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 Discovery 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 Discovery 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
DISCOVERY
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 DISCOVERY 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 Discovery appreciated 12.9% and is up
13.2% 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 53% of total assets, with the largest areas of concentration in the United
Kingdom, Norway and Sweden. 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 DISCOVERY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
(unaudited)
Number Value
of Shares (Note A)
--------- --------
COMMON STOCK & OTHER EQUITY INTERESTS (80.79%)
Aerospace (0.66%)
* Coltec Industries, Inc............. 233,000 $ 3,320,250
* Tracor, Inc........................ 672,100 11,593,725
-----------
14,913,975
-----------
Banking (6.99%)
Affiliated Community Bancorp, Inc.. 98,500 1,711,438
(A)* American National Bank Corp........ 331,500 3,397,875
(A)(R)* Atlantic Bancorp, Class A.......... 290,406 2,904,060
(A)(R)* Atlantic Bancorp, Class C.......... 17,387 173,870
* BNH Bancshares, Inc................ 280,750 2,070,531
Banco Pastor SA.................... 39,995 2,497,736
(A)(R)* Bank of Rhode Island............... 228,300 2,283,000
Charter Financial, Inc............. 120,000 1,372,500
Chase Manhattan Corp............... 125,720 8,878,975
(A)* Civic BanCorp...................... 385,866 3,183,395
Commonwealth Bancorp, Inc.......... 725,000 7,703,125
Den Norske Bank ASA................ 1,625,000 4,920,458
* Dime Bancorp, Inc.................. 744,133 9,673,729
* Farmers & Mechanics Bank........... 35,219 1,069,777
First Chicago NBD Corp............. 261,800 10,242,925
First Defiance Financial Corp...... 254,000 2,635,250
Fokus Bank ASA..................... 396,500 2,157,409
Great Western Financial Corp....... 78,200 1,867,025
HUBCO, Inc......................... 97,100 2,051,238
* Hinsdale Financial Corp............ 5,000 126,250
Imperial Bancorp................... 95,688 2,296,512
(A) ISB Financial Corp................. 510,000 7,522,500
(A) Lafayette American Bank &
Trust Co......................... 590,224 7,304,022
(A) Little Falls Bancorp............... 290,000 3,008,750
Long Island Bancorp, Inc........... 75,000 2,292,188
Mahaska Investment Co.............. 107,000 1,645,125
* Mechanics Savings Bank............. 23,000 264,500
(A)(R)* Monarch Bancorp.................... 800,000 1,320,000
(A) North Central Bancshares, Inc...... 342,500 3,767,500
* PFF Bancorp, Inc................... 26,397 293,667
(A)* Rancho Santa Fe National Bank...... 347,223 1,736,115
* Riggs National Corp................ 20,000 242,500
Sparbanken Sverige AB, A Shares.... 1,877,600 $ 24,289,779
Sparebanken Nor.................... 965,500 23,595,835
Standard Financial, Inc............ 138,483 2,284,970
Svenska Handelsbanken, A Shares... 141,800 2,954,256
USBANCORP, Inc..................... 47,700 1,520,438
Wayne Bancorp...................... 75,000 849,998
-----------
158,109,221
-----------
Chemical (0.53%)
Cambrex Corp....................... 137,400 7,024,575
Eastman Chemical Co., Inc.......... 80,000 4,870,000
-----------
11,894,575
-----------
Communications (1.17%)
* Associated Group Inc., Class A..... 2,900 87,725
* Associated Group Inc., Class B..... 36,600 1,093,425
* C-TEC Corp......................... 371,600 11,055,100
* Granite Broadcasting Corp.......... 90,000 1,164,375
MCI Communications Corp............ 103,200 2,644,500
* NetCom Systems AB, Class A......... 89,500 982,806
* NetCom Systems AB, Class B......... 543,387 6,130,453
* NYNEX CableComms Group............. 2,000,000 3,228,911
-----------
26,387,295
-----------
Computer & Electronic Equipment (0.58%)
Canadian Marconi Co................ 167,700 1,684,933
(A)* Continental Information
Systems Inc...................... 419,828 813,417
* DuPont Photomasks, Inc............. 160,000 3,280,000
* Linotype-Hell AG................... 41,050 2,019,515
(A)(R)* MWCR, L.L.C........................ 4,867,000 4,867,000
* NBS Technologies Inc............... 173,300 552,862
-----------
13,217,727
-----------
Conglomerates (7.79%)
BTR PLC............................ 1,956,805 7,700,489
Cheung Kong Holdings Ltd........... 4,246,000 30,579,318
Empire Co. Ltd., Class A........... 507,900 4,656,045
* Griffon Corp....................... 26,305 213,728
Harcourt General, Inc.............. 106,900 5,345,000
Incentive AB, A Shares............. 145,900 7,747,330
Incentive AB, B Shares............. 104,200 5,556,560
Investor AB, A Shares.............. 149,750 5,631,563
5
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Number Value
of Shares (Note A)
--------- --------
Investor AB, B Shares.............. 270,900 $ 10,126,456
Kansas City Southern
Industries, Inc.................. 160,300 6,872,863
Kinnevik AB, A Shares.............. 89,500 2,652,231
