A Portfolio of
Mutual Series Fund Inc.
[LOGO]
This report and the financial statements contained herein are submitted for the
general information of the shareholders of Mutual Qualified Fund. The report is
not authorized for distribution to prospective investors in the Fund unless
preceded or accompanied by an effective prospectus.
The shares of Mutual Qualified Fund are offered at the net asset value per
share. There are no underwriting discounts or commissions and the Fund receives
the full amount of the proceeds paid by the subscribers.
MUTUAL
QUALIFIED
FUND
[LOGO]
SEMI-
ANNUAL
REPORT
June 30, 1996
[LOGO]
<PAGE>
MUTUAL SERIES FUND INC.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
August 22, 1996
TO THE SHAREHOLDERS OF
MUTUAL QUALIFIED FUND:
The first six months of 1996 have been an exciting period in the markets
and for our organization. Equity markets started the year the same way they
ended, with strong upside movements reflecting huge inflows into the equity
markets. However, unflagging optimism gave way to despair, as it inevitably
does, in June and July, and the markets dropped somewhat precipitously (at least
for a few hours). Through June 30, Mutual Qualified appreciated 9.2% and is up
10.1% at this writing.
After the dramatic increase in share prices over the last eighteen months,
our bread-and-butter "cheap" stocks are harder to come by in the domestic
markets at the kind of discounts we like. However, attractive opportunities in
Europe have counterbalanced this relative scarcity in domestic markets. The
portfolio at June 30 reflects an investment in foreign equities of about 26% of
total assets, with the largest areas of concentration in Sweden, the United
Kingdom and the Netherlands. One of the great attractions in Sweden, for
example, is the presence of diversified holding companies (e.g. Investor AB)
that trade at large discounts to the value of the disparate pieces in the
corporate empire. Often these holding companies are controlled by families or a
handful of institutions that are feeling increasing pressure to unlock the true
values to shareholders. We believe that the movement in Europe toward increased
accountability to shareholders will continue and it provides fertile investment
territory for us.
Although the cheap value stocks may not be as prevalent today in the U.S.
markets, we are witnessing an unprecedented number of corporate restructurings
here whereby companies separate certain assets that are not properly reflected
in market valuations. For example, Dial Corp., AT&T and 3M have each embarked
upon "spinoffs" of distinct companies (Viad, Lucent and Imation, respectively)
to their shareholders on the theory that the parts will have a greater value
when they are not part of one conglomerate. This theory is more than just paper
shuffling or accounting mumbo-jumbo and makes sense for several reasons.
Spinoffs encourage a closer alignment of management's interests with those of
shareholders and may permit a management team to explore strategies that are
inconsistent with those of the larger company. In addition, spinoffs may attract
different kinds of investors who put a higher value on the "pure play" of the
new entity. Our job is to analyze both the new spinoff and the remaining corpus
to take advantage of disparities between trading values and enterprise values.
I noted earlier in the letter that the first half of this year was also an
exciting time for us internally. Of course this reference was to the
announcement in late June of the pending sale of
3
<PAGE>
Heine Securities, investment adviser to the Fund, to Franklin Resources. The
proxy that you received describes this transaction in great detail, and I won't
repeat that discussion here. (If you have not voted yet, please do so.) But the
process leading to this announcement was a long and interesting one, and it led
me to reflect a lot on the Fund and its future. I'd like to share some of those
thoughts with you.
When I started in the investment business with Max Heine in 1975, our
mutual fund assets totaled $5 million. Even as our assets have grown to the $17
billion they are today, for me the essence of the job remains the same --
digging beneath the surface of companies to find a dollar of value selling for
fifty or sixty cents. The mutual fund business likewise has undergone an
enormous transformation since I started. Its growth has been well documented and
will continue as more retirement assets (e.g., 401(k) and social security) come
into the system. This is an exciting, dynamic business that is never the same
from day to day.
Our transaction is different from many of the others in the industry
because the transaction will not result in any changes to the portfolio
management of the Fund (other than those that are typically incidental to
becoming part of a large fund complex). Our independence and style of portfolio
management will not change. The ownership of the adviser will change from a
privately owned company to a corporate subsidiary of Franklin Resources Inc.,
but key members of the management team have signed contracts and after the close
of the transaction will continue to be responsible for managing the Fund.
Our partnership with Franklin Resources satisfies the objectives I set out
when I started thinking about the alternatives for the investment adviser. This
transaction takes what has grown into an institution and places its ownership in
the hands of another institution, in this case a first-rate, entrepreneurial
mutual fund complex. In many ways this provides benefits to our shareholders
that would have taken us many years of work to achieve on our own. At the same
time we have built in protections against an increase in the costs of providing
these investment and other shareholder services to you.
Additionally Fund shareholders, at the close of the transaction, who
maintain an investment in the Fund will be able to invest new money into any
series of Mutual Series in existing as well as new accounts and to reinvest
distributions and dividends without any sales charges or 12b-1 fees.
I want to make special mention of the work that your Board of Directors has
done over the last several months. They not only provided me with guidance in my
decision making, but they kept paramount their responsibilities to shareholders.
Of particular note was their demand that expenses borne by current shareholders
not rise as a result of the Franklin transaction. I believe that there is a
renewed sense of enthusiasm here as we enter this new stage in the life of our
Funds, and we look forward to working for you over the coming years.
