or regulations thereunder or the laws of the State of Maryland as to any such matter, those requirements shall apply.
(m) The Corporation may issue shares of stock in fractional denominations to the same extent as its whole shares, and shares in fractional denominations shall be shares of stock having proportionately to the respective fractions represented thereby all the rights of whole shares, including without limitation, the right to vote, the right to receive dividends and distributions, and the right to participate upon liquidation of the Corporation, but excluding the right to receive a stock certificate representing fractional shares.
(4) All persons who shall acquire stock or other securities of the Corporation shall acquire the same subject to the provisions of these Articles of Incorporation, as from time to time amended.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF
THE CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be five (5), which number may be altered by and pursuant to the By-Laws of the Corporation but shall never be less than five. The names of the persons who shall act as directors until the first stockholders meeting and until their successors are duly elected and qualify are:
Michael E. Price Max L. Heine Edward I. Altman Roger W. Mann Bruce A. MacPherson
The term of office for a director is until death, resignation, retirement or reelection, or until a successor is elected and qualified. In no case shall a decrease in the number of directors shorten the term of any incumbent director. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the entire Board of Directors, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, whether or not sufficient to constitute a quorum, or by a sole remaining director. A director elected by the Board of Directors to fill any vacancy in the Board of Directors shall serve until the next meeting of stockholders and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. At any meeting of stockholders, stockholders shall be entitled to elect directors to fill any vacancies in the Board of Directors that have arisen since the preceding meeting of stockholders (whether or not any such vacancy has been filled by election of a new director by the Board of Directors) and any director so elected by the stockholders shall hold office until the next meeting of stockholders or until death, resignation retirement or until a successor is elected and qualified. A director may be removed for cause only, and not without cause, and only by action of the stockholders taken by the holders of at least sixty-seven percent (67%) of the shares of capital stock then entitled to vote in an election of directors.
(2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such limitations as may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the Maryland General Corporation Law.
(3) Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the Maryland General Corporation Law, subject to the requirements of the 1940 Act that such indemnity shall not protect such person against any liability to the Corporation or a stockholder to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
(4) The Board of Directors of the Corporation shall have the exclusive authority to make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the 1940 Act.
(5) The Board of Directors may designate, from time to time, the location of the offices of the Corporation.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No stockholder of the Corporation shall by reason of his holding shares of capital stock have any preemptive or preferential right to purchase or subscribe to any shares of capital stock of the Corporation, now or hereafter authorized, or any notes, debentures, bonds or other securities convertible into shares of capital stock, now or hereafter to be authorized, whether or not the issuance of any such shares of capital stock, or notes, debentures, bonds or other securities would adversely affect the dividend or voting rights of such shareholder; and the Board of Directors may issue shares of any class of capital stock of the Corporation, or any notes, debentures, bonds, other securities convertible into shares of any class of capital stock of the Corporation, either whole or in part, to the existing stockholders for such lawful consideration and on such terms as the Board of Directors, in its sole discretion, may determine.
ARTICLE VIII
MAJORITY VOTES OF STOCKHOLDERS
Except as otherwise provided in these Articles of Incorporation or as required under the 1940 Act, and notwithstanding any provision of the Maryland General Corporation Law requiring approval by the stockholders of any action by the affirmative vote of a greater proportion than a majority of the votes entitled to be cast upon the matter, any such action may be taken or authorized upon the concurrence of a majority of the number of votes entitled to be cast thereon.
ARTICLE IX
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the authority of the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject to the payment of corporate debts to any extent whatsoever.
ARTICLE XI
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE XII
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. All amendments shall require the affirmative vote of a majority of the Corporation's outstanding stock entitled to vote.
IN WITNESS WHEREOF, the undersigned incorporator of MUTUAL SERIES FUND INC. hereby executes the foregoing Articles of Incorporation and acknowledges the same to be his act and further acknowledges that, to the best of his knowledge, the matters and facts set forth therein are true in all material respects under the penalties of perjury.
Dated the 12th day of November, 1987.
/s/ John B. Frisch
------------------
John B. Frisch
|
ARTICLES OF AMENDMENT
OF
MUTUAL SERIES FUND INC.
Mutual Series Fund Inc., a Maryland corporation, having its principal
office at 26 Broadway, New York, New York 10004 (the "Corporation") certifies
as follows:
FIRST: The Charter of the Corporation is hereby amended by
striking paragraph (1) of Article VI, and inserting in its place
the following:
(1) The number of directors of the Corporation shall Be twelve (12), which number may be altered by and pursuant to the By-Laws of the Corporation but shall never be less than five (5). The names of the persons who shall act as directors until the first stockholders meeting and until their successors are duly elected and qualified are:
Michael F. Price Max L. Heine Edward I. Altman Roger W. Mann, M.D.
Bruce A. MacPherson
Paul Bechard
Richard L. Chasse, M.D.
Alan L. Gold
Stanley A. Kitzinger
Edwin F. Lovering, M.D.
Frederick M. Stern
Vaughn R. Sturtevant, M.D.
The term of office for a director is until death, resignation, retirement or reelection, or until a successor is elected and qualified. In no case shall a decrease in the number of directors shorten the term of any incumbent director. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the entire Board of Directors, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, whether or not sufficient to constitute a quorum, or by a sole remaining director. A director elected by the Board of Directors to fill any vacancy in the Board of Directors shall serve until the next meeting of stockholders and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. At any meeting of stockholders stockholders shall be entitled to elect directors to fill any vacancies in the Board of Directors that have arisen since the preceding meeting of stockholders (whether or not any such vacancy has been filled by election of a new director by the Board of Directors) and any director so elected by the stockholders shall hold office until the next meeting of stockholders or until death, resignation, retirement or until a successor is elected and qualified. A director may be removed for cause only, and not without cause, and only by action of the stockholders taken by the holders of at least sixty-seven percent (67%) of the shares of capital stock then entitled to vote in an election of directors.
SECOND: The Charter of the Corporation is hereby further amended by striking the first sentence of paragraph (3) of Article V and inserting in its place the following.
(3) Until such time as the Board of Directors shall provide otherwise pursuant to the authority granted in section (2) of this Article V, 200,000,000 shares of the authorized shares of stock of the Corporation are designated as Mutual Shares Fund Stock ("Mutual Shares Stock"), 200,000,000 of the authorized shares of stock of the Corporation are designated as Mutual Qualified Income Fund Stock ("Qualified Stock") and 200,000,000 of the authorized shares of stock of the Corporation are designated as Mutual Beacon Fund Stock ("Beacon Stock").
THIRD: This amendment was approved by a majority of the
Corporation's Board of Directors and no stock entitled to be
voted on the matter was outstanding or subscribed for at the time
of approval.
IN WITNESS WHEREOF, the Corporation has caused these
Articles to be signed in its name and on its behalf on this 30th
day of December, 1987 by its President who acknowledges that these Articles are
the act of Mutual Series Fund Inc. and that to the best of his knowledge,
information and belief and under penalties for perjury, all matters and facts
contained in these Articles are true in all material respects.
ATTEST: MUTUAL SERIES FUND INC. VALERIE M. WATSON By: MICHAEL F. PRICE(SEAL) Valerie M. Watson Michael F. Price Secretary President |
ARTICLES SUPPLEMENTARY OF
MUTUAL SERIES FUND INC.
Mutual Series Fund Inc., a Maryland corporation (the "Corporation"), certifies as follows:
FIRST: Under the authority contained in Article Fifth of the Charter of the Corporation and Section 2-105(c) of the Maryland General Corporation Law, the Board of Directors of the Corporation has duly increased the aggregate number of shares of authorized but unissued capital stock of the Corporation by creating a new class consisting of 100,000,000 shares of stock called the Mutual Discovery Fund Stock (the "Discovery Stock"), par value $.OO1 per share.
SECOND: The Discovery Stock shall be subject in all respects to the terms and conditions of the Corporation's Charter that are applicable to each class of the Corporation's capital stock as provided in Article Fifth of the Corporation's Charter.
THIRD: Immediately prior to the increase, the Corporation had authority to issue an aggregate of 600,000,000 shares of stock of which 200,000,000 of the authorized shares were classified as Mutual Shares Fund Stock, par value $.001 per share ("Mutual Shares Stock"), 200,000,000 of the authorized shares were classified as Mutual Qualified Fund Stock, par value $.001 per share ("Qualified Stock") and 200,000,000 of the authorized shares were classified as Mutual Beacon Fund Stock, par value $.001 per share ("Beacon Stock"). The aggragate par value of all the shares of stock of the Corporation authorized to be issued prior to the increase was $600,000,000.
FOURTH: As increased, the total number of shares of stock that the Corporation has authority to issue is 700,000,000 of which 200,000,000 of the authorized shares are classified as Mutual Shares Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as Qualified Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as Beacon Stock, par value $.001 per share, and 100,000,000 of the authorized shares are classified as Discovery Stock, par value $.001 per share. The aggregate par value of all the shares of stock of the Corporation authorized to be issued is $700,000.00.
FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf on this 18TH day of September, 1992, by its President who acknowledges that these Articles Supplementary are the act of the Corporation and that to the best of his knowledge, information and belief and under penalties of perjury, all matters and facts contained in these Articles Supplementary are true in all material respects.
ATTEST: MUTUAL SERIES FUND INC. /S/ELIZABETH N. COHERNOUR By: /s/ MICHAEL F. PRICE Elizabeth N. Cohernour Michael F. Price |
ARTICLES SUPPLEMENTARY
OF
MUTUAL SERIES FUND INC.
Mutual Series Fund Inc., a Maryland corporation (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation as follows:
FIRST:Under the authority contained in Article V of the Charter of the Corporation and Section 2-105(c) of the Maryland General Corporation Law, the Board of Directors of the Corporation has duly increased the aggregate number of shares of authorized but unissued capital stock of the Corporation by increasing the aggregate number of shares of stock classified as the Mutual Discovery Fund Stock (the "Discovery Stock"), par value $.001 per share, from 100,000,000 to 300,000,000.
SECOND: All of the authorized shares of the Discovery Stock shall be subject in all respects to the terms and conditions of the Corporation's Charter that are applicable to the shares of Discovery Stock as provided in Article V of the Corporation's Charter.
THIRD:Immediately prior to the increase, the Corporation had authority to issue an aggregate of 700,000,000 shares of capital stock of which 200,000,000 of the authorized shares were classified as the Mutual Shares Fund Stock, par value $.001 per share (the "Mutual Shares Stock"), 200,000,000 of the authorized shares were classified as the Mutual Qualified Fund Stock, par value $.001 per share (the "Qualified Stock"), 200,000,000 of the authorized shares were classified as the Mutual Beacon Fund Stock, par value $.001 per share (the "Beacon Stock"), and 100,000,000 of the authorized shares were classified as the Discovery Stock, par value $.001 per share. The aggregate par value of all the shares of capital stock of the Corporation authorized to be issued prior to the increase was $700,000.00.
FOURTH: As increased, the total number of shares of capital stock that the Corporation has authority to issue is 900,000,000 of which 200,000,000 of the authorized shares are classified as the Mutual Shares Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as the Qualified Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as the Beacon Stock, par value $.001 per share, and 300,000,000 of the authorized shares are classified as the Discovery Stock, par value $.001 per share. The aggregate par value of all the shares of stock of the Corporation authorized to be issued is $900,000.00.
FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed and acknowledged in its name and on its behalf on this 26TH day of January, 1996, by its President who acknowledges that these Articles Supplementary are the act of the Corporation and that to the best of his knowledge, information and belief and under penalties of perjury, all matters and facts contained in these Articles Supplementary are true in all material
ATTEST: MUTUAL SERIES FUND INC. /S/ELIZABETH N. COHERNOUR By: /S/MICHAEL F. PRICE Elizabeth N. Cohernour Michael F. Price |
ARTICLES SUPPLEMENTARY
OF
MUTUAL SERIES FUND INC.
Mutual Series Fund Inc., a Maryland corporation (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation as follows:
FIRST: Under the authority contained in Article V of the Charter of the Corporation and Section 2-105(c) of the Maryland General Corporation Law, the Board of Directors of the Corporation has duly increased the aggregate number of shares of authorized but unissued capital stock of the Corporation by creating a new class consisting of 400,000,000 shares of stock called the Mutual European Fund Stock (the "European Stock"), par value $.001 per share.
SECOND: The European Stock shall be subject in all respects to the terms and conditions of the Corporation's Charter that are applicable to each class of the Corporation's capital stock as provided in Article V of the Corporation's Charter.
THIRD: Immediately prior to the increase, the Corporation had authority to issue an aggregate of 900,000,000 shares of capital stock of which 200,000,000 of the authorized shares were classified as the Mutual Shares Fund Stock, par value $.001 per share (the "Mutual Shares stock"), 200,000,000 of the authorized shares were classified as the Mutual Qualified Fund Stock, par value $.OO1 per share (the "Qualified Stock") , 200,000,000 of the authorized shares were classified as the Mutual Beacon Fund Stock, par value $.001 per share (the "Beacon Stock"), and 300,000,000 of the authorized shares were classified as the Mutual Discovery Fund Stock, par value $.001 per share (the "Discovery Stock"). The aggregate par value of all the shares of capital stock of the Corporation authorized to be issued prior to the increase was $900,000.00.