Kinnevik AB, B Shares.............. 547,487 16,553,580
Lonrho PLC......................... 12,307,683 35,346,042
Pacific Dunlop Ltd................. 9,463,600 21,313,072
RGI NV, Resource Group
International.................... 800,000 7,996,678
Semi-Tech (Global) Ltd............. 5,260,199 8,120,317
-----------
176,411,272
-----------
Construction (0.88%)
CalMat Co.......................... 137,800 2,497,625
(A) Elcor Corp......................... 559,000 10,201,750
Lone Star Industries, Inc.......... 61,326 2,062,087
Martin Marietta Materials Inc...... 209,100 5,070,675
-----------
19,832,137
-----------
Consumer Products & Services (4.51%)
BIC SA............................. 85,300 12,095,887
CarnaudMetalbox Asia Ltd........... 334,000 1,224,548
Cross (A.T.) Co., Class A.......... 192,600 3,418,650
DSM NV............................. 58,000 5,750,132
Dial Corp.......................... 589,800 16,883,025
Jostens, Inc....................... 471,100 9,304,225
RJR Nabisco Holdings Corp.......... 889,300 27,568,300
Sophus Berendsen A/S, A Shares..... 51,350 6,818,809
Sophus Berendsen A/S, B Shares..... 114,776 15,322,681
* U.S. Industries, Inc............... 150,500 3,630,813
-----------
102,017,070
-----------
Entertainment & Media (3.51%)
* BHC Communications, Inc............ 58,600 5,728,150
Comcast Corp., Class A............. 30,000 551,250
Comcast Corp., Class A,
Special Non-Voting............... 123,000 2,275,500
* Metromedia International
Group, Inc....................... 900,000 11,025,000
* New World Communications
Group Inc., Class A.............. 500,000 7,312,500
Shaw Brothers Ltd.................. 4,704,700 5,469,875
* US West, Inc. - Media Group........ 1,261,300 23,018,725
(A) Yorkshire-Tyne Tees TV
Holdings PLC..................... 1,350,000 24,100,407
-----------
79,481,407
-----------
Financial Services (2.99%)
Bear Stearns Companies, Inc........ 226,045 $ 5,340,313
Dean Witter, Discover & Co......... 275,900 15,795,275
Eaton Vance Corp................... 202,600 7,344,250
Finova Group Inc................... 214,800 10,471,500
First USA, Inc..................... 157,000 8,635,000
IMC Mortgage Co.................... 205,000 4,612,500
Liberty Financial Companies, Inc... 62,600 2,120,575
* Southern Pacific Funding Corp...... 141,000 2,467,500
United Companies Financial Corp.... 317,200 10,784,800
-----------
67,571,713
-----------
Food & Beverages (4.78%)
Brown-Forman Corp., Class B........ 183,600 7,344,000
Cadbury Schweppes PLC.............. 285,000 2,251,933
Cultor Oy, Series 1................ 158,400 7,773,731
Farmer Brothers Co................. 61,502 8,487,276
(A) GoodMark Foods, Inc................ 607,200 8,652,600
Heineken Holding NV................ 47,785 9,636,935
Highland Distilleries Co. PLC...... 1,841,000 10,517,060
Morrison Fresh Cooking, Inc........ 172,525 905,756
Morrisson Health Care, Inc......... 236,866 3,316,124
National Foods Limited............. 1,497,780 1,698,377
Nutricia Verenigde Bedrijven NV.... 73,200 7,728,022
Rieber & Son AS, Class B........... 688,200 14,809,099
Seagram Company Ltd................ 139,000 4,673,875
Sizzler International, Inc......... 197,100 646,705
Societe Sucriere de Pithiviers SA.. 11,568 8,190,727
Van Melle NV....................... 157,614 11,569,607
-----------
108,201,827
-----------
Healthcare (6.71%)
(A)* AHI Healthcare Systems, Inc........ 772,900 5,410,300
* Beverly Enterprises, Inc........... 498,500 5,982,000
Ciba Geigy AG, Class B............. 500 605,384
Ciba Geigy AG, Registered.......... 4,700 5,716,849
* Coventry Corp...................... 282,500 4,449,375
* FHP International Corp............. 356,500 9,759,188
* Foundation Health Corp............. 220,000 7,892,500
Getinge Industrier AB, B Shares.... 2,614,803 49,166,698
* Health Systems International, Inc.. 230,000 6,238,750
* Horizon/CMS Healthcare Corp....... 218,000 2,806,750
Instrumentarium Group, Series A.... 293,400 9,662,534
Instrumentarium Group, Series B.... 348,100 11,239,184
* Laboratory Corp. of America........ 399,824 2,998,680
* Laboratory Corp. of America,
Warrants......................... 53,685 26,843
6
<PAGE>
Number Value
of Shares (Note A)
--------- --------
(A)* MDT Corp........................... 401,900 $ 1,821,109
* Mid Atlantic Medical Services, Inc. 624,200 8,894,850
Pharmacia & Upjohn, Inc., ADR...... 64,000 2,840,000
* Physician Corp. of America......... 67,700 897,025
Sandoz AG, Registered.............. 2,500 2,853,440
* Tenet HealthCare Corp.............. 417,300 8,919,788
United HealthCare Corp............. 72,200 3,646,100
-----------
151,827,347
-----------
Industrial (6.59%)
Aker A/S, Series A................. 470,000 8,994,006
Aker A/S, Series B................. 2,701,000 48,158,008
Bucher Holding AG, Bearer.......... 11,413 8,875,514
CGIP-Cie Generale d'Industrie
de Participations................ 50,000 11,483,996
Compagnie Fives-Lille.............. 38,612 4,299,377