Sincerely,
MICHAEL F. PRICE, President
4
<PAGE>
MUTUAL QUALIFIED FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
(unaudited)
Number Value
of Shares (Note A)
--------- --------
COMMON STOCK & OTHER EQUITY INTERESTS (77.08%)
Aerospace (1.94%)
* Hexcel Corp.............................. 833,907 $ 11,445,374
* Litton Industries, Inc................... 446,600 19,427,100
Lockheed Martin Corp..................... 237,000 19,908,000
* Loral Space & Communications............. 387,000 5,272,875
McDonnell Douglas Corp................... 362,200 17,566,700
------------
73,620,049
------------
Banking (7.36%)
Banco Central Hispano-
Americano, SA.......................... 217,711 4,435,798
Bank of Boston Corp...................... 60,000 2,970,000
Barclays PLC............................. 515,000 6,175,875
Bay View Capital Corp.................... 96,800 3,291,200
Baybanks, Inc............................ 3,600 387,900
Chase Manhattan Corp..................... 2,954,272 208,645,460
* Dime Bancorp, Inc........................ 762,800 9,916,400
Downey Financial Corp.................... 249,225 5,451,797
* Farmers & Mechanics Bank................. 40,219 1,221,652
First Chicago NBD Corp................... 548,200 21,448,325
Great Western Financial Corp............. 222,100 5,302,638
Grove Bank............................... 17,000 514,250
(A)* Imperial Thrift & Loan Association....... 475,000 7,006,250
* Primary Bank............................. 23,417 286,858
Standard Financial, Inc.................. 96,842 1,597,893
------------
278,652,296
------------
Chemicals (0.30%)
Bayer AG................................. 42,000 1,484,395
Eastman Chemical Co., Inc................ 160,000 9,740,000
------------
11,224,395
------------
Communications (3.71%)
* 360 Communications Company............... 344,033 8,256,792
AT&T Corp................................ 923,200 57,238,400
* Associated Group Inc., Class A........... 67,225 2,033,556
* Associated Group Inc., Class B........... 67,225 2,008,347
MCI Communications Corp.................. 354,300 9,078,938
Sprint Corp.............................. 453,500 19,047,000
Telephone & Data Systems, Inc............ 952,500 42,862,500
------------
140,525,533
------------
Computer & Electronic Equipment (0.08%)
* Sterling Software, Inc................... 39,200 3,018,400
* Unitrode Corp., Warrants................. 4,569 7,425
------------
3,025,825
------------
Conglomerates (8.31%)
Alexander & Baldwin, Inc................. 143,200 3,454,700
* American Standard Companies Inc.......... 278,000 9,174,000
BTR PLC.................................. 4,324,779 17,019,024
* Berkshire Hathaway Inc., Class A......... 425 13,047,500
* Griffon Corp............................. 11,161 90,683
Harcourt General, Inc.................... 75,500 3,775,000
Incentive AB, A Shares................... 444,800 23,619,002
Incentive AB, B Shares................... 423,000 22,556,861
Investor AB, A Shares.................... 934,900 35,158,248
Investor AB, B Shares.................... 2,412,000 90,162,460
Pacific Dunlop Ltd....................... 24,069,454 54,207,067
Philips Electronics NV................... 406,000 13,179,505
Philips Electronics NV, ADR.............. 508,900 16,602,863
* Philips Electronics NV, Warrants......... 155,000 2,057,963
Varian Associates, Inc................... 208,000 10,764,000
------------
314,868,876
------------
Construction (0.34%)
Lone Star Industries, Inc................ 53,116 1,786,026
Noland Co................................ 17,500 341,250
Puerto Rican Cement Co., Inc............. 75,900 2,362,388
* Schuller Corp............................ 521,764 5,413,302
* USG Corporation.......................... 103,600 2,887,850
------------
12,790,816
------------
Consumer Products & Services (9.97%)
B.A.T Industries PLC..................... 2,391,000 18,595,594
BIC SA................................... 192,900 27,354,006
Corning Inc.............................. 686,600 26,348,275
DSM NV................................... 121,000 11,995,964
Dial Corp................................ 2,035,900 58,277,638
Fab Industries, Inc...................... 186,000 5,068,500
Jostens, Inc............................. 534,600 10,558,350
* KinderCare Learning Centers, Inc......... 78,464 1,206,384
Philip Morris Companies Inc.............. 120,000 12,480,000
Premark International, Inc............... 297,400 5,501,900
5
<PAGE>
Number Value
of Shares (Note A)
--------- --------
RJR Nabisco Holdings Corp................ 2,868,883 $ 88,935,373
* Ranger Industries, Inc................... 24,483 3,107
Sophus Berendsen A/S, A Shares........... 38,550 5,119,086
Sophus Berendsen A/S, B Shares........... 213,750 28,535,783
(A)(R)* Sunbeam Corp............................. 4,800,554 60,186,946
* Tupperware Corp.......................... 291,000 12,294,750
* U.S. Industries, Inc..................... 212,500 5,126,563
------------
377,588,219
------------
Entertainment & Media (3.94%)
* BHC Communications, Inc.................. 144,341 14,109,333
* Cablevision Systems Corp................. 131,100 6,063,375
* Chris Craft Industries, Inc.............. 190,200 8,368,800
Comcast Corp., Class A................... 58,000 1,065,750
Comcast Corp., Class A,
Special Non-Voting..................... 331,900 6,140,150
* Tele-Communications, Inc.,
Class A - TCI Group.................... 567,000 10,276,875
Todd A.O. Corp., Class A................. 191,774 3,164,271
* US West, Inc. - Media Group.............. 5,489,800 100,188,850
------------
149,377,404
------------
Financial Services (5.02%)
Bear Stearns Companies, Inc.............. 732,825 17,312,991
Beneficial Corp.......................... 28,300 1,588,337
Capital One Financial Corp............... 633,000 18,040,500
Countrywide Credit Industries, Inc....... 72,000 1,782,000
Dean Witter, Discover & Co............... 921,600 52,761,600
Finova Group Inc......................... 530,000 25,837,500
First USA, Inc........................... 457,700 25,173,500
Fund American Enterprise
Holdings, Inc.......................... 242,976 19,681,056
Lehman Brothers Holdings Inc............. 624,000 15,444,000
Leucadia National Corp................... 347,300 8,508,850
Liberty Financial Companies, Inc......... 115,347 3,907,380
------------
190,037,714
------------
Food & Beverages (4.56%)
Brown-Forman Corp., Class B.............. 221,500 8,860,000
Cadbury Schweppes PLC.................... 375,000 2,963,069
* FoodBrands America, Inc.................. 147,287 1,896,320
Genesee Corp., Class A................... 7,000 322,000
Genesee Corp., Class B................... 45,341 2,085,686
Heineken Holding NV...................... 69,352 13,986,413
Hormel Foods Corp........................ 288,000 7,704,000
Lindt & Spruengli AG,
Participation Certificate.............. 4,445 7,622,532
Lindt & Spruengli AG, Registered......... 126 2,371,765
Morrison Fresh Cooking, Inc.............. 224,750 1,179,938
Morrisson Health Care, Inc............... 264,233 3,699,262
Nestle SA, Registered.................... 6,656 7,586,380
Nutricia Verenigde Bedrijven NV.......... 244,200 25,781,190
* RalCorp Holdings, Inc.................... 835,800 17,238,375
Ruby Tuesday, Inc........................ 172,950 3,912,994
Seaboard Corp............................ 10,100 2,004,850
Seagram Company Ltd...................... 370,500 12,458,063
Tootsie Roll Industries, Inc............. 484,000 17,242,501
(A)* Van Melle NV............................. 457,082 33,551,963
------------
172,467,301
------------
Healthcare (5.84%)
* Beverly Enterprises, Inc................. 1,688,200 20,258,400
Ciba Geigy AG, Class B................... 2,000 2,421,535
Ciba Geigy AG, Registered................ 10,100 12,285,145