FOURTH: As increased, the total number of shares of capital stock that the Corporation has authority to issue is 1,300,000,000, of which 200,000,000 of the authorized shares are classified as the Mutual Shares Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as the Qualified Stock, par value $.001 per share, 200,000,000 of the authorized shares are classified as the Beacon Stock, par value $.001 per share, 300,000,000 of the authorized shares are classified as the Discovery Stock, par value s.001 per share, and 400,000,000 of the authorized shares are classified as the European Stock, par value S.001 per share. The aggregate par value of all the shares of stock of the Corporation authorized to be issued is $1,300,000.00.
FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed and acknowledged in its name and on its behalf on this 17TH day of June, 1996, by its President who acknowledges that these Articles Supplementary are the act of the Corporation and that to the best of his knowledge, information and belief and under penalties of perjury, all matters and facts contained in these Articles Supplementary are true in all material respects.
ATTEST: MUTUAL SERIES FUND INC. /S/ELIZABETH N. COHERNOUR By: /S/MICHAEL F. PRICE Elizabeth N. Cohernour Michael F. Price Secretary President |
BY-LAWS
OF
MUTUAL SERIES FUND INC., as Amended December 4, 1992
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the Corporation shall be at 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078.
Section 3. OTHER OFFICES. The Corporation may have such other offices in such places as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETINGS. The Corporation is not required to hold an annual meeting in any year in which the election of directors is not required to be acted upon under the Investment Company Act of 1940 (the "1940 Act"), but it may hold annual meetings (whether or not required by the 1940 Act). Any meeting held for the purpose of electing directors shall be designated the annual meeting of stockholders for that year. If the Corporation is required to hold a meeting of stockholders to elect directors pursuant to the Investment Company Act of 1940, the annual meeting shall be held no later than 120 days after the occurrence of the event requiring the meeting. All other annual meetings shall be held on a day in the month of June selected by the Board of Directors.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders, unless otherwise provided by law or by the Charter, may be called for any purpose or purposes by a majority of the Board of Directors, the President, or on the written request of the holders of at least 25% of the outstanding capital stock of the corporation entitled to vote at such meeting.
Section 3. PLACE OF MEETINGS. Annual and special meetings of the stockholders shall be held at such place within the United States as the Board of Directors may from time to time determine.
Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the place, date and time of the holding of each annual and special meeting of the stockholders and the purpose or purposes of each special meeting shall be given personally or by mail, not less than ten nor more than ninety days before the date of such meeting, to each stockholder entitled to vote at such meeting and to each other stockholder entitled to notice of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. When a meeting is adjourned to another time and place, unless the Board of Directors, after the adjournment, shall fix a new record date for an adjourned meeting, or the adjournment is for more than one hundred and twenty days after the original record date, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken.
Section 5. QUORUM. At all meetings of the stockholders, the holders of a majority of the shares of stock of the Corporation entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for the transaction of any business, except as otherwise provided by statute, the 1940 Act and the Rules promulgated thereunder (the "1940 Act Rules"), or the Charter. In the absence of a quorum no business may be transacted, except that the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting from time to time, without notice other than announcement thereat except as otherwise required by these By-Laws, until the holders of the requisite amount of shares of stock shall be so present. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. The absence from any meeting, in person or by proxy, of holders of the number of shares of stock of the Corporation in excess of a majority thereof which may be required by the laws of the State of Maryland, the 1940 Act, or other applicable statute, the Charter, or these By-Laws, for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters. A quorum shall be present with respect to matters as to which only the holders of one class of stock may vote if a majority of the shares of that class are present at the meeting in person or by proxy, and the absence of holders of a majority of shares with respect to one class shall have no effect with respect to any other class of stock.
Section 6. ORGANIZATION. At each meeting of the stockholders, the Chairman of the Board (if one has been designated by the Board), or in the Chairman of the Board's absence or inability to act, the President, or in the absence or inability of the Chairman of the Board and the President, a Vice President, shall act as chairman of the meeting. The Secretary, or in the Secretary's absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 7. ORDER OF BUSINESS. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.
Section 8. VOTING. Except as otherwise provided by statute or the 1940 Act and the 1940 Act Rules or the Charter, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in such stockholder's name on the record of stockholders of the Corporation as of the record date determined pursuant to Section 9 of this Article or if such record date shall not have been so fixed, then at the later of (i) the close of business on the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise-provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, the 1940 Act, the 1940 Act Rules, the charter or these By-Laws, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then unless required by statute, the 1940 Act, the 1940 Act Rules or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted.
Section 9. FIXING OF RECORD DATE. The Board of Directors may set a record date for the purpose of determining stockholders entitled to vote at any meeting of the stockholders. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than ninety nor less than ten days before the date of the meeting of the stockholders. All persons who were holders of record of shares at such time, and not others, shall be entitled to vote at such meeting and any adjournment thereof.
Section 10. INSPECTORS. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspector shall not be so appointed of if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting powers of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders.
Section ll. CONSENT OF STOCKHOLDERS IN LIEU OF Meeting. Except as otherwise provided by statute, the 1940 Act, the 1940 Act Rules or the Charter, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if the following are filed with the records of stockholders meetings: (i) a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and (ii) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. Except as otherwise provided in the Charter, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Charter or these By-Laws.
Section 2. NUMBER OF DIRECTORS. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen. Any vacancy created
by an increase in the number of Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term.
Directors need not be stockholders.
Section 3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected by written ballot at a meeting of stockholders, held for that purpose unless otherwise provided by statute or the Charter. The term of office of directors shall be from the time of their election and qualification until the next annual meeting of stockholders and until their successors are elected and qualify.
Section 4. RESIGNATION. A director of the Corporation may resign at any time by giving written notice of his resignation to the Board or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless other wise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5. REMOVAL OF DIRECTORS. Any director of the Corporation may be removed for cause (but not without cause) by the stockholders by a vote of seventy-five percent (75%) of the votes entitled to be cast for the election of directors.
Section 6. VACANCIES. Subject to the provisions of the 1940 Act, any vacancies in the Board, whether arising from death, resignation, removal, an increase in the number of directors or any other cause, shall be filled by a vote of the Board of Directors in accordance with the Charter.
Section 7. PLACE OF MEETINGS. Meetings of the Board may be held at such place as the Board may from time to time determine or as shall be specified in the notice of such meeting.
Section 8. REGULAR MEETING. Regular meetings of the Board may be held without notice at such time and place as may be determined by the Board of Directors.
Section 9. SPECIAL MEETINGS. Special meetings of the Board may be called by two or more directors of the Corporation or by the Chairman of the Board or the President.
Section 10. POST STOCKHOLDER MEETINGS. A meeting of the Board of Directors shall be held as soon as practicable after each meeting of stockholders at which directors were elected. No notice of such meeting shall be necessary if held immediately after the adjournment, and at the site, of the meeting of stockholders. If not so held, notice shall be given as hereinafter provided for special meetings of the Board of Directors.
Section 11. NOTICE OF SPECIAL MEETINGS. Notice of each special meeting of the Board shall be given by the Secretary as hereinafter provided, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director, either personally or by telephone or any standard form of telecommunication, at least twenty-four hours before the time at which such meeting is to be held, or mailed by first-class mail, postage prepaid, addressed to him at his residence or usual place of business, at least three days before the day on which such meeting is to be held.
Section 12. WAIVER OF NOTICE OF MEETINGS. Notice of any special meeting need not be given to any director who shall, either before or after the meeting, sign a written waiver of notice which is filed with the records of the meeting or who shall attend such meeting. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any meeting need not state the purpose of such meeting.
Section 13. QUORUM AND VOTING. One-third, but not less than two, of the members of the entire Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and except as otherwise expressly required by statute, the 1940 Act, the 1940 Act Rules, the Charter, these By-Laws, or other applicable statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board; provided, however, that the approval of any contract within investment adviser or principal underwriter, as such terms are defined in the 1940 Act, which the corporation enters into or any renewal or amendment thereof, and the selection of the Corporation's independent public accountants shall each require the affirmative vote of a majority of the directors who are not interested persons, as defined in the 1940 Act, of the Corporation cast in person at such meeting and the approval of the fidelity bond required by the 1940 Act shall require the approval of a majority of such directors. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.
Section 14. ORGANIZATION. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Subject to the provisions of the Investment Company Act of 1940, as amended, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writings or writing are filed with the minutes of the proceedings of the Board or committee.
Section 16. COMPENSATION. Directors may receive compensation for services to the Corporation in their capacities as directors or otherwise in such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. INVESTMENT POLICIES. It shall be the duty of the Board of Directors to ensure that the purchase, sale, retention and disposal of portfolio securities and the other investment practices of the Corporation are at all times consistent with the investment policies and restrictions with respect to securities investments and otherwise of the Corporation, as recited in the Prospectus included in the registration statement of the Corporation covering the initial public offering of shares of its capital stock, as filed with the Securities and Exchange commission (or as such investment policies and restrictions may be modified by the Board of Directors or, if required, by majority vote of the stockholders of the Corporation in accordance with the Investment Company Act of 1940, as amended) and as required by the Investment Company Act of 1940, as amended. The Board, however, may delegate the duty of management of the assets and the administration of its day to day operations to one or more individuals or corporate management companies and/or investment advisers pursuant to a written contract or contracts which have obtained the requisite approvals, including the requisite approvals of renewals thereof, of the Board of Directors and/or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as mended.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF THE BOARD. The Board of Directors may from time to time, by resolution adopted by a majority of the whole Board, designate one or more committees of the Board, each such committee to consist of two or more directors and to have such powers and duties as the Board of Directors may, by resolution, prescribe.
Section 2. GENERAL. one-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority or power of the Board in the management of the business or affairs of the Corporation.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
Section 1. OFFICERS. The officers of the Corporation shall be a President, who shall be a director of the Corporation, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint one or more Vice Presidents and may also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument as an officer in more than one capacity. Such officers shall be elected by the Board of Directors to serve at the pleasure of the Board, each to hold office until the next meeting of stockholders and until their successors shall have been duly elected and shall have qualified, or until death, resignation, or removal, as hereinafter provided in these By-Laws. The Board may from time to time elect, or delegate to the President the power to appoint, such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents, as may be necessary or desirable for the business of the Corporation. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority.
Section 2. RESIGNATIONS. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3. REMOVAL OF OFFICER, AGENT OR EMPLOYEE. Any officer, agent or employee of the Corporation may be removed by the Board of Directors with or without cause at any time, and the Board may delegate such power of removal as to agents and employees not elected or appointed by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, either arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office.
Section 5. COMPENSATION. The compensation of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer in respect of other officers under his control.
Section 6. BONDS OR OTHER SECURITY. If required by the Board, any officer, agent or employee of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board may require.
Section 7. PRESIDENT. The President shall be the chief executive officer of the Corporation. In the absence of the Chairman of the Board (or if there be none), he shall preside at all meetings of the stockholders and of the Board of Directors. He shall have, subject to the control of the Board of Directors, general charge of the business and affairs of the Corporation. He may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board, and he may delegate these powers.
Section 8. VICE PRESIDENT. Each Vice President shall have such powers and perform such duties as the Board of Directors or the President may from time to time prescribe.
Section 9. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, except those which the Corporation has placed in the custody of a bank or trust company or member of a national securities exchange (as that term is defined in the Securities Exchange Act of 1934, as amended) pursuant to a written agreement designating such bank or trust company or member of a national securities exchange as a custodian or sub-custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the Corporation from any source whatsoever;
(e) disburse the funds of the corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor;
(f) provide assistance to the Audit Committee of the Board and report to such committee as necessary;
(g) designated as principal accounting officer for purposes of 32 of the 1940 Act; and
(h) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or the President.
Section 10. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the President.
Section 11. DELEGATION OF DUTIES. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any director.
ARTICLE VI
INDEMNIFICATION
Each officer and director of the Corporation shall be indemnified by the Corporation to the full extent permitted under the General Laws of the State of Maryland as in effect from time to time, except that such indemnity shall not protect any such person against any liability to the Corporation or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the full extent permitted by the General Laws of the State of Maryland as in effect from time to time, the Corporation shall advance or reimburse reasonable expenses in advance of a final disposition of a proceeding provided that the advance or reimbursement is made in accordance with the Investment Company Act of 1940 as amended. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Corporation to indemnify such person must be based upon the reasonable determination of independent counsel or nonparty independent directors, after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
The Corporation may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland, from liability arising from his activities as officer or director of the Corporation. The Corporation, however, may not purchase insurance on behalf of any officer or director of the Corporation that protects or purports to protect such person from liability to the Corporation or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the extent provided in this Article VI on behalf of an employee or agent who is not an officer or director of the Corporation.
ARTICLE VII
CAPITAL STOCK
Section 1. STOCK CERTIFICATES. Each holder of stock of the Corporation shall be entitled upon request to have a certificate or certificates, in such form as shall be approved by the Board, representing the number of shares of the Corporation owned by him provided, however, that certificates for fractional shares will not be delivered in any case. The certificates representing shares of stock shall be signed by or in the name of the Corporation by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Any or all of the signatures or the seal on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate shall be issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still in office at the date of issue.
Section 2. BOOKS OF ACCOUNTS AND RECORD OF Stockholders. There shall be kept at the principal executive office of the Corporation correct and complete books and records of account of all the business and transactions of the Corporation. There shall be made available upon request of any stockholder, in accordance with Maryland law, a record containing the number of shares of stock issued during a specified period not to exceed twelve months and the consideration received by the Corporation for each share.
Section 3. TRANSFERS OF SHARES. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates, if issued, for such -shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation: shall be entitled to recognize the exclusive rights of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person.
Section 4. REGULATIONS. The Board may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to be-bear the signature or signatures of any of them.
Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any certificates representing shares of stock of the corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Board may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or issuance of a new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Maryland.
Section 6. FIXING OF A RECORD DATE FOR DIVIDENDS AND DISTRIBUTIONS. The Board may fix, in advance, a date not more than ninety days preceding the date fixed for the payment of any dividend or the making of any distribution. Once the Board of Directors fixes a record date as the record date for the determination of the stockholders entitled to receive any such dividend or distribution, in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend or distribution.
Section 7. INFORMATION TO STOCKHOLDERS AND OTHERS. Any stockholder of the Corporation or his agent may inspect and copy during usual business hours the Corporation's By-Laws, minutes of the proceedings of its stockholders, annual statements of its affairs, and voting trust agreements on file at its principal office.
ARTICLE VIII
SEAL
The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal," and "Maryland". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
FISCAL YEAR
Unless otherwise determined by the Board, the fiscal year of the Corporation shall end on the 31st day of December.
ARTICLE X
DEPOSITORIES AND CUSTODIANS
Section 1. DEPOSITORIES. The funds of the Corporation shall be deposited with such banks or other depositories as the Board of Directors of the corporation may from time to time determine.
Section 2. CUSTODIANS. All securities and other investments shall be deposited in the safe keeping of such banks or other companies as the Board of Directors of the Corporation may from time to time determine. Every arrangement entered into with any bank or other company for the safe keeping of the securities and investments of the Corporation shall contain provisions complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
Section 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate.
Section 2. SALE OR TRANSFER OF SECURITIES. Stock certificates, bonds or other securities at any time owned by the Corporation or sold, transferred or otherwise disposed of subject to any limits imposed by these By-Laws and pursuant to authorization by the Board and, when so authorized to be held on behalf of the Corporation or sold, transferred or otherwise disposed of, may be transferred from the name of the Corporation by the signature of the President or a Vice President or the Treasurer or pursuant to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of independent public accountants which shall sign or certify the financial statements of the Corporation which are filed with the Securities and Exchange Commission shall be selected annually by the Board of Directors and ratified by the stockholders in accordance with the provisions of the Investment Company Act of 1940, as amended.
ARTICLE XIII
ANNUAL STATEMENT
The books of account of the Corporation shall be examined by an independent firm of public accountants at the close of each annual period of the Corporation and at such other times as may be directed by the Board. A report to the stockholders based upon each examination shall be mailed to each stockholder of the Corporation of record on such date with respect to each report as may be determined by the Board, at his address as the same appears on the books of the Corporation. Such annual statement shall also be available at the annual meeting of stockholders and be placed on file at the Corporation's principal office in the State of Maryland. Each such report shall show the assets and liabilities of the Corporation as of the close of the annual or quarterly period covered by the report and the Securities in which the funds of the Corporation were then invested. Such report shall also show the Corporation's income and expenses for the period from the end of the Corporation's preceding fiscal year to the close of the annual or quarterly period covered by the report and any other information required by the 1940 Act, and shall set forth such other matters as the Board or such firm of independent public accountants shall determine.
ARTICLE XIV
AMENDMENTS
The Board of Directors, by affirmative vote of majority thereof, shall have the exclusive right to amend, alter or repeal these By-Laws at any regular or special meeting of the Board of Directors, except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the 1940 Act.
ADMINISTRATION AGREEMENT BETWEEN
FRANKLIN TEMPLETON SERVICES, INC.
AND
FRANKLIN MUTUAL SERIES FUND INC.
AGREEMENT dated as of November 1, 1996, between Franklin Mutual Series Fund Inc., a Maryland corporation which is a registered open-end investment company, on behalf of its series, MUTUAL SHARES FUND (the "Fund"), and Franklin Templeton Services, Inc. ("FTS").
In consideration of the mutual promises herein made, the parties hereby agree as follows:
(1) FTS agrees, during the life of this Agreement, to be responsible for:
(a) providing office space, telephone, office equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers for services rendered as such;
(c) authorizing expenditures and approving bills for payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual reports to shareholders, notices of dividends, capital gains distribution and tax credits, and attending to routine correspondence and other communications with individual shareholders;
(e) daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping requirements under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, with state regulatory requirements, maintenance of books and records for the Fund (other than those maintained by the custodian and transfer agent), preparing and filing of tax reports other than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred retirement plans for the Fund; and
(j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal on an annual basis to 0.15% of the first $200 million of the aggregate average daily net assets of the Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through June 30, 1998 and thereafter from year to year to the extent continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time on sixty (60) days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of a majority of the outstanding voting securities of the Fund (as defined by the 1940 Act); and shall automatically and immediately terminate in the event of its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross negligence on the part of FTS, or of reckless disregard of its duties and obligations hereunder, FTS shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers.
FRANKLIN MUTUAL SERIES FUND INC.
By:/s/Elizabeth Cohernour
----------------------
Elizabeth Cohernour
General Counsel & Secretary
|
Franklin Templeton Services, Inc.
By: /s/Deborah R. Gatzek
---------------------
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
|
ADMINISTRATION AGREEMENT BETWEEN
FRANKLIN TEMPLETON SERVICES, INC.
AND
FRANKLIN MUTUAL SERIES FUND INC.
AGREEMENT dated as of November 1, 1996, between Franklin Mutual Series Fund Inc., a Maryland corporation which is a registered open-end investment company, on behalf of its series, MUTUAL QUALIFIED FUND (the "Fund"), and Franklin Templeton Services, Inc. ("FTS").
In consideration of the mutual promises herein made, the parties hereby agree as follows:
(1) FTS agrees, during the life of this Agreement, to be responsible for:
(a) providing office space, telephone, office equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers for services rendered as such;
(c) authorizing expenditures and approving bills for payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual reports to shareholders, notices of dividends, capital gains distribution and tax credits, and attending to routine correspondence and other communications with individual shareholders;
(e) daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping requirements under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, with state regulatory requirements, maintenance of books and records for the Fund (other than those maintained by the custodian and transfer agent), preparing and filing of tax reports other than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred retirement plans for the Fund; and
(j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal on an annual basis to 0.15% of the first $200 million of the aggregate average daily net assets of the Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through June 30, 1998 and thereafter from year to year to the extent continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time on sixty (60) days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of a majority of the outstanding voting securities of the Fund (as defined by the 1940 Act); and shall automatically and immediately terminate in the event of its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross negligence on the part of FTS, or of reckless disregard of its duties and obligations hereunder, FTS shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers.
FRANKLIN MUTUAL SERIES FUND INC.
By: /s/Elizabeth Cohernour
----------------------
Elizabeth Cohernour
General Counsel & Secretary
|
Franklin Templeton Services, Inc.
By: /s/Deborah Gatzek
-----------------
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
|
ADMINISTRATION AGREEMENT BETWEEN
FRANKLIN TEMPLETON SERVICES, INC.
AND
FRANKLIN MUTUAL SERIES FUND INC.
AGREEMENT dated as of November 1, 1996, between Franklin Mutual Series Fund Inc., a Maryland corporation which is a registered open-end investment company, on behalf of its series, MUTUAL BEACON FUND (the "Fund"), and Franklin Templeton Services, Inc. ("FTS").
In consideration of the mutual promises herein made, the parties hereby agree as follows:
(1) FTS agrees, during the life of this Agreement, to be responsible for:
(a) providing office space, telephone, office equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers for services rendered as such;
(c) authorizing expenditures and approving bills for payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual reports to shareholders, notices of dividends, capital gains distribution and tax credits, and attending to routine correspondence and other communications with individual shareholders;
(e) daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping requirements under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, with state regulatory requirements, maintenance of books and records for the Fund (other than those maintained by the custodian and transfer agent), preparing and filing of tax reports other than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred retirement plans for the Fund; and
(j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal on an annual basis to 0.15% of the first $200 million of the aggregate average daily net assets of the Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through June 30, 1998 and thereafter from year to year to the extent continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time on sixty (60) days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of a majority of the outstanding voting securities of the Fund (as defined by the 1940 Act); and shall automatically and immediately terminate in the event of its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross negligence on the part of FTS, or of reckless disregard of its duties and obligations hereunder, FTS shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers.
FRANKLIN MUTUAL SERIES FUND INC.
By: /s/Elizabeth Cohernour
----------------------
Elizabeth Cohernour
General Counsel & Secretary
|
Franklin Templeton Services, Inc.
By: /s/Deborah R. Gatzek
--------------------
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
|
ADMINISTRATION AGREEMENT BETWEEN
FRANKLIN TEMPLETON SERVICES, INC.
AND
FRANKLIN MUTUAL SERIES FUND INC.
AGREEMENT dated as of November 1, 1996, between Franklin Mutual Series Fund Inc., a Maryland corporation which is a registered open-end investment company, on behalf of its series, MUTUAL DISCOVERY FUND (the "Fund"), and Franklin Templeton Services, Inc. ("FTS").
In consideration of the mutual promises herein made, the parties hereby agree as follows:
(1) FTS agrees, during the life of this Agreement, to be responsible for:
(a) providing office space, telephone, office equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers for services rendered as such;
(c) authorizing expenditures and approving bills for payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual reports to shareholders, notices of dividends, capital gains distribution and tax credits, and attending to routine correspondence and other communications with individual shareholders;
(e) daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping requirements under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, with state regulatory requirements, maintenance of books and records for the Fund (other than those maintained by the custodian and transfer agent), preparing and filing of tax reports other than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred retirement plans for the Fund; and
(j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal on an annual basis to 0.15% of the first $200 million of the aggregate average daily net assets of the Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through June 30, 1998 and thereafter from year to year to the extent continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time on sixty (60) days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of a majority of the outstanding voting securities of the Fund (as defined by the 1940 Act); and shall automatically and immediately terminate in the event of its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross negligence on the part of FTS, or of reckless disregard of its duties and obligations hereunder, FTS shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers.
FRANKLIN MUTUAL SERIES FUND INC.
By: /s/Elizabeth Cohernour
----------------------
Elizabeth Cohernour
General Counsel & Secretary
|
Franklin Templeton Services, Inc.
By: /s/Deborah R. Gatzek
--------------------
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
|
ADMINISTRATION AGREEMENT BETWEEN
FRANKLIN TEMPLETON SERVICES, INC.
AND
FRANKLIN MUTUAL SERIES FUND INC.
AGREEMENT dated as of November 1, 1996, between Franklin Mutual Series Fund Inc., a Maryland corporation which is a registered open-end investment company, on behalf of its series, MUTUAL EUROPEAN FUND (the "Fund"), and Franklin Templeton Services, Inc. ("FTS").
In consideration of the mutual promises herein made, the parties hereby agree as follows:
(1) FTS agrees, during the life of this Agreement, to be responsible for:
(a) providing office space, telephone, office equipment and supplies for the Fund;
(b) paying compensation of the Fund's officers for services rendered as such;
(c) authorizing expenditures and approving bills for payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual reports to shareholders, notices of dividends, capital gains distribution and tax credits, and attending to routine correspondence and other communications with individual shareholders;
(e) daily pricing of the Fund's investment portfolio and preparing and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping requirements under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, with state regulatory requirements, maintenance of books and records for the Fund (other than those maintained by the custodian and transfer agent), preparing and filing of tax reports other than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred retirement plans for the Fund; and
(j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal on an annual basis to 0.15% of the first $200 million of the aggregate average daily net assets of the Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through June 30, 1998 and thereafter from year to year to the extent continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time on sixty (60) days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of a majority of the outstanding voting securities of the Fund (as defined by the 1940 Act); and shall automatically and immediately terminate in the event of its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross negligence on the part of FTS, or of reckless disregard of its duties and obligations hereunder, FTS shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers.