Lucas Industries PLC............... 4,735,000 16,648,724
Marine-Wendel SA................... 88,486 7,312,325
(A)(R)* MB Motori, L.L.C................... 9,144,410 9,144,410
* NMM SpA............................ 10,000 186,100
SGS Societe Generale de Surveillance
Holding SA, Class B.............. 5,785 13,819,402
SIG Swiss Industrial Company
Holding Ltd., Bearer............. 3,925 9,266,600
SIG Swiss Industrial Company
Holding Ltd., Registered......... 690 811,765
Shaw Industries Ltd., Class A...... 461,800 6,113,080
Shaw Industries Ltd., Class B...... 2,200 29,042
Skane-Gripen AB, B Shares.......... 20,000 243,690
Westinghouse Electric Corporation.. 200,200 3,753,750
-----------
149,139,789
-----------
Insurance (4.56%)
* 20th Century Industries............ 46,000 764,750
* Alleghany Corp..................... 4,600 883,200
Allmerica Property & Casualty
Companies, Inc................... 421,800 11,388,600
Assurances Generales de France..... 186,100 5,032,462
Financial Security Assurance
Holdings Ltd..................... 188,058 5,148,088
First Colony Corp.................. 239,300 7,418,300
Home Beneficial Corp., Class B..... 388,299 10,192,849
ING Groep NV....................... 162,427 4,835,664
Koelnische Rueckversicherungs AG... 16,757 13,135,202
National Security Group, Inc....... 48,430 623,536
Old Republic International Corp.... 428,850 9,220,275
Provident Companies, Inc........... 333,100 12,324,700
Reliable Life Insurance Company,
Class A.......................... 14,514 1,001,466
Royal Insurance Holdings PLC....... 2,407,000 14,852,720
* UNI Storebrand AS.................. 1,412,000 6,337,289
-----------
103,159,101
-----------
Investment Companies (5.13%)
Asean Fund Ltd..................... 290,800 5,437,960
Alliance Global Environment
Fund, Inc........................ 124,500 1,634,063
* Austria Fund, Inc.................. 349,300 3,187,363
Central European Equity Fund Inc... 364,000 6,506,500
Equus II Inc....................... 36,433 532,833
Forvaltnings AB Ratos, B Shares.... 948,600 23,473,134
G.T. Global Developing Markets
Fund............................. 114,400 1,272,700
Growth Fund Of Spain, Inc.......... 50,000 600,000
J F Asia Select Ltd................ 960,000 1,512,983
JF Indonesia Fund Inc.............. 1,407,000 1,772,155
John Hancock Bank & Thrift
Opportunity Fund................. 428,000 9,951,000
Mercury European Privatisation
Trust PLC........................ 15,170,000 23,078,332
* Mercury European Privatisation
Trust PLC, Warrants.............. 5,925,000 2,759,320
New Age Media Fund, Inc............ 222,800 3,397,700
New Germany Fund Inc............... 932,600 11,774,075
* Regent Kingpin Chile Value Fund.... 260,000 10,432,500
Societe Eurafrance SA.............. 3,015 1,163,889
Thai Prime Fund Ltd................ 382,800 6,737,280
United Corporations Ltd............ 33,147 867,844
-----------
116,091,631
-----------
Metals (0.31%)
* Algoma Steel Inc................... 657,144 2,294,016
* Algoma Steel Inc., Units........... 868,859 4,721,679
-----------
7,015,695
-----------
Natural Resources (7.02%)
Avenor, Inc........................ 500,000 8,103,847
* Aviva Petroleum Inc................ 385,000 191,251
* Aviva Petroleum Inc.,
Depositary Shares................ 203,188 850,850
Dual Invest ASA, B Shares.......... 749,100 2,648,217
* ENSCO International, Inc........... 104,935 3,410,388
ENSERCH Corp....................... 296,500 6,448,875
* Energy Ventures, Inc............... 180,703 5,872,848
7
<PAGE>
Number Value
of Shares (Note A)
--------- --------
(A)* Pacific Forest Products Ltd........ 3,390,100 $ 42,265,923
Penn Virginia Corp................. 168,450 5,895,750
Saga Petroleum A/S, A Shares....... 888,400 13,040,609
Saga Petroleum A/S, B Shares....... 1,265,400 17,115,771
Shell Transport & Trading Co....... 275,000 4,025,661
* Transocean ASA..................... 1,888,190 48,902,552
-----------
158,772,542
-----------
Printing & Publishing (6.85%)
Aamulehti Yhtymae Oy-II............ 420,500 11,313,983
(A) A Pressen AS....................... 512,200 11,021,826
De Telegraaf Holding NV............ 78,000 13,070,714
Dun & Bradstreet Corp.............. 80,300 5,018,750
Euromoney Publications PLC......... 550,450 11,193,913
Houghton Mifflin Co................ 70,000 3,482,500
John Fairfax Holdings Ltd.......... 10,472,889 21,854,255
Knight-Ridder, Inc................. 31,000 2,247,500
Media General, Inc., Class A....... 66,500 2,477,125
Mirror Group PLC................... 4,368,800 13,801,279
Southam Inc........................ 2,138,800 25,253,698
Telegraph PLC...................... 1,938,500 17,032,367
Toronto Sun Publishing Corp........ 458,200 5,376,554
United News & Media PLC............ 1,094,338 11,823,702
-----------
154,968,166
-----------
Real Estate (2.69%)
Alexander Haagen Properties, Inc... 479,800 6,117,450
Crown American Realty Trust........ 925,600 7,173,400