* FHP International Corp................... 1,032,900 28,275,638
* Foundation Health Corp................... 475,400 17,054,975
* Health Systems International, Inc........ 543,000 14,728,875
* Horizon/CMS Healthcare Corp.............. 819,000 10,544,625
* Humana, Inc.............................. 552,000 9,867,000
Instrumentarium Group, Series A.......... 171,400 5,644,711
Instrumentarium Group, Series B.......... 325,200 10,499,806
(R)* Kendall International, Inc., Residual
Ownership Certificates................. 444 6,864
* Laboratory Corp. of America.............. 825,576 6,191,820
* Laboratory Corp. of America,
Warrants............................... 144,863 72,432
* Maxicare Health Plans, Inc............... 130,000 2,453,750
* Mid Atlantic Medical Services, Inc....... 1,156,100 16,474,425
* Perrigo Co............................... 392,000 4,410,000
Pharmacia & Upjohn, Inc.................. 6,000 261,741
Pharmacia & Upjohn, Inc., ADR............ 116,000 5,147,500
Sandoz AG, Registered.................... 7,600 8,674,457
* Tenet HealthCare Corp.................... 1,650,000 35,268,750
United HealthCare Corp................... 209,000 10,554,500
------------
221,096,949
------------
Industrial (1.60%)
Crown Cork & Seal, Inc................... 451,554 20,319,930
Greif Brothers Corp...................... 78,800 2,521,600
(A)(R)* Lancer Industries, Inc., Class B......... 4 51,286
Lucas Industries PLC..................... 1,775,000 6,241,073
Westinghouse Electric Corporation........ 1,684,200 31,578,750
------------
60,712,639
------------
6
<PAGE>
Number Value
of Shares (Note A)
--------- --------
Insurance (5.77%)
* 20th Century Industries.................. 115,800 $ 1,925,175
Aetna Life & Casualty Co................. 50,000 3,575,000
* Alleghany Corp........................... 89,954 17,271,168
Allmerica Property & Casualty
Companies, Inc......................... 369,400 9,973,800
Allstate Corp............................ 284,548 12,982,503
Argonaut Group, Inc...................... 89,100 2,784,375
Berkley (W.R.) Corp...................... 408,000 17,034,000
Enhance Financial Services
Group, Inc............................. 291,000 8,148,000
Financial Security Assurance
Holdings Ltd........................... 250,000 6,843,750
First Colony Corp........................ 381,400 11,823,400
Home Beneficial Corp., Class B........... 255,600 6,709,500
ING Groep NV............................. 165,727 4,933,909
ITT Hartford Group, Inc.................. 155,900 8,301,675
Kansas City Life Insurance Co............ 29,890 1,629,005
Koelnische Rueckversicherungs AG......... 12,055 9,449,475
Old Republic International Corp.......... 767,100 16,492,650
Progressive Corp......................... 69,200 3,200,500
Provident Companies, Inc................. 196,100 7,255,700
Providian Corp........................... 321,700 13,792,888
Royal Insurance Holdings PLC............. 4,503,000 27,786,372
SAFECO Corp.............................. 150,600 5,327,475
Selective Insurance Group, Inc........... 180,500 5,866,250
Torchmark Corp........................... 236,000 10,325,000
Unitrin, Inc............................. 109,700 5,155,900
------------
218,587,470
------------
Investment Companies (1.26%)
Central European Equity Fund Inc......... 228,800 4,089,800
Forvaltnings AB Ratos, B Shares.......... 1,243,800 30,777,866
New Germany Fund Inc..................... 694,800 8,771,850
* Regent Kingpin Chile Value Fund.......... 98,100 3,936,263
------------
47,575,779
------------
Metals (0.25%)
* Alumax, Inc.............................. 157,700 4,790,138
* Bayou Steel Corp......................... 167,000 647,125
Cyprus Amax Minerals Co.................. 80,400 1,819,050
* Kreisler Manufacturing Corp.............. 17,660 70,640
Pitt-Des Moines, Inc..................... 46,600 1,980,500
------------
9,307,453
------------
Natural Resources (4.04%)
Amerada Hess Corp........................ 80,000 4,290,000
* Crown Central Petroleum Corp.,
Class A................................ 71,900 1,087,488
* Crown Central Petroleum Corp.,
Class B................................ 228,600 3,514,725
* Diamond Fields Resources Inc............. 251,000 7,087,016
Imperial Oil Ltd......................... 421,400 17,751,475
Royal Dutch Petroleum Co................. 96,200 14,790,750
Shell Canada Ltd......................... 150,000 5,087,822
Shell Transport & Trading Co............. 688,500 10,078,790
Temple Inland Inc........................ 46,500 2,173,875
* Transocean ASA........................... 2,885,350 74,728,170
Union Texas Petroleum
Holdings, Inc.......................... 634,200 12,366,900
------------
152,957,011
------------
Printing & Publishing (3.71%)
Belo (A.H.) Corp......................... 174,400 6,496,400
Daily Mail & General Trust PLC,
Class A................................ 949,800 21,703,648
Daily Mail & General Trust PLC,
Ordinary............................... 38,500 945,795
De Telegraaf Holding NV.................. 131,453 22,028,008
Dow Jones & Co., Inc..................... 66,500 2,776,375
Dun & Bradstreet Corp.................... 493,800 30,862,500
Gannett, Inc............................. 101,400 7,174,050
Houghton Mifflin Co...................... 287,700 14,313,075
Knight-Ridder, Inc....................... 67,000 4,857,500
Scripps (E.W.) Co., Class A.............. 629,900 29,369,088
------------
140,526,439
------------
Real Estate (2.31%)
* Al-Zar Ltd............................... 59 20,650
* Alexander's Inc.......................... 134,390 9,760,074
* Cadillac Fairview Corp................... 1,066,639 13,298,275
* Cadillac Fairview Corp., Warrants........ 126,360 417,014
* Castle & Cooke, Inc...................... 49,666 794,656
* E & J Properties Ltd., Units............. 5,600 14,700
(A)(R)* MSCW Investors II, L.L.C................. 23,562,000 36,576,730
St. Joe Paper Co......................... 85,800 5,534,100
(A)(R)* S.H. Mortgage Acquisition L.L.C.......... 21,151,963 21,151,963
------------
87,568,162
------------
Retail (2.47%)
American Stores Co....................... 233,900 9,648,375
CML Group, Inc........................... 309,000 1,313,250
7
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
Delchamps, Inc........................... 62,700 $ 1,520,475
(A)* Esselte AB, A Shares..................... 1,375,000 27,715,935
(A)* Esselte AB, B Shares..................... 233,600 4,761,395
Melville Corp............................ 198,900 8,055,450
* Payless ShoeSource, Inc.................. 235,500 7,477,126
Sears PLC................................ 14,245,000 21,892,251
* Service Merchandise Co., Inc............. 2,007,000 11,289,375
------------
93,673,632
------------
Transportation (4.30%)
Arkansas Best Corp....................... 842,000 6,209,750
Canadian National Railway Co............. 328,200 6,030,675
Canadian Pacific, Ltd.................... 251,000 5,516,604
Florida East Coast Industries, Inc....... 268,800 22,310,400
Helikopter Services Group ASA............ 607,400 7,001,998
Railtrack Group PLC, Partly-Paid......... 4,069,000 13,833,261
Ryder Systems, Inc....................... 736,000 20,700,000
* Varity Corp.............................. 878,100 42,258,563
Volvo AB, B Shares....................... 1,435,700 32,610,894
XTRA Corp................................ 145,200 6,425,100
------------
162,897,245
------------
TOTAL COMMON STOCK &
OTHER EQUITY INTERESTS................. 2,919,081,207
-------------
PREFERRED STOCK (1.06%)
Crown Cork & Seal, Inc.,
4.50% Conv. Pfd........................ 83,784 3,812,172
* Gentra Inc., Pfd. G...................... 74,000 895,457
(R)* Interlake Corp.,
9.00%, Series A3 Conv. Pfd............. 1,050 786,949
(A)(R)* Lancer Industries, Inc.
