THE MALLARD FUND, INC.
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890
SEMI-ANNUAL REPORT
September 30, 1997
DIRECTORS
William S. Dietrich II
Jennings R. Lambeth
Evans Rose, Jr.
OFFICERS
William S. Dietrich II
PRESIDENT AND CHIEF INVESTMENT OFFICER
Richard F. Berdik
SECRETARY AND TREASURER
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
INDEPENDENT AUDITORS
Coopers & Lybrand LLP
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THE MALLARD FUND, INC.
Investments / September 30, 1997 (Unaudited)
(Showing Percentage of Total Value of Net Assets)
____________________________________________________________
VALUE
SHARES (NOTE 3)
------ --------
MUTUAL FUNDS -- 82.2%
American Funds - EuroPacfic Growth Fund 245,142 $ 7,721,962
Brandywine Fund, Inc. 404,352 17,755,110
Emerging Markets Growth Fund, Inc. 335,513 23,512,745
Morgan Stanley Emerging Markets
Portfolio 1,230,122 22,388,229
T. Rowe Price Institutional Funds
- Foreign Equity Fund 471,428 8,433,847
Templeton Institutional Emerging
Markets Fund 2,109,576 31,263,924
Tweedy, Browne Global Value Fund 725,446 13,000,000
-----------
TOTAL MUTUAL FUNDS (COST $117,013,254) 124,075,817
-----------
LIMITED PARTNERSHIPS -- 24.9%
Bulldog Capital Partners Limited
Partnership 2,484,599
Chancellor LGT Partnership, L. P. 411,381
Dorchester Partners, L.P. 2,782,272
Everest Capital Frontier, L.P. 6,098,952
Feirstein Partners, L.P. 5,900,408
Forum Capital Partners 1,230,452
Maverick Fund USA, Ltd. 5,335,270
Murray Partners, L.P. 2,211,413
Oracle Partners, L.P. 4,580,000
Spinnaker Technology Fund, L.P. 3,436,830
The Varde Fund IV-A, L.P. 3,075,110
-----------
TOTAL LIMITED PARTNERSHIPS (COST $33,289,510) 37,546,687
-----------
FUND OF FUNDS -- 0.9 %
Knightsbridge Integrated Holdings III-Limited
(COST $1,262,070) 3,000 1,363,380
-----------
TOTAL INVESTMENTS (COST $151,564,834)* -- 108.0% 162,985,884
OTHER ASSETS AND LIABILITIES, NET -- (8.0)% (12,083,719)
-----------
NET ASSETS - 100.00% $150,902,165
===========
* Cost for federal income tax purposes. At September 30,
1997, net unrealized appreciation was $11,421,050. This
consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market
value over tax cost of $11,425,211 and aggregate gross
unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $4,161.
The accompanying notes are an integral part of the financial
statements.
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THE MALLARD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AS OF 9/30/97
(UNAUDITED)
Assets:
Cash $ 100,574
Investments, at value (Cost $151,564,834) (Note 2) 162,985,884
Deferred Organizational Costs (Note 3) 167,149
Deferred Offering Costs (Note 3) 182,927
------------
Total Assets 163,436,534
------------
Liabilities:
Bank loan 12,325,000
Accrued management fee (Note 5) 78,997
Other accrued expenses 130,372
------------
Total Liabilities 12,534,369
------------
Net Assets $150,902,165
============
Net assets:
Common Stock, $0.001 par value
Authorized 100,000,000 shares; 6,964,014,
shares issued and outstanding $ 6,964
Paid-in capital 139,273,307
Accumulated net investment loss (70,843)
Accumulated net realized gain on investments 271,687
Net unrealized appreciation on investments 11,421,050
------------
Net Assets $150,902,165
============
Net Asset Value Per Share
($150,902,165/6,964,014 shares of common stock) $21.67
======
The accompanying notes are an integral part of the financial
statements.