* Fastighets AB Tornet............... 1,104,689 8,973,376
Heba Fastighets AB, B Shares....... 66,200 597,493
* Lodet Fastighets AB................ 216,000 159,211
(A)(R)* MSCW Investors II, L.L.C........... 10,438,000 16,203,544
* Nackebro Fastighets AB............. 316,900 3,908,932
Permian Basin Royalty Trust........ 191,300 645,638
San Juan Basin Royalty Trust....... 482,900 2,957,765
* Trizec Corp. Ltd., Class A Warrants 1,131,530 954,318
(A)(R)* Value Property Trust............... 1,101,955 13,216,628
(A)* Value Property Trust, Warrants..... 6,874 2,576
-----------
60,910,331
-----------
Retail (3.47%)
Coles Myer Ltd..................... 8,975,320 31,945,667
Delchamps, Inc..................... 219,179 5,315,091
Esselte AB, A Shares............... 223,196 4,498,972
* Hills Stores Co.................... 67,393 598,113
* Isosceles PLC, Ordinary............ 643,694 9,993
Lloyds Chemists PLC................ 500,000 3,725,667
Number
of Shares
or Principal Value
Amount (Note A)
------------- --------
Melville Corp...................... 68,500 $ 2,774,250
Sears Canada Inc................... 661,900 3,907,664
Sears PLC.......................... 7,815,500 12,011,154
* Service Merchandise Co., Inc....... 1,405,000 7,903,125
* Thrifty Payless Holdings, Inc.,
Class B.......................... 90,800 1,566,300
Venture Stores, Inc................ 668,400 4,344,600
-----------
78,600,596
-----------
Transportation (3.07%)
Canadian National Railway Co....... 105,500 1,938,563
Florida East Coast Industries, Inc. 119,300 9,901,900
* M. S. Carriers, Inc................ 278,600 5,711,300
(A) MIF Ltd............................ 322,875 3,424,281
(A)* Mols-Linien A/S.................... 170,635 7,030,026
Railtrack Group PLC, Partly-Paid... 1,898,000 6,452,575
Ryder Systems, Inc................. 368,000 10,350,000
(A)* Smithway Motor Xpress Corp......... 350,000 2,975,000
Swift Transportation Co., Inc...... 25,000 475,000
* Transport Corp. of America, Inc.... 320,000 4,040,000
* Varity Corp........................ 22,000 1,058,751
Volvo AB, B Shares................. 710,000 16,127,140
-----------
69,484,536
-----------
TOTAL COMMON STOCK &
OTHER EQUITY INTERESTS............ 1,828,007,953
-------------
PREFERRED STOCK (0.67%)
* Gentra Inc., Pfd. G................ 139,500 1,688,057
* Granite Broadcasting Corp.,
Series A Conv. Pfd............... 135,000 9,026,016
* Hills Stores Co., Pfd.............. 17,136 172,431
* Isosceles PLC, Series A
Preference Shares................ 1,291,300 20,046
RJR Nabisco Holdings Corp.,
Class C Pfd...................... 466,000 3,029,000
* Supermarkets General Holdings
Corp., $3.52 Pfd................. 50,000 1,206,250
-----------
15,141,800
-----------
CORPORATE BONDS AND NOTES (0.95%)
Aamulehti Yhtymae Oy,
6.00%, 11/19/98...............FIM 1,188,000 799,109
American Restaurant Group,
12.00%, 9/15/98.................. $ 6,560,000 5,740,000
* Gentra Inc., Series A,
7.50%, 12/31/01...............CAD 4,296,500 3,560,592
* Gentra Inc., Series B
7.50%, 12/31/01...............CAD 428,152 305,363
8
<PAGE>
Principal Value
Amount (Note A)
--------- --------
Lonrho Finance PLC, 6.00%,
2/27/04 (Conv.)...............GBP 4,000,000 $ 6,310,348
(R) MB Motori, L.L.C.,
Subordinated Note................ $ 1,819,516 1,819,516
(R) MWCR, L.L.C., 15.00%,
Subordinated Note................ 2,855,694 2,855,694
-----------
21,390,622
-----------
BONDS AND NOTES IN REORGANIZATION (2.64%)
* CIS Corp., Bank Claim.............. 1,927,860 578,358
* CIS Corp., Bank Claim, Class 7
Escrow Receipts.................. 2,126,507 142,476
* CIS Corp., Bank Claim, Class 9
Escrow Receipts.................. 13,824,792 124,423
* Confederation Treasury Services
Ltd., Swap....................CAD 11,123,209 4,292,904
* Confederation Treasury Services
Ltd., 9.50%, 6/10/97..........CAD 385,000 159,528
* Confederation Treasury Services
Ltd., 9.50%, 7/30/97..........GBP 4,500,000 3,946,878
* Confederation Treasury Services
Ltd., 10/27/04................... 8,000,000 1,152,000
* Confederation Treasury Services
Ltd., 3/11/04.................... 5,500,000 792,000
* Dow Corning Corp., Bank Debt....... 3,250,000 3,282,500
* Dow Corning Corp., Swap............ 5,833,334 5,308,334
* Dow Corning Corp.,
8.15%, 10/15/29.................. 500,000 495,000
* Dow Corning Corp.,
9.375%, 2/01/08.................. 100,000 102,500
* Dow Corning Corp., Medium Term
Note, 8.55%, 3/01/01............. 2,705,000 2,705,000
* Eurotunnel Finance Limited,
Bank Debt, Tranche A..........GBP 4,000,000 2,297,494
* Eurotunnel Finance Limited,
Bank Debt, Tranche A1.........GBP 1,600,000 918,998
* Eurotunnel Finance Limited,
Bank Debt, Tranche B..........GBP 1,237,536 710,808
* Eurotunnel Finance Limited,
Bank Debt, Tranche B1.........GBP 566,871 325,596
* Eurotunnel Finance Limited,
Bank Debt, Tranche C..........FRF 2,800,000 200,970
Number
of Shares
or Principal Value
Amount (Note A)
------------- --------