Series C Pfd........................... 205,128 20,512,800
RJR Nabisco Holdings Corp.,
Class C Pfd............................ 2,191,000 14,241,500
* Wundies Industries Inc.,
11.25% Cum. Pfd........................ 12,168 19,773
------------
40,268,651
------------
CORPORATE BONDS AND NOTES (0.68%) Cadillac Fairview Corp.
12.00%, 7/31/05.....................CAD 131,259 89,524
Comcast Cellular Corp.,
0%, 3/05/00, Series A ................. $14,000,000 9,625,000
* Gentra Inc., Series A,
7.50%, 12/31/01.....................CAD 9,900,000 8,204,320
Number Value
of Shares (Note A)
--------- --------
* Gentra Inc., Series B,
7.50%, 12/31/01.....................CAD 629,584 $ 449,027
Home Holdings Inc.,
8.625%, 12/15/03....................... $ 4,965,000 2,879,700
Schuller Corp., 9.00%, 12/31/03.......... 774,718 774,718
TransAmerican Refining Corp.,
16.50%, 2/15/02........................ 4,000,000 3,605,000
------------
25,627,289
------------
BONDS AND NOTES IN REORGANIZATION (1.20%)
* Adams County CO, Industrial Dev.
Auth., 9.00%, 11/01/96................. 7,201,000 306,043
* Ames Department Stores, Inc.,
Trade Claims........................... 4,002,809 34,289
* Baldwin Co., 10.375%, 12/01/01........... 1,250,000 462,500
* Caldor Corp., Trade Claim................ 7,546,308 4,301,396
* Dow Corning Corp.,
Bank Debt.............................. 2,850,000 2,878,500
* Dow Corning Corp., Swap.................. 5,833,333 5,308,333
* Dow Corning Corp.,
8.15%, 10/15/29........................ 5,150,000 5,098,500
* Dow Corning Corp.,
9.30%, 1/27/98......................... 1,835,000 1,853,350
* Dow Corning Corp.,
9.375%, 2/01/08........................ 735,000 753,375
* Dow Corning Corp., Medium Term
Note, 8.55%, 3/01/01................... 1,000,000 1,000,000
* El Paso TX Housing Finance Corp.,
8.88%,10/15/96......................... 3,565,000 178,250
* Eurotunnel Finance Limited,
Bank Debt, Tranche D............... BEF 55,000,000 648,926
* Eurotunnel Finance Limited,
Bank Debt, Tranche D1.............. BEF 274,574,182 3,239,607
* Eurotunnel Finance Limited,
Bank Debt, Tranche E............... ECU 383,355 176,336
* Eurotunnel Finance Limited,
Bank Debt, Tranche E............... FRF 42,532,233 3,052,750
* Eurotunnel Finance Limited,
Bank Debt, Tranche E1.............. FRF 23,835,021 1,710,758
* Eurotunnel Finance Limited,
Bank Debt, Tranche J1...............GBP 1,169,819 671,913
* Lomas Financial Corp.,
9.75%, 10/01/97........................ 3,000,000 1,852,500
* Lomas Mortgage USA,
10.25%, 10/01/02....................... 1,700,000 1,049,750
8
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
* Louisiana Agriculture Finance
Authority, 8.25%, 10/01/96............. $ 1,600,000 $ 80,000
* Louisiana Agriculture Finance
Authority, 8.80%, 10/01/96............. 750,000 37,500
* Louisiana Housing Finance
Authority, 8.61%, 8/01/96.............. 6,150,000 246,000
* Maxicare Health Plans, Inc.,
Bank Note.............................. 124,847 34,208
* Metallurg Inc., Bank Claim............... 6,675,644 4,205,656
* Metallurg Inc., Bank Claim #2............ 2,304,362 1,088,811
* Metallurg Inc., Trade Claim.............. 642,169 115,590
* Nebraska Investment Finance
Auth., 8.34%, 11/01/93................. 1,000,000 42,500
* SouthEast Banking Corp.,
0%, 11/10/97........................... 750,000 375,000
* SouthEast Banking Corp.,
4.75%, 10/15/97........................ 2,200,000 1,430,000
* SouthEast Banking Corp.,
10.50%, 4/11/01........................ 3,875,000 1,937,500
Tiphook Finance Corp.,
8.00%, 3/15/00......................... 2,000,000 1,410,000
Tiphook Finance Corp.,
Lease Claim...........................GBP 119,870 176,777
------------
45,756,618
------------
COMPANIES IN LIQUIDATION (0.08%)
* Aerospace Creditors
Liquidating Trust, Certificates of
Beneficial Interest.................... 126,677 443,370
* Americana Hotels & Realty Corp........... 143,000 196,625
* City Investing Co.,
Liquidating Trust...................... 1,579,485 1,776,921
* MBO Properties Inc....................... 120,917 193,467
* MCorp Financial Trust,
Claim Units............................ 27,617 334,180
* MCorp Trust, Claim Units................. 27,611 65,097
(A)* Management Assistance, Inc.,
Liquidating Trust...................... 575,717 134,948
------------
3,144,608
------------
UNITED STATES GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS (19.44%)
U.S. Government Agency Obligations (2.84%)
Federal Home Loan Bank System,
5.106%, 2/23/97....................... $12,500,000 12,306,800
5.010%, 2/28/97....................... 12,500,000 12,441,425
Number Value
of Shares (Note A)
--------- --------
5.637%, 3/13/98....................... $25,000,000 $ 24,769,175
Federal Home Loan Mortgage Corp.