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THE MALLARD FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 30, 1997+ THROUGH SEPTEMBER 30, 1997
(UNAUDITED)
INVESTMENT INCOME
Interest income $ 282,670
------------
Expenses:
Investment advisory fee (Note 5) 78,997
Administration fee (Note 5) 31,577
Transfer agent fees (Note 5) 2,023
Custodian fees (Note 5) 5,007
Legal fees 16,858
Audit fees 10,116
Printing expenses 3,237
Directors fees and expenses 4,045
Insurance 1,011
Amortization of organizational expenses (Note 3) 12,072
Interest on bank loan 187,210
Miscellaneous expenses 1,360
------------
Total Expenses 353,513
------------
NET INVESTMENT LOSS (70,843)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments during the period 271,687
Net unrealized appreciation of investments during the
period 11,421,050
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 11,692,737
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 11,621,894
============
+ Commencement of Operations
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE MALLARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 30, 1997+ THROUGH SEPTEMBER 30, 1997
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (70,843)
Net realized gain on investments during the period 271,687
Net unrealized appreciation of investments during the
period 11,421,050
--------------
Net increase in net assets resulting from operations 11,621,894
--------------
Proceeds from 6,964,014 shares of common stock issued 139,280,271
--------------
Increase in net assets 150,902,165
NET ASSETS:
Beginning of period 0
--------------
End of period $ 150,902,165
==============
+ Commencement of Operations
The accompanying notes are an integral part of the
financial statements.
<PAGE>
THE MALLARD FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share
outstanding throughout the period and other performance
information derived from the financial statements. It
should be read in conjunction with the financial
statements and notes thereto.
FOR THE PERIOD
MAY 30, 1997+ THROUGH
SEPTEMBER 30, 1997
(UNAUDITED)
----------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 20.00
-------
INVESTMENT OPERATIONS:
Net investment loss................... (0.01)
Net realized and unrealized gain on
investments........................ 1.68
-------
Total from investment operations... 1.67
-------
NET ASSET VALUE - END OF PERIOD.......... $ 21.67
=======
PER SHARE MARKET VALUE - END OF PERIOD... $ 21.67
=======
TOTALRETURN.............................. 8.35%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
Expenses (excludes loan
interest expenses)................... 0.34%*
Net investment income................. (0.15)% *
Portfolio turnover rate............... 8.74%
Net assets at end of period
(000 omitted)..................... $150,902
Number of shares outstanding at end of
period (000 omitted).................. 6,964
Amount of bank loans outstanding at end
of the period (000 omitted)........... $12,325
Average amount of bank loans outstanding
during the period (000 omitted)....... $9,046
Amount of maximum month-end bank loans
during the period (000 omitted)....... $12,325
Average amount of bank loans per share
during the period..................... $1.30
Weighted average interest rate of bank loans
during the period..................... 6.06%
* Annualized
+ Commencement of Operations
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE MALLARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization: The Mallard Fund, Inc. (the "Fund") was
organized on October 15, 1996 as a Maryland corporation.
The Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a non-diversified,
closed-end, management investment company. The Fund
commenced operations, on May 30,1997, with the sale of
6,964,014 shares of common stock (the "initial shares")
through a private placement to the William S. Dietrich II
Charitable Remainder Annuity Trust and the William S.
Dietrich II Charitable Remainder Unit Trust on May 30,
1997.
2. SIGNIFICANT ACCOUNTING POLICIES
A. PORTFOLIO VALUATION: Investments are stated at
value in the accompanying financial statements. Shares of
open-end funds are valued at their respective net asset
values under the 1940 Act. An open-end fund values
securities in its portfolio for which market quotations
are readily available at their current market value
(generally the last reported sales price) and all other
securities and assets at fair value pursuant to methods
established in good faith by the board of directors of the
underlying fund. Shares of closed-end funds that are
listed on U.S. exchanges are valued at the last sales
price on the day the securities are valued or, lacking any
sales on such day, at the last available bid price.
Shares of closed-end funds traded in the OTC market and
listed on NASDAQ are valued at the last trade price on
NASDAQ at 4:00 p.m., New York Time; other shares traded
in the OTC market are valued at the last bid price
available prior to valuation. Other Fund assets are
valued at current market value or, where unavailable, at
fair value as determined in good faith by or under the
direction of the Board of Directors.
The Board of Directors has established general guidelines
for calculating fair value of non-publicly traded
securities. At September 30, 1997, the Fund held 25.8% of
its net assets in securities valued in good faith by the
Board of Directors with an aggregate cost of $34,551,580
and fair value of $38,910,067. The net asset value of the
Fund is calculated quarterly and at any other times
determined by the Board of Directors.
In determining fair value, management considers all
relevant qualitative and quantitative information
available. These factors are subject to change over time
and are reviewed periodically. The values assigned to
fair value investments are based on available information
and do not necessarily represent amounts that might
ultimately be realized, since such amounts depend on
future developments inherent in long-term investments.
However, because of the inherent uncertainty of valuation,
those estimated values may differ significantly from the
values that would have been used had a ready market of the
investment existed, and the differences could be material.