CUSTODIAN CONTRACT
between
MUTUAL SERIES FUND, INC.
in respect of
MUTUAL SHARES FUND
and
STATE STREET BANK AND TRUST COMPANY
REV 01/88
REV 2/9/88
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by it........1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States......3
2.1 Holding Securities ...................................3
2.2 Delivery of Securities ................................3
2.3 Registration of Securities ...........................8
2.4 Bank Accounts........................................ 8
2.5 Availability of Federal Funds..........................9
2.6 Collection of Income...................................9
2.7 Payment of Fund Monies................................10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.......................12
2.9 Appointment of Agents.................................13
2.10 Deposit of Fund Assets in Security System.............13
2.10A Fund Assets Held in the Custodian's Direct
Paper System..........................................16
2.11 Segregated Account....................................17
2.12 Ownership Certificates for Tax Purposes...............18
2.13 Proxies...............................................19
2.14 Communications Relating Portfolio Securities..........19
3. Duties of the Custodian with Respect to Property of
the fund Held Outside of the United States..................20
3.1 Appointment of Foreign Sub-Custodians..................20
3.2 Assets to be Held......................................21
3.3 Foreign Securities Depositories........................21
3.4 Segregation of Securities..............................21
3.5 Agreements with Foreign Banking Institutions...........22
3.6 Access of Independent Accountants of the Fund..........22
3.7 Reports by Custodian...................................23
3.8 Transactions in Foreign Custody Account................23
3.9 Liability of Foreign Custody Account...................24
3.10 Monitoring Responsibilities............................25
3.11 Branches of U.S. Banks.................................25
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund.......................................26
5. Proper Instructions.........................................26
6. Actions Permitted Without Express Authority.................27
7. Evidence of Authority.......................................28
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income...........28
9. Records.....................................................29
10. Opinion of Fund's Independent Accountant...................29
11. Reports to Fund by Independent Public Accountant...........30
12. Compensation of Custodian..................................30
13. Responsibility of Custodian................................30
14. Effective Period, Termination and Amendment................33
15. Successor Custodian........................................35
16. Interpretive and Additional Provisions.....................36
17. Additional Funds...........................................37
18. Massachusetts Law to Apply.................................37
19. Prior Contracts............................................37
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CUSTODIAN CONTRACT
This Contract between Mutual Series Fund, Inc., in respect of MUTUAL
SHARES FUND, a corporation organized and existing under the laws of Maryland,
having its principal place of business at 26 Broadway, New York, New York,
10004, hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in three series, the Mutual Shares Fund, the Mutual Qualified Income Fund, and the Mutual Beacon Fund (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto agree as
follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Charter and By
Laws. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities, except for certain securities and related documents evidencing
loans to or claims against entities which are acquired by the Fund and are held
for it pursuant to a custodial arrangement directly with Herzog, Heine,
Geduld,Inc., as to which the Custodian is not expected to have and does not
undertake any responsibility, and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians located in the United states, but only in
accordance with an applicable vote by the Board of Directors of the Fund, on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodians
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3. 2.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and
physically segregate for the account of each Portfolio all non-cash
property, to be held by it in the United States, including all domestic
securities, except for certain securities and related documents evidencing
loans to or claims against entities which are acquired by the Fund and are
held for it pursuant to a custodial arrangement directly with Herzog,
Heine, Geduld, Inc., as to which the Custodian is not expected to have and
does not undertake any responsibility owned by such Portfolio, other than
(a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred
to herein as "Securities System" and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the system account ("Direct Paper System Account") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and
only in the following cases:
1) upon sale of such securities for the account of
the Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender
or other similar offers for securities of the
Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10)For delivery in connection with any loans of securities made by
the Portfolio, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11)For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, BUT ONLY against receipt of
amounts borrowed;
12)For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13)For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14)Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio (Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15)For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; PROVIDED, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Directors of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio, as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which each Portfolio shall be entitled either
by law or pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to United
States bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only;
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or options on
futures contracts, to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Portfolio or in
the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; or (d) in the case of
repurchase agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such securities
or (ii) against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio;
2) in connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in
Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5)For the payment of any dividends on Shares of the
Portfolio declared pursuant to the governing documents
of the Fund;
6)For payment of the amount of dividends received in
respect to securities sold short;
7)For any other proper purpose, BUT ONLY upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In
any and every case where payment for purchase of domestic securities for
the account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
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regulations, if any, and subject to the following provisions:
1) The Custodian may keep domestic securities of the Portfolio in a
Securities System provided that such securities are represented in an
account ("Account") of the Custodian of the Securities System which
shall not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to
securities of the Portfolio which are maintained
in a Securities System shall identify by
book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices
from the Securities System of transfers of securities for the
account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of
a written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transactions in the
Securities System for the account for the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on
behalf of the Portfolio the initial or annual
certificate, as the case may be, required by
Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or Any such agent to enforce effectively such rights
as it may have against the Securities System; at the election of
the Fund, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that
the Portfolio has not been made whole for any such loss or
damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM
The Custodian may deposit and/or maintain securities owned
by a Portfolio in the Direct Paper System of the Custodian
subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in the Direct Paper System shall
identify by book-entry those securities belonging
to the Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of any entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of any entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio,
the custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or
of the Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of such securities.
2.13 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES, The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold
by the Portfolio) received by the Custodian from issuers of the
securities being held for the Portfolio. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Portfolio
all written information received by the Custodian from issuers of the
domestic securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transactions, the Portfolio shall notify the
Custodian at least one business day prior to the date on which the
Custodian is to take such action. In the event the Portfolio notifies the
Custodian less than one business day prior to the date on which such
action is to be taken, the Custodian shall use its best efforts and any
reasonable means to take any and all such actions as may be requested by
the Portfolio. So long as the Custodian uses its best efforts and any
reasonable means to take the action requested by the Portfolio less than
one business day prior to the date on which such action is to be taken,
the Custodian shall not be liable for its failure or inability to take
any such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE
FUND HELD OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS.
The Custodian is authorized and instructed to employ as sub-custodians
for the securities and other assets of the Portfolios maintained outside
of the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", together with a
certified resolution of the Fund's Board of Directors on behalf of the
applicable Portfolio(s),the Custodian and the Fund may on behalf of the
applicable Portfolio(s) agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodians. Upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio(s) the
Custodian shall cease the employment of any one or more of such
sub-custodians for maintaining custody of the applicable Portfolio(s)
assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the
securities and other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in paragraph
(c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b)
cash and cash equivalents in such amounts as the Custodian or the Fund
may determine to be reasonably necessary to effect the foreign securities
transactions of the applicable Portfolios.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund on behalf of the applicable
Portfolio, assets of the applicable Portfolios shall be maintained in
foreign securities depositories only through arrangements implemented by
the foreign banking institutions serving as sub-custodians pursuant to
the terms hereof.
3.4 SEGREGATION OF SECURITIES. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish custody account(s) for the
Custodians on behalf of the Fund for each applicable Portfolio of the Fund
and physically segregate in each such account securities and other assets
of the Portfolios, and, in the event that such institution deposits the
securities of one or more of the Portfolios in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for each applicable Portfolio, the securities so
deposited (all collectively referred to as the "Account").
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of each Portfolio
will be freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to the each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institutions under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall on behalf of each applicable Portfolio
make or cause its foreign sub-custodian to transfer, exchange or deliver
foreign securities owned by the Portfolio, but except to the extent
explicitly provided herein only in any of the cases specified in Section
2.2.(b) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian shall on
behalf of each applicable Portfolio pay out or cause its foreign
sub-custodians to pay out monies of a Portfolio except to the extent
explicitly provided herein only in any of the, cases specified in Section
2.7.(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio, other than in the London market, may be
effected in accordance with the customary or established securities trading
or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) against a receipt with the exception
or receiving later payment for such securities from such purchaser or
dealer. (d) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of the Contract and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
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3.10 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or is
notified by a foreign banking institution employed as a foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.11 Branches of U.S. Banks. Except as otherwise set forth in this Contract, the
provisions hereof shall not apply where the custody of the Fund assets is
maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a) (5) of the Investment Company Act of 1940 and
meets the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by
Article 1 of this Contract.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS' of SHARES OF THE FUND. The
Custodian shall receive from the distributor for the Shares or from the Transfer
Agent of the Fund and deposit into the account of the appropriate Portfolio such
payments as are received for Shares of that Portfolio issued or sold from time
to time by the Fund. The Custodian will provide timely notification to the Fund
on behalf of each such Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Charter and By Laws and any applicable votes of the Board of
Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. PROPER INSTRUCTIONS. Proper Instructions as used throughout this Contract
means a writing signed or initialled by one or
more person or persons as the Board of Directors shall have from time to time
authorized. Each such writing shall set forth the specific transaction or type
of transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechancial or electronic devices provided that the Board of Directors
and the Custodian are satisfied that such procedures afford adequate safeguards
for the Portfolio's assets.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) upon written approval of the Fund, make payments to itself or others
for minor expenses of handling securities or other similar items relating to its
duties under this Contract, PROVIDED that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Portfolio,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Directors of the Fund.
7. EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Directors of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant to the
Charter and By Laws as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Board of
Directors of the Fund to keep the books of account of each Portfolio and/or
compute the net asset value per share of the outstanding shares of each
Portfolio or, if directed in writing to do so by the Fund on behalf of the
Portfolio, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate daily the
net income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net -income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
9. RECORDS The Custodian shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 3la-1 and 3la-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules or procedures which may be applicable to
the Fund. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities owned by each
Portfolio and held by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT The Custodian shall take all
reasonable actions, as the Fund on behalf of each applicable Portfolio may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall
provide the Fund, on behalf of each of the Portfolios at such time as the Fund
may reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund on behalf of each
applicable Portfolio and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract. The Custodian shall be without liability for
any action taken or omitted in reliance on advice of counsel to the Fund and for
any action taken or omitted in reliance on advice of other counsel, provided
that the Custodian shall have notified the Fund of the action proposed to be
taken or omitted and the advice of counsel with respect thereto prior to such
action or omission and the Fund shall not have objected thereto.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such actions,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it. If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of foreign
exchange or contracts for foreign exchange, any property at any time held for
the account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be entitled
to utilize available cash and to dispose of the such Portfolio's assets to the
extent necessary to obtain reimbursement.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee arising out of actions undertaken by the Custodian pursuant to the terms
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, provided that
the Custodian shall notify the Fund of any such tax, charge, expense,
assessment, claim or liability promptly upon receipt by the Custodian of notice
thereof. The Custodian shall not be entitled to charge any account of the Fund
for such items unless the Fund shall fail to object to the liability or
responsibility of the Fund for such tax, charge, expense, assessment, claim or
liability in writing received by the Custodian within ten (10) business days of
receipt by the Fund of written notice of any such tax, charge, expense,
assessment, claim or liability and for its fees. To secure any advances of cash
or securities made by the Custodian to or for the benefit of the Fund for any
purpose which results in the Fund incurring an overdraft at the end of any
business day, the Fund hereby grants to the Custodian a security interest in and
pledges to the Custodian securities held for it by the Custodian, in an amount
not to exceed the lesser of the dollar amounts advanced or ten percent of the
Fund's gross assets, the specific securities to be designated in writing from
time to time by the Fund or its investment adviser. Should the Fund fail to
repay promptly any advances of cash or securities, the Custodian shall be
entitled to use available cash and to dispose of pledged securities and property
as is necessary to repay any such advances.
The Custodian agrees to indemnify and hold harmless the
Fund from and against all taxes, charges, expenses, assessments,
claims and liabilities (including counsel fees) incurred or
assessed against it or its nominee arising out of actions
undertaken by the Fund pursuant to the terms of this Contract,
except such as may arise from its own negligent action, negligent
failure to act or willful misconduct, provided that the Fund
shall notify the Custodian of any such tax, charge, expense,
assessment, claim or liability promptly upon receipt by the Fund
of notice thereof.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage pre paid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; PROVIDED further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Charter and By Laws, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Directors, (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of
each applicable Portfolio shall pay to the Custodian such
compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses
and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, or one or more of the
Portfolios shall be appointed by the Board of Directors of the Fund, the
Custodian shall, upon termination deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Directors of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having any
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract and to transfer to an account of such successor
custodian all the securities of each such Portfolio held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other
properties remain in the possession of the Custodian after the
date of termination hereof owing to failure of the Fund to
procure the certified copy of the vote referred to or of the
Board of Directors to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian
shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Fund, on behalf of each of the Portfolios may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in
writing signed by both parties and shall be annexed hereto, PROVIDED that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Charter and By laws of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Fund establishes one or more
series of Shares in addition to the mutual Shares Fund, the
Mutual Qualified Fund, and the Mutual Beacon Fund with respect to
which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a
Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of the
Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to-be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 19th day of February, 1988.
MUTUAL SERIES FUND, INC.
in respect of
MUTUAL SHARES FUND
BY: /s/MICHAEL F. PRICE
Michael F. Price, by: (Illegible)
ATTEST:
/s/ILLEGIBLE
STATE STREET BANK AND TRUST
By: /s/ILLEGIBLE
VICE PRESIDENT
ATTEST:
/s/ILLEGIBLE
ASSISTANT SECRETARY
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SCHEDULE A
The following foreign banking institutions and foreign securities depositories have been approved by the Board of Directors of Mutual Series Fund, Inc. for the use as sub-custodians for the Fund's securities and other assets:
State Street London
EXHIBIT 1
CUSTODIAN AGREEMENT
TO:
Gentlemen:
The undersigned ("State Street") hereby request that you (the Bank) establish a custody account and a cash account for each custodian/employee benefit plan identified in the Schedule attached to this Agreement and each additional account which is identified to this Agreement. Each such custody or cash account a applicable will be referred to herein as the "Account" and will be subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically segregate in the Account such cash, bullion, coin, stocks, shares, bonds, debentures, notes and other securities and other property which is delivered to the Bank for that State Street Account (the "Property").
2. a. Without the prior approval of State Street it will not deposit securities in any securities depository or utilize a clearing agency, incorporated or organized under the laws of a country other than the United States, unless such depository or clearing house operates the central system for handling of securities or equivalent book-entries in that country or operates a transnational system for the central handling of securities or equivalent book-entries;
b. When securities held for an Account are deposited in a securities depository or clearing agency by the Bank, the Bank shall identify on its books as belonging to State Street as agent for such Account, the securities so deposited.
3. The Banks represents that either:
a. It currently has stockholders' equity in excess of $200 million (U.S. dollars or the equivalent of U.S. dollars computed in accordance with generally accepted U.S. accounting principles) and will promptly inform State Street in the event that there appears to be substantial likelihood that its stockholders' equity will decline below $200 million, or in any event, at such time as its stockholders' equity in fact decline below $200 million; or
b. It is the subject of an exemptive order issued by the United States Securities and Exchange Commission, which such order permits State Street to employ the Bank as a sub custodian, notwithstanding the fact that the Bank's stockholders' equity is currently below $200 million or may in the future decline below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street, as permitted by Paragraph 8, the Bank is authorized to pay cash from the Account and to sell, assign, transfer, deliver or exchange, or to purchase for the Account, any and all stocks, shares, bonds, debentures, notes and other securities ("Securities"), bullion, coin and any other property, but only-as provided in such written instructions. The Bank shall not be held liable for any act or omission to act on instructions given or purported to be given should there by any error in such instructions.