5.170%, 3/24/97....................... 6,000,000 5,969,634
Federal National Mortgage
Association, Medium Term Note,
5.640%, 10/02/96....................... 17,300,000 17,309,152
5.390%, 12/04/96....................... 5,300,000 5,296,607
5.410%, 12/06/96....................... 15,000,000 14,991,660
5.310%, 12/11/96....................... 7,300,000 7,292,415
Tennessee Valley Authority,
6.000%, 1/15/97....................... 7,000,000 7,009,695
------------
107,386,563
------------
U.S. Treasury Notes (1.06%)
6.875%, 10/31/96....................... 29,800,000 29,958,268
7.250%, 11/30/96....................... 10,000,000 10,071,860
------------
40,030,128
------------
U.S. Government Agency Discount Notes (13.35%)
Federal Home Loan Bank System,
4.820%, 7/09/96....................... 7,000,000 6,992,377
4.980%, 7/09/96....................... 7,100,000 7,092,267
4.960%, 7/19/96....................... 20,300,000 20,249,656
4.780%, 8/29/96....................... 13,500,000 13,394,243
5.160%, 10/21/96....................... 6,000,000 5,903,496
5.200%, 11/04/96....................... 9,000,000 8,837,145
5.190%, 12/06/96....................... 20,000,000 19,519,860
5.240%, 1/13/97....................... 8,000,000 7,770,896
5.330%, 2/05/97....................... 4,250,000 4,115,560
5.270%, 2/13/97....................... 7,000,000 6,770,477
5.240%, 2/14/97....................... 6,500,000 6,285,936
5.460%, 2/18/97....................... 17,300,000 16,720,260
5.320%, 2/26/97....................... 6,000,000 5,791,997
5.410%, 3/04/97....................... 3,750,000 3,616,751
5.420%, 3/04/97....................... 6,000,000 5,786,802
5.500%, 3/04/97....................... 4,125,000 3,978,426
5.490%, 3/12/97....................... 15,500,000 14,931,321
5.390%, 3/24/97....................... 17,000,000 16,346,826
Federal Home Loan Mortgage Corp.
5.420%, 1/27/97....................... 9,000,000 8,727,003
Federal National Mortgage Association,
5.260%, 7/02/96....................... 1,500,000 1,499,781
4.820%, 7/05/96....................... 13,750,000 13,742,589
5.200%, 7/05/96....................... 1,100,000 1,099,407
5.050%, 7/08/96....................... 9,000,000 8,991,163
5.190%, 7/15/96....................... 18,000,000 17,963,670
9
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
4.780%, 7/16/96....................... $10,000,000 $ 9,980,083
4.900%, 7/19/96....................... 14,000,000 13,965,700
5.140%, 7/26/96....................... 8,600,000 8,568,808
5.290%, 7/26/96....................... 10,500,000 10,461,917
4.920%, 8/01/96....................... 9,000,000 8,961,870
5.240%, 8/05/96....................... 19,400,000 19,301,168
4.820%, 8/08/96....................... 12,200,000 12,137,929
5.580%, 8/09/96....................... 8,300,000 8,249,827
5.160%, 8/15/96....................... 8,000,000 7,947,720
5.500%, 8/15/96....................... 2,000,000 1,986,930
4.930%, 8/23/96....................... 6,000,000 5,956,452
4.810%, 8/29/96....................... 10,500,000 10,417,228
5.240%, 8/30/96....................... 17,800,000 17,642,773
5.220%, 9/03/96....................... 12,500,000 12,382,225
4.840%, 9/06/96....................... 5,500,000 5,445,440
5.150%, 9/18/96....................... 15,500,000 15,317,689
5.160%, 9/19/96....................... 6,800,000 6,719,461
5.200%, 9/23/96....................... 12,200,000 12,051,977
5.110%, 9/25/96....................... 1,300,000 1,283,851
5.240%, 9/30/96....................... 6,100,000 6,019,822
5.180%, 10/09/96....................... 6,800,000 6,698,564
4.890%, 10/24/96....................... 13,000,000 12,776,582
5.160%, 10/24/96....................... 22,000,000 21,621,908
5.050%, 10/30/96....................... 10,800,000 10,612,332
5.160%, 11/18/96....................... 6,700,000 6,565,290
5.190%, 11/18/96....................... 13,000,000 12,738,622
5.100%, 12/16/96....................... 9,000,000 8,784,117
5.570%, 6/13/97....................... 5,000,000 4,730,110
------------
505,454,304
------------
U.S. Treasury Bills (2.19%)
5.340%, 8/22/96......................... 6,000,000 5,953,720
4.835%, 9/19/96......................... 30,000,000 29,660,010
5.285%, 9/19/96......................... 14,400,000 14,236,805
5.290%, 9/19/96......................... 3,900,000 3,855,801
4.870%, 11/14/96......................... 30,000,000 29,410,680
------------
83,117,016
------------
TOTAL INVESTMENTS IN
SECURITIES (99.54%) $3,769,866,384
==============
SECURITIES SOLD SHORT (0.51%)
* Household International, Inc............. 95,400 $ 7,250,400
* Lucent Technologies Inc.................. 207,000 7,840,125
* Sonat Offshore Drilling Inc.............. 25,000 1,262,500
Number
of Shares Value
or Contracts (Note A)
------------ --------
* Sterling Commerce, Inc................... 53,500 $ 1,986,188
* United States Cellular Corp.............. 30,100 933,100
------------
$19,272,313
============
OPTIONS WRITTEN (0.00%)
Lucas Industries PLC,
August/240/Put......................... 650 $ 221,975
============
* Non-income producing securities.
(A) Affiliated issuers.
(R) Restricted securities.
The percentage shown for each investment category is the total value of
that category expressed as a percentage of total net assets of the Fund.
See notes to financial statements.
Currency Type Abbreviations:
Principal amount is stated in United States dollars unless otherwise noted.
ECU -- European currency unit
AUD -- Australian dollar
BEF -- Belgian franc
GBP -- British pound
CAD -- Canadian dollar
DKK -- Danish krone
NLG -- Dutch guilder
FIM -- Finnish markka
FRF -- French franc
DEM -- German Deutsche mark
NOK -- Norwegian krone
ESP -- Spanish peseta
SEK -- Swedish krona
CHF -- Swiss franc
Distribution of investments by country:
As a percentage of total investments in securities
United States................................. 73.7%
Sweden........................................ 7.2
United Kingdom................................ 5.0
Netherlands................................... 4.2
Norway........................................ 2.2
Canada........................................ 2.1
Australia..................................... 1.4
Switzerland................................... 1.1
Other (individually less than 1%)............. 3.1
-----
Total......................................... 100.0%
=====
10
<PAGE>
MUTUAL QUALIFIED FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments in Securities, at Value
Unaffiliated Issuers (Cost $3,094,024,027) ........................................ $ 3,558,216,168
Controlled Affiliated Issuers (Cost $57,413,881) .................................. 57,728,693
Non Controlled Affiliated Issuers (Cost $81,713,432) .............................. 153,921,523 $3,769,866,384
---------------
Cash .................................................................................................... 4,911,573
Receivables:
Investment Securities Sold ......................................................................... 41,190,254
Dividends .......................................................................................... 7,092,180
Capital Stock Subscribed ........................................................................... 4,930,008
Interest ........................................................................................... 1,787,815
Deposits with Brokers for Securities Sold Short .......................................................... 10,779,986
Other Assets ............................................................................................. 12,999,629
--------------
TOTAL ASSETS ................................................................................. 3,853,557,829
--------------
LIABILITIES
Payables:
Investment Securities Purchased .................................................................... 35,253,621
Net Payable for Foreign Currency Exchange Contracts ................................................ 8,234,871
Investment Advisory Fee ............................................................................ 1,800,251
Capital Stock Repurchased .......................................................................... 1,645,105
Securities Sold Short, at Value (Proceeds Receivable $17,886,159) ........................................ 19,272,313
Outstanding Options Written, at Value (Premium Received $162,692) ........................................ 221,975
--------------
TOTAL LIABILITIES ............................................................................ 66,428,136
--------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ....................................................... $3,787,129,693
==============
NUMBER OF SHARES OUTSTANDING
(Authorized-- 200,000,000 Shares, $.001 Par Value) ................................................. 120,256,539
==============
NET ASSET VALUE PER SHARE
(Offering and Redemption Price Per Share) .......................................................... $ 31.49
==============
COMPOSITION OF NET ASSETS
Paid In Capital .......................................................................................... $3,116,165,295
Undistributed Net Investment Income ...................................................................... 59,502,153
Accumulated Net Realized Gain on Investments and Foreign Currency Transactions ........................... 84,443,553
Net Unrealized Appreciation of Investments, Securities Sold Short and Options Written .................... 535,269,607
Net Unrealized Depreciation of Foreign Currency Exchange Contracts and Dividends ......................... (8,250,915)
--------------
TOTAL NET ASSETS ............................................................................. $3,787,129,693
==============
</TABLE>
See notes to financial statements.