* Eurotunnel Finance Limited,
Bank Debt, Tranche E..........FRF 16,000,000 $ 1,148,400
* Eurotunnel Finance Limited,
Bank Debt, Tranche E..........ECU 125,500 57,728
* Eurotunnel Finance Limited,
Bank Debt, Tranche E1.........FRF 7,000,000 502,425
* Heilman Acquisition Corp.,
9.625%, 1/31/04.................. $ 7,800,000 3,393,000
* Homeland Stores, Inc., Floating
Rate, Series D, 2/28/97......... 1,500,000 1,215,000
Isosceles PLC,
0%/7.00%, 7/05/03.............GBP 5,066,811 78,655
Isosceles PLC, Facility A
Term Loan, 1998...............GBP 347,225 490,507
Isosceles PLC, Facility B
Term Loan, 2001...............GBP 1,543,223 2,180,031
Merisel Inc., Bank Debt............ 7,728,000 6,955,200
Merisel Inc., Bank Debt
Swing Line ...................... 280,000 280,000
Merisel Inc., 12.50%, 12/31/04..... 2,260,000 1,593,300
* Somerfield Holding Ltd., Facility A
Term Loan, 2000...............GBP 3,256,134 4,852,508
* Somerfield Holding Ltd., Facility B
Revolving Credit, 1998........GBP 1,446,771 2,156,075
* SouthEast Banking Corp.,
0%, 12/16/96..................... 400,000 200,000
* SouthEast Banking Corp.,
0%, 11/10/97..................... 5,800,000 2,900,000
* SouthEast Banking Corp.,
6.50%, 3/15/99................... 700,000 350,000
* SouthEast Banking Corp.,
10.50%, 4/11/01.................. 7,800,000 3,900,000
-----------
59,788,596
-----------
COMPANIES IN LIQUIDATION (0.14%)
* City Investing Co., Liquidating
Trust............................ 100,000 112,500
* MBO Properties Inc................. 241,144 385,830
* Petrie Stores Liquidating Trust,
Certificates of Beneficial Interest 932,700 2,564,925
-----------
3,063,255
-----------
9
<PAGE>
Principal Value
Amount (Note A)
--------- --------
UNITED STATES GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS (15.93%)
U.S. Government Agency Obligations (0.21%)
Federal National Mortgage Association,
Medium Term Note,
5.760%, 9/03/96................. $ 1,500,000 $ 1,501,073
5.310%, 12/11/96................. 3,300,000 3,296,571
-----------
4,797,644
-----------
U.S. Government Agency Discount Notes (14.67%)
Federal Home Loan Bank System,
4.960%, 7/19/96................. 2,500,000 2,493,800
4.880%, 9/04/96................. 6,500,000 6,437,919
5.200%, 11/04/96................. 5,000,000 4,909,525
5.260%, 11/04/96................. 24,000,000 23,565,720
5.290%, 12/02/96................. 25,000,000 24,447,100
5.190%, 12/06/96................. 19,000,000 18,543,867
5.290%, 1/07/97................. 15,000,000 14,588,340
5.210%, 1/21/97................. 19,800,000 19,216,553
5.260%, 1/21/97................. 13,500,000 13,102,196
5.270%, 2/13/97................. 12,000,000 11,606,532
5.240%, 2/14/97................. 13,000,000 12,571,871
5.380%, 3/03/97................. 7,400,000 2,214,067
5.400%, 3/03/97................. 5,100,000 4,909,454
5.500%, 3/04/97................. 16,900,000 16,299,492
5.490%, 3/12/97................. 22,300,000 21,481,836
Federal National Mortgage Association,
5.290%, 7/01/96................. 4,200,000 4,200,000
5.260%, 7/02/96................. 1,200,000 1,199,825
5.080%, 7/09/96................. 1,600,000 1,598,194
5.190%, 7/15/96................. 5,000,000 4,989,499
5.570%, 7/15/96................. 6,200,000 6,186,979
5.290%, 7/26/96................. 1,100,000 1,095,959
5.240%, 8/05/96................. 2,000,000 1,989,811
5.580%, 8/09/96................. 7,000,000 6,957,685
4.810%, 8/29/96................. 9,500,000 9,425,111
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
5.190%, 9/17/96................. $10,000,000 $ 9,883,870
5.310%, 9/27/96................. 2,500,000 2,467,368
5.180%, 10/09/96................. 6,100,000 6,009,006
5.170%, 10/10/96................. 19,900,000 19,609,679
5.170%, 10/11/96................. 9,500,000 9,360,037
5.310%, 10/21/96................. 7,500,000 7,374,698
5.050%, 10/30/96................. 2,600,000 2,554,820
5.160%, 11/01/96................. 4,000,000 3,929,344
5.210%, 11/05/96................. 10,000,000 9,817,610
5.190%, 11/18/96................. 12,500,000 12,248,675
5.190%, 11/27/96................. 15,000,000 14,664,135
-----------
331,950,577
-----------
U.S. Treasury Bills (1.05%)
5.340%, 8/22/96................. 5,200,000 5,159,891
4.835%, 9/19/96................. 9,000,000 8,898,003
5.285%, 9/19/96................. 3,700,000 3,658,068
5.290%, 9/19/96................. 2,400,000 2,372,801
5.335%, 9/19/96................. 3,800,000 3,756,935
-----------
23,845,698
-----------
TOTAL INVESTMENTS IN
SECURITIES (101.12%)............. $2,287,986,145
==============
SECURITIES SOLD SHORT (0.14%)
* DST Systems Inc. .................. 68,100 $ 2,179,200
* Sonat Offshore Drilling Inc........ 20,500 1,035,250
--------------
$ 3,214,450
==============
* 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.
10
<PAGE>
Currency Type Abbreviations:
Principal amount is stated in United States dollars unless otherwise noted.