5. Unless the Bank receives written instructions of State Street to the contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange securities where the exchange is purely ministerial (including, without limitation, the exchange of temporary securities for those in definitive form and the exchange of warrants, or other documents of entitlement to securities, for the securities themselves);
c. To promptly surrender securities at maturity or when called for redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional interest resulting from a rights issue, stock dividend or stock split is received for the Account and such rights entitlement or fractional interest bears an expiration date, the Bank will endeavor to obtain State Street Bank's instructions, but should these not be received in time for the Bank to take timely actions, the Bank is authorized to sell such rights entitlements or fractional interest and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the Bank deems it appropriate, such ownership an other certificates as may be required to obtain the payment of income from the Property; and
g. To pay or cause to be paid, from the Account any and all taxes and levies in the nature of taxes imposed on such assets by any governmental authority and shall use reasonable efforts, to promptly reclaim any foreign withholding tax relating to the Account.
6. If the Bank shall receive any proxies, notices, reports or other communications relative to any of the Securities of the account in connection with tender offers, reorganization, mergers, consolidations, or similar events which may have an impact upon the issuer thereof, the Bank shall promptly transmit any such communication to State Street Bank by means as will permit State Street Bank to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents in connection with the Bank's handling of transactions relating to the Property provided that any such appointment shall not relieve the Bank of any of its responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing signed by such persons as are designated in writing by State Street; (ii) telex or tested telex instructions of State Street; (iii) other forms of instruction in computer readable form as shall be customarily utilized for the transmission of like information; an (iv) such other forms of communication as from time to time shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping of assets held by it under this agreement. The content of such reports shall include but not be limited to any transfer to or from any account held by the Bank hereunder and such other information as State Street may reasonably request.
10. In addition to its obligations under Section 2B hereof, the Bank shall maintain such other records as may be necessary to identify the assets hereunder as belonging to each custodian/employee benefit, plan identified in our Schedule attached to this agreement and each additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its actions under this Agreement shall be opened to the physical, on-premises inspection and audit at reasonable times by officers of, auditors employed by or other representatives of State Street (including to the extent permitted under Massachusetts law the independent public accountants for any entity whose Property is being held hereunder) and shall be retained for such period as shall be agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its services and expenses as custodian under this Agreement, as agreed upon from time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its duties, as are set forth or contemplated herein or contained in instructions given to the Bank which are not contrary to this Agreement, shall maintain adequate insurance and agrees to indemnify and hold harmless, State Street and each Account from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Bank's performance of its obligations hereunder.
14. The Bank agrees (i) the property held hereunder is not subject to any right, charge, security interest, lien or claim of any kind in favor of the Bank or any of its agents or its creditors except a claim of payment for their safe custody and administration and (ii) the beneficial ownership of the property shall be freely transferable without the payment of money or other value other than for safe custody or administration.
15. The Bank agrees to meet State Street Operating Requirements (See Exhibit A).
16. This Agreement may be terminated by the Bank or State Street by 60 days' written notice to the other, sent by registered mail or express courier. The Bank, upon the date this Agreement terminate pursuant to notice which has been given in a timely fashion, shall deliver the Property to the beneficial owner unless the Bank has received from the beneficial owner 60 days' prior to the date an which this Agreement is to be terminated written instructions of State Street specifying the name(s) of the person(s) to whom the Property shall be delivered.
17. The Bank and State Street shall each use its best efforts to maintain the confidentiality of the Property in each Account, subject, however, to the provisions of any laws requiring the disclosure of the Property.
18. Unless otherwise specified in this Agreement, all notices with respect to matters contemplated by this Agreement, shall be deemed duly given when received in writing or by confirmed telex by the Bank or State Street at their respective addresses set forth below or at such other address as be specified in each case in a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
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To the Bank
19. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts except to the extent that such laws are preempted by the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy of this letter,
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By:________________________________
Vice President
Date:______________________________
Agreed to by:
By:__________________________
Date:________________________
0043k/4
AGREEMENT made by and between State Street Bank and Trust Company (the "Custodian") and Mutual Series Fund, Inc. (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract dated FEBRUARY 19, 1988 (the "Custodian" Contract") governing the terms and conditions under which the Custodian maintains custody of the securities and other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian Contract to provide for the maintenance of the Fund's foreign securities, and cash incidental to transactions in such securities, in the custody of certain foreign banking institutions and foreign securities depositories acting as sub-custodians in conformity with the requirements of Rule 17f-5 under the Investment Company Act of 1940;
NOW THEREFORE, in consideration of the premises and covenants contained herein, the Custodian and the Fund hereby amend the Custodian Contract by the addition of the following terms and conditions;
1. APPOINTMENT OF FOREIGN SUB-CUSTODIANS
The Fund hereby authorizes and instructs the Custodian to employ as sub-custodians for the Fund's securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions', as defined in Section 2.17 of the Custodian Contract, together with a certified resolution of the Fund's Board of Directors, the Custodian and the Fund may agree to amend Schedule A hereto from time to time to designate additional foreign banking institutions and foreign securities depositories to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct the Custodian to cease the employment of any one or more of such sub-custodians for maintaining custody of the Fund's assets.
2. ASSETS TO BE HELD
The Custodian shall limit the securities and other assets maintained in the custody of the foreign sub-custodians to: (a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the Fund's foreign securities transactions.
MG-22e 1/88
3. FOREIGN SECURITIES DEPOSITORIES
Except as may otherwise be agreed upon in writing by the Custodian and the Fund, assets of the Fund shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as sub-custodians pursuant to the terms hereof. Where possible, such arrangements shall include entry into agreements containing the provisions set forth in Section 5 hereof.
4. SEGREGATION OF SECURITIES
The Custodian shall identify on its books as belonging to the Fund, the foreign securities of the Fund held by each foreign sub-custodian. Each agreement pursuant to which the Custodian employs a foreign banking institution shall require that such institution establish a custody account for the Custodian on behalf of the Fund and physically segregate in that account, securities and other assets of the Fund, and, in the event that such institution deposits the Fund's securities in a foreign securities depository, that it shall identify on its books as belonging to the Custodian, as agent for the Fund, the securities so deposited.
5. AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS
Each agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and shall provide that:
(a) the Fund's assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agents, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the assets
as belonging to the Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accounts for the Fund, will be given
access to the books and records of the foreign banking institution relating to
its actions under its agreement with the Custodian; and (e) assets of the Fund
held by the foreign sub-custodian will be subject only to the instructions of
the Custodian or its agents.
6. ACCESS OF INDEPENDENT ACCOUNTS OF THE FUND
Upon request of the Fund, the Custodian will use its best efforts to arrange for the independent accounts of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and records relate to the performance of such foreign banking institution under its agreement with the Custodian.
7. REPORTS BY CUSTODIAN
The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of the Fund held by foreign sub-custodians, including but not limited to an identification of entities having possession of the Fund's securities and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign banking institution for the Custodian on behalf of the Fund indicating, as to securities acquired for the Fund, the identity of the entity having physical possession of such securities.
8. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT
(a) Except as otherwise provided in paragraph (b) of this Section 8, the provisions of Section 2.2 and 2.8 of the Custodian Contract shall apply, MUTATIS MUTANDIS to the foreign securities of the Fund held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of the Custodian Contract to the contrary, settlement and payment for securities received for the account of the Fund and delivery of securities maintained for the account of the Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of the Custodian Contract, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities.
9. LIABILITY OF FOREIGN SUB-CUSTODIANS
Each agreement pursuant to which the Custodian employs a foreign banking institution as a foreign sub-custodian shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and each Fund from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution's performance of such obligations. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a foreign banking institution as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim.
10. LIABILITY OF CUSTODIAN
The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as set forth with respect to sub-custodian generally in the Custodian Contract and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 13 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts or war or terrorism or otherwise resulting from a bank or a securities depository failure to exercise reasonable care. Notwithstanding the foregoing provisions of this paragraph 10, in delegating custody duties to State Street London Lts., the Custodian shall not be relieved of any responsibility to the Fund for any loss due to such delegations, except such loss as may result from (a) political risk (including, but not limited to, exchange control restrictions, confiscation, expropriation, nationalization, insurrection, civil strife or armed hostilities) or (b) other risk of loss (excluding bankruptcy or insolvency of State Street London Ltd. not caused by political risk) for which neither the Custodian nor State Street London Ltd. would be liable (including, but not limited to, losses due to Acts of God, nuclear incident or other losses under circumstances where the Custodian and State Street London Ltd. have exercised reasonable care).
11. REIMBURSEMENT FOR ADVANCES
If the Fund requires the Custodian to advance cash or securities for any purpose including the purchase or sale of foreign exchange or of contracts for foreign exchange, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of the Fund assets to the extent necessary to obtain reimbursement.
12. MONITORING RESPONSIBILITIES The Custodian shall furnish annually to the Fund, during the month of June, information concerning the foreign sub-custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this amendment to the Custodian Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a foreign sub-custodian or any material loss of the assets of the Fund or in the case of any foreign sub-custodian not the subject of an exemptive order from the Securities and Exchange Commission is notified by such foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles).
13. BRANCHES OF U.S. BANKS
(a) Except as otherwise set forth in this amendment to the Custodian Contract, the provisions hereof shall not apply where the custody of the Fund assets is maintained in a foreign branch of a banking institution which is a "bank' as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub-custodian shall be governed by paragraph 1 of the Custodian Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in an interest bearing account established for the Fund with the Custodian's London Branch, which account shall be subject to the direction of the Custodian, State Street London Ltd. or both.
14. APPLICABILITY OF CUSTODIAN CONTRACT Except as specifically superseded or modified herein, the terms and provisions of the Custodian Contract shall continue to apply with full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument t-o be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day of , 1988.
MUTUAL SERIES FUND, INC.
ATTEST:
/S/ILLEGIBLE............................By: /s/ILLEGIBLE........
(Title)TREASURER (Title)SECRETARY
STATE STREET BANK AND TRUST COMPANY
ATTEST:
/S/ILLEGIBLE................ By: /s/ILLEGIBLE
- ---------------------------- ------------------------
Assistant Secretary Vice President
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SCHEDULE A
The following foreign banking institutions and foreign securities depositories have been approved by the Board of Directors of Mutual Series Fund, Inc. for use as sub-custodians for the Fund's securities and other assets.
State Street London Limited State Street Vault Credit Commercial de France SICOVAM
SCHEDULE A
The following foreign banking institutions and foreign securities depositories have been approved by the Board of Directors of Mutual Series Fund Inc. for use as sub-custodians for the Fund's securities and other assets:
Bank Mees & Hope N.V.
Banque Bruxelles Lambert
Berliner Handels und Frankfurter Bank
Caisse Interprofessionnelle de Depots et de
Virements de Titres
Canada Trust Company
The Canadian Depository for Securities Limited
Central Gilts Office
Centrale de Livraison de Valeurs Mobilieres
Credit Commercial de France
The Deutscher Kassenverein AG
The Euro-Clear System
Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V.
Societe Interprofessionelle pour la Compensation
des valuers Mcbilieres
State Street London Limited
Schweizerische Effekten-Giro AG
Union Bank of Switzerland
STATE STREET BANK AND TRUST COMPANY
MUTUAL SERIES FUND, INC.
CUSTODIAN FEE SCHEDULE
PER PORTFOLIO
EFFECTIVE NOVEMBER 1, 1995
I. ADMINISTRATION
CUSTODY, PORTFOLIO, AND FUND ACCOUNTING SERVICE - Maintain custody of fund assets. Settle portfolio purchases and sales. Report buy and sell fails. Determine and collect portfolio income. Make cash disbursements and report cash transactions. Maintain investment ledgers, provide selected portfolio transactions, position and income reports. Maintain general ledger and capital stock accounts. Prepare daily trial balance. Calculate net asset value daily. Provide selected general ledger reports. Securities yield or market value quotations will be provided to State Street by the fund.
The administration fee shown below is an annual charge, billed and payable
monthly based on average monthly net assets.
(Domestic Assets only)
ANNUAL FEES
CUSTODY, PORTFOLIO
FUND NET ASSETS AND FUND ACCOUNTING
First $100 Million 4 Basis Points Next $900 Million 1 Basis Point Next $1 Billion .75 Basis Point Next $1 Billion .50 Basis Point Over $3 Billion No Asset Charge |
Minimum Monthly Charge $3,000
II. GLOBAL CUSTODY - Services provided include:
Cash Movements, Foreign Communication, Foreign Exchange (local currency settlements).
ANNUAL FEES
All Global Assets 6 Basis Points
III. PORTFOLIO TRADES - FOR EACH LINE ITEM PROCESSED
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $12.00
New York Physical Settlements $25.00
Maturity Collections $ 8.00
PTC Purchase, Sale, Deposit, or Withdrawal $20.00
Foreign Trades $25.00
All Other Trades $16.00
IV. OPTIONS
|
Option charge for each option written or closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. LENDING OF SECURITIES
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities
collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned
securities $15.00
Deliver securities collateral versus receipt of
loaned securities $25.00
Loan administration-mark-to-market per day, per
loan $ 3.00
VI. INTEREST RATE FUTURES State Street
Transactions - no security movement $ 8.00
VII. PRINCIPAL REDUCTION PAYMENTS
Per Paydown $10.00
VIII.DIVIDEND CHARGES
(For items held at the Request of Traders
over record date in street form) $50.00
|
IX. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund consolidations or reorganizations, extraordinary security shipments and, the preparation of special reports will be subject to negotiation. Yield calculation and other special items will be negotiated separately.
X. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Telephone
Wire Charges (5.00 per wire in and $5.00 out) Postage and Insurance
Courier Service Legal Fees Supplies Related to Fund Records Rush
Transfer - $8.00 each Duplicating Transfer Fees Sub-Custodian Charges
Price Waterhouse Audit Letter Federal Reserve Fee for Return Check items
over $2,500 - $4.25 GNMIA Transfer - $15.00 each
XI. BALANCE CREDIT
A balance credit will be applied against the above fees based on the monthly average collected balances, less 10% federal reserve requirement, appearing in the custodian account at the average rate on thirteen week treasury bill.
MUTUAL SERIES FUND, INC. STATE BANK AND TRUST COMPANY By: By: Title:TREASURER Title: VICE PRESIDENT Date:OCTOBER 30, 1995 Date:OCTOBER 25, 1995 SSBZ0552 REV 10/90 |
LAW OFFICES
MILES & STOCKBRIDGE
10 LIGHT STREET
BALTIMORE, MARYLAND 21202
TELEPHONE 410-727-6464
FAX 410-385-3700
December 18, 1992
Mutual Series Fund Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Ladies and Gentlemaen:
As a special Maryland counsel to Mutual Series Fund Inc., a Maryland corporation (the "corporation"), in connection with the registration under the Securities Act of 1933, as amended, of 100,000,000 shares of Mutual Discovery Fund Stock of the Corporation (the "Shares"), we have examined the Articles of Incorporation of the Corporation certified by the Maryland State Department of Assessments and Taxation (the "SDAT") as having been filed with the SDAT on November 12, 1987, the Articles of Amendment of the Company filed with the SDAT on December 29, 1987, the Articles of Amendmaent of the company filed with the SDAT on July 22, 1991, and the Articles Supplementary of the Company filed with the SDAT on September 30, 1992. We have additionally examined the Certificate of Corporate Secretary dated December 10, 1992, including all exhibits attached thereto (the "Certificate"). In rendering our opinion, we are relying on the Certificate and have made no independent investigation or inquiries as to the matters set forth therein.
Based on our examination, we advise you that in our opinion the Shares to be issued by the Corporation have been duly and validly authorized and, when issued upon the terms set forth in the Registration Statement on Form N-1A of the Corporation filed with the Securities and Exchange Commission (the "Commission"), will be legally issued, full paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity
of the Shares" in the Prospectus. In giving our consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulation of the Commission thereunder.
Very truly yours,
/s/Miles & Stockbridge Miles and Stockbridge |
LAW OFFICES
MILES & STOCKBRIDGE
10 LIGHT STREET
BALTIMORE, MARYLAND 21202
TELEPHONE 410-727-6464
FAX 410-385-3700
June 17, 1996
Mutual Series Fund Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Ladies and Gentlemaen:
As a special Maryland counsel to Mutual Series Fund Inc., a Maryland corporation (the "corporation"), in connection with the registration under the Securities Act of 1933, as amended, of 400,000,000 shares of Mutual European Fund Stock of the Corporation (the "Shares"), we have examined the Charter of the Corporation on file with the Maryland State Department of Assessments and Taxation (the "SDAT"). We have additionally examined the Certificate of Corporate Secretary dated June 17, 1996, including all exhibits attached thereto (the "Certificate"). In rendering our opinion, we are relying on the Certificate and have made no independent investigation or inquiries as to the matters set forth therein.
Based on our examination, we advise you that in our opinion the Shares to be issued by the Corporation have been duly and validly authorized and, when issued upon the terms set forth in the Registration Statement on Form N-1A of the Corporation filed with the Securities and Exchange Commission (the "Commission"), will be legally issued, full paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Validity of the Shares" in the Prospectus. In giving our consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulation of the Commission thereunder.
Very truly yours,
Miles & Stockbridge, a Professional Corporation
By: /s/Glen C. Campbell
-------------------
Glen C. Campbell
Principal
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CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial Highlights" in the Class Z and Class I and II Prospectuses and "Investment Management and Other Services" and "Financial Statements" in the Class Z and Class I and II Statements of Additional Information, and to the incorporation by reference in this Post-Effective Amendment No. 22 to Registration Statement Number 33-18516 on Form N-1A of our Mutual Shares Fund, Mutual Qualified Fund, Mutual Beacon Fund, Mutual Discovery Fund, and Mutual European Fund (each a portfolio of Franklin Mutual Series fund Inc.) included in the 1996 Annual Reports to Shareholders.
/s/Ernst & Young
Ernst & Young
Boston, Massachusetts
April 23, 1997
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HEINE SECURITIES CORPORATION
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Writer's Direct Dial: (201) 912-2060
June 13, 1996
Mutual Series Fund Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Madame:
Heine Securities Corporation (the "Adviser") hereby offers and agrees to purchase 10 shares of Mutual European Fund common stock (the "shares") of Mutual Series Fund Inc. at a price of $10.00 per share for an aggregate purchase price of $100.00. The Adviser acknowledges that the Shares are being purchased for the Adviser's own account and for investment purposes only and will be sold only pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or an exemption therefrom.
Sincerely,
By:/s/Michael F. Price ---------------------- Michael F. Price President |
Mutual Series Fund Inc. hereby accepts the Adviser's offer to purchase the Shares at a price of $10.00 per Share for an aggregate purchase price of $100.00.
MUTUAL SERIES FUND INC.
By: /s/Elizabeth N. Cohernour
--------------------------
Name: Elizabeth N. Cohernour
Title: General Counsel & Secretary
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Item 16(d).- SCHEDULE FOR COMPUTATION OF PERFORMANCE OUOTATIONS.
The average annual total return for each series of the Registrant set forth in Part A was calculated as follows:
P(I + T)n = ERV
Where: P = a hypothetical ifiitial payment of $1,000 T = average
annual total return
|
n = number of years
ERV = The redeemable value at the end of each period of the initial hypothetical $1,000 payment made at the beginning of each period.
The ending redeemable value of a hypothetical $1,000 payment made at the beginning of each period was calculated as follows:
Step 1 - Initial investment divided BY beginning Net Asset Value per share ("NAVII) equals initial number of shares.
Step 2 - Convert initial shares to ending shares assuming timely reinvestment of all distributions. Initial number of shares times each distribution equals the dollar amount to be reinvested. The dollar amount to be reinvested divided by the NAV on the day of reinvestment equals number of new shares purchased. The number of new shares purchased at each distribution plus the initial number of shares equals ending shares.
Step 3 - Determine value of ending shares. Number of ending shares times ending NAV equals ending value.
It is assumed that all distributions are reinvested on the exdividend date at the then current NAV.
The relevant NAV for each series used in calculating the performance figures in Part A is set forth below:
MUTUAL MUTUAL MUTUAL
SHARES QUALIFIED BEACON
12/31/91 $64.49 $21.18 $23.36
12/31/90 $56.39 $18.37 $20.80
12/31/86 $60.39 $20.04 $18.64
1/09/85 --- --- $14.07
12/31/81 $40.23 $11.80 $11.46
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The relevant distributions and reinvestment,NAV for each of the series for the past ten years were as follows:
MUTUAL SHARES MUTUAL OUALIFIED MUTUAL BEACON
Dist. NAV Dist. NAV Dist. NAV
1991 $2.73 63.27 .74 20.77 .77 22.87
1991 .90 63.59 .30 20.74 .30 23.05
1990 3.48 $56.16 $1.36 $18.29 $1.09 $20.69
1990 .75 66.20 .25 21.82 .25 24.19
1989 8.79 66.80 3.00 22.09 2.12 23.95
1989 1.85 74.45 .75 24.76 .60 25.47
1988 5.93 67.38 1.70 22.58 1.71 22.71
1988 1.75 70.00 .75 23.16 .50 23.18
1987 5.26 58.12 1.67 19.45 1.55 19.57
1987 1.35 71.24 .65 23.77 -- --
1986 2.40 60.08 .85 19.89 1.25 18.40
1986 3.25 60.08 1.00 19.89 -- --
1986 .21 64.07 .16 21.10
1986 1.00 64.83 .40 21.45 -- --
1985 5.00 57.08 1.60 19.02 .25 16.71
1985 1.00 55.37 .18 18.35 -- --
1984 5.25 50.17 1.30 16.70 -- --
1984 1.00 51.02 .18 16.57 .25 13.54
1983 5.00 50.72 1.62 16.34 -- --
1983 1.00 50.18 .10 15.77 .20 14.55
1982 3.80 42.54 .55 13.50 .17 12.51
1982 1.00 36.74 -- -- .21 10.34
1981 4.50 39.40 1.55 11.72 .17 10.65
1981 .80 44.57 -- -- .21 11.94
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FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 27 th day of March, 1997.
/s/Michael F. Price /s/Peter A. Langerman
Michael F. Price Peter A. Langerman
President & Director Executive vice President &
Director
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FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 28 th day of March, 1997.
/s/Vaughn R. Sturtevant Vaughn R. Sturtevant, M.D. Director |
FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 31 st day of March, 1997.
/s/James R. Baio /s/Robert E. Wade James R. Baio Robert E. Wade Treasurer Director /s/Edward I. Altman Edward I. Altman Director |
FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 1 st day of April, 1997.
/s/Barry F. Schwartz /s/Leonard Rubin Barry F. Schwartz Leonard Rubin Director Director /s/Fred R. Millsaps /s/William J. Lippman Fred R. Millsaps William J. Lippman Director Director /s/Andrew H. Hines, Jr. Andrew H. Hines, Jr. Director |
FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 2 nd day of April, 1997.
/s/Ann Torre Grant Ann Tore Grant Director |
FRANKLIN MUTUAL SERIES FUND INC.
POWER OF ATTORNEY
The undersigned Officers and Directors of Franklin Mutual Series Fund Inc. (the "Registrant") hereby appoint Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene, and Karen Skidmore (with full power to each of them to act alone) his or her attorney-in-fact and agent in full capacities, to execute, and to file any of the documents referred to below relating to Post-Effective Amendments to the Registrant's registration statement on Form N-1A under the investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he or she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereto.
The undersigned Officers and Directors hereby execute this Power of Attorney as of this 4 th day of April, 1997.
/s/Bruce A. Macpherson Bruce A. MacPherson Director |
CERTIFICATE OF SECRETARY
I, Elizabeth N. Cohernour, certify that I am Secretary of Franklin Mutual Series fund Inc. (the "Fund").
As Secretary of the fund, I further certify that the following resolution was adopted by a majority of the Directors of the Fund present at a meeting held at the Fund offices at 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078 on March 19, 1997.
RESOLVED, that a Power of Attorney, substantially in the form of the Power of Attorney presented to this Board, appointing Elizabeth N. Cohernour, Harmon Burns, Deborah R. Gatzek, Larry L. Greene and Karen Skidmore as attorneys-in-fact for the purpose of filing documents with the Securities and Exchange Commission be executed by each Director and designated officer.
I declare under penalty of perjury that the matters set forth in this certificate are true and correct of my own knowledge.