11
<PAGE>
MUTUAL QUALIFIED FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Income:
Dividends -- Unaffiliated Issuers
(Net of Foreign Withholding-- $1,713,020) ........................................... $ 54,087,358
Dividends-- Non Controlled Affiliated Issuers
(Net of Foreign Withholding-- $166,111) ............................................. 3,485,087
Interest .............................................................................. 25,789,347
Other Income .......................................................................... 514,744
------------
TOTAL INCOME ................................................................................ $ 83,876,536
Expenses:
Investment Advisory Fee ............................................................... 10,463,986
Shareholder Servicing Costs ........................................................... 957,806
Administrative ........................................................................ 366,637
Registration and Filing Fees .......................................................... 307,738
Custodian Fees ........................................................................ 270,599
Shareholder Reports ................................................................... 115,056
Insurance ............................................................................. 53,124
Auditing Fees ......................................................................... 33,834
Legal Fees ............................................................................ 27,709
Directors' Fees and Expenses .......................................................... 19,591
Miscellaneous ......................................................................... 31,907
------------
TOTAL EXPENSES .............................................................................. 12,647,987
------------
NET INVESTMENT INCOME ....................................................... 71,228,549
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Gain on Investments and Foreign Currency Transactions
in Unaffiliated Issuers ............................................................ 90,490,634
Net Realized Gain on Investments in Controlled Affiliated Issuers ..................... 1,291,862
Net Realized Gain on Investments in Non Controlled Affiliated Issuers ................. 19,829
Net Realized Gain on Securities Sold Short ............................................ 80,179
Net Realized Gain on Options Written .................................................. 57,293
Change in Unrealized Appreciation/(Depreciation) of Investments,
Securities Sold Short, Options Written and Foreign Currency Transactions............ 131,221,580
------------
NET GAIN ON INVESTMENTS ..................................................... 223,161,377
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................................................. $294,389,926
============
</TABLE>
See notes to financial statements.
12
<PAGE>
MUTUAL QUALIFIED FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net Investment Income ............................................ $ 71,228,549 $ 66,133,081
Net Realized Gain on Investments and Foreign Currency Transactions 91,939,797 327,189,162
Change in Unrealized Appreciation/(Depreciation) of Investments .. 131,221,580 156,169,968
--------------- ---------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ........................................ 294,389,926 549,492,211
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income ............................................ (5,797,085) (58,854,226)
Net Realized Gain on Investments ................................. (110,144,611) (289,682,676)
--------------- ---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........................ (115,941,696) (348,536,902)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS ............................................. 606,548,668 1,009,236,508
--------------- ---------------
NET INCREASE IN NET ASSETS ............................................. 784,996,898 1,210,191,817
NET ASSETS:
Beginning of Year ................................................ 3,002,132,795 1,791,940,978
--------------- ---------------
End of Period -- Including Undistributed Net Investment Income of
$59,502,153 and Distributions in Excess of Net Investment
Income of $5,929,311, respectively ............................ $ 3,787,129,693 $ 3,002,132,795
=============== ===============
</TABLE>
See notes to financial statements.
13
<PAGE>
MUTUAL QUALIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Mutual Qualified Fund is a portfolio of Mutual Series Fund Inc. (the
"Series Fund"), which is registered under the Investment Company Act of 1940 as
a no-load, diversified, open-end management investment company. The Series Fund
currently consists of four portfolios: Mutual Qualified Fund, Mutual Shares
Fund, Mutual Beacon Fund and Mutual Discovery Fund. Each of these portfolios is
considered to be a separate entity for financial reporting and Federal income
tax purposes. The financial statements and notes include operations with respect
to Mutual Qualified Fund (the "Fund") only.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may affect the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
Security Valuation: Investments in securities and securities sold short
that are listed on an exchange or the NASDAQ national market or other securities
traded in the over-the-counter market are valued at the last reported sales
price on the day of valuation; however, if there are no sales on that day, such
securities are valued at the mean between the closing bid and asked prices.
Securities for which market quotations are not readily available are valued at
"fair value" as determined in good faith by management under the direction of
the Board of Directors. Fair value reflects what management believes is the bid
price for the securities and is based on estimates and assumptions deemed
relevant under the circumstances. Actual results could differ from these
estimates. Temporary investments are valued at the prevailing market value.
Restricted Securities: The Fund invests in securities which are restricted
as to public sale in accordance with the Securities Act of 1933. Such assets are
valued at fair value as determined in good faith by management under the
direction of the Board of Directors. It is the Fund's policy that no more than
15%, as determined at the time of investment, of the value of the Fund's assets
be invested in restricted securities.
Foreign Securities: The value of foreign securities is converted into U.S.
dollars at the rate of exchange prevailing on the day of valuation. Purchases
and sales of foreign securities, as well as income and expenses relating to such
securities, are converted at the prevailing rate of exchange on the respective
date of such transactions.
Foreign Exchange Contracts: The Fund may engage in currency transactions in
order to hedge the value of portfolio holdings denominated in foreign currencies
against fluctuations in relative value. Foreign Exchange contracts are valued at
the forward rate, and are marked-to-market daily. The change in market value is
recorded by the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The use of currency transactions can result in the Fund 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 Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
14
<PAGE>
MUTUAL QUALIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
Options Written: When the Fund writes an option, the premium received is
recorded as a liability with subsequent daily adjustment to current market
value. When the Fund enters into a closing transaction or the option expires or
is exercised, the Fund realizes a gain or loss, and the liability is eliminated.