B. DETERMINATION OF GAINS OR LOSSES ON SALE OF
SECURITIES: Gains or losses on the sale of securities are
calculated for accounting and tax purposes on the
identified cost basis.
C. FEDERAL INCOME TAXES: The Fund intends to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
D. OTHER: Security transactions are accounted for on
the date the securities are purchased or sold. The Fund
records interest income on the accrual basis. Dividend
income and distributions to shareholders are recorded on
the ex-dividend date.
<PAGE>
THE MALLARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
E. DISTRIBUTIONS TO SHAREHOLDERS: The policy of the
Fund will be to pay distributions, commencing after April
1, 1998, on shares of common stock equal to approximately
20% of its average net asset value per year, payable in
quarterly installments of 5% of the Fund's net asset value
on the Friday prior to each quarterly declaration date.
The fixed distributions will not be related to the amount
of the Fund's net investment income or net realized
capital gains or losses. If , for any calendar year, the
total distributions required by the 20% pay-out policy
exceed the Fund's net investment income and net realized
capital gains, which normally is expected to be the case,
the excess generally will be treated as a tax-free return
of capital.
F. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. ORGANIZATIONAL COSTS, OFFERING COSTS AND TRANSACTIONS
WITH AFFILIATES: Organizational costs have been
capitalized by the Fund and are being amortized over sixty
months commencing with operations. In the event any of
the initial shares of the Fund are redeemed by any holder
thereof during the period that the Fund is amortizing
organizational costs, the redemption proceeds payable to
the holder thereof by the Fund will be reduced by the
unamortized organizational costs in the same ratio as the
number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of
redemption. Offering costs amounting to $182,927 will be
charged to paid-in capital when the Fund's offering period
commences.
4. PORTFOLIO TRANSACTIONS: The following is a summary
of the security transactions for the period ended
September 30, 1997:
PROCEEDS
COST OF FROM SALES
PURCHASES OR MATURITIES
Long Term Securities $25,912,876 $13,000,000
5. INVESTMENT ADVISORY SERVICES AND PAYMENTS TO
AFFILIATED PERSONS: The Fund receives investment
consulting services from Cambridge Associates, Inc.
("Cambridge") pursuant to an investment consulting
agreement dated July 1, 1997 (the "Agreement"). Cambridge
provides the Fund, on a non-discretionary basis,
investment consulting services regarding the Fund's
purchase, sale and holding of investment securities.
Under the terms of the Agreement, Cambridge receives the
following: 55 basis points on assets invested in
Underlying Private Funds (other than general partnerships
or other types of entities formed to invest in a
diversified pool of marketable or non-marketable
alternative asset investment managers ("Fund of Funds"));
30 basis points on assets invested in Fund of Funds; and
10 basis points on assets invested in Underlying Funds,
cash, securities and other assets. These fees also will
be applied on any firm commitment made by the Fund to make
investments in Underlying Private Funds and Fund of Funds.
As a result of this fee structure, Cambridge will receive
higher fees to the extent that the Fund invests in, and
makes future commitments to invest in, Underlying Private
Funds.
Rodney Square Management Corporation ("RSMC") serves as
administrator for the Fund. As administrator, RSMC
provides office facilities, supplies and administrative
services and also assists in the preparation of reports to
shareholders, proxy statements and filings with the SEC
and state securities authorities. RSMC also performs
certain accounting services (including determining the
Fund's net asset value per share), financial reporting,
and compliance monitoring activities. For the services
provided as Administrator, RSMC receives an annual fee
equal to $80,000 from the Fund plus an amount equal to
0.02% of the average daily net assets of the Fund in
excess of $100 million.
<PAGE>
THE MALLARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Rodney Square Distributors, Inc. ("RSD") serves as the
underwriter of the Fund.
American Stock Transfer and Trust Company serves as the
Fund's Transfer Agent and Dividend Disbursing Agent. For
providing transfer and dividend disbursing services, the
Fund pays an annual fee of $6,000 plus a one time fee of
$3,500 for the initial public offering.
Mellon Bank, N.A. ("Mellon") serves as custodian of the
Fund's assets. The Fund pays Mellon an annual fee equal
to 0.01% of the average daily net assets of the Fund for
all assets held in domestic custody. In addition, the
Fund reimburses Mellon for its out-of-pocket expenses.
None of the directors affiliated with the Fund receives
compensation for his services as a Director of the Fund.
Similarly, none of the Fund's officers receives
compensation from the Fund.