/S/ELIZABETH N. COHERNOUR
Elizabeth N. Cohernour
Secretary
Dated: April 15, 1997
|
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: MUTUAL SHARES FUND CLASS I |
| SERIES: |
| NUMBER: 001 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 2 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 5217647033 |
| INVESTMENTS AT VALUE | 6583663455 |
| RECEIVABLES | 77653049 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 13563613 |
| TOTAL ASSETS | 6674880117 |
| PAYABLE FOR SECURITIES | 33271660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 47038533 |
| TOTAL LIABILITIES | 80310193 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 5143648102 |
| SHARES COMMON STOCK | 373178 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3613636) |
| ACCUMULATED NET GAINS | 92299922 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 1362235536 |
| NET ASSETS | 6594569924 |
| DIVIDEND INCOME | 148454672 |
| INTEREST INCOME | 72882658 |
| OTHER INCOME | 0 |
| EXPENSES NET | 41648076 |
| NET INVESTMENT INCOME | 179689254 |
| REALIZED GAINS CURRENT | 466793142 |
| APPREC INCREASE CURRENT | 478415187 |
| NET CHANGE FROM OPS | 1124897583 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (548439) |
| DISTRIBUTIONS OF GAINS | (1352354) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 381958 |
| NUMBER OF SHARES REDEEMED | (26599) |
| SHARES REINVESTED | 17819 |
| NET CHANGE IN ASSETS | 1364996007 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 179160512 |
| OVERDISTRIB NII PRIOR | (12074214) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 35687092 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 42615522 |
| AVERAGE NET ASSETS | 14179744 |
| PER SHARE NAV BEGIN | 94.49 |
| PER SHARE NII | 1.03 |
| PER SHARE GAIN APPREC | 5.43 |
| PER SHARE DIVIDEND | (2.35) |
| PER SHARE DISTRIBUTIONS | (5.79) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 92.81 |
| EXPENSE RATIO | 1.09 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | The expense ratio per the Mutual Shares Fund annual report without reimbursement at December 31, 1996 is 1.18%. |
| 2 | Commencement of offering of Sales. |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: MUTUAL SHARES FUND CLASS II |
| SERIES: |
| NUMBER: 002 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 2 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 5217647033 |
| INVESTMENTS AT VALUE | 6583663455 |
| RECEIVABLES | 77653049 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 13563613 |
| TOTAL ASSETS | 6674880117 |
| PAYABLE FOR SECURITIES | 33271660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 47038533 |
| TOTAL LIABILITIES | 80310193 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 5143648102 |
| SHARES COMMON STOCK | 181853 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3613636) |
| ACCUMULATED NET GAINS | 92299922 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 1362235536 |
| NET ASSETS | 6594569924 |
| DIVIDEND INCOME | 148454672 |
| INTEREST INCOME | 72882658 |
| OTHER INCOME | 0 |
| EXPENSES NET | 41648076 |
| NET INVESTMENT INCOME | 179689254 |
| REALIZED GAINS CURRENT | 466793142 |
| APPREC INCREASE CURRENT | 478415187 |
| NET CHANGE FROM OPS | 1124897583 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (161313930) |
| DISTRIBUTIONS OF GAINS | (560755894) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 174375 |
| NUMBER OF SHARES REDEEMED | (1402) |
| SHARES REINVESTED | 8879 |
| NET CHANGE IN ASSETS | 1364996007 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 179160512 |
| OVERDISTRIB NII PRIOR | (12074214) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 35687092 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 42615522 |
| AVERAGE NET ASSETS | 6477335 |
| PER SHARE NAV BEGIN | 94.49 |
| PER SHARE NII | .97 |
| PER SHARE GAIN APPREC | 5.41 |
| PER SHARE DIVIDEND | (2.30) |
| PER SHARE DISTRIBUTIONS | (5.79) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 92.78 |
| EXPENSE RATIO | 1.71 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | The expense ratio per the Mutual Shares Fund annual report without reimbursement at December 31, 1996 is 1.80%. |
| 2 | Commencement of offering of Sales. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: MUTUAL SHARES FUND CLASS Z |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 5217647033 |
| INVESTMENTS AT VALUE | 6583663455 |
| RECEIVABLES | 77653049 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 13563613 |
| TOTAL ASSETS | 6674880117 |
| PAYABLE FOR SECURITIES | 33271660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 47038533 |
| TOTAL LIABILITIES | 80310193 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 5143648102 |
| SHARES COMMON STOCK | 70472770 |
| SHARES COMMON PRIOR | 60491264 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3613636) |
| ACCUMULATED NET GAINS | 92299922 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 1362235536 |
| NET ASSETS | 6594569924 |
| DIVIDEND INCOME | 148454672 |
| INTEREST INCOME | 72882658 |
| OTHER INCOME | 0 |
| EXPENSES NET | 41648076 |
| NET INVESTMENT INCOME | 179689254 |
| REALIZED GAINS CURRENT | 466793142 |
| APPREC INCREASE CURRENT | 478415187 |
| NET CHANGE FROM OPS | 1124897583 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (161313930) |
| DISTRIBUTIONS OF GAINS | (560755894) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 8816934 |
| NUMBER OF SHARES REDEEMED | (6037372) |
| SHARES REINVESTED | 7201944 |
| NET CHANGE IN ASSETS | 1364996007 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 179160512 |
| OVERDISTRIB NII PRIOR | (12074214) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 35687092 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 42615522 |
| AVERAGE NET ASSETS | 5947958948 |
| PER SHARE NAV BEGIN | 86.45 |
| PER SHARE NII | 2.77 |
| PER SHARE GAIN APPREC | 14.80 |
| PER SHARE DIVIDEND | (2.48) |
| PER SHARE DISTRIBUTIONS | (8.69) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 82.85 |
| EXPENSE RATIO | .70 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | The expense ratio per the Mutual Shares Fund annual report without reimbursement at December 31, 1996 is .72%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| RESTATED: |
| CIK:0000825063 |
| NAME: MUTUAL QUALIFIED FUND CLASS I |
| SERIES: |
| NUMBER: 004 |
| NAME: MUTUAL QUALIFIED |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 3586891102 |
| INVESTMENTS AT VALUE | 4312282861 |
| RECEIVABLES | 54026460 |
| ASSETS OTHER | 2832906 |
| OTHER ITEMS ASSETS | 8193365 |
| TOTAL ASSETS | 4377335592 |
| PAYABLE FOR SECURITIES | 30054189 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 29961967 |
| TOTAL LIABILITIES | 60016156 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 3524185361 |
| SHARES COMMON STOCK | 132024411 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1596000) |
| ACCUMULATED NET GAINS | 68761150 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 725968925 |
| NET ASSETS | 4317319436 |
| DIVIDEND INCOME | 90987120 |
| INTEREST INCOME | 520555555 |
| OTHER INCOME | 0 |
| EXPENSES NET | 28079854 |
| NET INVESTMENT INCOME | 114962821 |
| REALIZED GAINS CURRENT | 276332748 |
| APPREC INCREASE CURRENT | 330171813 |
| NET CHANGE FROM OPS | 721467382 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (353451) |
| DISTRIBUTIONS OF GAINS | (711352) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 601500 |
| NUMBER OF SHARES REDEEMED | (3225) |
| SHARES REINVESTED | 29625 |
| NET CHANGE IN ASSETS | 1315186641 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 102648367 |
| OVERDISTRIB NII PRIOR | (5929311) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 22515334 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 29156181 |
| AVERAGE NET ASSETS | 8466533 |
| PER SHARE NAV BEGIN | 32.80 |
| PER SHARE NII | .32 |
| PER SHARE GAIN APPREC | 1.78 |
| PER SHARE DIVIDEND | (.81) |
| PER SHARE DISTRIBUTIONS | (1.63) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 32.46 |
| EXPENSE RATIO | 1.13 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | The expense ratio per the Mutual Qualified Fund annual report without reimbursement at December 31, 1996 is 1.28%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| RESTATED: |
| CIK:0000825063 |
| NAME: MUTUAL QUALIFIED FUND CLASS II |
| SERIES: |
| NUMBER: 005 |
| NAME: FRANKLIN MUTUAL SERIES |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 3586891102 |
| INVESTMENTS AT VALUE | 4312282861 |
| RECEIVABLES | 54026460 |
| ASSETS OTHER | 2832906 |
| OTHER ITEMS ASSETS | 8193365 |
| TOTAL ASSETS | 4377335592 |
| PAYABLE FOR SECURITIES | 30054189 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 29961967 |
| TOTAL LIABILITIES | 60016156 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 3524185361 |
| SHARES COMMON STOCK | 307021 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1596000) |
| ACCUMULATED NET GAINS | 68761150 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 725968925 |
| NET ASSETS | 4317319436 |
| DIVIDEND INCOME | 90987120 |
| INTEREST INCOME | 52055555 |
| OTHER INCOME | 0 |
| EXPENSES NET | 280798541 |
| NET INVESTMENT INCOME | 114962821 |
| REALIZED GAINS CURRENT | 276332748 |
| APPREC INCREASE CURRENT | 330171813 |
| NET CHANGE FROM OPS | 721467382 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (182773) |
| DISTRIBUTIONS OF GAINS | (378697) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 300727 |
| NUMBER OF SHARES REDEEMED | (6667) |
| SHARES REINVESTED | 12961 |
| NET CHANGE IN ASSETS | 1315186641 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 10264836 |
| OVERDISTRIB NII PRIOR | (5929311) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 22515334 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 29156181 |
| AVERAGE NET ASSETS | 4932585 |
| PER SHARE NAV BEGIN | 32.80 |
| PER SHARE NII | .26 |
| PER SHARE GAIN APPREC | 1.81 |
| PER SHARE DIVIDEND | (.79) |
| PER SHARE DISTRIBUTIONS | (1.63) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 32.45 |
| EXPENSE RATIO | 1.78 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | Expense ratio per the Mutual Shares Fund Class II annual report without reimbursement at December 31, 1996 is 1.93%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN MUTUAL SERIES FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 006 |
| NAME: FRANKLIN MUTUAL QUALIFIED FUND CLASS Z |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 3586891102 |
| INVESTMENTS AT VALUE | 4312282861 |
| RECEIVABLES | 54026460 |
| ASSETS OTHER | 2832906 |
| OTHER ITEMS ASSETS | 8193365 |
| TOTAL ASSETS | 4377335592 |
| PAYABLE FOR SECURITIES | 30054189 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 29961967 |
| TOTAL LIABILITIES | 60016156 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 3524185361 |
| SHARES COMMON STOCK | 132024411 |
| SHARES COMMON PRIOR | 100959394 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1596000) |
| ACCUMULATED NET GAINS | 68761150 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 725968925 |
| NET ASSETS | 4317319436 |
| DIVIDEND INCOME | 90987120 |
| INTEREST INCOME | 52055555 |
| OTHER INCOME | 0 |
| EXPENSES NET | 28079854 |
| NET INVESTMENT INCOME | 114962821 |
| REALIZED GAINS CURRENT | 276332748 |
| APPREC INCREASE CURRENT | 330171813 |
| NET CHANGE FROM OPS | 721467382 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (107303548) |
| DISTRIBUTIONS OF GAINS | (311919654) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 34226041 |
| NUMBER OF SHARES REDEEMED | (15506528) |
| SHARES REINVESTED | 12345504 |
| NET CHANGE IN ASSETS | 1315186641 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 102648367 |
| OVERDISTRIB NII PRIOR | (5929311) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 22515334 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 29156181 |
| AVERAGE NET ASSETS | 3753926387 |
| PER SHARE NAV BEGIN | 29.74 |
| PER SHARE NII | .94 |
| PER SHARE GAIN APPREC | 5.24 |
| PER SHARE DIVIDEND | (.87) |
| PER SHARE DISTRIBUTIONS | (2.58) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 32.47 |
| EXPENSE RATIO | .75 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | Expense ratio per the Mutual Shares Fund Class Z annual report without reimbursement at December 31, 1996 is .78%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL DISCOVERY FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 007 |
| NAME: MUTUAL DISCOVERY FUND CLASS 1 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 2613569608 |
| INVESTMENTS AT VALUE | 2976546497 |
| RECEIVABLES | 61537217 |
| ASSETS OTHER | 3382 |
| OTHER ITEMS ASSETS | 24042834 |
| TOTAL ASSETS | 3062129930 |
| PAYABLE FOR SECURITIES | 13607767 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 24985419 |
| TOTAL LIABILITIES | 38593186 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 2616046060 |
| SHARES COMMON STOCK | 1743246 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (4135091) |
| ACCUMULATED NET GAINS | 55664483 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 355961292 |
| NET ASSETS | 3023536744 |
| DIVIDEND INCOME | 48842362 |
| INTEREST INCOME | 22462789 |
| OTHER INCOME | 0 |
| EXPENSES NET | 21389219 |
| NET INVESTMENT INCOME | 49915932 |
| REALIZED GAINS CURRENT | 234293883 |
| APPREC INCREASE CURRENT | 199749620 |
| NET CHANGE FROM OPS | 483959435 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (316033) |
| DISTRIBUTIONS OF GAINS | (1188595) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1741544 |
| NUMBER OF SHARES REDEEMED | (76554) |
| SHARES REINVESTED | 78256 |
| NET CHANGE IN ASSETS | 1653315304 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 37098017 |
| OVERDISTRIB NII PRIOR | (4232205) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 17795530 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 22030495 |
| AVERAGE NET ASSETS | 11848141 |
| PER SHARE NAV BEGIN | 17.66 |
| PER SHARE NII | .11 |
| PER SHARE GAIN APPREC | .74 |
| PER SHARE DIVIDEND | (.29) |
| PER SHARE DISTRIBUTIONS | (1.07) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 17.15 |
| EXPENSE RATIO | 1.38 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | COMMENCEMENT OF OFFERING SALES WAS ON NOVEMBER 01, 1996. |
| 2 | THE EXPENSE RATIO PER THE MUTUAL DISCOVERY FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 1.51%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL DISCOVERY FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 008 |
| NAME: MUTUAL DISCOVERY FUND CLASS 2 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 2613569608 |
| INVESTMENTS AT VALUE | 2976546497 |
| RECEIVABLES | 61537217 |
| ASSETS OTHER | 3382 |
| OTHER ITEMS ASSETS | 24042834 |
| TOTAL ASSETS | 3062129930 |
| PAYABLE FOR SECURITIES | 13607767 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 24985419 |
| TOTAL LIABILITIES | 38593186 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 2616046060 |
| SHARES COMMON STOCK | 1050641 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (4135091) |
| ACCUMULATED NET GAINS | 55664483 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 355961292 |
| NET ASSETS | 3023536744 |
| DIVIDEND INCOME | 48842362 |
| INTEREST INCOME | 22462789 |
| OTHER INCOME | 0 |
| EXPENSES NET | 21389219 |
| NET INVESTMENT INCOME | 49915932 |
| REALIZED GAINS CURRENT | 234293883 |