All securities covering outstanding options are held in a segregated account by
the custodian bank.
Securities Sold Short: The Fund is engaged in selling securities short,
which obligates the Fund to replace a security borrowed by purchasing the same
security at the current market value. The Fund would incur a loss if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund would realize a gain if
the price of the security declines between those dates.
The Fund is required to establish a margin account with the broker lending
the security sold short. While the short sale is outstanding, the broker retains
the proceeds of the short sale and the Fund must also maintain a cash deposit
with the broker having a value equal to a specified percentage of the value of
the securities sold short.
Securities Transactions and Investment Income: Securities transactions are
recorded on a trade-date basis. Securities gains or losses are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend date or,
for certain foreign dividends, as soon as the Fund becomes aware of the
dividends. Interest income, including original issue discount, where applicable,
is recorded on the accrual basis, except for bonds trading "flat", in which case
interest is recorded when received.
Dividends and Distributions to Shareholders: Income dividends and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
Federal Income Taxes: The Fund qualifies, and intends to continue to meet
the requirements for qualification, as a regulated investment company, as
defined in applicable sections of the Internal Revenue Code ("Code"). By
complying with Code provisions, the Fund is relieved from Federal income tax
provided that substantially all of its taxable income is distributed to
shareholders. Therefore, no Federal income tax provision has been provided.
NOTE B -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains Heine Securities Corporation (the "Adviser") as its
investment adviser under an investment advisory agreement (the "Agreement").
Certain individuals who are executive officers and a director of the Fund are
also executive officers and a director of the Adviser.
For the six months ended June 30, 1996, the Adviser received fees of
$10,463,986 for investment management and advisory services under the Agreement.
The fee was paid monthly based on average daily net assets at the annual rate of
six-tenths of one percent. Administrative personnel and services were provided
at approximate cost by the Adviser.
Clearwater Securities, Inc.("Clearwater"), is a registered securities
dealer which is owned by Michael F. Price. Since October 1, 1994, the Fund has
executed certain security transactions with Clearwater. For the six months ended
June 30, 1996, the Fund paid brokerage commissions totalling $229,918 to
Clearwater.
The Fund has expense offset arrangements with certain of its service
providers. The impact of these arrangments on the Fund's total expenses
reflected in the Statement of Operations, is less than .01% of the Fund's
average daily net assets.
15
<PAGE>
MUTUAL QUALIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
NOTE C -- INVESTMENT TRANSACTIONS
Purchases and proceeds from the sale of investment securities (excluding
short-term investments) for the six months ended June 30, 1996 aggregated
$1,315,712,060 and $739,473,700, respectively.
For Federal income tax purposes, the identified cost of investments at June
30, 1996 was $3,234,559,201. Net unrealized appreciation for all securities at
June 30, 1996, based on Federal income tax cost, amounted to $535,307,183
consisting of aggregate gross unrealized appreciation of $592,507,976 and
aggregate gross unrealized depreciation of $57,200,793.
Transactions in options written during the six months ended June 30, 1996
were as follows:
Principal
Amount or
Number of
Contracts Premium
--------- -------
Options outstanding at December 31, 1995 ......... 65 $ 8,173
Options written .................................. 78,900 252,973
Options expired .................................. (78,050) (53,104)
Options terminated in closing transactions ....... (65) (8,173)
Options exercised ................................ (200) (37,177)
--------- ---------
Options outstanding at June 30, 1996 ............. 650 $ 162,692
========= =========
NOTE D -- RESTRICTED SECURITIES
A summary of the restricted securities held at June 30, 1996 follows:
<TABLE>
<CAPTION>
Acquisition
Name of Issuer Date Value
- -------------- ----------- ------------
<S> <C> <C>
Common Stock & Other Equity Interests
Kendall International, Inc., Residual Ownership Certificates .... 7/06/92 $ 6,864
Lancer Industries, Inc., Class B ................................ 8/11/89 51,286
MSCW Investors II, L.L.C ........................................ 12/27/95 36,576,730
S.H. Mortgage Acquisition L.L.C ................................. 8/17/95 21,151,963
Sunbeam Corp. ................................................... 2/23/90 60,186,946
Preferred Stock
Interlake Corp., 9.00%, Series A3 Conv. Pfd. .................... 6/17/92 786,949
Lancer Industries, Inc., Series C Pfd. .......................... 8/11/89 20,512,800
------------
Total restricted securities: (Cost $90,699,191) (3.68% of Net Assets) $139,273,538
============
</TABLE>
16
<PAGE>
MUTUAL QUALIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
NOTE E -- INVESTMENT IN AFFILIATES*
<TABLE>
<CAPTION>
Balance of Shares Gross Sales Balance of Shares Value Dividend Income
Held Dec. 31, Gross Purchases and Held Jun. 30, Jun. 30, Jan. 1-Jun. 30,
Name of Issuer: 1995 and Additions Reductions 1996 1996 1996
- ---------------------------------- ----------------- --------------- ----------- ----------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Controlled Affiliates**
MSCW Investors II, L.L.C ......... 23,562,000 -- -- 23,562,000 $ 36,576,730 --
S. H. Mortgage Acquisition L.L.C . 28,134,981 -- 6,983,018 21,151,963 21,151,963 --
------------ ------------
Total Controlled Affiliates .... $ 57,728,693 $ 0
============ ============
Non Controlled Affiliates
Esselte AB, A Shares ............. 0 1,375,000 -- 1,375,000 $ 27,715,935 $ 686,990
Esselte AB, B Shares ............. 0 233,600 -- 233,600 4,761,395 116,713
Imperial Thrift & Loan Association 375,000 100,000 -- 475,000 7,006,250 --
Lancer Industries, Inc., Class B . 4 -- -- 4 51,286 --
Lancer Industries, Inc.,
Series C Pfd. ................ 205,128 -- -- 205,128 20,512,800 2,051,200
Management Assistance, Inc.,
Liquidating Trust ............ 575,717 -- -- 575,717 134,948 --
Sunbeam Corp. .................... 4,800,554 -- -- 4,800,554 60,186,946 96,883
Van Melle NV ..................... 451,768 5,314 -- 457,082 33,551,963 533,301
------------ ------------
Total Non Controlled Affiliates $153,921,523 $ 3,485,087
============ ============
</TABLE>
* Affiliated issuers, as defined in the Investment Company Act of 1940, are
issuers in which the Fund held 5% or more of the outstanding voting
securities.
** Issuers in which the Fund owns 25% or more of the outstanding voting
securities.