ECU -- European currency unit
AUD -- Australian dollar
GBP -- British pound
CAD -- Canadian dollar
DKK -- Danish krone
NLG -- Dutch guilder
FIM -- Finnish markka
FRF -- French franc
DEM -- German Deutsche mark
HKD -- Hong Kong dollar
ITL -- Italian lira
NOK -- Norwegian krone
SGD -- Singapore dollar
ESP -- Spanish peseta
SEK -- Swedish krona
CHF -- Swiss franc
Distribution of investments by country:
As a percentage of total investments in securities
United States........................... 47.1%
United Kingdom.......................... 11.2
Norway.................................. 9.3
Sweden.................................. 8.1
Canada.................................. 5.6
Australia............................... 3.3
France.................................. 2.3
Netherlands............................. 2.3
Hong Kong............................... 2.1
Finland................................. 1.8
Switzerland............................. 1.8
Germany................................. 1.4
Denmark................................. 1.3
Other (individually less than 1%)....... 2.4
-----
Total................................... 100.0%
=====
11
<PAGE>
MUTUAL DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments in Securities, at Value
Unaffiliated Issuers (Cost $1,882,982,961) .............. $ 2,090,234,261
Controlled Affiliated Issuers (Cost $30,907,223) ........ 30,214,954
Non Controlled Affiliated Issuers (Cost $141,184,124) ... 167,536,930 $ 2,287,986,145
--------------
Cash ........................................................................... 4,554,717
Receivables:
Investment Securities Sold ............................................... 28,022,235
Capital Stock Subscribed ................................................. 6,305,588
Dividends ................................................................ 4,062,201
Interest ................................................................. 754,764
Deposits with Brokers for Securities Sold Short ................................ 1,759,976
Other Assets ................................................................... 2,646,476
---------------
TOTAL ASSETS ....................................................... 2,336,092,102
---------------
LIABILITIES
Payables:
Investment Securities Purchased .......................................... 58,416,752
Net Payable for Foreign Currency Exchange Contracts ...................... 9,495,743
Investment Advisory Fee .................................................. 1,409,748
Capital Stock Repurchased ................................................ 981,965
Securities Sold Short, at Value (Proceeds Receivable $3,220,853) ............... 3,214,450
---------------
TOTAL LIABILITIES .................................................. 73,518,658
---------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ............................. $ 2,262,573,444
===============
NUMBER OF SHARES OUTSTANDING
(Authorized -- 300,000,000 Shares, $.001 Par Value) ...................... 134,962,199
===============
NET ASSET VALUE PER SHARE
(Offering and Redemption Price Per Share) ................................ $ 16.76
===============
COMPOSITION OF NET ASSETS
Paid in Capital ................................................................ $ 1,910,946,590
Undistributed Net Investment Income ............................................ 26,530,719
Accumulated Net Realized Gain on Investments and Foreign Currency Transactions . 101,686,364
Net Unrealized Appreciation of Investments and Securities Sold Short ........... 232,918,240
Net Unrealized Depreciation of Foreign Currency Exchange Contracts and Dividends (9,508,469)
---------------
TOTAL NET ASSETS ................................................... $ 2,262,573,444
===============
</TABLE>
See notes to financial statements.
12
<PAGE>
MUTUAL DISCOVERY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends -- Unaffiliated Issuers
(Net of Foreign Withholding-- $2,825,298) ............................. $ 30,784,838
Dividends-- Non Controlled Affiliated Issuers
(Net of Foreign Withholding-- $6,189) ................................. 2,390,812
Interest ................................................................ 8,444,238
Other Income ............................................................ 178,348
-------------
TOTAL INCOME .............................................................. $ 41,798,236
Expenses:
Investment Advisory Fee ................................................. 7,362,954
Shareholder Servicing Costs ............................................. 382,771
Registration and Filing Fees ............................................ 182,312
Custodian Fees .......................................................... 175,898
Administrative .......................................................... 171,001
Shareholder Reports ..................................................... 73,152
Insurance ............................................................... 30,625
Legal Fees .............................................................. 25,812
Auditing Fees ........................................................... 23,963
Directors' Fees and Expenses ............................................ 10,288
Miscellaneous ........................................................... 17,821
-------------
TOTAL EXPENSES ............................................................ 8,456,597
-------------
NET INVESTMENT INCOME ............................................... 33,341,639
-------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Gain on Investments and Foreign Currency Transactions
in Unaffiliated Issuers .............................................. 80,974,109
Net Realized Gain on Investments in Non Controlled Affiliated Issuers.... 26,457,905
Net Realized Loss on Securities Sold Short .............................. (310,673)
Net Realized Gain on Options Written .................................... 15,795
Change in Unrealized Appreciation/(Depreciation) of Investments,
Securities Sold Short and Foreign Currency Transactions .............. 67,198,099
-------------
NET GAIN ON INVESTMENTS ........................................... 174,335,235
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................ $ 207,676,874
=============
</TABLE>
See notes to financial statements.
13
<PAGE>
MUTUAL DISCOVERY 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 ............................................ $ 33,341,639 $ 19,871,738
Net Realized Gain on Investments and Foreign Currency Transactions 107,137,136 84,890,711
Change in Unrealized Appreciation/(Depreciation) of Investments .. 67,198,099 129,809,314
--------------- ---------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS .............................................. 207,676,874 234,571,763
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income ......................................... (2,578,715) (11,920,757)
Net Realized Gain on Investments .............................. (42,548,789) (66,854,127)
--------------- ---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........................... (45,127,504) (78,774,884)
---------------
CAPITAL STOCK TRANSACTIONS .......................................... 729,802,634 489,092,918
--------------- ---------------
NET INCREASE IN NET ASSETS .......................................... 892,352,004 644,889,797
NET ASSETS:
Beginning of Year ................................................. 1,370,221,440 725,331,643
--------------- ---------------
End of Period -- Including Undistributed Net Investment Income
of $26,530,719 and Distributions in Excess of Net Investment
Income of $4,232,205, respectively ............................. $ 2,262,573,444 $ 1,370,221,440
=============== ===============
</TABLE>
See notes to financial statements.
14
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Mutual Discovery 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 Discovery Fund, Mutual Shares
Fund, Mutual Qualified Fund and Mutual Beacon 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 Discovery 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.