| APPREC INCREASE CURRENT | 199749620 |
| NET CHANGE FROM OPS | 483959435 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (193382) |
| DISTRIBUTIONS OF GAINS | (756559) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1024931 |
| NUMBER OF SHARES REDEEMED | (24083) |
| SHARES REINVESTED | 49793 |
| NET CHANGE IN ASSETS | 1653315304 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 37098017 |
| OVERDISTRIB NII PRIOR | (4232205) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 17795530 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 22030495 |
| AVERAGE NET ASSETS | 7707508 |
| PER SHARE NAV BEGIN | 17.66 |
| PER SHARE NII | .09 |
| PER SHARE GAIN APPREC | .76 |
| PER SHARE DIVIDEND | (.27) |
| PER SHARE DISTRIBUTIONS | (1.07) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 17.17 |
| EXPENSE RATIO | 2.00 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | Commencement of offering sales was on November 01, 1996. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL DISCOVERY FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 009 |
| NAME: MUTUAL DISCOVERY FUND CLASS Z |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 2613569608 |
| INVESTMENTS AT VALUE | 2976546497 |
| RECEIVABLES | 61537217 |
| ASSETS OTHER | 3382 |
| OTHER ITEMS ASSETS | 24042834 |
| TOTAL ASSETS | 3062129930 |
| PAYABLE FOR SECURITIES | 13607767 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 24985419 |
| TOTAL LIABILITIES | 38593186 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 2616046060 |
| SHARES COMMON STOCK | 173179167 |
| SHARES COMMON PRIOR | 90356946 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (4135091) |
| ACCUMULATED NET GAINS | 55664483 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 355961292 |
| NET ASSETS | 3023536744 |
| DIVIDEND INCOME | 48842362 |
| INTEREST INCOME | 22462789 |
| OTHER INCOME | 0 |
| EXPENSES NET | 21389219 |
| NET INVESTMENT INCOME | 49915932 |
| REALIZED GAINS CURRENT | 234293883 |
| APPREC INCREASE CURRENT | 199749620 |
| NET CHANGE FROM OPS | 483959435 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (49056367) |
| DISTRIBUTIONS OF GAINS | (214035299) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 92579326 |
| NUMBER OF SHARES REDEEMED | (24057746) |
| SHARES REINVESTED | 14300641 |
| NET CHANGE IN ASSETS | 1653315304 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 37098017 |
| OVERDISTRIB NII PRIOR | (4232205) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 17795530 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 22030495 |
| AVERAGE NET ASSETS | 2225631135 |
| PER SHARE NAV BEGIN | 15.16 |
| PER SHARE NII | .34 |
| PER SHARE GAIN APPREC | 3.39 |
| PER SHARE DIVIDEND | (.31) |
| PER SHARE DISTRIBUTIONS | (1.40) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 17.18 |
| EXPENSE RATIO | .96 1 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | THE EXPENSE RATIO PER THE MUTUAL DISCOVERY FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS .99%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL BEACON FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 010 |
| NAME: MUTUAL BEACON FUND CLASS I |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 4253017499 |
| INVESTMENTS AT VALUE | 4998231479 |
| RECEIVABLES | 73836892 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 10671403 |
| TOTAL ASSETS | 5082739774 |
| PAYABLE FOR SECURITIES | 49963660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 44055059 |
| TOTAL LIABILITIES | 94018719 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 4174075017 |
| SHARES COMMON STOCK | 1337413 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1622610) |
| ACCUMULATED NET GAINS | 76197617 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 740071031 |
| NET ASSETS | 4988721055 |
| DIVIDEND INCOME | 110466891 |
| INTEREST INCOME | 60910279 |
| OTHER INCOME | 0 |
| EXPENSES NET | 31876479 |
| NET INVESTMENT INCOME | 139500691 |
| REALIZED GAINS CURRENT | 339872662 |
| APPREC INCREASE CURRENT | 352415288 |
| NET CHANGE FROM OPS | 831788641 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (733476) |
| DISTRIBUTIONS OF GAINS | (1661478) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1327664 |
| NUMBER OF SHARES REDEEMED | (47590) |
| SHARES REINVESTED | 57339 |
| NET CHANGE IN ASSETS | 1415423913 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 119814140 |
| OVERDISTRIB NII PRIOR | (7873167) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 26083112 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 32699431 |
| AVERAGE NET ASSETS | 18854195 |
| PER SHARE NAV BEGIN | 39.64 |
| PER SHARE NII | 0.48 |
| PER SHARE GAIN APPREC | 2.07 |
| PER SHARE DIVIDEND | (1.00) |
| PER SHARE DISTRIBUTIONS | (2.26) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 38.93 |
| EXPENSE RATIO | 1.03 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | THE COMMENCEMENT OF OPERATIONS WAS ON NOVEMBER 01, 1996 |
| 2 | THE EXPENSE RATIO PER THE MUTUAL BEACON FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 1.13% |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL BEACON FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 011 |
| NAME: MUTUAL BEACON FUND CLASS II |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 4253017499 |
| INVESTMENTS AT VALUE | 4998231479 |
| RECEIVABLES | 73836892 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 10671403 |
| TOTAL ASSETS | 5082739774 |
| PAYABLE FOR SECURITIES | 49963660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 44055059 |
| TOTAL LIABILITIES | 94018719 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 4174075017 |
| SHARES COMMON STOCK | 417780 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1622610) |
| ACCUMULATED NET GAINS | 76197617 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 740071031 |
| NET ASSETS | 4988721055 |
| DIVIDEND INCOME | 110466891 |
| INTEREST INCOME | 60910279 |
| OTHER INCOME | 0 |
| EXPENSES NET | 31876479 |
| NET INVESTMENT INCOME | 139500691 |
| REALIZED GAINS CURRENT | 339872662 |
| APPREC INCREASE CURRENT | 352415288 |
| NET CHANGE FROM OPS | 831788641 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (258962) |
| DISTRIBUTIONS OF GAINS | (601432) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 414977 |
| NUMBER OF SHARES REDEEMED | (17823) |
| SHARES REINVESTED | 20626 |
| NET CHANGE IN ASSETS | 1415423913 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 119814140 |
| OVERDISTRIB NII PRIOR | (7873167) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 26083112 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 32699431 |
| AVERAGE NET ASSETS | 6648882 |
| PER SHARE NAV BEGIN | 39.64 |
| PER SHARE NII | 0.38 |
| PER SHARE GAIN APPREC | 2.14 |
| PER SHARE DIVIDEND | (0.97) |
| PER SHARE DISTRIBUTIONS | (2.26) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 38.93 |
| EXPENSE RATIO | 1.75 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | THE COMMENCEMENT OF OPERATIONS WAS ON NOVEMBER 01, 1996 |
| 2 | THE EXPENSE RATIO PER THE MUTUAL BEACON ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 1.85% |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL BEACON FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 012 |
| NAME: MUTUAL BEACON FUND CLASS Z |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 4253017499 |
| INVESTMENTS AT VALUE | 4998231479 |
| RECEIVABLES | 73836892 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 10671403 |
| TOTAL ASSETS | 5082739774 |
| PAYABLE FOR SECURITIES | 49963660 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 44055059 |
| TOTAL LIABILITIES | 94018719 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 4174075017 |
| SHARES COMMON STOCK | 126316355 |
| SHARES COMMON PRIOR | 99411071 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (1622610) |
| ACCUMULATED NET GAINS | 76197617 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 740071031 |
| NET ASSETS | 4988721055 |
| DIVIDEND INCOME | 110466891 |
| INTEREST INCOME | 60910279 |
| OTHER INCOME | 0 |
| EXPENSES NET | 31876479 |
| NET INVESTMENT INCOME | 139500691 |
| REALIZED GAINS CURRENT | 339872662 |
| APPREC INCREASE CURRENT | 352415288 |
| NET CHANGE FROM OPS | 831788641 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (123408070) |
| DISTRIBUTIONS OF GAINS | (390075901) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 34429925 |
| NUMBER OF SHARES REDEEMED | (19412747) |
| SHARES REINVESTED | 11888106 |
| NET CHANGE IN ASSETS | 1415423913 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 119814140 |
| OVERDISTRIB NII PRIOR | (7873167) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 26083112 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 32699431 |
| AVERAGE NET ASSETS | 4347383745 |
| PER SHARE NAV BEGIN | 35.94 |
| PER SHARE NII | 1.20 |
| PER SHARE GAIN APPREC | 6.28 |
| PER SHARE DIVIDEND | (1.06) |
| PER SHARE DISTRIBUTIONS | (3.41) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 38.95 |
| EXPENSE RATIO | 0.73 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 2 | THE EXPENSE RATIO PER THE MUTUAL BEACON ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 0.75% |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL EUROPEAN FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 013 |
| NAME: MUTUAL EUROPEAN FUND CLASS 1 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 430292422 |
| INVESTMENTS AT VALUE | 458823937 |
| RECEIVABLES | 9116462 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 530404 |
| TOTAL ASSETS | 468470803 |
| PAYABLE FOR SECURITIES | 5023495 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 998352 |
| TOTAL LIABILITIES | 6021847 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 430067727 |
| SHARES COMMON STOCK | 808273 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 580686 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 3364491 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 28436052 |
| NET ASSETS | 462448956 |
| DIVIDEND INCOME | 796851 |
| INTEREST INCOME | 2724820 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1315882 |
| NET INVESTMENT INCOME | 2205789 |
| REALIZED GAINS CURRENT | 4514505 |
| APPREC INCREASE CURRENT | 28436052 |
| NET CHANGE FROM OPS | 35156346 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (25784) |
| DISTRIBUTIONS OF GAINS | (10995) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 813014 |
| NUMBER OF SHARES REDEEMED | (7579) |
| SHARES REINVESTED | 2838 |
| NET CHANGE IN ASSETS | 462448956 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 949616 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1389034 |
| AVERAGE NET ASSETS | 3509233 |
| PER SHARE NAV BEGIN | 10.84 |
| PER SHARE NII | .03 |
| PER SHARE GAIN APPREC | .58 |
| PER SHARE DIVIDEND | (.05) |
| PER SHARE DISTRIBUTIONS | (.02) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.38 |
| EXPENSE RATIO | 1.32 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | COMMENCEMENT OF OFFERING SALES WAS NOVEMBER 01, 1996. |
| 2 | THE EXPENSE RATIO PER THE MUTUAL EUROPEAN FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 1.42%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL EUROPEAN FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 014 |
| NAME: MUTUAL EUROPEAN FUND CLASS 2 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | NOV 01 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 430292422 |
| INVESTMENTS AT VALUE | 458823937 |
| RECEIVABLES | 9116462 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 530404 |
| TOTAL ASSETS | 468470803 |
| PAYABLE FOR SECURITIES | 5023495 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 998352 |
| TOTAL LIABILITIES | 6021847 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 430067727 |
| SHARES COMMON STOCK | 242005 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 580686 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 3364491 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 28436052 |
| NET ASSETS | 462448956 |
| DIVIDEND INCOME | 796851 |
| INTEREST INCOME | 2724820 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1315882 |
| NET INVESTMENT INCOME | 2205789 |
| REALIZED GAINS CURRENT | 4514505 |
| APPREC INCREASE CURRENT | 28436052 |
| NET CHANGE FROM OPS | 35156346 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (7669) |
| DISTRIBUTIONS OF GAINS | (4015) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 242959 |
| NUMBER OF SHARES REDEEMED | (1814) |
| SHARES REINVESTED | 860 |
| NET CHANGE IN ASSETS | 462448956 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 949616 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1389034 |
| AVERAGE NET ASSETS | 1494664 |
| PER SHARE NAV BEGIN | 10.84 |
| PER SHARE NII | .02 |
| PER SHARE GAIN APPREC | .58 |
| PER SHARE DIVIDEND | (.04) |
| PER SHARE DISTRIBUTIONS | (.02) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.38 |
| EXPENSE RATIO | 1.94 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | COMMENCEMENT OF OFFERING SALES WAS ON NOVEMBER 01, 1996. |
| 2 | THE EXPENSE RATIO PER THE MUTUAL EUROPEAN FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 2.04%. |
| ARTICLE 6 |
| THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MUTUAL EUROPEAN FUND DECEMBER 31, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| CIK:0000825063 |
| NAME: FRANKLIN MUTUAL SERIES FUND INC. |
| SERIES: |
| NUMBER: 015 |
| NAME: MUTUAL EUROPEAN FUND CLASS Z |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | JUL 03 1996 1 |
| PERIOD END | DEC 31 1996 |
| INVESTMENTS AT COST | 430292422 |
| INVESTMENTS AT VALUE | 458823937 |
| RECEIVABLES | 9116462 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 530404 |
| TOTAL ASSETS | 468470803 |
| PAYABLE FOR SECURITIES | 5023495 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 998352 |
| TOTAL LIABILITIES | 6021847 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 430067727 |
| SHARES COMMON STOCK | 39546933 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 580686 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 3364491 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 28436052 |
| NET ASSETS | 462448956 |
| DIVIDEND INCOME | 796851 |
| INTEREST INCOME | 2724820 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1315882 |
| NET INVESTMENT INCOME | 2205789 |
| REALIZED GAINS CURRENT | 4514505 |
| APPREC INCREASE CURRENT | 28436052 |
| NET CHANGE FROM OPS | 35156346 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (1947610) |
| DISTRIBUTIONS OF GAINS | (779044) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 42171939 |
| NUMBER OF SHARES REDEEMED | (2854509) |
| SHARES REINVESTED | 229503 |
| NET CHANGE IN ASSETS | 462448956 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 949616 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1389034 |
| AVERAGE NET ASSETS | 239561463 |
| PER SHARE NAV BEGIN | 10.00 |
| PER SHARE NII | .06 |
| PER SHARE GAIN APPREC | 1.40 |
| PER SHARE DIVIDEND | (.05) |
| PER SHARE DISTRIBUTIONS | (.02) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.39 |
| EXPENSE RATIO | 1.09 2 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| 1 | THE COMMENCEMENT OF OPERATIONS WAS ON JULY 03, 1996. |
| 2 | THE EXPENSE RATIO PER THE MUTUAL EUROPEAN FUND ANNUAL REPORT WITHOUT REIMBURSEMENT AT DECEMBER 31, 1996 IS 1.15%. |