NOTE F -- FOREIGN CURRENCY EXCHANGE CONTRACTS
At June 30, 1996, the Fund had various contracts which obligate the Fund to
deliver currencies at specified future dates. Open contracts were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
Contracts to Deliver In Exchange for Settlement Date Value (Depreciation)
-------------------- --------------- --------------- ----- --------------
<S> <C> <C> <C> <C> <C>
Sales
AUD 78,765,633 $ 62,006,490 11/06/96 $ 61,608,903 $ 397,587
BEF 120,294,576 3,859,306 8/07/96 3,844,367 14,939
CAD 50,177,409 36,639,218 11/29/96 36,907,230 (268,012)
CHF 53,257,532 43,113,035 12/09/96 43,050,444 62,591
DEM 21,180,775 14,424,238 9/18/96 13,957,604 466,634
DKK 181,373,099 31,112,070 7/24/96 30,910,730 201,340
ESP 3,362,327,935 26,693,592 8/16/96 26,184,449 509,143
FIM 91,336,915 19,394,597 9/03/96 19,723,788 (329,191)
FRF 155,633,385 29,984,403 8/28/96 30,268,046 (283,643)
GBP 63,767,739 97,087,413 8/16/96 98,954,013 (1,866,600)
GBP 49,676,243 75,429,674 11/18/96 77,084,613 (1,654,939)
NLG 107,627,210 65,856,296 9/06/96 63,241,376 2,614,920
NLG 67,000,000 39,296,188 9/17/96 39,399,319 (103,131)
NLG 68,086,457 40,169,001 12/10/96 40,275,928 (106,927)
NOK 517,735,512 79,921,130 9/09/96 79,673,362 247,768
SEK 932,702,927 137,645,205 7/19/96 140,271,836 (2,626,631)
SEK 543,515,811 77,292,876 8/15/96 81,724,671 (4,431,795)
SEK 348,438,453 51,187,125 11/15/96 52,392,001 (1,204,876)
------------ -------------- --------------
$931,111,857 $ 939,472,680 $ (8,360,823)
============ ============== ==============
</TABLE>
17
<PAGE>
MUTUAL QUALIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
Contracts to Deliver In Exchange for Settlement Date Value (Depreciation)
-------------------- --------------- --------------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
$ 10,433,230 AUD 13,200,000 11/06/96 $ 10,324,776 $ (108,454)
2,689,562 DEM 4,041,488 9/18/96 2,663,240 (26,322)
23,095,946 ESP 2,975,882,853 8/16/96 23,174,971 79,025
4,932,670 FIM 22,859,163 9/03/96 4,936,331 3,661
61,248,673 NOK 398,000,000 9/09/96 61,247,485 (1,188)
13,733,968 SEK 92,394,063 8/15/96 13,892,649 158,681
1,945,773 SEK 13,077,229 11/15/96 1,966,322 20,549
------------- ------------- -------------
$ 118,079,822 $ 118,205,774 125,952
============= ============= -------------
$ (8,234,871)
=============
</TABLE>
Currency type abbreviations are explained on page 10.
NOTE G -- CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 Year Ended
(unaudited) December 31, 1995
--------------------------- ---------------------------
Shares Amount Shares Amount
------ ------- ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................. 21,040,274 $ 661,044,494 29,376,535 $ 885,069,058
Shares issued in reinvestment of dividends 3,491,329 111,129,572 11,321,587 334,553,126
Shares redeemed .......................... (5,234,458) (165,625,398) (6,936,714) (210,385,676)
---------- --------------- ---------- ---------------
Net Increase ....................... 19,297,145 $ 606,548,668 33,761,408 $ 1,009,236,508
========== =============== ========== ===============
</TABLE>
18
<PAGE>
MUTUAL QUALIFIED FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each period)
<TABLE>
<CAPTION>
(unaudited)
For the six
months ended Year Ended December 31,
June 30, ------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 $19.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income ..... .47 .66 .43 .38 .49 .67 1.22 1.34 .84 .77 .90
Net Gains or Losses on
Securities (realized and
unrealized) ............ 2.28 6.33 1.10 5.12 4.27 3.18 (3.45) 1.91 4.95 .86 2.42
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations ............. 2.75 6.99 1.53 5.50 4.76 3.85 (2.23) 3.25 5.79 1.63 3.32
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income) ..... .05 .65 .43 .37 .49 .67 1.23 1.36 .83 .88 .85
Distributions (from capital
gains) ................. .95 3.27 1.43 2.56 1.02 .37 .38 2.39 1.62 1.44 1.56
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions .... 1.00 3.92 1.86 2.93 1.51 1.04 1.61 3.75 2.45 2.32 2.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period ............ $31.49 $29.74 $26.67 $27.00 $24.43 $21.18 $18.37 $22.21 $22.71 $19.37 $20.06
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return** ............... 9.21% 26.60% 5.73% 22.71% 22.70% 21.13% (10.12)% 14.44% 30.15% 7.72% 17.51%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net Assets, End of
Period (millions) ......... $3,787 $3,002 $1,792 $1,511 $1,251 $1,110 $1,075 $1,470 $1,094 $ 686 $ 561
Ratio of Expenses to
Average Net Assets ........ .72%* .72% .73% .78% .82% .87% .89% .70%+ .62%+ .71% .68%
Ratio of Net Investment Income
to Average Net Assets ..... 4.06%* 2.71% 1.91% 1.65% 2.10% 3.09% 5.40% 5.61%+ 3.96%+ 3.43% 4.55%
Portfolio Turnover Rate ...... 25.84% 75.59% 67.65% 56.22% 47.39% 51.99% 46.12% 73.41% 85.05% 73.50% 123.50%
Average Commission
Per Share*** .............. $ .043 -- -- -- -- -- -- -- -- -- --
</TABLE>
* Annualized.
** Total return includes changes in share price and reinvestment of dividends
and capital gain distributions. The Fund's total return is a historical
measure of past performance and is not intended to indicate future
performance. Investment return and principal value will fluctuate;
therefore the Fund's shares may become worth more or less than their
original cost.
*** Average commission rate is calculated for periods beginning on or after
January 1, 1996.
+ 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 .71% and 5.60% in 1989 and .69% and
3.89% in 1988.
19
<PAGE>
MUTUAL SERIES FUND INC.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
1-800-448-3863 201-912-2100
BOARD OF DIRECTORS
Michael F. Price (Chairman)
Edward I. Altman, Ph.D.
Richard L. Chasse, M.D.
Ann Torre Grant
Peter A. Langerman
Bruce A. MacPherson
Barry F. Schwartz
Vaughn R. Sturtevant, M.D.
Robert E. Wade
OFFICERS
Michael F. Price, President
Peter A. Langerman, Exec. Vice President
Jeffrey A. Altman, Vice President
Robert L. Friedman, Vice President
Raymond Garea, Vice President
Lawrence N. Sondike, Vice President
Edward J. Bradley, Treasurer
Stuart C. Pistol, Assistant Treasurer
Liz Cohernour, Gen. Counsel & Secretary
Lily Simo, Assistant Secretary
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Ma. 02116
COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, N.Y. 10022
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Ma. 02110
TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, De. 19809