15
<PAGE>
MUTUAL DISCOVERY 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
$7,362,954 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
eight-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 $177,164 to
Clearwater.
The Fund has expense offset arrangements with certain of its service
providers. The impact of these arrangements on the Fund's total expenses
reflected in the Statement of Operations, is less than .01% of the Fund's
average daily net assets.
16
<PAGE>
MUTUAL DISCOVERY 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
$1,234,923,009 and $604,926,852 respectively.
For Federal income tax purposes, the identified cost of investments at
June 30, 1996 was $2,055,608,949. Net unrealized appreciation for all securities
at June 30, 1996, based on Federal income tax cost, amounted to $232,377,196
consisting of aggregate gross unrealized appreciation of $288,643,298 and
aggregate gross unrealized depreciation of $56,266,102.
Transactions in options written during the six months ended June 30, 1996
were as follows:
<TABLE>
<CAPTION>
Principal
Amount or
Number of
Contracts Premium
----------- ------------
<S> <C> <C>
Options written ....................................................... 285,000 $ 54,718
Options expired ....................................................... (270,000) (15,795)
Options exercised ..................................................... (15,000) (38,923)
----------- ------------
Options outstanding at June 30, 1996 .................................. -0- -0-
=========== ============
</TABLE>
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
Atlantic Bancorp, Class A .......................................... 6/08/95 $ 2,904,060
Atlantic Bancorp, Class C .......................................... 6/08/95 173,870
Bank of Rhode Island ............................................... 3/21/96 2,283,000
MB Motori, L.L.C ................................................... 12/07/94 9,144,410
MSCW Investors II, L.L.C ........................................... 12/27/95 16,203,544
MWCR, L.L.C ........................................................ 2/21/95 4,867,000
Monarch Bancorp .................................................... 3/29/95 1,320,000
Value Property Trust ............................................... 12/13/93 13,216,628
Corporate Bonds and Notes
MB Motori, L.L.C., Subordinated Note ............................... 5/23/95 1,819,516
MWCR, L.L.C., 15.00%, Subordinated Note ............................ 3/08/95 2,855,694
------------
Total restricted securities: (Cost $51,231,296) (2.42% of Net Assets).. $ 54,787,722
============
</TABLE>
NOTE E -- INVESTMENT IN AFFILIATES*
<TABLE>
<CAPTION>
Balance of Shares Gross Sales Balance of Shares Dividend Income
Held Dec. 31, Gross Purchases and Held Jun. 30, Value 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**
MB Motori, L.L.C........... 9,144,410 -- -- 9,144,410 $ 9,144,410 --
MSCW Investors II, L.L.C... 10,438,000 -- -- 10,438,000 16,203,544 --
MWCR, L.L.C................ 4,167,000 700,000 -- 4,867,000 4,867,000 --
----------- ----------
Total Controlled Affiliates $30,214,954 $ 0
=========== ==========
</TABLE>
17
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Balance of Shares Gross Sales Balance of Shares Dividend Income
Held Dec. 31, Gross Purchases and Held Jun. 30, Value Jun. 30, Jan. 1 - Jun. 30,
Name of Issuer: 1995 and Additions Reductions 1996 1996 1996
- --------------------------- --------------- --------------- ----------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Non Controlled Affiliates
A Pressen AS .................... 0 512,200 -- 512,200 $ 11,021,826 $ 35,073
AHI Healthcare Systems, Inc. .... 0 772,900 -- 772,900 5,410,300 --
American National Bank Corp. .... 291,000 40,500 -- 331,500 3,397,875 --
Atlantic Bancorp, Class A ....... 290,406 -- -- 290,406 2,904,060 --
Atlantic Bancorp, Class C ....... 17,387 -- -- 17,387 173,870 --
Aviva Petroleum Inc. ............ 860,000 -- 475,000 385,000 *** --
Aviva Petroleum Inc.,
Depositary Shares ............. 255,188 -- 52,000 203,188 *** --
BNH Bancshares, Inc. ............ 1,123,000 -- 842,250 280,750 *** --
Bank of Rhode Island ............ 0 228,300 -- 228,300 2,283,000 --
Bell Bancorp .................... 499,300 -- 499,300 0 *** 112,343
Cambrex Corp. ................... 388,400 -- 251,000 137,400 *** 33,715
Civic BanCorp ................... 385,866 -- -- 385,866 3,183,395 --
Continental Information
Systems Inc. .................. 419,828 -- -- 419,828 813,417 --
Elcor Corp. ..................... 669,200 -- 110,200 559,000 10,201,750 73,692
GoodMark Foods, Inc. ............ 580,200 27,000 -- 607,200 8,652,600 47,496
Hamilton Financial Services Corp. 459,300 -- 459,300 0 *** --
ISB Financial Corp. ............. 290,000 220,000 -- 510,000 7,522,500 26,400
Lafayette American
Bank & Trust Co. .............. 573,513 16,711 -- 590,224 7,304,022 86,027
Lafayette American
Bank & Trust Co., Warrants .... 33,422 -- 33,422 0 *** --
Little Falls Bancorp ............ 0 290,000 -- 290,000 3,008,750 7,250
MIF Ltd. ........................ 315,000 7,875 -- 322,875 3,424,281 94,500
MDT Corp. ....................... 274,700 127,200 -- 401,900 1,821,109 --
Mols-Linien A/S ................. 170,635 -- -- 170,635 7,030,026 --
Monarch Bancorp ................. 800,000 -- -- 800,000 1,320,000 --
North Central Bancshares, Inc. .. 0 342,500 -- 342,500 3,767,500 21,406
Pacific Forest Products Ltd. .... 1,202,000 2,188,100 -- 3,390,100 42,265,923 --
Rancho Santa Fe National Bank ... 347,223 -- -- 347,223 1,736,115 --
Smithway Motor Xpress Corp. ..... 0 350,000 -- 350,000 2,975,000 --
TransTechnology Corp. ........... 193,300 -- 193,300 0 *** 16,906
Value Property Trust ............ 1,101,955 -- -- 1,101,955 13,216,628 --
Value Property Trust,
Warrants ...................... 0 6,874 -- 6,874 2,576 --
Yorkshire-Tyne Tees TV
Holdings, PLC ................. 3,300,000 -- 1,950,000 1,350,000 24,100,407 1,836,004
------------ ------------
Total Non Controlled Affiliates $167,536,930 $ 2,390,812
============ ============
</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.
*** As of June 30, 1996 no longer an affiliate.
18
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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
Contracts to Deliver In Exchange for Settlement Date Value Appreciation/(Depreciation)
------------------------ ------------------- ------------------- ---------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Sales
AUD 157,625,478 $ 124,247,129 11/06/96 $ 123,291,496 $ 955,633
CAD 160,130,184 117,020,032 11/29/96 117,781,321 (761,289)
CHF 49,084,902 39,735,208 12/10/96 39,677,521 57,687
DEM 37,779,606 25,965,365 9/18/96 24,895,820 1,069,545
DKK 257,170,625 44,142,881 7/24/96 43,828,615 314,266
ESP 574,174,467 4,581,541 8/16/96 4,471,438 110,103
FIM 172,457,247 36,619,792 9/03/96 37,241,351 (621,559)
FRF 254,413,863 49,103,203 8/28/96 49,479,167 (375,964)
GBP 74,726,420 113,398,742 8/16/96 115,959,562 (2,560,820)
GBP 89,689,183 135,943,894 11/18/96 139,174,293 (3,230,399)
HKD 326,848,034 42,263,870 7/10/96 42,222,690 41,180
ITL 8,705,567,857 5,459,953 9/13/96 5,635,784 (175,831)
NLG 50,778,289 31,105,094 9/06/96 29,837,147 1,267,947
NLG 17,000,000 9,970,674 9/17/96 9,996,842 (26,168)
NLG 17,438,649 10,288,288 12/10/96 10,315,675 (27,387)
NOK 1,411,460,590 218,654,301 9/09/96 217,207,064 1,447,237
SEK 269,636,313 39,823,224 7/19/96 40,551,369 (728,145)
SEK 540,447,118 76,819,646 8/15/96 81,263,254 (4,443,608)
SEK 441,020,375 64,859,173 11/15/96 66,312,831 (1,453,658)
SGD 1,829,307 1,306,648 8/28/96 1,300,055 6,593
-------------- -------------- --------------
$1,191,308,658 $1,200,443,295 $ (9,134,637)
============== ============== --------------
</TABLE>
19
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Deliver In Exchange for Settlement Date Value Appreciation/(Depreciation)
------------------------ ------------------- ------------------- ---------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
$ 49,383,784 AUD 62,590,347 11/06/96 $ 48,956,918 $ (426,866)
4,406,257 CAD 6,000,000 11/29/96 4,413,209 6,952
11,706,996 DEM 17,423,376 9/18/96 11,481,572 (225,424)
15,239,493 DKK 90,115,156 7/24/96 15,357,985 118,492
2,574,742 ESP 323,165,468 8/16/96 2,516,682 (58,060)
5,496,977 ITL 8,705,567,857 9/13/96 5,635,785 138,808
61,693,725 NOK 401,236,152 9/09/96 61,745,490 51,765
637,496 SEK 4,350,908 8/15/96 654,216 16,720
2,212,822 SEK 14,826,386 11/15/96 2,229,329 16,507
------------- ------------- -------------
$ 153,352,292 $ 152,991,186 (361,106)
============= ============= -------------
$ (9,495,743)
=============
</TABLE>
Currency type abbreviations are explained on page 11.
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.................................... 50,193,586 $819,717,327 37,915,220 $564,612,584
Shares issued in reinvestment of dividends..... 2,477,145 42,288,524 4,881,866 72,917,495
Shares redeemed................................ (8,065,478) (132,203,217) (10,251,832) (148,437,161)
---------- ------------ ---------- ------------
Net Increase 44,605,253 $729,802,634 32,545,254 $489,092,918
========== ============ ========== ============
</TABLE>
20
<PAGE>
MUTUAL DISCOVERY 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
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ................ $ 15.16 $ 12.55 $ 13.05 $ 10.00
---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income .......................... .13 .17 .15 .10
Net Gain on Securities (realized and unrealized) 1.82 3.40 .32 3.48
---------- ---------- ---------- ----------
Total from Investment Operations ............. 1.95 3.57 .47 3.58
---------- ---------- ---------- ----------
Less Distributions:
Dividends (from net investment income) ......... .02 .14 .16 .09
Distributions (from capital gains) ............. .33 .82 .81 .44
---------- ---------- ---------- ----------
Total Distributions .......................... .35 .96 .97 .53
---------- ---------- ---------- ----------
Net Asset Value, End of Period .................... $ 16.76 $ 15.16 $ 12.55 $ 13.05
========== ========== ========== ==========
Total Return** .................................... 12.85% 28.63% 3.62% 35.85%
========== ========== ========== ==========
Ratios/Supplemental Data:
Net Assets, End of Period (millions) .............. $ 2,263 $ 1,370 $ 725 $ 548
Ratio of Expenses to Average Net Assets ........... .91%* .99% .99% 1.07%
Ratio of Net Investment Income to
Average Net Assets .............................. 3.59%* 2.00% 1.64% 1.17%
Portfolio Turnover Rate ........................... 38.27% 73.23% 72.70% 90.37%
Average Commission Per Share*** ................... $ .023 -- -- --
</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.
21
<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
